With less than three weeks until we see out yet another financial year, here are some tips and traps to look out for, to ensure your superannuation and Self Managed Superannuation Fund (SMSF) is under control running up to 30 June 2021 and from 1 July 2021.
Superannuation Guarantee Contribution (SGC) increase effective from 1 July 2021 – 10%
From 1 July 2021 the SGC rate will be 10% (increase from 9.5%). You should start planning how this SGC increase will be implemented and communicated to the employees, especially for employees that are currently on superannuation-inclusive salary packages.
Please find below the implications of this increase on the different remuneration scenarios that could apply to your business.
1.Employees on Superannuation-inclusive salary packages
Where an employee is remunerated through a superannuation-inclusive package, in the absence of a remuneration review, their take-home cash payments will likely reduce from 1 July 2021. As such, we recommend employers consider communicating the potential decrease with their employees as early as possible to avoid any queries or complaints arising.
Alternatively, if you are conducting an annual salary review or considering implementing a pay increase to ensure consistency in the take-home cash payments, this will need to be appropriately structured, budgeted and communicated.
2.Employees on Award rates
A person on minimum or award wage cannot be paid less than the minimum so the increase to 10% must be an increase in their superannuation contribution and therefore the cost of employment.
3.Employees –paid above minimum or above Award rates
A person who is paid above the minimum or award wage could, subject to your employment agreement or industrial conditions, have their rates reduced so that their total remuneration including the increased superannuation amount does not change. Accordingly their gross wage and net wage could reduce by the full increase in super or in part. Note any change to rates cannot result in the employee being paid less than the minimum or award rate.
4.Employees – Salary Sacrifice
You may not use salary sacrificed super to meet your SG obligations.
Please note this SGC increase will also be increasing your other employment costs where applicable – Workers compensation and Payroll tax obligations.
Yearly Increase in SGC rate.
The minimum SGC rate is currently legislated to gradually rise from 9.5% to 12% per cent over the next five years (see table below).
|Year starting 1 July 2021||10%|
|Year starting 1 July 2022||10.5%|
|Year starting 1 July 2023||11%|
|Year starting 1 July 2024||11.5%|
|Year starting on or after 1 July 2025||12%|
Minimum pension requirements
In March 2020, the Government temporarily reduced the annual minimum drawdown requirements by 50% on common pensions, such as account-based pensions and market-linked pensions, for 2019-20 and 2020-21, to help manage the economic impact of COVID-19. Whilst this relief was expected to end on 30 June 2021, the Government has just announced they will extend this for another year to 30 June 2022.
So, for account-based pensions in the 2020/21 and now 2021/22 financial years, the minimum drawdowns are:
|Age||Percentage of account balance at 1 July|
|65 – 74||2.5%|
|75 – 79||3%|
|80 – 84||3.5%|
|85 – 89||4.5%|
|90 – 94||5.5%|
|95 or more||7%|
There is no halving of the maximum pension percentage applicable to Transition to Retirement Income Streams or Market Linked Pensions.
A reminder that pension payments must be taken in cash (ie. cannot be made in-specie) and need to have been withdrawn by 30 June. If the minimum pension requirement is not met, SMSFs will be subject to 15% tax on pension investments instead of being tax free.
Where you have been receiving regular pension payments, it’s likely you may have received more than the required minimum payment for this year. Unless you meet contribution eligibility rules, these funds cannot be returned.
Contribution caps for 2020/21 and 2021/22
Before 30 June 2021, you should review your contribution strategies to ensure you have contributed what you intended to and ensure you are below the contribution caps, whilst being mindful of the upcoming changes to the caps from 1 July 2021.
|All ages||Year ending 30 June 2021||From 1 July 2021|
Carry forward concessional contribution caps
Individuals can make additional concessional contributions by utilising their unused concessional contributions caps on a 5-year rolling basis, as long as their Total Super Balance was less than $500,000 on the 30 June just before the start of that financial year.
Non concessional contributions – bring forward arrangements
Members aged under age 65* on 1 July may ‘bring forward’ two years of non-concessional contributions subject to their Total Super Balance the preceding 30 June.
|Total Super Balance as at 30 June 2020||Non-concessional contribution & bring forward available starting 1 July 2020|
|Less than $1.3 million||3 years ($300,000)|
|Greater than or equal to $1.3 and less than $1.4 million||3 years ($300,000)|
|Greater than or equal to $1.4 and less than $1.5 million||2 years ($200,000)|
|Greater than or equal to $1.5 and less than $1.6 million||1 year ($100,000)|
|Greater than or equal to $1.6 million||Nil|
Members that trigger the bring forward arrangement before 1 July 2021 will not have access to any additional cap space as a result of the increase in non-concessional cap.
|Total Super Balance as at 30 June 2021||Non-concessional contribution & bring forward available starting 1 July 2022|
|Less than $1.48 million||3 years ($330,000)|
|Greater than or equal to $1.48 and less than $1.59 million||2 years ($220,000)|
|Greater than or equal to $1.59 and less than $1.7 million||1 year ($110,000)|
|Greater than or equal to $1.7 million||Nil|
*SMSF trustees should be aware of the legislation that is slated to pass which is expected to allow individuals aged between 65 and 66 to make non-concessional contributions (currently restricted to those below 65) without meeting a work test. These older individuals will also be able to make up to three years of non-concessional superannuation contributions under the bring forward rule.
Transfer balance cap and commencement of retirement phase income streams
Since 1 July 2017 there has been a cap of $1.6m that an individual can transfer into pension phase and any excess amount maintained in an accumulation account (where earnings are taxed at 15%). It applies to retirement phase income streams like Account Based Pensions and death benefit pensions (ie. upon the death of a spouse) and does not apply to Transition to Retirement Pensions unless they are a Retirement Phase Transition to Retirement Pension.
From 1 July 2021, this Transfer Balance Cap will increase to $1.7m. Individuals who have never had a retirement phase pension or received a death benefit pension prior to 1 July 2021, then their cap will be $1.7m. For those with a Transfer Balance Account prior to 1 July 2021, they will have a personal Transfer Balance Cap of between $1.6 – $1.7 million (a pro-rated amount of the increment), based on their highest balance in their Transfer Balance Account.
With a roller coaster real estate market over the past 12 months, SMSFs which hold property including those with a limited recourse borrowing arrangement (LRBA), the market values of these properties need to be based on objective and supportable data in preparation for the annual audit. Many SMSF commercial properties (and, to a lesser extent, residential property) may not have received full rental payments due to the pandemic thereby decreasing their values; in contrast, those properties in highly sought-after locations have seen exponential capital growth – all of which can be evidenced in the form of an independent valuation by a third party.
As always, if you have any queries in this regard don’t hesitate to contact your client manager to discuss.
Kreston Stanley Williamson Team
*Correct as of 7 June 2021
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.