Update: ‘Enhancing Super Outcomes For Australians’ legislation

Treasurer Frydenberg delivered the 2021-22 Budget on 11 May 2021. Notably, within the Budget papers were key proposed super measures, relevant to wealth accumulators and retirees alike.Of these measures, several encompassed changes to the Super Guarantee, the First Home Super Saver Scheme, the Downsizing measure, and the work test for super contributions.

These measures were recently introduced into parliament on 27 October 2021—within the Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians And Helping Australian Businesses Invest) Bill 2021—and are now making their way through the legislative process.

Below is an overview of these measures, due to start from 1 July 2022, if legislated (without changes).

Super Guarantee: $450-a-month threshold

When it comes to super contributions, most employees receive employer Super Guarantee contributions, which is currently set at 10% of their ordinary time earnings base—up to the maximum super contributions base.

As it stands, the reasons some employees don’t receive employer Super Guarantee contributions can include:

• An employee is under the minimum age, which is 18 years (unless working more than 30 hours per week).
• An employee earns less than the minimum salary or wage, which is $450 per calendar month.

The last point impacts an estimated 300,000 people (3% of employees), mainly young, lower-income, part-time workers—of which, around 63% are female.

Notably, if the above Bill passes, the $450-a-month threshold will be removed, applying from 1 July 2022.

First Home Super Saver Scheme: Maximum withdrawal amount

One of the biggest hurdles for first homebuyers is saving an adequate home deposit, especially when trying to avoid Lenders Mortgage Insurance or a loan guarantor arrangement.

In a nutshell, saving an adequate deposit can often take considerable time and effort, particularly when considering key factors such as current housing prices, wage growth and living costs.

Since 1 July 2018, eligible prospective first homebuyers have been allowed to withdraw their voluntary super contributions, and an amount of associated earnings, to assist with the purchase or construction of a first home.

As it stands, the maximum amount eligible to be withdrawn is $15,000 of voluntary super contributions per financial year made since 1 July 2017 (up to a total of $30,000 across all years), plus associated earnings.

Please note: The amount that can be withdrawn is 100% of eligible non-concessional contributions, 85% of eligible concessional contributions, plus 85% of associated earnings.

Notably, if the above Bill passes, the $30,000 total will be increased to $50,000, applying on withdrawal determination requests made to the ATO Commissioner on or after 1 July 2022.

With the above in mind, something to consider, couples that both meet the relevant eligibility requirements would have the opportunity to withdraw up to $100,000 of contributions, plus associated earnings.

Downsizing measure: Contribution eligibility age

In retirement, some retirees may find that their home no longer meets their needs. They may want something smaller or more aligned with their lifestyle. In addition, they may want to boost their retirement income by tax-effectively investing a portion of the sale proceeds from their home.

Since 1 July 2018, individuals aged 65 or over, subject to meeting other eligibility criteria, have been able to use the proceeds from the sale of their home to make a non-tax-deductible downsizer contribution of up to $300,000 each (up to $600,000 per couple) into super.

Notably, if the above Bill passes, the eligibility age to make a downsizer contribution will be lowered from 65 to 60 years of age, applying from 1 July 2022.

Please note: In conjunction with the Bill, changes to regulations regarding contribution acceptance rules are required—enabling a downsizer contribution made by those aged 60 and above to be accepted by a super fund.

Work test: Non-concessional and salary sacrifice contributions

It takes a number of things to accumulate wealth in super, contributions being one of them, however, this isn’t without its limits. Aside from the various limits on the amounts that can be contributed, age and work test conditions also exist.

*Member age from which contribution can’t be accepted.

^Must be received within 28 days of end of month in which member reaches age 75.

#Work test must be met prior to contribution being made. Must have worked at least 40 hours over a consecutive 30 day period in financial year of contribution to meet work test, unless work test exemption applies. Please note: If member is aged 67 to 74, a work test exemption applies for 12 months from the end of the financial year in which they last met the work test, provided their total superannuation balance was less than $300,000 at the prior 30 June, and they have not previously used this exemption.

Notably, if the above Bill passes, individuals aged 67 to 74 years (inclusive) will be able to make or receive non-concessional or salary sacrifice contributions without meeting the work test, subject to existing contributions caps. Further, the bring-forward arrangements allowing individuals to contribute up to $330,000 of non-concessional contributions in a financial year would also be extended to those aged 67 to 74. These changes would apply from 1 July 2022. Please note: Individuals aged 67 to 74 years would still have to meet the work test to make personal deductible contributions.

Moving forward

A key part of accumulating wealth in super is understanding the present rules governing the super environment—and appropriately leveraging them according to your financial situation, goals and objectives.

It’s important to remember that change is constant, especially in the super environment (as seen above), therefore, keeping abreast of future changes (rules) and their relevance to you is also key.

If you have any queries about this article, please contact us.