With effect from 1 July 2021, changes to the transfer balance cap and contribution caps provide opportunities to accumulate more retirement savings than in prior years.
These changes will be welcomed for many clients who wish to make additional super contributions and for those who have not commenced retirement phase pensions. Those who have moved their super into retirement phase will also benefit from these increases.
Concessional contributions caps
The concessional contributions cap, indexed to average weekly ordinary time earnings (AWOTE) in $2,500 increments, increased from $25,000 per annum to $27,500 pa from 1 July 2021.
The concessional contributions cap of persons whose total superannuation balance last 30 June is less than $500,000, is the annual concessional contributions cap plus any unused concessional contributions cap since the 2018/19 financial year.
This means the maximum concessional contributions cap available to those who have not made any concessional contributions since FY2018/19 is $102,500, calculated as:
- $25,000 FY2018-19 +
- $25,000 FY2019-20 +
- $25,000 FY2020-21 +
- $27,500 in FY2021-22
Clients who had a total superannuation balance of less than $500,000 at 30 June 2021 and who expect a spike in income or plan to realise large capital gains on the sale of their assets, may consider whether the income or sale could be realised next financial year if they have any carried forward unused concessional contributions caps and the work test is not an issue next financial year.
Non-concessional contribution caps
The non-concessional contributions cap is four times the concessional contributions cap and therefore will increase from $100,000 pa to $110,000 per annum (calculated as $27,500 x 4). This means eligible clients can really take this opportunity to bolster more after-tax contributions to superannuation.
The indexation of the general transfer balance cap also allows more persons to make non-concessional contributions. This is because the total superannuation balance threshold at which the non-concessional contributions cap is nil for the financial year is equal to the general transfer balance cap. Therefore, the total superannuation balance threshold will increase to $1.7 million.
Transfer balance cap
From 1 July 2021, an increase to the super transfer balance cap was implemented, raising the lifetime limit on the total amount of super to start retirement phase pensions. The transfer balance cap, which is indexed to the consumer price index in $100,000 increments, increased from $1.6 million to $1.7 million.
It is worth noting that not everyone will have the same transfer balance cap. Your personal transfer balance cap may be anywhere from $1.6 million to $1.7 million, depending on whether you have commenced any retirement phase pensions and how much. If a person has used 100% of their transfer balance cap in years prior to 1 July 2021, their transfer balance cap will remain at $1.6 million. If a person starts their retirement phase income stream for the first time on or after 1 July 2021, they will have a personal transfer balance cap of $1.7 million. If they have started retirement phase pensions totalling less than $1.6 million before that date, their transfer balance cap will be determined by factoring indexation on the unused portion of their cap.
Calculating transfer balance caps and identifying total super balance thresholds can be complex.
If you’d like more information, please don’t hesitate to give you adviser a call via 08 8271 5144, or contact us to set up a meeting if you are a new client.
Source: IOOF Ltd – 31st March 2021
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