Planning for 2023-24
By Colin Lewis, Head of Strategic Advice, Fitzpatricks Private Wealth
Good financial planning is a year-round consideration, not just a 30 June event.
With the new financial year under way, now is a good time to get your ‘financial house’ in order for 2023-24.
So, what are the super opportunities this year?
The pre-tax concessional contributions cap remains unchanged at $27,500. Regardless of how much you have in super, you and/or your employer may contribute up to this amount before additional tax applies.
Don’t worry if you accidentally exceed this cap as there’s no real penalty. All that happens is the excess will be taxed as normal income – as if it hadn’t gone into super in the first place.
An employer’s compulsory Superannuation Guarantee (SG) contribution rate is now 11 per cent from the first dollar you earn.
And if you’re earning more than $250,000 and receiving SG contributions from multiple employers, you can ask an employer to stop paying it – to avoid beaching the cap – provided at least one continues to do so. But only do this if you can negotiate more salary because paying tax on something is better than not getting it at all.
If you wish to top-up your super, you can make a personal deductible contribution and/or arrange to make salary sacrifice contributions via your employer.
With a deductible contribution, you must provide your fund with a notice of intent to claim a tax deduction and have it acknowledged. This is usually done around tax time, but if you’re planning on starting an income stream, rolling over or withdrawing the contribution, it must be done first – don’t wait.
If you’re aged 67 to 74 and wish to make a personal deductible contribution, you must meet the work test – 40 hours of gainful employment in 30 days. If you won’t meet this test, but met it in 2022-23 and had a total superannuation balance below $300,000 at 30 June then you may contribute under the ‘work test exemption’, provided you haven’t used this exemption before.
Salary sacrifice allows you to ‘set-and-forget’ for the year as contributions will automatically be made on a regular basis. Making regular deposits into an investment at regular intervals is a powerful way to invest – known as ‘dollar cost averaging’. It provides the opportunity to build exposure to growth assets in a disciplined way, can reduce the risk of investing during volatile times and avoids the pitfalls of trying to time entry into markets.
Contributing yourself gives you control and certainty over the amount and timing of the contribution and dealing with the contributions cap at year end.
Also, you’re not reliant on someone else, and have peace of mind knowing your money gets to your fund. Many employers leave it for months between deducting money from wages and making the contribution. Unfortunately for some, the money never gets there. It also avoids a nightmare should your employer go into administration/receivership, as money deducted from salary but not contributed may take years to recover.
In calculating voluntary concessional contributions include your employer’s SG contributions or notional taxed contributions for a defined benefit fund, and your fund’s administration expenses and insurance premiums if paid by your employer, as all count towards the cap.
Any unused concessional contributions cap amounts since 2018-19 can be used, provided your total super balance was less than $500,000 at 30 June 2023. This is the last year to use 2018-19 unused cap amounts.
You can now split up to 85 per cent of your concessional contributions made in 2022-23 to your spouse’s super – to even up balances to maximise the amount you can both get into the tax-free retirement phase, to move entitlements from a younger to older spouse for earlier access to tax-free benefits, or from a spouse at or over Age Pension age (now 67) to a younger spouse to shelter from Centrelink means testing.
If you used a ‘contribution reserving strategy’ in June to maximise your tax deduction in 2022-23, this allocation needed to be allocated by 28 July.
Whilst the work test does not apply to after-tax non-concessional contributions, you cannot contribute if your total super balance was $1.9 million or more at 30 June.
The non-concessional contributions cap is $110,000, but if your total super balance was less than $1.68 million at 30 June – and you’re under 75 on 1 July – you may contribute up to $330,000, and if it was between $1.68 and $1.79 million then it’s $220,000 – but check your contribution history from 1 July 2021.
To receive a $500 government co-contribution this year for a contribution of $1,000, your income must be less than $43,445 with at least 10 per cent of it coming from employment or business – and you must be under 71.
The co-contribution progressively reduces where you earn between $43,445 and $58,445.
You could also make a spouse contribution provided they’re under 75.
You may be eligible to make a ‘downsizer contribution’ of up to $300,000 if you sell a home that you or your spouse owned for at least 10 years and are aged 55 or more – boosting your super even if you’re otherwise ineligible to contribute due to age or your total super balance.
And if you’re using super to save for your first home, a voluntary contribution of up to $15,000 will help you get to the maximum releasable amount of $50,000 under the First Home Super Saver Scheme quicker – it takes years to get the greatest benefit from the scheme.
If you’re an eligible small business owner selling your business or an active business asset, don’t overlook the opportunity to make a CGT cap contribution of up to $1.705 million.
If you start a retirement phase pension, e.g. account-based pension, for the very first time, the limit on how much you can transfer into it – your transfer balance cap – is now $1.9 million, having been indexed by $200,000 on 1 July.
But if you already have a pension, your transfer balance cap will be less, albeit proportionally indexed if you hadn’t fully utilised the cap. You can obtain this from ATO Online.
The minimum pension drawdown rates are now back to normal as the Government did not extend the temporary reduction that applied the past four years of half the usual rates.
Now is the time to start planning to get ahead of the game.
*The information in this document (information) has been prepared by Fitzpatricks Private Wealth Pty Ltd (ABN 33 093 667 595, AFSL 247 429) (Fitzpatricks). The information is of a general nature only and does not take into account the objectives, financial situation or needs of any person. Before acting on the information, investors should consider its appropriateness having regard to their own objectives, financial situation and needs and obtain professional advice.