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The start of the financial year always brings change in one way or another. The one most workers will benefit from in the new year is the Stage 3 tax cuts, and that’s because there should be more money in the kitty after tax.
But that’s not the only way you can get ahead. There are updates on the way for super too, which are designed to help Aussies grow their retirement nest egg.
The main changes coming to superannuation from 1 July, 2024, include:
Super contribution cap increases
New thresholds for the government’s co-contribution scheme
Super Guarantee percentage increase
But super can be super complicated, so let’s look at basics to help you come up to speed with what it may mean for your retirement.
New limits on super contributions
If you can afford to make voluntary contributions to your super, you may be able to take advantage of the new caps from 1 July. That’s because the government is increasing how much you can contribute towards your super each year.
Super contributions can be concessional or non-concessional…
What are concessional contributions?
One way to remember what concessional contributions are is that they’re before tax contributions which are taxed at a concessional rate. For most employees this is taxed at 15%.
The most common concessional contributions include:
contributions an employer makes (Super Guarantee)
any salary sacrifice voluntary payments an employee makes.
Other forms of concessional contributions may include:
certain award contributions
additional employer contributions
personal contributions whereby a tax deduction is claimed.
Contributions to the First Home Super Saver scheme may also be made as concessional contributions.
The government is lifting the annual limit on concessional contributions from $27,500 to $30,000 at the start of the new financial year.
Have you heard of the carry-forward rule?
According to the ATO, if you have unused concessional cap amounts from previous years, the carry-forward rule may allow you to roll them forward into the current financial year.
Unused concessional cap amounts are automatically applied once the cap is exceeded. These cap amounts can only be from the last five years and your super balance needs to be below $500,000.
An example of how it works:
In the 2023-2024 year, the cap was $27,500.
Let’s say your before tax contributions were $15,000.
You can carry-forward $12,500 into the 2024-2025 year.
This would increase your limit to $42,500 ($30,000 + $12,500).
Be aware: if using the carry-forward rule and you go over the cap by making excess concessional contributions, you may be required to pay extra tax.
What are non-concessional contributions?
Now that we’ve established that concessional contributions relate to before tax, you may have already worked out that non-concessional contributions are after tax. From 1 July, these contributions are increasing from $110,000 to $120,000 in a financial year.
If you’re cashed up and eligible, that’s an extra $10,000 (after tax) you’ll be able to pump into your super. This includes any payments your partner or someone else may kindly inject into your fund.
The changes to the non-concessional contributions also mean there are changes to the bring-forward rule.
How does the bring-forward rule work?
The bring-forward rule allows you to bring your future limits forward so you can use them earlier. You can roll up to three years of non-concessional contributions into a single year.
From 1 July 2024:
The two-year bring-forward limit will be $240,000 (up from $220,000).
The three-year bring-forward limit will be $360,000 (up from $330,000).
The benefit of bringing forward is that in theory it should fast-track your return on super.
Be aware: like most things in super, this rule is complex and to be eligible, it depends on things such as your age and super balance. We’d strongly recommend you read the ATO’s guidance or speak to a financial professional like an accountant before making any decisions.
Government’s co-contributions scheme
The government’s super co-contribution scheme is designed to help low to middle-income earners – including part-time workers – to bolster their super balance.
If eligible and you make an after tax contribution to your super, the government can reward you with a co-contribution to your super.
The thresholds are changing from 1 July. If you earn less than $45,400, up to $60,400 per year, and you make an after tax contribution to your super, you may be eligible for a government co-contribution of up to $500.
While the maximum co-contribution amount of $500 remains unchanged, the threshold has changed from 2023-2024:
$43,445 for lower income earners.
$58,445 for higher income earners.
Note: The co-contribution scheme works on a sliding scale. If you’re in the lower income threshold (less than $45,400), you may receive the maximum co-contribution amount of $500 when an after tax contribution of $1000 is made. Government co-contributions are only paid once a year.
Super Guarantee increase
The Super Guarantee is the official term used to describe an employer’s requirement to pay super to its employees.
Since 2021, this has been steadily rising each financial year by half a percent. From 1 July, 2024 employers will be required to contribute 11.5% each year – a jump from the previous year of 11%.
The Super Guarantee will also increase from 1 July 2025 to 12% but there are no plans to increase it after this date.
Bottom line
There’s a range of super changes about to sweep in – just about something for everyone. Now may be a good time to start thinking about how you can nurture your nest egg.
Perhaps you can salary sacrifice some of the Stage 3 tax cuts… or maybe you can take advantage of some of the higher limits?
Now that the government is making changes, will you make any changes to your super strategy?
Go deeper:
Financial Disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
