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Recent superannuation changes – more flexibility for older Australians and first home buyers

Recent superannuation changes – more flexibility for older Australians and first home buyers

This year marks the 20th anniversary since Treasurer John Kerin first introduced to Parliament the idea of compulsory superannuation guarantee payments by employers1.

No doubt superannuation has evolved since this time to become a centre piece for most household’s investible asset base.

A number of welcomed amendments to the superannuation provisions will come into effect from the 1 July 2022, including the removal of the $450 income threshold for compulsory employer paid Superannuation Guarantee (SG) contributions, an increase in the First Home Super Saver (FHSS) Scheme, an extension of the downsizer contribution scheme, and removal of the work test for retirees.

On the eve of a federal election, these changes are aimed squarely at giving older Australians and first home buyers greater flexibility to contribute to super and access to the equity in their own home. The repeal of the work test for those aged 67 to 75 is significant enough to warrant an article on its own, and as such we have provided an overview of the changes and strategies in a separate piece.

The removal of the $450 income threshold for compulsory employer paid Superannuation Guarantee (SG) contributions

Arguably an overlooked contribution provision is the requirement to earn at least $450 per month from one employer before compulsory SG payments kick in, which is being revoked in its entirety from 1 July 2022. The changes mean employers will have to pay super payments no matter how much their employees earn. The significance of this change shouldn’t be ignored. An estimated 300,000 low paid workers, 63% of whom are female, will see an increase in their annual super contributions or for the first time, receive employer made contributions2. For employers, they will need to check their payroll and accounting systems have been updated to account for these changes from 1 July 2022.

Increase in the First Home Super Saver Scheme

The FHSS scheme allows individuals to make voluntary ‘pre-tax’ contributions to their superannuation, with the flexibility to withdraw these funds and the associated earnings (90-day Bank Bill rate plus three percentage points) to purchase their first home. The federal government is increasing the total lifetime cap from $30,000 to $50,000, with the annual contribution limit of $15,000 unchanged. The primary benefit of this scheme is each dollar contributed is tax deductible against an individual’s personal taxable income.

Noting, associated earnings are limited to approximately 3% in the current interest rate environment and withholding tax (marginal tax rate less a 30% tax offset) is payable at release.


Below is an example of an individual earning $100,000 per annum, has a top marginal tax rate of 34.5c (including Medicare Levy), contributes via a salary sacrifice arrangement $1,250 per month to their super, and claims the entire amount as a deduction against their personal assessable taxable income.

New law effective 1 July 2022 Current law
FHSS contribution p.a. $15,000
Contribution tax paid inside of super (15c for each $1) $2,250
Value of tax deduction against personal assessable income (34.5c for each $1 including Medicare Levy) $5,175
Net tax benefit each year $2,925 per annum

Assuming an individual makes the same $15,000 FHSS contribution each year for three years, and their income remains the same, the cumulative net tax benefit will be $8,775 by the end of year three. At the current rate, the associated earnings on FHSS contributions at the end of year 3 would be approximately $1,409.

Once you become eligible to release the funds under the FHSS scheme to purchase a new primary residence, the entire contribution amount ($45,000) and associated earnings ($1,409) is added as assessable income to your personal tax return for that year, with a 30% tax offset. In this scenario, the withholding tax payable at release would be $2,088. Thus, the total benefit is $8,096, representing approximately 18% return.

Assuming the same individual deposited the funds in a high interest saving account at a 1% p.a. interest rate for 3 years, with a regular deposit of $1,250 per month, instead of contributing via the FHSS scheme. The total return (after tax) would be approximately $460, $7,636 less than under the FHSS scheme.

To be eligible for the FHSS scheme, you must have never owned property in Australia, including an investment property, vacant land, commercial property, a lease of land, or a company title interest on land in Australia. You can claim any voluntary Non-Concessional Contributions (NCC) under the FHSS scheme, if these were not claimed as a deduction against your personal income during the financial year. The contribution made (i.e. not a concessional contribution) must follow the usual NCC caps and annual limit of $15,000.

It is recommended that you seek professional advice and contact your super fund prior to making any FHSS scheme contributions to super to understand the process, particularly in relation to applying for a release request with the Australian Taxation Office (ATO). The latter point is of particular relevance in terms of timing, if you are purchasing a home at auction.

Downsizer contribution age threshold reduced to age 60

The downsizer contribution allows an eligible homeowner to make an after-tax contribution to super of up to $300,000 per person ($600,000 per couple) when they sell their primary residence. From 1 July 2022, the minimum age for the downsizer contribution will be lowered from age 65 to 60, there is no maximum age limit. The additional eligibility requirements remain unchanged:

  • You or your spouse must have owned the home for a minimum of 10 years.
  • Your home is in Australia and is not a caravan, houseboat, or other mobile home.
  • Downsizer contributions must be made within 90 days of receiving the proceeds from sale.
  • Proceeds are exempt or at least partially exempt from capital gains tax under the main residence exemption.
  • You have not, or your spouse has not, previously made a downsizer contribution from the sale of another home.

Downsizer contributions can be made in addition to Concessional Contributions (CC) and Non-Concessional Contributions (NCC). They don’t count towards the respective CC and NCC annual limits and can be made when your total super balance exceeds $1,700,000, a key limitation for other NCC’s. Note, downsizer contributions will be assessed as tax free contributions and will count towards the maximum transfer balance cap of $1,700,000.

1 Budget speech, 20 August 1991. In the Budget, Treasurer John Kerin announced that from 1 July 1992, under a new system to be known as the Superannuation Guarantee (SG), employers would be required to make superannuation contributions on behalf of their employees. Archives of the Federal Government.
1 Nielson, L, & Harris, H, ‘Chronology of superannuation and retirement income in Australia’, About Parliament, 2010, (accessed 9 March 2022).
2 As per the findings of the retirement income review report, up to $300,000 people could be impacted by this change.
2 Australian Government, ‘Retirement Income Review’, The Treasury, Australia, https://treasury.gov.au/review/retirement-income-review, (accessed 9 March 2022).
Liability limited by a scheme approved under Professional Standards Legislation. Any advice included in this newsletter has been prepared without taking into account your objectives, financial situations or needs. Before acting on the advice you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs. You should also obtain a copy of and consider the Product Disclosure Statement for any financial product mentioned before making any decisions. Past performance is not a reliable indicator of future performance. Advisors at Pitcher Partner Sydney Wealth Management are authorised representatives of Pitcher Partners Sydney Wealth management Pty Ltd, ABN 85 135 817 766, AFSL number 336950.
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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