The Government continuously make changes to superannuation rules which makes it necessary to review an individual’s superannuation setup each year. Below is an overview of some of the key areas that should be considered prior to 30 June 2024.
Contributions
What are the types of contributions?
Superannuation contributions fall into two main categories: concessional and non-concessional contributions. The distinction between the two has important tax implications for your personal wealth.
Concessional contributions: these are pre-tax contributions such as superannuation guarantee contributions made by an employer and salary sacrificed contributions. They also include personal contributions where an individual is claiming a tax deduction in their individual tax return.
Non-concessional contributions: these are after-tax contributions for which neither you nor your employer claim a tax deduction.
From 1 July 2022 individual’s aged under 75 can make certain contributions without having to pass a work test.
- Contributions that do not require a work test include non-concessional contributions and employer contributions.
- In order to claim a deduction for a personal contribution those aged between 67 and 75 must satisfy a work test which entails working at least 40 hours over a consecutive 30-day period.
- If aged 75 and over, individuals generally cannot make super contributions unless mandated, such as superannuation guarantee contributions.
| Tip: As the end of the current financial year approaches it’s important to plan ahead. Contributions must be received by the superannuation fund by 30 June 2024 to be eligible for inclusion in the 2024 financial year. As 30 June falls on a Sunday this year ensure you allow sufficient time for the transfer to be completed within business hours by 28 June 2024. |
Concessional contributions
The current state of play for concessional contributions is detailed below.
- The employer superannuation guarantee rate is 11% for the 2024 financial year. This is due to increase to 11.5% from 1 July 2024.
- The annual concessional contribution cap is $27,500 per individual for the 2024 financial year. From 1 July 2024 this cap will increase to $30,000 per year.
- Individuals with total superannuation balances below $500,000 (as at 30 June in the year immediately preceding the contribution) can utilise up to five years’ worth of prior years’ unused concessional contribution caps. This is commonly known as ‘catch-up contributions’. Note that the 2024 financial year is the last opportunity to use contribution caps from the 2019 financial year.
- Individuals seeking to maximise their concessional superannuation contributions can utilise salary sacrifice (if they have a valid salary sacrifice arrangement) or through personal concessional contributions to their superannuation fund. Salary sacrifice arrangements must be entered into prior to an employee’s work being performed, which typically means arrangements are made at the beginning of a financial year.
- Individuals wishing to claim a tax deduction for a personal contribution must ensure they lodge an Intent to Claim a Superannuation Deduction form with their superannuation fund and receive an acknowledgement back from the fund. The acknowledgement enables the individual to claim a tax deduction for the personal contribution in their individual tax return and without this the deduction may be denied.
- The income threshold at which an individual has to pay an extra 15% contributions tax (Div 293 tax) currently remains at $250,000 per year.
Non-concessional contributions
The rules for making after tax non-concessional contributions are quite different from making concessional contributions.
- The annual non-concessional contribution cap for the 2024 financial year is $110,000. From 1 July 2024 this cap will increase to $120,000 per year.
- Individuals are not permitted to make non-concessional superannuation contributions if their total superannuation balance is $1.9 million or over as at 30 June of the prior financial year.
- It may be possible to bring forward the next two years’ worth of contributions to make a contribution of $330,000, depending on an individual’s age and total superannuation balance.
- If an individual’s total superannuation balance is between $1.79 and $1.9 million, the most that can be contributed is $110,000. If it is between $1.68 and $1.79 million the contribution limit is $220,000. However, if an individual’s total superannuation balance is under $1.68 million the full bring forward contribution of $330,000 can be applied.
| Note: an individual’s total superannuation balance includes the total balance of all their superannuation accounts, not just their balance in the fund they are contributing to. It also includes amounts that are in the process of being rolled over between superannuation funds |
Contributing the proceeds of Downsizing to Superannuation
From 1 July 2018 the government introduced a new initiative aimed to remove disincentives for people in retirement phase to downsize their homes. The age at which an individual becomes eligible to make a downsizer contribution has changed over time.
- From 1 January 2023, individuals aged 55 or over are eligible to contribute up to $300,000 from the proceeds of the sale of a primary place of residence to the individual’s superannuation fund. This could potentially amount to a total of $600,000 per couple.
- There is no maximum age limit on downsizer contributions.
- To be eligible the home must have been owned for at least ten years.
- No work test is required and unlike non-concessional contributions the individual’s total superannuation balance does not need to be less than the current general transfer balance cap of $1.9 million.
- The contribution needs to be made within 90 days of receiving the proceeds of the sale (usually settlement date).
- Caution should be taken for those receiving government pensions, as selling the family home may affect income/asset test assessments.
Pensions
Prior to 30 June 2024, pensioners should ensure the minimum pension payment has been withdrawn for the financial year to ensure their pension is not deemed to have stopped at 1 July 2023.
| Tip: From 1 July 2023 the 50% Covid minimum pension reduction ceased to apply. That means for the 2024 financial year minimum pension payment requirements have increased substantially. The annual minimum pension payment required is calculated by applied the following minimum pension percentages to the individual’s account balance as at 1 July. | |
| Minimum pension percentages | |
| Under Age 65: | 4% |
| Aged 65- 74: | 5% |
| Aged 75-79: | 6% |
| Aged 80-84: | 7% |
| Aged 85-89: | 9% |
| Aged 90-94: | 11% |
| Aged 95 or more: | 14% |
Retirement phase pensions
- The current transfer balance cap (the most superannuation that an individual can transfer to a retirement phase pension) is $1.9 million.
- Note that each individual’s personal transfer balance cap is not necessarily the same. If an individual has already used some of their cap prior to a cap indexation event they will only receive a pro-rated amount of the indexation increase. If an individual has already used up all of their transfer balance cap prior to an indexation event they will not receive any increase in their personal transfer balance cap amount.
- If an individual’s pension balance subsequently exceeds their transfer balance cap due to investment earnings and valuations they do not need to worry about reducing their balance under the cap. Market fluctuations and investment earnings do not increase or decrease an individual’s transfer balance cap. Likewise, if an individual’s pension account reduces below their transfer balance cap due to pension payments and investment valuations, it is not possible to top up the account back to their transfer balance cap amount.
The superannuation system is continuously evolving, with many regular changes that have implications for your superannuation and retirement wealth. Contact Pitcher Partners to learn more about how we can assist in demystifying the complexity of your superannuation.
The advice provided is general in nature and is not personal financial product advice. The advice provided has been prepared without taking into account your objectives, financial situation or needs and because of this you should, before acting on it, consider the appropriateness of it having regard to your objectives, financial situation and needs. You should carefully read and consider any Product Disclosure Statement (PDS) that is relevant to any financial product that has been discussed before making any decision about whether to acquire the financial product
