2024's Super Cap Adjustments: What You Need to Know

2024's Super Cap Adjustments: What You Need to Know

Learn about the latest updates to Australia's super contribution caps for 2024 and how these can impact your retirement savings and planning strategies.

As the end of financial year gets closer, some investors are thinking about the most effective ways to boost their super balance, particularly with an increase in the caps on contributions 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.i

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

It’s a good idea to keep track of your concessional contributions – which include any compulsory contributions made by your employer as well as salary sacrifice contributions – so that you don’t unintentionally exceed the cap. It is particularly important for those with more than one job or super fund because all of the contributions are added together and must not exceed the cap.

You can check your current balance at ATO online services. Log into your myGov account and link to the ATO to see all your details.

It is also useful 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 ATO website for your account are based on when your fund reports to the ATO.

Carry forward unused amounts

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

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, it’s possible to apply to the ATO for some or all of the contributions to be disregarded or allocated to the next financial year.

But, if all else fails and you have exceeded the cap, the excess contributions will be included in your assessable income and taxed at your marginal rate less a 15 per cent tax offset. The good news is that you can withdraw up to 85 per cent 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. Please check with us about your circumstances to make sure you 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.ii

The non-concessional cap is exactly four times the amount of the concessional cap so it increases from $110,000 to $120,000.

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. iii

If 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, your non-concessional contributions cap is zero for the current financial year.

We’d be happy to help with advice about how the changes in contribution caps might affect you and whether you are eligible for the bring forward rule.

Non-concessional contributions

i, ii Understanding concessional and non-concessional contributions | Australian Taxation Office (ato.gov.au)
iii Non-concessional contributions cap | Australian Taxation Office (ato.gov.au)

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Decoding Australia's New Superannuation Tax Rule for 2025

Decoding Australia's New Superannuation Tax Rule for 2025

Explore the essentials of Australia's $3 million super tax law and its impact on your retirement planning.

This much debated tax is inching closer and if your balance is nearing or above the $3 million mark, it's time to consider the implications.

Although it is not yet law, the Division 296 tax should be taken into account when it comes to investment strategy and planning, particular in relation to any end-of-financial-year (EOFY) contributions into super.

Tax for higher account balances

The new tax follows a Federal Government announcement it intended to reduce the tax concessions provided to super fund members with account balances exceeding $3 million.

The draft Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 was introduced to Parliament on 30 November 2023.i

The legislation has been referred to the Senate Economics Legislation Committee, with its report due on 19 April 2024. Once it passes through Parliament and receives Royal Asset, Division 296 will take effect from 1 July 2025.

Who Division 296 applies to

Division 296 legislation imposes an additional 15 per cent tax (on top of the existing 15 per cent) on investment earnings of a super account where your total super balance (TSB) exceeds $3 million at the end of the financial year.ii

The extra 15 per cent is only applied to the amount that exceeds $3 million.

When law, Division 296 will represent a significant change to the super rules, particularly for fund members with significant account balances.

Given the complexity of the new rules, it will be important to seek professional advice so you can make informed decisions about your super and wealth creation strategies in coming years.

How the new rules work

A crucial part of the new legislation is the Adjusted Total Super Balance (ATSB), which determines whether you sit above or below the $3 million threshold.

When assessing your ATSB, the ATO will consider the market value of assets regardless of whether or not this value has been realised, creating a significant impact if your super fund holds property or speculative assets. The legislation also introduces a new formula for calculating your ATSB for Division 296 purposes.

The legislation outlines how deemed earnings will be apportioned and taxed, based on the amount of your account balance over the $3 million threshold.

Negative earnings in a year where your balance is greater than $3 million may be carried forward to a future financial year to reduce Division 296 liabilities at that time.

If you are liable for Division 296 tax, you can choose to pay the liability personally or request payment from your super fund.

Strategic rethink may be needed

For many fund members, superannuation remains an attractive investment strategy due to its favourable tax treatment.iii

But those with higher account balances need to understand the potential effect of the Division 296 tax and check their investment strategies offer the best possible outcomes.

For example, you may need to consider whether high-growth assets should automatically be held inside super given the new rules.

Holding long-term investments that may be more difficult to liquidate, such as property, within super may be less attractive in some cases, because the new rules create the potential to be taxed on a gain that is never realised. This could occur where the value of an asset increases during a financial year but drops in value by the time it is actually sold.

For some, holding large commercial property assets (such as your business premises) within your SMSF may be less attractive.

