Super traps and opportunities for the new financial year

You should plan around any key birthdays in fiscal year 2021 to make the most of superannuation contribution windows.

Every new financial year presents superannuation fund members with unforeseen challenges and hidden opportunities. There are three key Super Fund areas:

  1. managing investments
  2. contributing money
  3. withdrawing money


Some Super Fund members seek to maximise contributions, subject to cashflow. From July 1 this year, those aged under 67 can make non-concessional contributions up to $100,000 (if their total balance at June 30 this year is less than $1.6 million). This was previously restricted to those under 65.

If your balance has fallen below $1.6 million at June 30 this year, be mindful of this opportunity. Those aged 67 to 74 can also do this, but only if they meet the work test – 40 hours of gainful employment in 30 consecutive days.

Consider triggering the bring-forward rule to accelerate contributions. Those under 65 (not 67) can contribute up to $300,000 (they must have a balance under $1.4 million and not already have triggered this in the past two years).

For balances between $1.4 million and $1.5 million, you can bring forward up to $200,000; for balances between $1.5 million and $1.6 million, you can’t trigger the bring-forward.

The discrepancy between age 65 and 67 is a quirk. Both rules will probably eventually be “under age 67” in 2020-21, but the government hasn’t yet passed the legislation. Until then, stick to the current rules.

Those under 67 (not 65) can concessionally (pre-tax) contribute up to $25,000 – comprising super guarantee, salary sacrifice or personal deductible contributions. This is not restricted by your super balance. Those aged between 67 and 74 must meet the work test and you must be earning income for deductible contributions for it to make sense.

You can carry forward unused concessional contributions for a rolling five years (starting 2018-19) if your total super balance is less than $500,000.

Couples with unequal super balances can split concessional contributions from the higher-balance member to the lower-balance one. This can be useful for members approaching $1.6 million.


Be wary of traps

Also consider other contribution opportunities in 2020-21. Those aged 65 or over selling a current (or old) home lived in for 10 years can potentially make a $300,000 ($600,000 for a couple) downsizer contribution. You don’t even need to downsize; you can trade up or not buy a new home. This opportunity has no work test requirement or balance limit.

Those selling a small business (with turnover of less than $2 million) can potentially contribute the proceeds to super. Under the retirement exemption it is capped at $500,000; under the 15-year exemption it is capped at $1,565,000 in 2020-21. It is a complex area, so seek advice on the conditions.

When withdrawing money, consider using the 50 per cent minimum pension reduction, which extends into 2020-21. If you need to withdraw more, consider withdrawing from your taxed accumulation account (if you have one) or as a partial lump sum withdrawal (reducing your transfer balance account).

Source – Tim Mackay – Financial Review