Update on recent changes to the contribution rules

2022 was a year that saw several changes being made to the contribution rules impacting popular contribution strategies for clients. As we begin a new year, SMSF members and advisers should recap on the recent changes to ensure they incorporate this into their planning and advice. This article summarises the latest developments in the contributions space.

Downsizer contribution eligibility

The Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 was passed in November 2022. This bill amended s 292-102(1)(a) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) to reduce the age threshold that applies for accessing downsizer contributions from 60 to 55.

These changes apply to downsizer contributions made on or after 1 January 2023. Under the downsizer rules, a member and their spouse can each make up to a maximum of $300,000 in contributions to their superannuation fund ($600,000 for a couple) above their usual concessional and non-concessional contribution caps in the relevant financial year in relation to proceeds from the sale or disposal of their main residence.

First Home Super Saver (FHSS) Scheme

The Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021 (Bill) became law in February 2022.

Under the new law which applies from 1 July 2022, eligible participants in the FHSS Scheme can now release up to $50,000 in eligible superannuation contributions (plus associated earnings) from their superannuation fund to assist them to buy their first home. Broadly, an eligible contribution is a concessional or non-concessional contribution that is not a mandated employer contribution subject to:

• the contribution not being an excess above contribution above the member’s applicable contribution caps; and
• the contribution not exceeding the $15,000 (per financial year) FHSS Scheme limit — this limit continues to apply.

(The prior rules limited FHSS Schemes releases to $30,000 on eligible contributions and this limit applies for requests for determinations made before 1 July 2022.)

Changes to gainful employment testing and age-based restrictions

The Bill also inserted new s 290-165(1A) into the ITAA 1997 which introduces gainful employment conditions (essentially an amended version of the now repealed ‘work test’ criteria of 40 hours in 30 continuous days) for making personal deductible contributions where a member is aged between 67 and 75.

Under these rules a member aged between 67 and 75 can only claim a deductible for a personal super contribution if they satisfy the relevant ‘work test’ conditions, or, if they do not satisfy the work test conditions in the relevant income year, they must satisfy the work test exempt criteria.

Naturally, these conditions are in addition to the usual rules that apply to personal deductible contributions, eg, filing a notice of intent to claim a deduction, etc.

Due to the work test criteria being removed from the prior contribution acceptance rules in the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SISR), SMSF trustees will no longer be required to reject personal contributions made by members under age 75. Thus, a personal super contribution that is intended to be deductible where such a deduction is precluded by the work test criteria will generally count as a non-concessional contribution.

The Bill also amended the bring forward provisions for non-concessional contributions in s 292-85 of the ITAA 1997 to provide that those under 75 can utilise the bring forward mechanism where the usual rules are satisfied, eg, based on their total superannuation balance.

Case law developments impacting the Superannuation Guarantee (SG)

The breadth of the SG provisions in relation to contractors also requires monitoring in view of recent decisions such as Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118 which examined the breadth of s 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth). Further, the High Court in the case of ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 remitted the SG question relating to s 12(3) to the Full Court of the Federal Court for review.

We continue to monitor this case and will issue a further update once the outcome of this decision is finalised. Caution should be taken when advising on these issues so that clients are aware that they should seek further advice that takes into account this case when it is finalised.

Conclusions

Rules regarding contributions to superannuation have continued to be an area of change. Advisers

should take care to ensure they include these new options in their advice and planning for clients. As usual, advisers should ensure any relevant law is in place before relying on it as timing issues can arise with contributions changes.

Where case law may impact advice, such as in the case of Jamsek, advisers should ensure their clients are aware of this and know to seek advice at a later time.

Related articles:

• Recent changes to contributions rules
• Downsizer contributions –– the basics and some key tips and traps
• Work test exemption passes without bring-forward rule complications
• What’s the dividing line between NALI and a contribution?
• Contribution reserving – are you aware of all the risks?
• Excess concessional contributions charge
• Triggering your bring forward non-concessional contributions cap post-1 July 2017

*           *           *

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).

Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.

By Shaun Backhaus ([email protected]), Senior Associate, and William Fettes ([email protected]), Senior Associate, DBA Lawyers

DBA LAWYERS

2 February 2023