Increase to superannuation contribution caps

As the end of the end of the financial year approaches, many are considering the most effective ways to boost their super balance, particularly with the caps on contributions increasing from 1 July.

The concessional contributions cap, which is the maximum in before tax contributions you can add to your super each year without paying extra tax, is increasing to $30,000 from $27,500 in the new financial year.

The cap increases in line with average weekly ordinary earnings (AWOTE).

It is important to be aware of payment and reporting timelines.

For example, your employer can make super guarantee contributions up until 28 July for the final quarter of the financial year and salary sacrifice contributions up until 30 June.

Any amounts showing on the Australian Tax Office (ATO) website for your account are based on when your fund reports to the ATO.

Carry forward unused amounts

You may have unused concessional cap amounts if you haven’t made extra contributions in past years.

These can be carried forward, allowing you to contribute more as long as your super balance is less than $500,000 at 30 June of the previous financial year.

You can carry forward up to five years of concessional contributions cap amounts.

Getting close to exceeding the cap?

If you’re worried about going over the cap, you may wish to stop any further voluntary contributions based on an assessment of the extra tax you will pay.

For those with two or more employers, you may opt out of receiving the super guarantee from one of the employers.

Meanwhile, if special circumstances have caused you to exceed your cap, you can apply to the ATO for some or all of the contributions to be disregarded or allocated to the next financial year.

If you exceed the cap, the excess contributions will be included in your assessable income and taxed at your marginal rate less a 15% tax offset. The good news is that you can withdraw up to 85% of the excess contributions from your super fund to pay your tax bill. Any excess contributions left in the fund will be counted towards your non-concessional contributions cap.

Timing is everything

The upcoming Stage 3 tax cuts, which commence on 1 July 2024, may affect the value of your concessional contributions. For some, tax benefits may be greater if contributions are made before the tax cuts begin.

It’s essential to seek financial advice regarding your circumstances to ensure you gain the best possible outcome and make the most effective move.

Non-concessional cap also increased

The non- concessional contributions cap is the maximum of after tax contributions you can make to your super each year without paying extra tax.

If you exceed the cap, you may be eligible to use the ‘bring forward rule’, which allows you to use caps from future years and possibly avoid paying extra tax. It means you can make contributions of up to two or three times the annual cap amount in the first year of the bring forward period.

Suppose your total super balance is equal to or more than the general transfer balance cap ($1.9 million from 2023–24 and 2024-25) at the end of the previous financial year. In that case, your non-concessional contributions cap is zero for the current financial year.

Next steps

Our team of financial planning experts can help you understand how these changes in contribution caps could affect you and whether you are eligible for the bring-forward rule.

Choosing the best approach for your retirement income can be overwhelming.

Speaking with your trusted Newcastle Financial Planner at Newcastle Advisors to discuss your options and advise on the best strategy suited to your future plans can ensure you are in control of your financial future.

Why is super important

In the realm of Australian retirement planning, Superannuation stands as a cornerstone, playing a pivotal role in securing financial stability during our golden years.

Superannuation is often referred to simply as super, which is a system designed to help Australians save and invest for retirement. It operates on the principle of compulsory contributions made by employers on behalf of their employees, supplemented by voluntary contributions from individuals.

The main benefit from a planning perspective, is the concessional tax rates applied to the superannuation environment. Your earnings and income are taxed at 15%, and when you reach retirement (after 60) your earnings and income is entirely tax free.

The government in recent years have realised that they have made superannuation to advantageous and they were missing out on valuable tax dollars, so they have made changes around the amount of capital you can have in a tax free environment, plus a minimum amount you have to withdraw each year, in addition to potential death benefit taxes, which are all measures implemented to move money out of this concessionally taxed environment.