Reconsider your investment vehicles

If you are likely to be affected by Division 296, an important issue will be to review the most tax-effective investment structures in which to hold assets.

Super has been the clear winner in the past but, once the new rules are in place, other vehicles such as companies or discretionary trusts may also be useful options.

It will also be important to balance asset protection against tax effectiveness. For some people, the asset protection provided by the super system may outweigh the tax benefits of other investment vehicles, such as a family trust.

Division 296 will require more frequent and detailed asset valuations, so you will need to balance this administrative burden with the tax benefits provided by super.

Estate planning implications

Your estate planning and the succession plan for your SMSF will also need to be revisited once Division 296 is law.

The tax rules for super death benefits are complex and will need to be carefully reviewed to ensure you don’t leave an unnecessary tax bill for your beneficiaries.

If you still have many years to go before retirement and decide to hold high-growth assets in your fund, you will need to closely monitor your super balance.

If you want to learn more about how Division 296 tax could affect your super savings, contact our office today.

Quick ways to grow your super
If your super balance is under $3 million, you will be unaffected by Division 296 and the current concessional tax rates continue to apply.

For most people, super remains the most attractive place to save for retirement and making additional contributions prior to EOFY is a sensible idea. Options to consider include:

  • Take advantage of any concessional cap amounts you have not used since 2018-19 to make a carry-forward contribution, if your total super balance is less than $500,000 at June 30 of the previous year
  • Make a personal tax-deductible contribution to give your account a boost and provide a tax deduction
  • Make a personal (non-concessional) after-tax contribution
  • Make a larger non-concessional contribution using a bring-forward arrangement
  • Talk to your employer and put in place a salary sacrifice arrangement to make pre-tax contributions
  • Make a contribution for your spouse (provided they are under age 75), which may also give you a tax offset of up to $540
  • Consider a downsizer contribution of $300,000 if you are aged 55 and over and plan to sell your current home.

Most contributions have eligibility criteria and annual caps you must not exceed, so talk to us before you make any contributions.

i https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r7133
ii https://treasury.gov.au/sites/default/files/2023-09/c2023-443986-em.pdf
iii https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/understanding-concessional-and-non-concessional-contributions

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Understanding Your Options: How to Switch to Retirement Income Streams Effectively

Understanding Your Options: How to Switch to Retirement Income Streams Effectively

As you embark on retirement, grasping how to switch to retirement income streams is an essential step. Our guide provides valuable pointers to help you navigate these important choices.

Here are some of the considerations for the popular options.

Easing into retirement

You can keep working and receive regular payments from your super when you have reached your super preservation age (55 to 60, depending on your date of birth) and are under 65.

Using a transition-to-retirement income stream allows you to reduce your working hours while maintaining your income. To take advantage of this option you must use a minimum 4 per cent and a maximum 10 per cent of your super account balance each financial year.

A transition-to-retirement strategy is not for everyone, and the rules are complex. It is important to get independent financial advice to make sure it works for you.

Pros

    • Allows you to ease into retirement by working less but receiving the same income, using the transition-to-retirement income stream to top up your salary.
    • If there is spare cash each week or month, you can make extra contributions to boost your super, perhaps by salary sacrifice if it suits you.
    • There are tax benefits. If you are above 60, the transition-to-retirement pension payments are tax-free (although the earnings in the fund will continue to be taxed)

    Cons

    • For people between 55 to 59, the taxable portion of the transition-to-retirement pension payments is taxed at your marginal tax rate, however you will receive a 15 per cent tax offset.
    • Withdrawing money from super reduces the amount you have later for when you retire.
    • It may affect Centrelink entitlements

    Taking a retirement pension

    This is the most common type of retirement income stream. It provides a regular income once you retire and you can take as much as you like as long as you don’t exceed the lifetime limit, known as the transfer balance cap.

    Pros

    • While there is a minimum amount you must withdraw each year, there is no maximum.
    • There is flexibility - you can receive pension payments weekly, fortnightly, monthly or even annually.
    • You can still choose to return to work and it won’t affect income stream you have already commenced.

    Cons

    • The account-based pension may affect your Centrelink entitlements
    • There is a risk that the amount in your super to draw on might not last as long as you do
    • The amount you can use for your pension is limited by the transfer balance cap.

    Withdrawing a lump sum

    You can choose to take your super as a lump sum or a combination of pension and lump sum payments, once you have met the working and age rules.

    Pros

    • Gives you a chance to pay off any debts to help relieve any financial pressures.
    • Allows you to make an investment outside super in a property, for example.
    • Pay little or no tax if you are 60 and older.

