Articles

Oct 14

Are you Super aware?

Posted by Peter Marmara-Stewart at Monday, October 14, 2019

It seems that the beginning of every financial year brings changes to superannuation, and 2019 is no different.

If you didn’t get a chance to read the fine print of the legislative changes that came into effect from 1 July 2019, here’s a summary of the big three.


Concessional contribution cap carry-forward

According to the Income Tax Assessment Act 1997 (Cth)1, concessional contributions include:

•   employer contributions (including contributions made under a salary sacrifice arrangement); and
•   personal contributions claimed as a tax deduction.

The maximum amount of concessional contributions that can be made in a financial year is currently $25,000. This is referred to as the concessional contribution cap.

However, what happens if the cap isn’t fully used?

In the past, any unused portion of the concessional contribution cap was lost. But that changed from 1 July 2019.

Now, unused portions of concessional contribution caps can be carried forward for up to five years for people who have a ‘total superannuation balance’ of less than $500,000 that accrues from the 2018 -19 financial year, for a period of up to five years.

Incidentally, the normal age restrictions applying to superannuation contributions continue to apply. That is, anyone under the age of 65 can make contribution to super and those aged 65 to 74 can contribute provided they meet a work test or are exempt from the work test.2 

Concessional cap carry-forward in action

For example, if James had concessional contribution of $15,000 made in the 2018-19 financial year, he has an unused cap of $10,000 – i.e. $25,000 less $15,000. His concessional contribution cap for 2019-20 is $25,000; however, James may also be able to bring forward the unused cap of $10,000 from 2018-19, meaning he can make concessional contributions of up to $35,000 in 2019-20.

Work test exemption

Under superannuation law, a person aged 65 to 74 is generally able to make voluntary contributions to super provided they meet a work test.3

Previously, this work test requires they be gainfully employed or self-employed for a minimum period of 40 hours, within a 30 consecutive day period in the financial year in which they intend to contribute.

However, from 1 July 2019 a person aged 65 to 74 can make contributions to super without having to meet the work test in the year of their contribution, provided they met the work test in the previous financial year. This is a once-only opportunity – that is, it can only be accessed once in person’s lifetime.

And, it is restricted to those people whose total superannuation balance at the end of the previous financial year was less than $300,000.

This work test exemption should not be confused with the 2019 budget announcement where the Federal Government confirmed plans to increase the age you are required to apply the work test from 65 to 67. This would mean that anyone aged 65 or 66 would not need to meet the work test to make voluntary super contributions. It is designed to align the ability to make voluntary super contributions with the increasing eligibility age for the age pension.

However, this announced change was not legislated before the election was called and will now have to be re-introduced to the Parliament. We expect to see this happen in the coming months, with the change not intended to commence until 1 July 2020.

Work test in 2019

Janette is 67 and retired from full-time work on 1 February 2019. Her total superannuation balance as at 30 June 2019 was $280,000. As she had met the work test in 201819, Janette is able to make superannuation contributions in 2019-20 without having to meet a further work test.

Protecting your Super

The Federal Government introduced the “Protecting your Super” reforms which came into effect on 1 July 2019. These reforms have resulted in some people having insurance they hold through their super account being cancelled, as well as introduced changes to fees and new powers for the Australian Taxation Office (ATO) to transfer and hold inactive, low balance accounts.

In relation to the cancellation of insurance, this will occur where a person has an inactive super account and they have not opted in to maintain their insurance. Consequentially, many people run the risk of inadvertently losing valuable insurance protection.
An inactive super account is one that has not received a contribution or rollover in the previous 16 months.

This is an ongoing test. Even though an account may be active now, if no contributions or rollovers are made within a 16-month period, the account may become inactive at a future date.

To ensure that valuable insurance cover is not lost, a person can either:

1.   make a contribution or arrange for other super to be rolled into their account at least once every 16 months, or
2.   make an election with their super fund not to cancel the insurance cover irrespective of whether contributions or rollovers are made.

Importantly, the potential loss of insurance is not limited to people with small superannuation account balances. It also applies to all accounts, large or small.

You should speak to an authorised financial planner to review your superannuation account and any insurance policies you hold to ensure your retirement goals and savings objectives remain on track.

1 Income Tax Assessment Act 1997 (Cth) ss291-75.
Superannuation Industry (Supervision) Regulations 1994, reg.7.04(1) and (1A)
3 Superannuation Industry (Supervision) Regulations 1994, reg.7.04(1)