By Yvette Goss, Accountant and Superannuation Specialist.
The Federal Budget was handed down last month and while it only contained a few measures specifically for superannuation, which is a change from previous years, they were quite significant proposals. Other upcoming changes are due to indexation or temporary measures that will cease, so let’s take a look at what will apply from 1 July 2023.
If you are an employer or employee
The Superannuation Guarantee (SG) percentage will have another increase to 11% (up from 10.5%) on 1 July 2023. Employers will need to ensure that their payroll systems are updated to calculate SG using the new rate which will apply to payroll paid from 1 July 2023.
Now that Single Touch Payroll (STP) is in effect, it is essential for employers to make certain that SG contributions for employees are paid at the correct amount and on time. The ATO is using STP and information reported by super funds to identify employers who are not meeting their SG obligations and we have seen instances where they are contacting non-complying employers to instruct them to complete a Super Guarantee Charge Statement and pay fees and interest on the overdue/unpaid amounts.
Don’t forget that SG contributions must be received by the super fund by the SG quarterly due date or 30 June 2023 if you want to make an early payment and claim a tax deduction. Therefore, payments made to a clearing house (for example via Xero Auto Super) must be done by the cut-off date the provider gives you each quarter and for pre-30 June payments. The only exception to this is if you use the ATO Small Business Superannuation Clearing House. Once the ATO have accepted your correct instructions and payment, you have met your SG obligations (if paid by the SG quarterly due dates) and you can claim a tax deduction for the payments when they are made.
In the Federal Budget last month, a proposal was announced that would require employers to pay SG contributions on the same day as their employees’ wages. This is scheduled to start on 1 July 2026. Legislation must first be passed before this takes effect, so we will keep you updated as we get closer to the proposed start date and have more information on how this is going to work.
If you receive a superannuation pension
The Government’s 50% temporary reduction in minimum pension drawdown rates is coming to an end on 30 June 2023. This will see pension drawdown rates revert back on 1 July 2023 to the rates in place pre-COVID. SMSF trustees should be prepared to have sufficient cash available in their super fund for the increased minimum pension amounts that will need to be withdrawn by 30 June 2024.
Now is also a good time to make sure that you have withdrawn your minimum pension amount from your super fund for the 2022-23 financial year before 30 June 2023.
Please get in contact with our office if you wish to confirm your minimum amount and to discuss if you have satisfied the minimum pension withdrawal requirement.
The general transfer balance cap (which is the cap on the amount that you can transfer into a tax-free retirement account (pension phase) is due to be indexed to $1.9 million on 1 July 2023. Not everyone will have a cap of $1.9 million though, as this depends on the amount that you have previously put into pension phase. This means that anyone who has started a pension prior to 1 July 2023 will have their own personal transfer balance cap and this may receive some (not all) of the indexation. If you wish to know what your personal cap is, please contact our office. The ATO will calculate your new personal cap as at 1 July 2023 but they have advised that it won’t be available to view until 11 July 2023.
If you have a total superannuation balance of more than $3 million
In the Federal Budget, the Government announced a proposal for a new tax on individuals (similar to Division 293 tax) who have a total superannuation balance of more than $3 million. It is proposed to start on 1 July 2025 and will be determined on the “earnings” of the superannuation balances each year to 30 June, so the first calculation of the tax is proposed to be done on 30 June 2026.
The Treasury Consultation Paper has outlined the Government’s proposal, but legislation has not yet been drafted and will still have to be passed in Parliament before the new law takes effect.
We will review this as it progresses and be in contact with our clients who will be affected when the legislation is passed and the final details of the tax are determined.
Superannuation contributions if you are under 75 years of age
There are no changes to the contribution caps on 1 July 2023, so these are the amounts that you need to know for the financial years ending 30 June 2023 and 30 June 2024.