    Cons

    • If you are using the lump sum to invest, you may pay more tax
    • Reducing your super balance now, means less for later
    • Receiving a lot of money at once may encourage you to spend more than is wise

    Access to SMSF funds

    There are a number of additional issues to consider for those with self-managed super funds (SMSFs). For example, you will need to carefully check your Trust Deed for any rules or restrictions for accessing your super and consider how your fund can meet pension requirements if it holds large assets that are not cash, such as a property. It essential to consult a financial planner to understand your circumstances.

    The process of choosing the best approach for your retirement income can be daunting so let us walk you through the options and advise on the most appropriate strategies.

    This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Boost Your Tax Position with Superannuation Recontribution

Boost Your Tax Position with Superannuation Recontribution

Ever considered withdrawing and then redepositing into your super? This recontribution strategy might seem odd, but it's a powerful tool for tax optimisation and estate planning.

Your super consists of both tax-free and taxable portions. The tax-free part generally consists of contributions on which you have already paid tax, such as your non-concessional contributions.

When this component is withdrawn or paid to an eligible beneficiary, there is no tax payable.

The taxable component generally consists of your concessional contributions, such as any salary sacrifice contributions or the Super Guarantee contributions your employers have made on your behalf.

You may need to pay tax on your taxable contributions depending on your age when you withdraw it, or if you leave it to a beneficiary who the tax laws consider is a non-tax dependant.

Understanding the Recontribution Process

The main reason for implementing a recontribution strategy is to reduce the taxable component of your super and increase the tax-free component.

Essentially, it's about optimising the tax benefits of your super. To do this, you withdraw a lump sum from your super account and pay any required tax on the withdrawal.

You then recontribute the money back into your account as a non- concessional contribution. If you withdraw this money from your account at a later date, you don't pay any tax on it as your contribution was made from after-tax money.

The recontribution doesn’t necessarily have to be into your own super account. It can be contributed into your spouse’s super account, provided they meet the contribution rules.

To use a recontribution strategy you must be eligible to both withdraw a lump sum and recontribute the money into your account. In most cases this means you must be aged 59 to 74 and retired or have met a condition of release under the super rules.

Any recontribution into your account is still subject to the current contribution rules, your Total Super Balance and the annual contribution caps.

Advantages for Non-Tax Dependants

Recontributing your money into your super account may have valuable benefits when your super death benefit is paid to your beneficiaries.

A recontribution strategy is particularly important if the beneficiaries you have nominated to receive your death benefit are considered non-dependants for tax purposes. (The definition of a dependant is different for super and tax purposes.)

Recontribution strategies can be very helpful for estate planning, particularly if you intend to leave part of your super death benefit to someone who the tax law considers a non-tax dependant, such as an adult child.

It's a forward-thinking approach, ensuring your loved ones get the most from your super. Otherwise, when the taxable component is paid to them, they will pay a significant amount of the death benefit in tax. (Your spouse or any dependants aged under 18 are not required to pay tax on the payment.)

Some non-tax dependants face a tax rate of 32 per cent (including the Medicare levy) on a super death benefit, so a strategy to reduce the amount liable for this tax rate can be worthwhile.

By implementing a recontribution strategy to reduce the taxable component of your super benefit, you may be able to decrease – or even eliminate – the tax your non-tax dependant beneficiaries are required to pay.

Navigating Super Contribution and Withdrawal Guidelines

Our retirement system has lots of complex tax and super rules governing how much you can put into super and when and how much you can withdraw.

It's crucial to be well-informed and stay updated with these regulations.

Before you start a recontribution strategy, you need to check you will meet the eligibility rules both to withdraw the money and contribute it back into your super account.

Ensure you speak to us before acting, as we can help determine if you are eligible and calculate whether this type of strategy is a worthwhile addition to your estate planning.

For a deeper dive into recontribution benefits for your non-dependants, reach out to our team today.

Tax rates when super death benefit paid as a lump sum

1 Includes Medicare levy of 2%. If benefit is paid to estate, the executor pays the tax and no Medicare levy is payable.

Case study

Anish is aged 64 and divorced. He has an account-based pension (ABP) balance of $120,000 that only has a taxable component.
On his death at age 66, the balance of his ABP is $140,000. This is to be paid as a lump sum super death benefit to his adult son, who is not financially dependent on Anish.
Under the tax rules, as his son is considered a non-tax dependant, Anish’s super death benefit will be taxed $23,800 ($140,000 x 17% = $23,800).

