Now is a great time to get on the front foot with what’s in store for advice strategy in the year ahead, and to add some key dates to your diary for 2024 before you wrap for the holidays.
January: Will super caps index?
The consumer price index (CPI) and average weekly ordinary time earnings (AWOTE) figures will be released in January and February, respectively. This will determine whether the general transfer balance cap (TBC), contributions caps and related total super balance (TSB) thresholds will change from 1 July 2024. While any resulting impact may seem a way off, there may be important considerations for contribution and retirement advice provided this side of 30 June.
With the rate of inflation easing, it’s looking somewhat unlikely that we will see the general TBC index to $2 million from 1 July. That said – keep an eye on this, as if we do see indexation of the cap to $2 million, this could impact advice early in the new year.
For example, you’ll need to think about whether it’s best to commence a retirement phase pension before or after 1 July – is it worth hanging back to pick up the indexation and a higher personal TBC? What’s the cost of doing so? It is important to understand the impact of pension refreshes on any indexation of the client’s personal cap performed before or after this date.
Also, review clients who have high balance transition to retirement income streams who may meet a full condition of release before the end of the financial year. A transition to retirement (TTR) pension enters retirement phase automatically when a person reaches 65 or notifies the super fund they’ve met certain other full conditions of release.
These arrangements may need to be reviewed and either commute part or all of their pension balance back to accumulation to avoid an excess transfer balance amount, or to maximise their personal TBC by ensuring they enter retirement phase once the higher TBC comes into play.
February: Contribution caps
Recent increases to AWOTE make a possible increase to contribution caps look more likely. This could mean the concessional and non-concessional caps (NCC) increase to $30,000 and $120,000 respectively.
Keep in mind that the general TBC is used to determine the TSB thresholds that determine the non-concessional limits for high balance clients, including under the bring-forward rule. Therefore, an increase to either the contribution caps or the general TBC will impact non-concessional contribution eligibility in the new financial year. The table below summarises the potential limits from 1 July based depending on indexation. As the table demonstrates, indexation of the general TBC will increase contribution opportunities for high balance clients. However, if contribution caps increase but the general TBC remains at $1.9 million, contribution eligibility from 1 July will actually decrease slightly.
Therefore, it’s worth paying close attention early in the new year to maximise contribution opportunities and be aware of the different scenarios. The table below summaries the possible outcomes.
Table 1: Different possible outcomes for NCC and TBC
| Current NCC and limits | If TBC remains $1.9m but NCC increases to $120,000 | If TBC indexed to $2m and NCC remains at $110,000 | If TBC indexed to $2m and NCC increases to $120,000 | ||||
| $1.79m to <$1.9m | $110,000 | $1.78m to <$1.9m | $120,000 | $1.89m to <$2m | $110,000 | $1.88m to <$2m | $120,000 |
| $1.68m to <$1.79m | $220,000 | $1.66m to <$1.78m | $240,000 | $1.78m <$1.89m | $220,000 | $1.76m to <$1.88m | $240,000 |
| < $1.68m | $330,000 | <$1.66m | $360,000 | <$1.78m | $330,000 | <$1.76m | $360,000 |
April: Downsizer contributions – Now or then?
Eligible clients who sell a qualifying dwelling can make a downsizer contribution within 90 days of settlement. For some settlements that occur in April 2024, the 90-day window means that contributions may be able to be made on or after 1 July 2024. As these contributions form part of the TSB on the following 30 June after the contribution is made, waiting until the new financial year means these amounts won’t form part of the TSB until 30 June 2025, impacting contribution eligibility in FY26. Therefore, for some clients, holding off on making the downsizer contribution until the new financial year (but within the 90-day limit) may help to optimise contribution eligibility in FY25.
This logic also applies to other contribution types – particularly where a client may benefit from a personal deductible contribution after 1 July (including under the catch-up rules), where a contribution this side of 1 July would increase their TSB to above the qualifying limit of $500,000.
May: Federal Budget
The budget is traditionally held on the first Tuesday in May. While it’s too early to have any real indication of what we are likely to see, there are a few things that many are hoping to see in the Budget, if not before. The previously announced proposal to allow a temporary two-year window to exit certain legacy pensions originally announced in the May 2021 Budget has not progressed to date. Similar to this, the previously proposed changes to SMSF residency rules has also gone quiet.
Before 30 June: Make the most of concessional contributions
With unused concessional contributions carried forward from FY19 set to expire at the end of this financial year, as well as Stage 3 tax cuts coming in to play on 1 July, it’s a great time to review contribution strategies to ensure clients make the most of their concessional contributions cap.
Since 1 July 2018, it’s possible to carry forward unused concessional contributions for five financial years. This means this financial year is the last year to take advantage of unused concessional contributions accrued in FY19. Voluntary concessional contributions can be made either via a salary sacrifice arrangement, or by claiming a deduction for a personal contribution (if eligible). Remember that only prospective income can be salary sacrificed, so agreements should be reviewed in enough time to make changes to take advantage of unused concessional contributions. Alternatively, a personal deductible contribution might be the simplest to take advantage of the concessional contributions cap – but don’t forget to lodge a valid Notice of Intent within the required timeframes, and before any amounts are withdrawn, rolled over, or used to start a pension.
Clients can check their available unused concessional contributions by logging into myGov. Remember that TSB (which must be below $500,000 on the prior 30 June) is displayed on a separate screen, so don’t forget to validate both.
Maximising the value of contributions and deductions
Stage 3 tax cuts legislated to come into effect on 1 July 2024 will impact the benefit of personal deductible contributions for some high-income earners.
Clients whose marginal tax rate (MTR) will decrease from 1 July 2024 due to the tax cuts may find that the value of a tax deduction for a personal deductible contribution in the current financial year is greater than the net benefit from 1 July. Of course, this depends on a range of factors, including the client’s income this year and next year.
Also, don’t forget that the Division 293 tax of 15 per cent is calculated on concessional contributions within an individual’s concessional contributions. This includes any unused contribution caps carried forward that they are eligible to use. While from a tax perspective, even with Division 293 factored in, high income clients will still be better off contributing to super, a reduction in the MTR will mean the tax efficiency from a concessional contributions will reduce.
Table 2: Comparison of personal income tax rates now and from 1 July 2024
| Income | FY24 | FY25 |
| $200,000+ | 47% | 47% |
| $180,001-$200,000 | 47% | 32% |
| $120,001-$180,000 | 39% | 32% |
| $45,001-$120,000 | 34.5% | 32% |
| $18,201-$45,000 | 21% | 21% |
| Less than $18,200 | 0% | 0% |
From 1 July: Check 30 June TSB
The 30 June 2024 TSB will impact contribution eligibility and strategies available in FY25. It’s important to check myGov information against your own records and ensure data provided by the fund is the ‘exit value’ rather than the ‘closing balance’. Also be aware that TSB data on myGov may take quite some time to be updated, with APRA funds having until 31 October to report, and SMSFs well into the next calendar year.
The TSB reflects the actual exit value of super interests, rather than the notional account balance under the TBC rules. This is an important point to understand – for example if you have a client who has become the recipient of a reversionary death benefit pension in FY24, even if the credit to their TBA won’t happen until after 1 July 2024 (i.e. 12 months from the date of the member’s death), it will be included in their TSB on 30 June 2024.
SG increases
The rate of superannuation guarantee (SG) will increase to 11.5 per cent. The start of the new year is a great time to chat to clients about their salary sacrifice arrangement and contributions strategy to make the most of caps without exceeding them.
Jenneke Mills is head of technical services at MLC Australia.