The concessional contributions cap is $27,500. Concessional contributions are:
- Superannuation guarantee contributions from your employer
- Salary sacrifice contributions
- Personal contributions that you are claiming a tax deduction for
Don’t forget there is now a law in place that may apply to you, if your total superannuation balance is less than $500,000 on the previous 30 June, which gives you the ability to carry forward your unused concessional contributions cap amounts to be used in future years for up to five financial years. It applies to unused cap amounts from the 2018/19 financial year onwards, so if you think this may apply to you and you would like to know more, please contact our office.
Another important step to remember is if you wish to claim a tax deduction for personal superannuation contributions in your individual tax return, you need to give your superannuation fund a “notice of intent to claim or vary a deduction for personal contributions” form. If you are going to commence a pension with the contribution or are transferring your super to another super fund, you need to give your fund this notice first before that occurs.
Once this is received by your superannuation fund, they will issue you with an acknowledgement of the amount you will be claiming as a tax deduction. We need to see that the acknowledgement has been issued before we can lodge your individual tax return. If you want to claim a tax deduction for the 2022/23 financial year, your superannuation fund must receive the contribution by 30 June 2023.
If you are 67 to 74 years of age and wish to claim a tax deduction for a personal superannuation contribution you must meet the work test (unless you have a total superannuation balance of less than $300,000 and have met the strict conditions for the once-off work test exemption). The work test is:
Be gainfully employed for at least 40 hours in a consecutive 30-day period in the financial year that you make the contribution.
From the 2022-23 financial year, the ATO (not your superannuation fund) will determine if you have met the work test when you lodge your individual tax return and could potentially disallow the deduction if they deem that the work test has not been met. Please contact our office if you have any questions about meeting the work test.
Non-concessional contributions are personal contributions that you are not claiming a tax deduction for. The non-concessional contributions cap is $110,000 or $330,000 over 3 years (bring-forward arrangement if eligible) and to be eligible to make a non-concessional contribution currently you need to have a total superannuation balance of less than $1.7 million on 30 June 2022. Those aged 67-74 years of age no longer need to meet the work test to make non-concessional contributions.
The amount you can contribute under the bring-forward arrangement is determined by your total superannuation balance (TSB) on 30 June of the previous financial year. Those with a TSB of less than $1.48 million on 30 June 2022 can access the full $330,000 cap over three years, with access reduced for balances from $1.48 million to less than $1.7 million.
The total superannuation balance limit that determines if you can make a non-concessional contribution is due to be indexed on 1 July 2023 from $1.7 million to $1.9 million. So currently, if your total superannuation balance is $1.7 million or more on 30 June 2022, your non-concessional cap is nil and you cannot make any non-concessional contributions in the financial year ending 30 June 2023. With the indexation to $1.9 million coming into effect on 1 July 2023, this may change your eligibility to make a non concessional contribution in the 2023-24 financial year where previously you were unable to make them. Please contact our office if you would like to know more.
If you are aged 55 or over and selling your home
The eligibility age to make a Downsizer Contribution has been reduced to 55 years or older (down from 60) from 1 January 2023.
A Downsizer Contribution allows up to $300,000 per person ($600,000 per couple) from the proceeds of the sale of your home to be contributed to super and not be counted towards your non-concessional contributions cap.
To be eligible, in addition to the age requirement, the home must be in Australia and have been owned for at least 10 years, was your main residence for at least part of the time it was owned and the contribution needs to be made within 90 days of receiving the sale proceeds. There is a form that needs to be completed and given to your super fund before or at the time of the making the contribution.
You can only do a Downsizer Contribution once and you can do one no matter how much you have in super or if you are 75 years or older as there is no maximum age limit. You don’t even need to be actually “downsizing” as such, just selling your home. If you would like more information about the Downsizer Contribution, please contact our office. We recommend that you speak to your financial advisor if you are considering making one.
The information provided is general in nature and you we recommend you speak to your financial advisor if you are considering contributing to superannuation.
This information is current at the time of publication and further updates may have occurred since that date. Please contact us for the latest information.