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Navigating Life Insurance Options Within Super

Navigating Life Insurance Options Within Super

Navigating the world of insurance can be daunting. When it comes to superannuation, many Australians wonder if it's the right place to house their insurance. Dive into the intricacies of insurance within super, its benefits, and potential pitfalls.

While we all hope for good health, the reality is that some of us may struggle at times with sickness or injury. And that may affect your family’s financial wellbeing.

Different types of life insurance or personal insurance can provide an income when you’re unable earn or a lump sum to protect your loved ones if the worst happens.

These coverages encompass income protection, life assurance, and total and permanent disability (TPD) insurance. These products are available through your superannuation fund or outside the fund, directly through an insurance company. There are also other products not usually offered by super funds such as accidental death and injury insurance, critical illness or trauma cover and business expenses insurance (when a business owner suffers serious illness or injury).

Interestingly, the majority of super funds offer automatic coverage, unless you decide otherwise. Almost 10 million Australians have at least one type of insurance (life, TPD or income protection) provided through superannuation.i

Check what your fund offers

Super funds usually provide three types of personal insurance. These include:

    • Life insurance or death cover provides a lump sum payment to your beneficiaries in the event of your death.
    • Total and Permanent Disability (TPD) pays a lump sum if you become totally and permanently disabled because of illness or injury and it prevents you from working.
    • Income Protection pays a regular income for an agreed period if you are unable to work because of illness or injury.

While these insurance products can provide valuable protection, it's essential to be aware of circumstances where coverage might not apply. For example, super funds will cancel insurance on inactive super accounts that haven’t received contributions for at least 16 months.ii Some funds may also cancel insurance if your balance is too low, usually under $6000. Automatic insurance coverage will not be provided if you're a new super fund member aged under 25.

Should you insure through super?

Purchasing personal insurance via your super fund comes with its set of pros and cons. It's wise to assess their impact on your financial landscape.
On the plus side

  • Cost-effective
    Insurance through super can be more cost-effective because the premiums are deducted from your super balance, reducing the impact on your day-to-day cash flow. It’s also said that the super funds’ massive buying power gives them an opportunity to be more competitive on price.
  • Automatic inclusion
    Many super funds automatically provide insurance cover without requiring medical checks or extensive paperwork.
  • Tax benefits
    Some contributions made to your super for insurance purposes may be tax-deductible, providing potential tax benefits.

Think about possible downsides

  • Limited flexibility
    Super funds can only offer a standard set of insurance options, which may not fully align with your needs. For example, income protection insurance inside super can only offer the indemnity cover (you are required to verify your income at the time of claim) while outside super you can opt for the agreed value cover (you are required to verify your income when applying for cover and is agreed to at the start of your policy).
  • Reduced retirement savings
    Paying insurance premiums from your super balance means less money invested for your retirement, potentially impacting your final payout.
  • Coverage gaps
    Depending solely on your super fund's insurance might leave you with coverage gaps, as the default options may not cover all your unique circumstances.
  • Possible tax issues
    Be aware that some lump sum payments may be taxed at the highest marginal rate if the beneficiary isn’t your dependent.

Remember to Manage Your Life Administration

Whether you decide to buy insurance through your super fund or not, it is important to regularly review your insurance coverage to make sure they reflect your current life stage. As your circumstances change with marriage, divorce, children or a new job, your insurance needs will also change.

It is also important to keep on top of your super accounts. If you have more than one fund, you may be paying additional insurance premiums. Consolidating your super accounts can help you avoid this pitfall (and save money in extra administration fees). But before you make a move, it can be beneficial to seek advice, so check with us to see that you are making the best decision.

Insurance within super can be a valuable safety net, providing crucial financial support to you and your loved ones. Understanding the types of coverage offered, the pros and cons of insuring inside super and the need for regular reviews are essential steps in making the most of this benefit. If you would like to discuss your insurance options, give us a call.

A Real-life Insight: The Importance of Regular Insurance Reviews

Consider Sarah's story. As a 35-year-old marketing professional, she was shocked when she realised that her income protection policy, purchased through her super fund, would only cover her for a limited time.

The policy, part of her fund’s automatic insurance coverage, gave Sarah some peace of mind that she was covered if she became ill. But when her insurance was reviewed closely, it emerged the policy would only pay $3000 for up to two years.

