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 make up to a maximum of $300,000 in contributions to their superannuation fund each ($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 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 appliable 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 Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021 also inserted new sub-section 290-165(1A) into the ITAA 1997 which introduces gainful employment conditions (essentially an amended version of the now repealed ‘work test’ criteria) for making personal deductible contributions where a member is aged between 67 and 75.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 meet 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.
The work test exempt criteria can apply if the following criteria is satisfied:
- The member was gainfully employed for at least 40 hours in any period of 30 consecutive days during the previous income year.
- The member’s total superannuation balance was less than $300,000 at the end of the previous income year.
- The member has not deducted a contribution in the previous income year or any earlier income years on the basis of satisfying these same criteria.
- No contribution was previously made under a prescribed provision of regulations made for the purposes of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SISR).
The ‘prescribed provisions’ of the SISR specify the equivalent ‘one off’ exceptions that apply to the existing work tests in the SISR.
Due to the work test criteria being removed from the prior contribution acceptance rules in the SISR, trustees of regulated superannuation funds would not generally have a basis for rejecting 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 non-concessional contribution.
This 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  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  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.
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 actually 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.
By Shaun Backhaus, senior associate, and William Fettes, senior associate, DBA Lawyers