By Colin Lewis, Head of Strategic Advice, Fitzpatricks Private Wealth
March 2023

Great news for those looking to boost their super

From 1 July this year, you may be able to boost your superannuation savings and have more for retirement because the contribution caps are going up.

Average Weekly Ordinary Times Earnings (seasonally adjusted to November 2023) was high enough for the concessional contributions cap to be indexed – as expected.

This cap, linked to wages, is designed to increase over time as salaries go up. The last time it increased was three years ago on 1 July 2021.

Unlike the concessional contributions cap, the general transfer balance cap – the limit on the amount that can moved into super’s tax-free retirement phase – is linked to inflation.

For 2024-25, this cap remains at $1.9 million as the CPI index value for the December quarter was not high enough for it to be indexed to $2 million.

Concessional contributions

On 1 July 2024, the concessional contributions cap is being indexed from $27,500 to $30,000.

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.

So, 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.

From 1 July, the SG rate also increases from 11 per cent to 11.5 per cent. So, if you’re a wage earner, the opportunity to make increased voluntary concessional contributions from indexation of the cap will be partly absorbed by the increase in your employer’s SG contributions.

Double contribution strategy

If you wish to use the ‘contribution reserving strategy’ in June this year to claim a larger tax deduction in 2023-24, 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 2024-25.

Don’t forget to allocate this contribution by 28 July.

Catch-up concessional contributions

If you intend making additional concessional contributions this financial year by using unused 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 the 2024-25 financial year.

To make catch-up concessional contributions this year, you must have had less than $500,000 in super at 30 June 2023.

Don’t delay where you’ve got an unused amount from 2018-19, as unused cap amounts can only be carried forward for up to five years, and this is the last financial year to use it – so, use it or lose it.

Also, it may be more tax-effective to minimise taxable income this financial year than next with the stage three tax cuts.

Non-concessional contributions

From 1 July, you may be able to get more into super by making personal after-tax contributions as this cap is going up too.

The non-concessional contributions cap – currently $110,000 – is four times the concessional contributions cap. So, with that cap being indexed to $30,000, the non-concessional contributions cap increases to $120,000.

Your total superannuation balance (TSB) determines your eligibility to make non-concessional contributions and is equal to the general transfer balance cap.

So, from 1 July, you may be able to make after-tax contributions of at least $120,000 provided your TSB is less than $1.9 million on 30 June 2024.

Non-concessional contributions bring-forward rule

Your TSB also determines your eligibility to use the bring-forward rule for non-concessional contributions to get more into super.

You trigger the bring-forward rule by contributing more than the non-concessional contributions cap ($110,000 in 2022-23 and 2023-24).

The higher non-concessional contributions cap means that if you did not trigger the bring-forward rule in 2022-23 and do not trigger it this financial year, and your TSB is less than $1.66 million at 30 June 2024 then you can contribute up to $360,000 from 1 July.

If you have $1.66 million to less than $1.78 million then you can contribute up to $240,000, otherwise the maximum you can put in is $120,000.

Of course, you cannot make a non-concessional contribution if your TSB is $1.9 million or more.

Note that the thresholds for the bring-forward rule are lower from 1 July – they decrease because they’re based on the general transfer balance cap of $1.9 million less one or two-years’ worth of non-concessional contributions.

To trigger the three-year bring-forward period and contribute up to $330,000 this year, your TSB must have been less than $1.68 million at 30 June 2023, but to qualify for the three-year bring-forward period from 1 July, that threshold is $1.66 million on 30 June this year – $20,000 less.

So, it’s harder to qualify if you’re close to a threshold.

And if you’re in a bring-forward period, you don’t benefit from the increase until that period’s over – your contribution cap is limited to the amount you locked in.

Take Ron who made a non-concessional contribution of $200,000 in 2022-23. Being more than $110,000 and having a TSB of $800,000 on 30 June 2022, he triggered the 3-year bring-forward period with an available cap of $330,000.

In 2024-25, Ron remains capped at $330,000 and can only contribute a further $130,000 – he doesn’t get the benefit of the increase until 2025-26.

Then there’s Jo who contributed $330,000 last December unaware of the probability of the caps going up. Her TSB was $1 million on 30 June 2023.

Jo cannot make a non-concessional contribution until 2026-27 at which time she’ll benefit from the increase.

Voluntary employer (e.g. salary sacrifice) and personal contribution

To take advantage of the increased contribution caps from 1 July, you must be eligible to contribute.

Age matters when it comes to voluntary contributions (excluding downsizer contributions) – they must be received no later than 28 days after the end of the month you turn 75.

Whilst there’s no work test for non-concessional contributions – just a TSB test – there is for personal deductible contributions.

From age 67, you must meet the work test – 40 hours of gainful employment in 30 days – or work test exemption in the financial year to claim a tax deduction for a personal contribution.

To meet the work test exemption in 2024-25, you must meet the work test this financial year, have a TSB of less than $300,000 at 30 June 2024, and not have used this exemption before.

The highly anticipated indexation of the contribution caps is music to the ears of people with surplus income or funds looking to boost their super.

It was hoped that it would’ve occurred last year along with indexation of the general transfer balance cap – but didn’t.

So, it is great news it’s now happening in July.