First homes, downsizing and the 'work test' - changes to super law in 2022

As 30 June fast approaches, it is important to be across recent changes to super law. Legislation which became law on 22 February 2022 made a number of changes to super law, including changes to the first home super saver scheme, downsizer contributions scheme and the 'work test' which applies to super contributions.¹

This article outlines what the changes are and when they will take effect.

Increase to maximum releasable amount for First Home Super Saver Scheme

The First Home Super Saver Scheme (FHSS Scheme) encourages first home buyers to save for a deposit by making super contributions and later withdrawing the funds for the purposes of purchasing their first home. For more information regarding the FHSS Scheme, see this ClearLaw article.

From 1 July 2022, the maximum amount of voluntary contributions that are eligible to be released under the FHSS Scheme will increase from $30,000 to $50,000. The maximum amount of eligible contributions each financial year, which can count towards this total number, will remain at $15,000.

This increase recognises and reflects that deposit requirements have increased with house price growth over recent years. The $20,000 increase helps ensure that the FHSS Scheme continues to:

• incentivise first home buyers to save for their deposit - by using super's concessional tax environment ; and
• keep pace with the reality of changes in house prices, and deposits.

Eligible individuals holding funds in an SMSF should ensure their trust deed is drafted in such a way that allows trustees to release funds to members as anticipated by the FHSS Scheme. If it does not - then individuals should consider updating or amending their deed. The Cleardocs SMSF Trust Deed has been drafted broadly enough that it permits trustees to release funds to members as contemplated by the FHSS Scheme.

More people of eligible age to make downsizer contributions

The Downsizer Contributions Scheme (DC Scheme) incentivises people at the other end of their home-owning journey to sell a main residence which has become too large for them, and allows them to contribute up to $300,000 from the proceeds of the sale (or part sale) of their home into their super fund ('downsizer contribution'). A downsizer contribution does not count towards any of the contribution caps, nor affect the total superannuation balance of the member's fund until it is re-calculated at the end of the financial year. For more information regarding the DC Scheme, see this ClearLaw article.

From 1 July 2022, the eligibility age to make downsizer contributions into superannuation will be reduced from 65 to 60 years of age.

¹ The changes are contained in the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Business Invest) Act 2022 together with the passing of Treasury Laws Amendment (Enhancing Superannuation Outcomes) Regulations 2022

The change will allow more Australians nearing retirement to be able to use the DC Scheme.

Eligible individuals who hold funds in an SMSF should ensure their trust deed is drafted in a way which permits members to make contributions in excess of their contributions caps and that the trustee is not required to remove these funds from super if they exceed the caps. The Cleardocs SMSF Trust Deed is drafted in such a way that permits members to do so and does not require the trustee to remove these contributions from super.

No more contributions 'work test' for retirees

Historically, a registrable superannuation entity (RSE) could only accept contributions made by a member (or an employer's non-mandated contributions) within the 67 to 74 (inclusive) age bracket if that member has been 'gainfully employed' on at least a part-time basis during the financial year in which the member makes the contribution². This is known as the 'work test'. For more information on the work test see this ClearLaw article.

From 1 July 2022, the work test will be abolished for this age bracket for both member contributions and employer non-mandated contributions).³ Therefore, retirees in the 67 to 74 (inclusive) age bracket will not need to satisfy the work test nor provide a work test exemption for their superannuation fund to accept a member contribution or an employer's non-mandated contribution, subject to existing contribution cap limits.

The work test is, however, preserved for individuals in the 67 to 74 (inclusive) age bracket if they wish to claim a tax deduction in relation to a contribution made on or after 1 July 2022. Contributions from 1 July 2022⁴ can also be tax deductible for individuals aged 18 to 66 years of age without having to meet the work test.

This change builds upon the government's previous reforms to the age rules on superannuation contributions, further simplifying the rules governing contributions and increasing the ability of older Australians to make contributions to their superannuation. In particular, this amendment will allow retirees, who may not have had the benefit of a sophisticated super system throughout their working life, and may have accumulated savings outside of super, to take advantage of the modern super system. For more information regarding the work test see this ClearLaw article.

Removal of monthly minimum threshold of super guarantee

From 1 July 2022, employers will no longer be exempt from their obligation to pay the superannuation guarantee if their employee's earnings are less than $450 in a calendar month. This exemption was initially introduced in 1992 to reduce the administrative burden on employers, however, significant technological advancements have diminished this burden.

The removal of this threshold will improve equity in the superannuation system and increase the retirement savings of low-income casual or part-time employees.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of topics, such as:

• Making member contributions from JobKeeper into your super

² Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations), r 7.04.

³ Treasury Laws Amendment (Enhancing Superannuation Outcomes) Regulations 2022, Schedule 1 item 15.

⁴ Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Business Invest) Act 2022, Schedule 4, item 2.

• Housing affordability and super: upcoming changes for first home buyers and 'downsizers'
• Superannuation Contributions - A Guide
• Superannuation Contributions and Income Tax - for Self-Managed Superannuation Funds
• Understanding - Contributions, Contributions Caps and Reserves

Order related document packages

• Superannuation Trust (SMSF)
• Update to SMSF
• SMSF set up + register Corporate Trustee
• Change SMSF Trustee (Cleardocs deed)
• Change SMSF Trustee (death of a trustee)
• SMSF Pension Commutation
• SMSF Pension Pack

Treasury Laws Amendment (Enhancing Superannuation Outcomes) Regulations 2022