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Self Managed Super Funds (SMSF)

The 2022-23 Federal Budget – targeted at increases in the cost of living

By Graeme Colley
Executive Manager, SMSF Technical and Private Wealth - SuperConcepts Sydney, Australia

The Federal Budget concentrated mainly on the short term by targeting tax concessions and payments to subsidise low to middle income earners impacted by increases in the cost of living.

Breathe a sigh of relief that there were no surprises when it came to super. There were just two measures which had a direct impact and each of them had been released previously, one only in the last few days.

Continuation of the 50 per cent reduction in minimum pension drawdown rates

The government recently announced the extension of the 50 per cent reduction in the minimum pension drawdown rates for account-based income streams and market linked income streams. These were put in place at the beginning of the pandemic in March 2020 and now remain in place until 30 June 2023.

Extension of the First Home Super Saver Scheme

The other change recently legislated was the increase in the amount that can be released under the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000 and will apply from 1 July 2022. In this year’s budget announcement the FHSSS was linked to the government encouraging access to housing which included expansion of the Home Guarantee Scheme to more than double the number of places currently available.

Personal tax offsets and payments

The tax concessions and payments announced in the budget are directed at those impacted by the cost of living increases. There’s a once-off $420 cost of living non-refundable tax offset for low to middle income earners with an adjusted taxable income of less than $126,000. Also, a once off $250 cost of living payment will be made for eligible Australian pensioners and concession card holders and a reduction in fuel excise of 22.1 cents per litre will apply until 28 September this year.

Other changes are now law

The small number of super announcements in this year’s budget come off the back of last year’s proposed changes which included the abolition of the work test for non-concessional contributions between ages 67 and 75 and a reduction in the age to qualify for the downsizer contribution to age 60. Both of these announcements were recently made law and apply from 1 July 2022.

Abolition of the work test for contributions from 1 July 2022

The abolition of the work test from 1 July 2022 provides greater flexibility for anyone wishing to make non-concessional contributions for themselves or their spouse between 67 and 75 years old. The main benefit is for those who have retired and wish to contribute non-deductible amounts from personal savings or windfall gains such as an inheritance. It may also allow a couple to rebalance their superannuation and allow an increase to their retirement savings.

The change also means that from 1 July 2022 a person making non-concessional contributions will also be able to access the bring forward rule, which allows them to bring forward up to two years of future standard non-concessional contributions. The amount that can be brought forward depends on the person’s total superannuation balance on 30 June in the previous financial year.

The work test, which is 40 hours in 30 consecutive days in a financial year, continues to apply for anyone wishing to claim a tax deduction for personal concessional contributions.

Example 1

Sharmi is 70 years old and has been retired for many years, she wishes to contribute $110,000 to her SMSF. From 1 July 2022 Sharmi’s SMSF can accept the non-concessional contribution and there is no need for her to meet the work test during the financial year.

Example 2

Veronica wishes to make non-concessional contributions of $110,000 on 1 August 2022 for her spouse Joel who is age 73 who has not worked for many years.

Example 3

Lexy and Barry are both 72 years old and wish to balance up their super. Lexy has an accumulation balance of $1.7 million and Barry has an accumulation balance of $1 million. If Lexy withdraws up to $330,000 from her accumulation balance, she can make a spouse contribution for Barry who will be able to access the bring forward rule. Over time, if Lexy continues to draw an amount from her accumulation balance and make a spouse contribution for Barry it may result in equalising their superannuation balances. Also, depending on whether Lexy or Barry make the non-concessional contributions to the fund they may qualify for the low income earning spouse tax offset or the co-contribution.

Reduction in age to qualify for the downsizer contribution

The downsizer contribution allows a one-off, post-tax contribution to super of up to $300,000 for each member of a couple after selling their main residence, that at least one of them has owned for a minimum of 10 years. Downsizer contributions are not counted against the person’s non-concessional contribution cap and are not subject to any maximum age limits.

Until 1 July 2022 the legislation requires a person to be at least 65 years old to qualify for the downsizer contribution. However, the earliest qualifying age for the downsizer contribution has been reduced from 1 July 2022 to 60 years old.

The issues that arise out of the reduced qualifying age for the downsizer contribution are:

  • greater flexibility in funding for retirement for an individual or a couple who sell their home from age 60 and increase their superannuation balance;
  • allowing anyone to use the downsizer contribution where they have a Total Super Balance greater than the threshold, or have maximised their non-concessional contributions, and wish to increase their super balance;
  • access to a full or partial age pension may be compromised as the downsizer contribution will increase the person’s super balance, which may reduce the amount of pension payable due to the impact of the means test limits;
  • anyone who has fully used their pension Transfer Balance Cap may not be able to transfer downsizer contributions into retirement phase.

Looking forward to 1 July 2022

While this year’s budget extended the 50 per cent reduction in the minimum account based and market linked income streams, we can look forward to the benefit of last year’s announcements which commence from 1 July 2022. Those announcements will provide greater flexibility in making non-concessional contributions without the need to satisfy a work test and an earlier age at which to make downsizer contributions.

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Graeme Colley, Executive Manager, SMSF Technical and Private Wealth SuperConcepts
  • Market Watch
  • Self Managed Super Funds (SMSF)
  • Superannuation
  • Tax
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While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) (AMP Capital) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. The information contained in this document are for illustrative purposes only and this document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.
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