The superannuation sector is on the brink of significant change, set to take effect from 1 July 2024. This change comes in the wake of the latest Average Weekly Ordinary Time Earnings (AWOTE) data release, which has triggered an indexation of contribution caps. Specifically, concessional contribution caps will see an increase from $27,500 to $30,000, while non-concessional contribution caps will rise from $110,000 to $120,000. This adjustment aims to align superannuation contributions with the current economic landscape, offering individuals enhanced opportunities to bolster their retirement savings.     

Concessional Contribution Caps and Carry Forward Mechanism

A standout feature of the superannuation indexation is the ability for members to carry forward unused concessional contribution caps. This provision is particularly advantageous for individuals who have not maximized their concessional contributions in the past five years.  

Key Points to Consider:

• Concessional Carry Forward Rule: This rule permits members to make additional concessional contributions by leveraging unused caps from the previous five years. It's a strategic tool for individuals looking to catch up on their super contributions in a tax-efficient manner. Please note your will need personal assessable income equal to or greater than your bring forward concessional contributions.
• Total Super Balance Requirement: The eligibility to utilize the carry forward rule hinges on the member's total super balance. In order for a member to utilise their unused concessional contribution caps, they will need to have a total super balance of less than $500,000 at 30 June of the preceding year.  
• Be mindful of the cap: Importantly, the amount that can be carried forward depends on the contribution cap of the year in which the member intends to use the carry forward, not the year in which the contributions are made. This nuance is crucial for strategic planning, especially with the impending cap increases.           

Strategic Considerations (Reserving):

• June Contributions: By making a concessional contribution in June 2024, eligible members can claim a personal tax deduction for up to $57,500 in the 2024 financial year. This unique timing advantage stems from the way contributions are recorded and allocated within the superannuation system.
• Work Test Requirements: It's crucial to note that the member’s eligibility to make the contribution is determined in the year the contribution is made, which includes meeting any applicable work test requirements.  
• Allocation Timing: Although the contribution is made in June 2024, if it is allocated to the member’s account within 28 days from the start of the next financial year (i.e., in July), it will be assessed against the member’s concessional contribution cap for the following financial year. This allocation timing allows for the strategic spread of contributions across two financial years' caps.

Non-Concessional Contributions and the 3-Year Bring Forward Rule

The non-concessional contribution cap's indexation also brings to light the 3-year bring forward rule, which allows eligible individuals to make up to three years' worth of non-concessional contributions in a single year. Despite the increase in the annual non-concessional cap to $120,000 for the 2025 financial year, the total 3-year bring forward cap remains at $330,000 for the 2024 financial year. 

             

Total super balance on 30 June (of previous year)	Non-concessional contributions cap for the first year	Bring-forward period
Less than $1.68 million	$330,000	3 years
$1.68 million to less than $1.79 million	$220,000	2 years
$1.79 million to less than $1.9 million	$110,000	No bring forward period, general contributions cap applies
$1.9 million or more	nil	Not applicable

 

Strategic Considerations (when is the right time to trigger the 3 year bring forward rule):

• Fixed Bring Forward Cap: Once a member triggers the three-year bring forward in the 2024 financial year, their total non-concessional contribution limit over the three years is fixed at $330,000. This cap is irrespective of the annual cap increases, presenting a strategic consideration for timing contributions.
• Maximizing the Transfer Balance Cap: For individuals with sufficient room under their transfer balance cap, it may be advantageous to delay triggering the bring forward rule until the 2025 financial year. This delay could potentially allow for a higher cumulative non-concessional contribution, aligned with the increased annual caps.

The indexation of superannuation contribution caps introduces a landscape ripe with opportunities for individuals aiming to enhance their retirement savings. Understanding and strategically leveraging the carry forward and bring forward rules can significantly impact one's superannuation balance. As these changes roll out, it's essential for members to consult with a financial advisor to navigate the complexities of the superannuation system effectively. With thoughtful planning and an eye on the evolving superannuation framework, individuals can maximize their contributions in a manner that aligns with their long-term financial goals.          

 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.