If you’re in your 60s, this year’s federal Budget brings some good news: the Coalition is relaxing some of the contributions rules for your age group, giving you more time and opportunities to put away funds for retirement.
Changes to the work test, “bring-forward” rules and spouse contributions are all on the cards. Find out what these proposals mean for you.
No major reforms to superannuation were announced in this year’s federal Budget. But with an election around the corner, the Coalition has pledged to help Australians aged over 60 save for retirement by extending the age limits for a number of existing contributions measures. These changes are proposed to take effect from 1 July 2020.
Work test pushed out
A returned Coalition government would give retirees an extra two years to make contributions without having to meet the “work test”. Under current rules, anyone aged 65 or over must satisfy this test in order to make voluntary contributions (essentially, any contributions other than compulsory employer contributions or “downsizer” contributions).
The test requires that the person is “gainfully employed” for at least 40 hours in any 30-day consecutive period during the financial year in which the contributions are made. The Coalition now proposes that this test will only apply from age 67 – welcome news for retirees and people with irregular work patterns.
From 1 July 2019, there will be a 12-month exemption from the work test for recent retirees aged between 65 and 74 years with a total superannuation balance below $300,000. This is already legislated. It is not yet known whether the Coalition would scrap the exemption beyond 1 July 2020 or retain it to supplement the new work test age of 67. People in this age group should consult their adviser to stay informed of changes following the upcoming election.
More time to “bring forward” contributions
The Coalition will also give Australians an extra two years to make large contributions into super. The annual cap on non-concessional contributions (NCCs) is $100,000, but individuals aged under 65 at any point in a financial year may “bring forward” up to two additional years’ worth of NCCs (depending on the size of their total superannuation balance) to make a contribution of up to $300,000. The Coalition now wants to extend the scheme to anyone under 67 years, benefitting older Australians who wish to contribute a large amount from, for example, an inheritance, proceeds from the sale of an asset or another source of funds.
Take care as you approach age 67 as some timing traps may arise. This is due to the interaction of the bring-forward rules with the work test (and whether the 12-month exemption from the work test will be retained in future). Sounds complicated? With expert advice it needn’t be, so the key is to carefully plan your contributions in advance with your professional adviser.
Spouse contributions extended
The age limit for receiving spouse contributions (contributions made by your spouse on your behalf directly to your superannuation fund member account) is proposed to increase from 69 to 74.
Making a spouse contribution is a great way to boost your spouse’s super and potentially save tax. If your spouse earns $37,000 or less, you may claim a maximum tax offset of $540 when you make a $3,000 contribution on their behalf during the income year. (The amount of offset reduces for spouse incomes above $37,000, before tapering off at $40,000.) The Budget proposal to extend the age limit for receiving a spouse contribution gives couples an extra five years to take advantage of this tax offset.
Help is at hand
With all the age limits and rules that apply, planning a contributions strategy for your 60s is essential. Talk to us today to start your planning. We’ll help you navigate any rule changes following the upcoming federal election to make sure you maximise the opportunities available to you.