The end of the financial year presents a good opportunity to evaluate important superannuation and tax strategies. Below, we have provided a brief overview of various financial planning strategies that you may find useful.

Government super co-contribution

The super co-contribution is a payment from the Australian Government to assist eligible people save for their retirement. Generally, if you are under age 71 and your total income (assessable income plus reportable fringe benefits and reportable super contributions) is less than $43,445, the Government will match 50% of your non-concessional super contribution up to a maximum of $500 (based on a $1,000 contribution). If your total income is between $43,445 and $58,445, the maximum co-contribution of $500 reduces by 3.3 cents per dollar of income above $43,445 and phases out completely once your total income reaches $58,445. To be eligible at least 10% of your total income for the financial year must be attributable to either employment related activities or the carrying on of a business. Please note if you exceed your non-concessional contributions cap in a financial year, or if your total superannuation balance is equal to or greater than $1.9 million (as at 30 June 2023), then you will not be eligible for the super co-contribution.

Tax deductible super contributions

You may be able to claim a tax deduction for any personal superannuation contributions you make. These are classified as concessional contributions.  The concessional contribution limit is $27,500 per annum (and this limit includes any employer contributions made on your behalf such as superannuation guarantee and salary sacrifice contributions). Care needs to be made to ensure you do not exceed this limit as tax penalties apply. Concessional contributions are taxed at a rate of 15% upon entry into a superannuation fund, if your income is less than $250,000 during the financial year or at 30% if it exceeds this amount. From the age of 67 you need to satisfy the work test (i.e. be gainfully employed for at least 40 hours over 30 consecutive days in the relevant year) prior to making a personal deductible contribution to superannuation.

Superannuation salary sacrifice

Salary sacrifice is a strategy whereby you enter into an arrangement with your employer to forgo part of your future salary or annual bonus in return for superannuation benefits of equivalent value. When correctly structured, superannuation salary sacrifice can result in a reduction in your taxable income and therefore reduce the amount of personal income tax you pay. While you do not pay personal tax on the income sacrificed, your superannuation fund will deduct 15% contributions tax upon receipt[1]. Another benefit of the strategy is that you are increasing your savings in the concessionally taxed superannuation environment. Investment income and capital gains within superannuation are subject to tax at a maximum rate of 15%. It is important to make sure that you take into account any superannuation guarantee contributions and other concessional contributions you have received during the year to ensure that you don’t breach your annual contribution cap limit of $27,500 in the process. The salary sacrifice agreement with your employer must be in place prior to receiving the benefit for it to be considered effective.

[1] People with income exceeding $250,000 per annum may pay contributions tax of up to 30%.

Carried forward unused concessional contributions

If you have a total superannuation balance of less than $500,000 on 30 June 2023, you may be entitled to contribute more than the general $27,500 concessional contributions cap and make additional concessional contributions for any unused amounts from previous years. Any unused concessional contribution amounts will be able to be carried forward on a rolling basis over five consecutive years provided your superannuation balance is less than $500,000. This initiative commenced on 1 July 2018.

For example, if you made concessional contributions in the 2022 financial year totalling $15,000, you may be allowed to carry over the unused $12,500 component from that year (being the unused component from the general cap limit of $27,500).  However, if you made concessional contributions in the 2023 financial year totalling $20,000, you may be allowed to carry over $7,500 from that year. This would allow you to make total concessional contributions in the 2024 financial year of up to $47,500 ($27,500 current general cap limit plus the $12,500 carry forward amount from 2022 plus $7,500 carried over from the 2023 year).

This may be an attractive strategy to reduce personal tax if you are expecting a higher taxable income in the current or future years (such as a bonus or realised capital gains). Please speak to us prior to implementation if you think this strategy may be of benefit.

Non-concessional superannuation contributions

Non-concessional contributions are personal contributions made from after tax money that you are not claiming as a tax deduction. No tax is deducted from these contributions upon entry into the superannuation fund. There is a limit on the amount of non-concessional contributions you can make. The standard cap limit is $110,000 per annum, however you can ‘bring forward’ an additional two years of contributions which allows you to deposit up to $330,000. However, additional rules apply if you have more than $1.68 million accumulated in superannuation as detailed in the table below. Please note that tax penalties may apply if non-concessional contributions exceed these limits.

