Work test changes prompt ‘big focus’ on recontribution strategies

Earlier this month, the government registered regulations to abolish the work test for contributions that applies for those aged between 67 to 75. Members will still need to satisfy the work test in order to claim a tax deduction for the contribution, however. 

The government also recently made legislative changes allowing members up to the age of 75 to trigger the bring-forward rules, subject to the total superannuation balance requirements. Both changes will commence from 1 July 2022. 

“There are obviously a lot of opportunities now that we can make contributions up until age 75 and we don’t have to meet a work test and we can use the bring-forward rule for the non-concessional contributions,” explained Ms Fox. 

“[For those] between 67 and 75, we can implement recontribution strategies for people without having to meet work test, so that’s going to be a big focus of advice going forward.”

Speaking in the same podcast, CFS head of technical services Craig Day said these changes also provide potential strategies for estate planning. 

“[For example], you can take out taxable component and put it back in as non-concessional [contributions] which turns it into tax-free,” said Mr Day.

“There are also spouse equalisation strategies. So you might have someone there that’s exceeded their transfer balance cap, their spouse has got cap space available to them but they can’t get it out of one spouse’s account and into the other because they’re over 67 and not working. That may come into play for them now. So, we can remove it from the higher spouse and put it back into the lower spouse subject to the age 75 limit, and then commence an income stream. 

“So spouse equalisation strategies will be quite important there.”

Mr Day said advisers should be looking at their clients and thinking about which ones might want to put additional capital into super.

“I’d also be looking at any clients that would benefit from a recontribution strategy,” he said.