What's new in super and tax this financial year?
The 2019/2020 financial year introduces some new opportunities to allow you to save for your retirement through super. Below we also provide an overview of the ‘protecting your super’ legislation and personal income tax changes.
Claiming a deduction on personal super contributions
Since 1 July 2017, employees as well as the self-employed, can claim a tax deduction on personal super contributions.
If you are aged between 65 and 74 you can make a contribution to super but you need to meet a work test. To pass the work test, you need to have been ‘gainfully employed’1 for at least 40 hours over 30 consecutive days during the financial year in which you plan to make the contribution. That’s a little over one week’s worth of full-time work in a single month.
Also, if you’re aged between 65 and 74 and have a ‘total super balance’2 under $300,000, you can make personal contributions to super in the first financial year in which you no longer meet the work test. This is likely to be the first year following your retirement.
Unfortunately, if you are 75 or over you are not eligible to make a personal contribution to super.
|Generally, the cap on concessional contributions is $25,000 each financial year.|
What if you didn’t contribute last financial year – do you miss out?
For the first time this financial year, if you have a total super balance of under $500,000, you can contribute the unused portion of your concessional contributions cap, or ‘carry-forward’ amount, from last financial year. That is, if you didn’t contribute in the 2018/19 financial year, you may be able to carry forward $25,000 to this financial year and contribute up to $50,000.
Currently, only the unused concessional contribution cap amounts in the 2018/19 financial year can be carried forward. Then, for future financial years, the unused concessional contribution cap amounts can be carried forward, on a rolling basis, for five years.
So, if you’ve accrued a carry-forward concessional contribution amount, you may want to start, or increase your salary sacrifice contributions, or make a personal concessional contribution to super. This can be particularly beneficial for your tax bill if you’ve significantly increased your income, for example, if you’ve sold an asset with a large capital gain.
Protecting Your Super legislation
The ‘Protecting Your Super’ legislation came into effect on 1 July 2019 and is designed to protect people’s super balances. The three main changes are:
Insurance in super – if you have an inactive super account, defined as an account where you have made no contributions in the last 16 months, your insurance will be cancelled unless you take action. You can retain your insurance by contacting your super fund and ‘opting-in’ to retain your insurance or having a contribution made into your account every 16 months.
Low super balances – if your super account balance is under $6,000 there is a cap placed on fees, limiting them to no more than 3% per year. Also, if you have an ‘inactive low balance’ account, the Australian Taxation Office (ATO) is now responsible, where possible, for consolidating this money with your active super account. An inactive low balance account is broadly defined as an account with a balance of under $6,000 where no activity has occurred in the last 16 months. This includes where no contributions have been made to the account in the last 16 months and where there is no active insurance on the account. Other new definitions apply.
Exit fees – when you exit a super fund you will no longer be charged an exit fee.
Personal income tax rates
Australians can continue to enjoy the first round of personal income tax changes that started in July 2018.
From 1 July 2022, the Government will increase the 32.5% tax threshold from $90,000 to $120,000. This means there will be less people in the 37% tax bracket and more in the 32.5% tax bracket. On 1 July 2024, the 37% tax bracket will eventually disappear and the 32.5% tax bracket will reduce to 30%. It’s estimated that 94% of personal taxpayers will have a marginal tax rate of 30% or less in the 2024/25 financial year.
In addition to the changes to income tax, the Government has introduced a temporary tax offset called the low and middle income tax offset (LMITO), of up to a maximum of $1,080 per person and phases out for those earning over $126,000 per annum.
This is in addition to the low income tax offset (LITO) for those earning under $66,666 per annum.
The LMITO offsets will end after the 2021/22 financial year. However, from 1 July 2022, the Government will increase the (LITO), from $445 to $700 to continue to support low income earners.
You don’t need to do anything to receive the tax offsets, the ATO will assess your eligibility when you complete your personal tax return.
Future changes to tax rates and thresholds
|Tax rate||Current threshold||Threshold from 1 July 2022||Threshold from 1 July 2024|
|Nil||0 - $18,200||0 - $18,200||0 - $18,200|
|19%||$18,201 - $37,000||$18,201 - $45,000||$18,201 - $45,000|
(current and from 1 July 2022) 30% from 1 July 2024
|$37,001 - $90,000||$45,001 - $120,000||$45,001 - $200,000|
|37%||$90,001 - $180,000||$120,001 - $180,000||-|
If you have any questions on how to make the most of your super and optimise your tax position, please contact us and we can help.
1 The ATO defines gainful employment as employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.
2 Your ‘total super balance’ is measured on 30 June of the previous financial year and is calculated by adding several items together including both accumulation and pension interests of your super.