Total balance at 30 June 2023 Bring forward available? Non-Concessional Contribution Limit
Less than $1.68M Yes – 2 years Up to $330,000
$1.68M to less than $1.79M Yes – 1 year Up to $220,000
$1.79M to less than $1.9M No Up to $110,000
$1.9M or more No Nil

Spouse super contribution

Making superannuation contributions into the account of a lower income or financially dependant spouse can be a tax effective way to accumulate savings for retirement. Such contributions are known as eligible spouse contributions. In addition to increasing savings in the tax effective superannuation environment, the contributing spouse may claim a personal tax rebate for the contribution. The maximum rebate is payable where the spouse receiving the contribution has assessable income plus reportable fringe benefits plus reportable employer superannuation contributions totaling less than $37,000. The maximum rebate is $540 (18%) on the first $3,000 of contributions. The offset reduces $1 for every $1 by which income exceeds $37,000, with the offset totally phasing out at $40,000. Please note if your spouse has exceeded their non-concessional contributions cap this financial year, or if their total superannuation balance is equal to or greater than $1.9 million (as at 30 June 2023), then you are unable to make the spouse contribution.

Splitting super contributions with your spouse

You may be able to split up to 85% of your concessional contributions each year to your spouse’s superannuation account.  This can be actioned after the financial year in which the contributions were made or during the same financial year in certain circumstances.  It does not extend to splitting existing account balances. To be eligible to receive the concessional superannuation contributions, the receiving spouse must be under 55 years of age or if the receiving spouse is between 55 and 65 years of age, they must not have met a condition of release, such as retirement. This strategy can be effective over time to enable couples to access two low-rate cap thresholds on lump sum withdrawals ($235,000 for the 2024 financial year) on retirement prior to age 60.  It can also be an effective strategy if the receiving spouse is older and is likely to retire before the contributing spouse.  This may enable a couple to access superannuation earlier and at more tax effective rates. With the introduction of the superannuation cap limit, individuals can only transfer up to $1.9 million from superannuation to tax effective income streams in retirement. If one spouse may be expected to exceed this cap limit over time, splitting super contributions to the account of a spouse with a lower balance may assist couples accumulate more in retirement income streams.

Self managed superannuation funds – minimum pensions

As the trustee of a self-managed superannuation fund in pension phase you should check to ensure the minimum pension payments have been made for the year as non-compliance may result in taxation penalties.

Division 293 super tax

Individuals above a “high income threshold” of $250,000 are subject to an additional 15% (Division 293) tax on their concessional superannuation contributions. As a result, the effective contributions tax is doubled from 15% to 30% for concessional contributions (up to the concessional cap) for very high-income earners.  The $250,000 high income threshold includes taxable income, reportable fringe benefit, reportable superannuation contributions and total net investment loss. This means that negative gearing and salary sacrifice arrangements generally do not assist in bringing an individual below the threshold to reduce or avoid the Division 293 tax.

Prepayment of interest on money borrowed for investment purposes

You may be eligible to claim a tax deduction for interest payments on money that was borrowed for investment purposes. This is typically achieved through a margin loan or home equity finance.  The tax rules may also allow you to claim a tax deduction this financial year on interest prepaid up to 12 months in advance.  The interest prepayment strategy works best if you are on a higher marginal tax rate this financial year or expect your income to be lower next financial year.

Current interest rate outlook

At their May 2024 meeting, the RBA decided to leave the Cash Rate on hold at 4.35%. The RBA has previously stated that it will not reinvest maturing government bonds which will reduce the size of their balance sheet significantly over the next couple of years. Market pricing suggests interest rates have peaked, although cuts are not expected until 2025.

The RBA places a high priority on the return of inflation to within its 2–3% target range over time. Given Australia’s high level of household debt, the RBA’s current approach remains appropriate. While headline inflation continues to moderate, core and services inflation remain sticky. Headline inflation is expected to fall within the top end of the RBA target range in 2025. GDP growth is expected to be below trend for the next couple of years, and the RBA continues to emphasise that the economic outlook is highly uncertain.

Around the world inflationary pressures also continue to ease, with normalisation of commodity prices and the clearing of supply chain bottlenecks. However, we are yet to see inflation rates fully stabilise within Central Bank target ranges. As such, there is still a risk that global inflation remains above target, and Central Banks are forced to keep rates higher and for longer than expected. Global interest rate settings also have an influence on interest rates in Australia.

Please note that the outlook for interest rates can change rapidly and forecasting interest rate movements involves a high degree of speculation. Please contact us for recommendations for your specific situation if this strategy is of interest.

Disclaimer: This information has been prepared by Alder and Partners Pty Ltd (ABN 98 146 233 534) and is for general information only.  It does not contain and is not to be taken as containing any personal advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice. Except insofar as liability under any statute cannot be excluded, Alder and Partners Pty Ltd does not accept any liability for any error or omission in this information or for any loss or damage suffered by the recipient or any other person.

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