As a result, Sarah opted to pay a higher premium to increase the benefit to continue paying until age 65. Sarah’s decision to review her insurance protection has provided an outcome she’s happy with for now. Her next review might see another change, depending on her circumstances at the time, and she may choose to pay lower premiums.

i The future of insurance through superannuation, Deloitte and ASFA, 2022 1051554 Insurance through superannuation.indd
ii Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, No. 16, 2019 Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (legislation.gov.au)

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Boost Your Superannuation with a Windfall: Here's How

Boost Your Superannuation with a Windfall: Here's How

A windfall can be a golden opportunity to boost your superannuation. Learn how to navigate contribution caps and tax implications to maximise your investment.

Assuming you have decided against a shopping splurge, finding the best place to invest a lump sum is all about the effect on your tax bill and how soon you will need access to the funds.

For those keen on long-term investment, superannuation presents an attractive option due to its substantial tax benefits.

But be aware that, while super can be a tax-effective investment, there are limits on how much you can pay into your super without having to pay extra tax. These are known as contribution caps.

Different types of contributions

There are two types of super contributions you can make – concessional and non-concessional – and contribution caps apply to both.

Concessional contributions are paid into super with pre-tax money, such as the compulsory contributions made by your employer. They are taxed at a rate of 15 per cent.

Non-concessional or after-tax contributions are paid into super with income that has already been taxed. These contributions are not taxed.

So, the tax you pay depends on whether:

  • the contribution was made before or after you paid tax on it
  • you exceed the contribution caps
  • you are a high income earner (If your income and concessional contributions total more than $250,000 in a financial year, you may have to pay an extra 15 per cent tax on some or all of your super contributions.)

Investing after-tax income

Various types of different types of after-tax contributions can be made to your super, such as spousal contributions, contributions from after-tax income, an inheritance, a redundancy payout, or proceeds from a property sale.

Based on current rules, the annual limit for non-concessional or after-tax contributions is $110,000. You can also bring-forward two financial years’ worth of non-concessional contributions and contribute $330,000 at once but then you can’t make any further non-concessional contributions for two financial years. Note that are certain limitation on these types of contributions.

It is also useful to note that, under certain conditions, there are some types of contributions that do not count towards your cap. These include: personal injury payments, downsizer contributions from the proceeds of selling your home and the re-contribution of COVID-19 early release super amounts.

"Leveraging the Downsizer Scheme for Your Superannuation

The Downsizer scheme allows the contribution of up to $300,000 from the proceeds of the sale (or part sale) from your home. You will need to be above age 55 but there is no upper age limit, the home must be in Australia, have been owned by you or your spouse for at least 10 years, the disposal must be exempt or partially exempt from capital gains tax and you have not previously used a downsizer contribution.

Giving your super a boost

A quick review of your super balance and projected retirement income might inspire you to boost your super. However, not everyone has a lump sum to invest.

A strategy that uses smaller amounts could include any amount from your take-home pay. These contributions will count towards your non-concessional or after-tax cap.

Alternatively, you add to your super from your pre-tax income using, for example, salary sacrifice. These types of concessional or pre-tax contributions attract a different contribution cap: $27,500 per year, which includes all contributions made by your employer.

If your super fund balance is less than $500,000, your limit may be higher if you did not use the full amount of your cap in earlier years. You can check your cap at ATO online services in your myGov account.

Seeking Professional Advice for Super Contributions

The rules for super contributions can be complex so book a free consultation to start the process of maximising your benefits while avoiding any mistakes.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


How to get super ready for EOFY

Maximise Your Superannuation for EOFY: Top Strategies to Consider

Maximise Your Superannuation for EOFY: Top Strategies to Consider

Recent announcements by Treasurer Jim Chalmers have put superannuation in the spotlight. With EOFY fast approaching, now is the ideal time to check your super balance and explore strategies to optimize contributions and tax savings.

There are lots of different ways to boost your super balance, but if you want to take advantage of the opportunity to maximise your contributions, it is important not to wait until the last minute.

An easy way to enhance your retirement savings is by making additional contributions to your super account from your pre-tax income.
When you make a voluntary personal contribution, you may even be able to claim it as a tax deduction.

If you have any unused concessional contribution amounts from previous financial years and your super balance is less than $500,000, you can also make a carry-forward contribution. This can be a great way to offset your income if you have higher-than-usual earnings this year.

Another easy way to boost your super is by making tax-effective super contributions through a salary sacrifice arrangement. Now is a good time to discuss this with your boss, because the Australian Taxation Office requires these arrangements to be documented prior to commencement.

