27 June 2019
As another financial year is drawing to a close and we begin looking towards 2020, a new financial year brings with it new contribution opportunities for individuals from 1 July 2019. The work test has been ‘simplified’ and for those with low superannuation benefits, provides an opportunity to utilise unused concessional contributions from prior financial years. Both strategies will provide members additional opportunities to boost their retirement savings.
Let’s take a look.
Unused carry forward concessional contributions cap amounts can be made from 1 July 2019
This is not a new contribution, but rather a measure that will allow individuals to boost their retirement savings by using any unused contributions from their concessional contributions cap during a financial year over the next 5 years.
Where members have not used the full amount of their concessional contribution cap in a financial year, the unused portion began accruing from 1 July 2018 and carried forward to be used over the next 5 years (subject to other restrictions) as an additional contribution allowed into the fund. The first unused or ‘catch up’ concessional contributions can be made from 1 July 2019.
To utilise any unused concessional contribution cap amounts from prior years, a member’s total superannuation balance on the 30th June of the previous financial year must be less than $500,000.
Unused concessional contributions will carry forward over a rolling 5-year period and they are used in the order in which they were incurred. Unused amounts carried forward will expire at the end of 5 years and will be lost. It is a use it or lose it opportunity.
If we take a look at Ray, aged 48, his annual concessional contributions cap is $25,000 per annum of which his employer has been contributing the standard 9.5% SG only into the fund. At 30 June 2018 his total superannuation balance $383,000. Is he able to utilise any unused concessional contributions (CC) over the next 5 years to make additional concessional contributions into the fund?
|Total Super Balance (TSB)||$396,500||$417,200||$435,500||$457,300||$479,800|
|Carry forward CC amount||$16,450||$16,450||$16,450||$16,450||Nil|
|Total carry forward cap accrued||$16,450||$32,900||$49,350||$65,800||Nil|
|Unused CC made||Nil||Nil||Nil||Nil||$90,800|
As Ray’s employer is contributing a maximum of $8,550 per year (being Ray’s superannuation guarantee amount of 9.5%) and his total superannuation balance is less than $500,000 at the end of each financial year, from 1 July 2018 he is accruing unused concessional contributions of $16,450 each year to carry forward for 5 years to be able to make additional contributions in the future.
Ray could take advantage of the unused contribution amount each year if he wished (subject to his TSB), or plan to accumulate it to make a large contribution within 5 years where his personal income is expected to be significantly higher (for example, he was expecting a large capital gain), as he would be eligible to claim a tax deduction for personal concessional contributions made to the fund. In the example, Ray has accrued his unused concessional contributions until FY2022/23 where he makes an additional contribution into the fund of $90,800 (comprises carry forward unused concessional contributions of $65,800 and the FY2022/23 concessional contribution of $25,000).
There is a further planning opportunity available to Ray, where he could get an additional $25,000 into the Fund in year 2022/23, by using the reserving strategy. Where a concessional contribution is made in June 2023, it does not need to be allocated to the member for 28 days. It remains in an unallocated contribution reserve until 1 July 2023, and the contribution is attributable towards his FY2023/24 concessional contribution cap. Ray would not be able to make further contributions in this financial year. This would allow Ray to contribute up to $115,800 in 2022/23 without breaching the concessional contributions cap.
This can present a considerable opportunity and planning strategy for a member nearing retirement who wishes to boost their retirement savings.
Simplified work test exemption for members aged 65-74
The work test applies to individuals who are aged between 65 and 74 and wish to make contributions into their superannuation fund. To satisfy the work test they must work for a period of 40 hours in a consecutive 30-day period before the contribution can be made into the fund.
From 1 July 2019, individuals who would ordinarily be required to meet the work test to contribute are eligible for an exemption for one year from being required to meet the work test so they can boost their superannuation benefits. The exemption year applies the year after the member last met the work test.
As with many exemptions, there is eligibility criteria:
- the member is aged between 65 and 74;
- the member satisfied the work test in the previous financial year (prior to the financial year in which the contribution is made);
- the member had a total superannuation balance (TSB) of less than $300,000 at the end of the previous financial year; and
- the member has not made prior contributions under the work test exemption in a previous financial year (i.e. this is a once off exemption).
Similarly to the unused concessional contributions, there is no new contribution cap. The concessional and non-concessional contribution cap limits will apply.
Sandra, age 68, met the work test during the 2018-19 financial year and contributed $100,000 as a non-concessional contribution. Sandra permanently retired from the workforce on 1 June 2019 and does not want to work another day in her life! As her total superannuation balance at 30 June 2019 is $285,000, she is eligible to make a $100,000 non-concessional contribution and a $25,000 concessional contribution into the fund during 2019/20 without meeting the work test (as she satisfied it in 2018/19). Sandra decides to maximise her retirement savings by giving it a boost utilising the work test exemption.
Should Sandra decide to do a little bit of work during 2020/21 to help out her children who run their own business, thereby satisfying the work test, would further allow Sandra to make further contributions into the fund. However, she could not access the work test exemption again in 2021/22 as she has already utilised it (it is a one-off concession) (subject to her TSB on 30 June 2021).
These two measures that will apply for the first time on 1 July 2019 will provide additional planning opportunities for members to plan to boost their retirement savings.
SMSF Advice & Documents Manager
27 June 2019