Exciting news for super contributors! As of July 1, 2024, you’ll have the opportunity to contribute more to your super thanks to increased caps. Here’s a detailed guide on how to leverage these changes for your financial benefit.
Understanding the New Caps
The new financial year brings a welcome boost to superannuation contribution caps. Specifically, concessional (pre-tax) contributions will rise from $27,500 to $30,000. Meanwhile, non-concessional (after-tax) contributions will increase from $110,000 to $120,000. This change reflects the indexation of caps to wage growth, marking a significant update for the first time in three years.
The Impact of Indexation
Indexation affects more than just contribution caps. It extends to:
- The government’s super co-contribution, adjusting the income thresholds for eligibility.
- The super guarantee’s maximum contribution base impacts compulsory contributions from employers.
- The tax-free threshold for redundancy payments, offering potentially greater tax relief.
- The cap on contributions following the sale of eligible business assets under CGT rules, allowing for more significant contributions to your super from business sales.
Leveraging for Maximum Benefit
These changes open up attractive opportunities for tax-efficient savings for individuals with the means to increase their contributions. The 15% tax rate on concessional contributions remains appealing, especially for business owners with surplus income or capital gains from asset sales.
Strategic Contribution Timing
Optimising the timing of your contributions can significantly enhance your tax position. For those anticipating a capital gains tax event, utilising ‘catch-up’ contributions can be a strategic move. This approach allows for larger contributions that boost your super balance and offer a tax deduction that can mitigate your capital gains tax liability. It’s essential to meet the eligibility criteria and notify your super fund with a Notice of Intent to claim a deduction for these contributions.
The Bring Forward Rule Explained
This rule is a powerful strategy for accelerating your non-concessional contributions. It permits you to bring forward up to two years of contributions, subject to your total super balance and age restrictions. Pre-July contributions cap at $330,000, but delaying until after July 1 allows for a total contribution of $360,000 under this rule, substantially boosting your super balance.
Catch-Up Contributions in Detail
For those with a super balance under $500,000 as of the previous June 30, there’s a chance to catch up on unused concessional cap amounts from the last five years. This is particularly useful for individuals who have not fully utilised their concessional contribution limits in the past, providing a pathway to increase their super savings quickly.
Maintaining the Transfer Balance Cap
The transfer balance cap, which limits the amount that can be transferred into a retirement account enjoying tax-free earnings, will hold steady at $1.9 million for the 2024-25 year. This cap is indexed annually, ensuring it keeps pace with inflation and cost of living adjustments.
C&N Accountants are experienced and authorised superannuation advisors. Contact us today to discuss how you can make the most of these changes.