Maximising Your Super with Non-Concessional Strategies

If you have some spare cash and have reached your concessional contributions limit, received an inheritance, or have additional personal savings you would like to put into super, voluntary non-concessional contributions can be a good solution.

Non-concessional super contributions are payments you put into your super from your savings or from income you have already paid tax on. They are not taxed when they are received by your super fund.

Although you can’t claim a tax deduction for non-concessional contributions because they aren’t taxed when entering your super account, they can be a great way to get money into the lower taxed super system.

Downsizer contributions are another option if you’re aged 55 and over and plan to sell your home. The rules allow you to contribute up to $300,000 ($600,000 for a couple) from your sale proceeds.

And don’t forget you can make a contribution into your low-income spouse’s super account - it could score you a tax offset of up to $540.
Eligible low-income earners also benefit from the government’s super co-contribution rules. The government will pay 50 cents for every dollar you pay into your super up to a maximum of $500.

Superannuation Strategies for a Lower Tax Bill

Making extra contributions before the end of the financial year can give your retirement savings a healthy boost, but it can also potentially reduce your tax bill.

Concessional contributions are taxed at only 15 per cent, which for most people is lower than their marginal tax rate. You benefit by paying less tax compared to receiving the money as normal income.

If you earn over $250,000, however, you may be required to pay additional tax under the Division 293 tax rules.

Some voluntary personal contributions may also provide a handy tax deduction, while the investment returns you earn on your super are only taxed at 15 per cent.

Navigating Annual Super Contribution Caps

Before rushing off to make a contribution, it’s important to check where you stand with your annual caps. These are the limits on how much you can add to your super account each year. If you exceed them, you will pay extra tax.

For concessional contributions, the current annual cap is $27,500 and this applies to everyone.

When it comes to non-concessional contributions, for most people under age 75 the annual limit is $110,000. Your personal cap may be different, particularly if you already have a large amount in super, so it’s a good idea to talk to us before contributing.

There may even be an opportunity to bring-forward up to three years of your non-concessional caps so you can contribute up to $330,000 before 30 June.

If you would like to discuss EOFY super strategies or your eligibility to make contributions, don’t hesitate to give us a call.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


How-the-proposed-super-changes-will-affect-you

How The Proposed Superannuation Tax Changes Will Affect You

How The Proposed Superannuation Tax Changes Will Affect You

The Australian government has announced a plan to reduce the tax concessions for superannuation accounts with balances over $3 million, starting from 1st July, 2025.

This is part of its agenda to make the super system fairer and more sustainable, as well as to raise tax revenues. But how will this change affect you and your retirement savings? In this article, we’ll explore the details of the proposed superannuation tax changes, the impact on different types of super funds and individuals, and the steps you can take to prepare for the change.

Proposed Superannuation Tax Changes in Detail

The Labor government wants to increase the tax rate on superannuation earnings above $3 million from 15% to 30% starting July 1, 2025.

This will apply to all accumulation and pension accounts, including self-managed and industry super funds. However, it won't affect tax-free status for pension income, tax offsets, or exemptions for those aged 60 or older.

The $3 million threshold will not be adjusted for inflation and will apply per person, making more people subject to the tax over time as their super balances grow.

You would not be able to avoid this tax change by dividing your super balance among multiple accounts or funds. The change allows for a $3 million threshold per person.

The tax change is expected to affect 0.5% of super account holders, or around 80,000 people. The government has framed this as a fair and progressive measure that targets the wealthiest and most privileged superannuants, raising an estimated $9 billion over four years.

How Will the Superannuation Tax Changes Affect You?

Depending on your circumstances like super balance, income, age, and fund type, the proposed superannuation tax changes will impact you differently. In general, expect a reduction in after-tax super earnings and retirement income, particularly if you have a large super balance or a long investment horizon.

For example, a $4 million super balance with a 5% annual return would cost an extra $7,500 in tax each year under the proposed change. Over ten years, this could reduce your super balance by $100,000, without considering other adjustments.

The tax change would discourage investing in high-growth assets that generate capital gains. Capital gains will be taxed at the higher rate of 30% when realized, missing out on the capital gains tax discount that lowers the tax rate by 50% for assets held more than 12 months.

Self-managed superannuation funds (SMSFs) will face increased complexity and compliance costs, while industry super funds will need to balance the interests and preferences of members with different super balances and tax rates, affecting their investment strategies and performance.

Note that these changes have not become law yet and will not be implemented until after the next Federal Election.

Preparing for the Superannuation Tax Changes

Note that the proposal has not been finalised yet and it may face challenges from the crossbench and industry. That said, it’s wise to be proactive and stay informed about the potential impact on your retirement savings.

