From 1 July this year, you may be able to boost your superannuation savings and have more for retirement as the existing contribution caps are being indexed upwards.
It’s interesting to note that these contribution limits are linked to wages (they will increase over time as average salaries go up), whereas the general transfer balance cap, which is the limit on the amount that can moved into super’s tax-free retirement phase (this cap remains at $1.9 million for FY25), is linked to inflation.
So what are the new Contribution Caps?
Concessional contributions
Concessional contributions are pre-tax contributions that include employer compulsory award and Superannuation Guarantee (SG) contributions and additional voluntary contributions (including salary sacrifice and personal contributions where a tax deduction is claimed). The annual concessional contribution cap is being lifted to $30,000 from $27,500.
Opportunities
- If you make voluntary pre-tax contributions, the increased cap may mean a bigger deduction and tax saving. And with the stage three tax cuts applying from 1 July, you may be in a position to contribute more, having additional disposable income, noting also that with the Employer Superannuation Guarantee (SG) rate increasing from 11% to 11.5% from 1 July, you will potentially already being adding additional to super as is.
- The increased concessional cap means the double contribution strategy, or contribution reserving strategy, available in June each year would allow you to claim a larger tax deduction in FY24. The maximum deduction – excluding the use of any unused cap amounts – will be $57,500 (up from $55,000) with the second contribution now being up to $30,000 because it’s tested against the cap in the financial year ending June 2025. This strategy is great for any one-off capital gains events or abnormally high income years, but don’t forget to allocate this contribution by 28 July.
- If you intend on making additional concessional contributions this financial year by using your unused concessional cap amounts from previous years to claim a larger tax deduction, the amount will not be affected by indexation, as the higher $30,000 cap does not come into play until FY25. To make catch-up concessional contributions this year, you must have had less than $500,000 in super at 30 June, 2023.
Non-concessional contributions
The annual non-concessional contributions cap, currently $110,000, is four-times the concessional contributions cap. So, with the concessional cap being indexed to $30,000, the non-concessional contributions cap therefore increases to $120,000 per year, noting your total superannuation balance determines your eligibility to make non-concessional contributions and is equal to the general transfer balance cap.
Opportunity
- As a result of this new annual cap, the non-concessional contributions bring-forward rule then allows you to add up to $360,000 in one financial year by bringing forward the following two financial years available caps. This would allow you to boost your super assets quickly and have them invested either in a 15% tax environment while your fund is in accumulation phase, or tax-free if you have commenced an account-based pension. This is great to shelter assets from tax that would otherwise be in your personal name, particularly new lump sums from asset sales or inheritances.
Age matters
To take advantage of the increased contribution caps from 1 July, you must be eligible to contribute. Generally you can make concessional contributions up to age 67 (you can extend this by passing the ‘work test’) and non-concessional contributions before your 75th birthday.
Published 29 May, 2024