New increased super contribution caps

As the end of the financial year approaches, some investors are considering the most effective ways to boost their super balance, especially with increased super contribution caps from 1 July.

The concessional contributions cap, which is the maximum amount of 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. The cap increases in line with average weekly ordinary earnings (AWOTE).

It is also helpful 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 can be made up until 30 June.

Any amounts displayed on the ATO website for your account are based on when your fund reports to the ATO.

Carry forward unused amounts

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

These can be carried forward, allowing you to contribute more if 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 are concerned about exceeding the cap, you may consider halting any further voluntary contributions after assessing the additional tax you may incur.

For individuals with two or more employers, there is an option to opt out of receiving the super guarantee from one of the employers.

Alternatively, if special circumstances have led to exceeding your cap, it is possible to apply to the ATO for some or all the contributions to be disregarded or allocated to the next financial year.

However, if all else fails and you have surpassed the cap, the excess contributions will be included in your assessable income and taxed at your marginal rate, with a 15 per cent tax offset. The silver lining is that you can withdraw up to 85 per cent of the excess contributions from your super fund to settle your tax liability. Any remaining excess contributions in the fund will count towards your non-concessional contributions cap.

Timing is everything

The upcoming Stage 3 tax cuts, commencing on 1 July 2024, may impact the value of your concessional contributions. For some, tax benefits may be greater if contributions are made before the tax cuts take effect.

Please consult our wealth team regarding your circumstances and to ensure you make the most effective move in line with the upcoming tax cuts.

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 precisely 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 utilise the ‘bring forward rule,’ which allows you to use caps from future years and potentially avoid paying extra tax. This rule enables you to make contributions of up to two or three times the annual cap amount in the first year of the bring forward period.

If your total super balance equals or exceeds 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.

If you need advice regarding how the changes in contribution caps might affect you and whether you are eligible for the bring forward rule, contact our wealth team today.

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