If you have a super balance over $3 million, or you expect one in the future, you may want to start planning ahead.

Here are some of the things you can do to prepare for the tax change:

Review your pension drawdown strategy and eligibility for tax offsets. You may still be eligible for tax-free income, or reduce tax liability with low and middle-income tax offset, seniors and pensioners tax offset, or franking credits refund. Timing and amount of pension payments will affect super balance and tax rate.

If you have an SMSF, consider how you might need to update your SMSF trust deed, investment strategy, and reporting obligations. In particular , ensure your trust deed allows for different tax rates and investment strategy reflects your risk appetite and return objectives under the new tax regime. You’ll also need to make sure you comply with new reporting requirements for the ATO, providing member account balances and tax rates quarterly.

Review your asset allocation and diversification to optimise returns and minimise tax liability. Review your exposure to high-growth assets that generate capital gains as they will be taxed at the higher rate of 30%. Shift some assets to low-tax or tax-free investments, such as bonds, cash, or international shares, or defer capital gains until retirement or withdrawal. Diversify portfolio across different asset classes and sectors to reduce risk and volatility .

Consult an accountant or administrator for professional advice. Seek guidance on the impact of the tax change on your specific situation, and advice on the best strategies and options for your super fund.

Monitor your super balance and stay informed of any updates or changes to legislation. The proposed tax change may face challenges from the crossbench and the industry. Keep track of your super balance and the progress of the legislation, and adjust plans accordingly.

If your super balance exceeds $3m or you think there is a chance that it will do, we’re here to help. House of Wealth specialises in helping property investors minimise tax on retirement income. Click here to book a consultation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


How much super do you need to retire? Less than you may think, apparently!

How much super do you need to retire? Less than you may think, apparently!

Working out how much you need to save for retirement is a question that keeps many pre-retirees awake at night. Recent market volatility and fluctuating superannuation balances have only added to the uncertainty. So it’s timely that new research shows you may need less than you fear. For most people, it will certainly be less than the figure of $1 million or more that is often bandied around.

For most people, the amount you need to save will depend on how much you wish to spend in retirement to maintain your current standard of living. When Super Consumers Australia (SCA) recently set about designing retirement savings targets they started by looking at what pre-retirees aged 55 to 59 actually spend now.

Retirement savings targets

SCA estimated retirement savings targets for three levels of spending – low, medium and high - for recently retired singles and couples aged 65 to 69.

Significantly, only so-called high spending couples who want to spend at least $75,000 a year would need to save more than $1 million. A couple hoping to spend a medium-level $56,000 a year would need to save $352,000. High spending singles would need $743,000 to cover spending of $51,000 a year, and $258,000 for medium annual spending of $38,000.i

While these savings targets are based on what people actually spend, there is a buffer built in to provide confidence that your savings can weather periods of market volatility and won’t run out before you reach age 90.

They assume you own your home outright and will be eligible for the Age Pension, which is reflected in the relatively low savings targets for all but wealthier retirees.*

Retirement planning rules of thumb

The SCA research is the latest attempt at a retirement planning ‘rule of thumb’. Rules of thumb are popular shortcuts that give a best estimate of what tends to work for most people, based on practical experience and population averages.

These tend to fall into two camps:

  • A target replacement rate for retirement income. This approach assumes most people want to continue the standard of living they are used to, so it takes pre-retirement income as a starting point. A target replacement range of 65-75 per cent of pre-retirement income is generally deemed appropriate for most Australians.ii
  • Budget standards. This approach estimates the cost of a basket of goods and services likely to provide a given standard of living in retirement. The best-known example in Australia is the Association of Superannuation Funds of Australia (ASFA) Retirement Standard which provides ‘modest’ and ‘comfortable’ budget estimates.iii

SCA sits somewhere between the two, offering three levels of spending to ASFA’s two, based on pre-retirement spending rather than a basket of goods. Interestingly, the results are similar with ASFAs ‘comfortable’ budget falling between SCA’s medium and high targets.

ASFA estimates a single retiree will need to save $545,000 to live comfortably on annual income of $46,494 a year, while retired couples will need $640,000 to generate annual income of $65,445. This also assumes you are a homeowner and will be eligible for the Age Pension.

