Reminder: Super Changes for the 2021 Financial Year
The government’s long-slated “flexibility in superannuation” legislation is finally law. This means from 1 July 2021, individuals aged 65 and 66 can now access the bring-forward arrangement in relation to non-concessional super contributions. The excess contributions charge will also be removed for anyone who exceeds their concessional contributions cap, and individuals who received a COVID-19 super early release amount can now recontribute up to the amount they released without it counting towards their non-concessional cap.
Previously, if you made super contributions above the annual non-concessional contributions cap, you were able to automatically gain access to future year caps if you were under 65 at any time in the financial year. The bring-forward arrangement allows you to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year.
With the passing of the flexibility in super legislation, individuals aged 65 and 66 who were previously unable to access the bring-forward arrangement in relation to non-concessional contributions are now permitted to do so.
For the 2021 income year, the non-concessional contributions cap is $110,000, which means that individuals aged 65 and 66 can access a cap of up to $330,000 under the bring forward arrangement.
From 1 July 2021, the excess contributions charge is also removed. Previously, any individual who exceeded their concessional contributions would have been liable to pay the excess concessional contributions charge as well as the additional tax due when the excess contributions were withdrawn and included in their assessable income. The charge was approximately 3%, and was calculated from the start of the income year in which the excess contributions were made up until the day before the tax was due to be paid.
Individuals who make concessional contributions exceeding their cap on or after 1 July 2021 will no longer be liable to pay the excess concessional contributions charge. They will, however, still be issued with a determination and be taxed at their marginal tax rate on any excess concessional contributions amount, less a 15% tax offset to account for the contributions tax already paid by their super fund.
Recontributions of COVID-19 early released super
With the fast-moving COVID-19 situation last year, many individuals lamenting a lack of financial support from the government early on opted to withdrawal money from their super as a lifeline. Under the COVID-19 early release measures, individuals could apply to have up to $10,000 of their super released during the 2019–2020 financial year and another $10,000 released between 1 July and 31 December 2020. Between 20 April 2020 and 31 December 2020, the ATO received 4.78 million applications for early release, totalling $39.2 billion worth of super.
Not all of the individuals who applied to have their super released ended up needing to use it once the government ramped up its financial support programs (including JobKeeper, JobSeeker and the cash flow boosts). From 1 July 2021, those individuals who received a COVID-19 super early release amount can recontribute to their super up to the amount they released, and those recontributions will not count towards their non-concessional contributions cap. The recontribution amounts must be made between 1 July 2021 and 30 June 2030 and super funds must be notified about the recontribution either before or at the time of making the recontribution.
COVID-19 recontribution amounts are not a new type of contribution; rather, they are a personal contribution that receives a treatment to exclude it from an individual’s non-concessional contribution cap. Individuals can make COVID-19 recontributions to any fund of their choice where the fund rules allow. Each COVID-19 recontribution amount must be detailed on a separate approved form and cannot exceed $20,000 per approved form.
COVID-19 recontribution amounts will need to be reported by super funds to the ATO via MATS as a personal contribution. The ATO has requested that super funds record and hold the required information until it finalises the functionality to enable funds to use the Bulk Data Exchange facility via the Business Portal. The ATO is working through the process for self managed super funds (SMSFs) and will advise about that in due course.
Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.
