Super and tax changes for the new financial year

The tax cuts introduced from 1 July 2024, along with other recent changes, may mean it’s time to review your current tax, super, and investment strategies to ensure you’re maximising the benefits.

Under the changes, the previous 19 per cent tax rate reduces to 16 per cent, while the 32.5 per cent rate drops to 30 per cent. The income threshold at which the existing 37 per cent tax applies increases from $120,000 to $135,000.ⁱ

Additionally, the income threshold at which the 45 per cent tax rate applies increases from $180,000 to $190,000.

More income along with salary packaging implications

With additional disposable income now available, it might be a good time, depending on your circumstances, to consider contributing more to your super or to focus on paying down non-deductible debt such as your mortgage.

If you have a salary packaging arrangement in place, it’s worth noting that the reduction in the lowest tax rate from 19 per cent to 16 per cent may affect the value of these strategies for some taxpayers.

For example, someone packaging $15,000 of debt repayments in 2023-24 saved around $5,000 with the 37 per cent tax rate, but under the lower 2024-25 tax rate of 30 per cent, this tax saving is significantly reduced.

Medicare Levy threshold uplift

Some taxpayers will also see changes, due to the 2024-25 Federal Budget increase, in the low-income threshold for the Medicare Levy.

The increase in the existing income thresholds is designed to ensure low-income taxpayers continue to be exempt from the Medicare Levy or will pay a reduced rate.

For 2024-25, the income threshold exempts people earning $26,000 or less from paying the Medicare Levy. After that, the levy increases gradually, with the full 2 per cent levy being paid by anyone earning more than $32,500. ⁱⁱ

Tax cuts impact businesses

Employers will also feel the impact of the new income tax rates and will need to ensure they are withholding the correct amount of pay as you go (PAYG) tax from each employee’s pay, starting 1 July 2024.

Employers should check if their payroll software is using the correct withholding rates. An easy way to do this is to use the ATO’s online Tax Withheld Calculator.

SG rate changes for employees

From 1 July 2024, the Super Guarantee (SG) that employers are required to pay into their employees’ personal super accounts increased from 11 per cent to 11.5 per cent of ordinary times earnings. The SG will rise again on 1 July 2025 to reach its final level of 12 per cent.ⁱⁱⁱ

The quarterly maximum super contributions base (MSCB) also rose to $65,070 (up from $62,270) from 1 July. Employers are not required to provide SG contributions for any salary amount paid to an employee above the quarterly MSCB limit.

Super contribution caps rise

From 1 July 2024, there were increases in the annual caps on super contributions before extra tax becomes payable on the contribution amount.

The concessional (before-tax) contributions cap increased to $30,000 (up from $27,500 in 2023-24), while the annual non-concessional (after-tax) contributions cap rose to $120,000 (up from $110,000 in 2023-24).

The increase in the non-concessional contributions cap means the limit for bring-forward contributions now sits at $360,000 over three years (up from $330,000 over three years in 2023-24). The cap on your total super balance remains at $1.9 million, as does the general transfer balance cap.

For 2024-25, the CGT cap amount (or lifetime limit) for eligible business owners wanting to make tax-advantaged contributions into their super account is $1,780,000 (up from $1,705,000 in 2023-24). ^v

For a detailed analysis of the 2024-25 Federal Budget, please click here.

If you need help navigating the updated super and tax rules for the new financial year, contact our wealth team. Our advisers can work with you to understand these changes and implement strategies that align with your financial goals.

Sources

i https://taxcuts.gov.au/

ii https://www.abc.net.au/news/2024-01-25/low-income-earners-extra-tax-relief/103387054

iii https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/super-guarantee

iv 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/concessional-contributions-cap

v https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/contributions-caps#ato-CGTcapamount