Limitations of shortcuts

The big unknown is how long you will live. If you’re healthy and have good genes, you might expect to live well into your 90s which may require a bigger nest egg. Luckily, it’s never too late to give your super a boost. You could:

  • Salary sacrifice some of your pre-tax income or make a personal super contribution and claim a tax deduction but stay within the annual concessional contributions cap of $27,500.
  • Make an after-tax super contribution of up to the annual limit of $110,000, or up to $330,000 using the bring-forward rule.
  • Downsize your home and put up to $300,000 of the proceeds into your super fund. Thanks to new rules that came into force on July 1, you may be able to add to your super up to age 75 even if you’re no longer working.

While retirement planning rules of thumb are a useful starting point, they are no substitute for a personal plan. If you would like to discuss your retirement income strategy, give us a call.

*Assumptions also include average annual inflation of 2.5% in future, which is the average rate over the past 20 years, and average annual returns net of fees and taxes of 5.6% in retirement phase and 5% in accumulation phase.

i CONSULTATIVE REPORT: Retirement Spending Levels and Savings Targets, Super Consumers Australia,

ii 2020 Retirement Income Review, The Treasury

iii Association of Superannuation Funds of Australia (ASFA) Retirement Standard

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Changes to Superannuation July 2022 - what you should know

Changes to Superannuation July 2022 - what you should know

Changes to superannuation rules, effective July 1 2022, will create opportunities for older Australians to boost their retirement savings and younger Australians to build a home deposit, all within the tax-efficient superannuation system.

Using the existing First Home Super Saver Scheme, people can now release up to $50,000 from their super account for a first home deposit, up from $30,000 previously.

Another change that will help low-income earners and people who work in the gig economy is the scrapping of the Super Guarantee (SG) threshold. Previously, employees only began receiving compulsory SG payments from their employer once they earned $450 a month.

But the biggest potential benefits from the recent changes will flow to Australians aged 55 and older. Here’s a rundown of the key changes and potential strategies.

Work test changes

From July 1, anyone under the age of 75 can make and receive personal or salary sacrifice super contributions without having to satisfy a work test. Annual contribution limits still apply and personal contributions for which you claim a tax deduction are still not allowed.

Previously, people aged 67 to 74 were required to work for at least 40 hours in a consecutive 30-day period in a financial year or be eligible for the work test exemption.

This means you can potentially top up your super account until you turn 75 (or no later than 28 days after the end of the month you turn 75). It also opens potential new strategies for a making big last-minute contribution using the bring-forward rule.

Extension of the bring-forward rule

The bring-forward rule allows eligible people to ‘’bring forward” up to two years’ worth of non-concessional (after tax) super contributions. The current annual non-concessional contributions cap is $110,000, which means you can potentially contribute up to $330,000.

When combined with the removal of the work test for people aged 67-75, this opens a 10-year window of opportunity for older Australians to boost their super even as they draw down retirement income.

Some potential strategies you might consider are:

  • Transferring wealth you hold outside super - such as shares, investment property or an inheritance – into super to take advantage of the tax-free environment of super in retirement phase
  • Withdrawing a lump sum from your super and recontributing it to your spouse’s super, to make the most of your combined super under the existing limits
  • Using the bring-forward rule in conjunction with downsizer contributions when you sell your family home.

Downsizer contributions age lowered to 60

From July 1, you can make a downsizer contribution into super from age 60, down from 65 previously. (In the May 2022 election campaign, the previous Morrison government proposed lowering the eligibility age further to 55, a promise matched by Labor. This is yet to be legislated.)

The downsizer rules allow eligible individuals to contribute up to $300,000 from the sale of their home into super. Couples can contribute up to this amount each, up to a combined $600,000. You must have owned the home for at least 10 years.

Downsizer contributions don’t count towards your concessional or non-concessional caps. And as there is no work test or age limit, downsizer contributions provide a lot of flexibility for older Australians to manage their financial resources in retirement.

For instance, you could sell your home and make a downsizer contribution of up to $300,000 combined with bringing forward non-concessional contributions of up to $330,000. This would allow an individual to potentially boost their super by up to $630,000, while couples could contribute up to a combined $1,260,000.

Rules relaxed, not removed

The latest rule changes will make it easier for many Australians to build and manage their retirement savings within the concessional tax environment of super. But those generous tax concessions still have their limits.

Currently, there’s a $1.7 million limit on the amount you can transfer into the pension phase of super, called your transfer balance cap. Just to confuse matters, there’s also a cap on the total amount you can have in super (your total super balance) to be eligible for a range of non-concessional contributions.

As you can see, it’s complicated. So if you would like to discuss how the new super rules might benefit you, please get in touch.

Source: ATO

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.