End of Financial Year: Super changes you need to know before June 30

Changes to superannuation in the past financial year could provide some Australians with more effective tax and retirement strategies. For others, these changes could complicate their existing plans.

With the new financial year soon to commence, ANZ Private Wealth adviser Liana Cauchi said now is the time to review financial plans and consider whether they’re still appropriate – not just for the current economic environment but for the future.

“It's very important that people are making sound decisions with respect to their finances. Taking a long-term view that aligns with your financial goals, instead of focusing on short term volatility that we are experiencing currently, can lead to greater financial stability and success” she said.

In that spirit, Ms Cauchi considered how changes to superannuation rules could be of benefit in financial plans. 

What’s new in super

The government has adjusted several of the rules governing super contributions including:

• removing the work test for non-concessional contributions for people under the age of 75 from 1 July 2022. Depending on individual superannuation balances, this can open up several valuable financial strategies.
• increasing the general transfer balance cap from $1.7 million to $1.9 million from 1 July 2023. It’s important to note that if you have already commenced a pension, you will have an individual transfer balance cap.
• reducing the minimum age (from 65 to 55 as of 1 January 2023) for Australian homeowners to make downsizer contributions.
• increasing employers’ Super Guarantee contributions from 10.5% to 11% from 1 July 2023.
• As discussed in the budget, Superannuation balances over $3m could incur additional earnings tax from 1 July 2025.

Making sense of the ‘bring-forward’ rule

The first two changes have effectively “opened up retirement planning to many more Australians”, Ms Cauchi said, adding that extending the eligibility of the ‘bring-forward’ rule is particularly interesting.

As she explained, the rules on annual non-concessional contribution caps[SS1] , limit the amount of voluntary after-tax contributions into super at $110,000 each financial year.

However, an eligible person can ‘bring forward’ their contributions for the current and following two financial years, effectively enabling them to deposit up to $330,000 into their super in one year without being penalised.

Tax on concessional super contributions is capped at 15% (this is separate to the 15% tax on earnings for balances over $3 million mentioned above). For some people, that may be less than the tax rate applied to their income/investment earnings held outside super.

This means the bring forward rule may be useful for individuals wanting to use up as much of their remaining transfer balance cap in a single financial year as possible, although this strategy might not be appropriate for everyone.

An increased transfer balance cap

Transfer balance caps limit the amount of money individuals can ‘transfer’ into a tax-free retirement income product such as an allocated pension.

From 1 July 2023, the transfer balance cap will increase from $1.7 million to $1.9 million for Australians who haven’t yet maximised their transfer balance.

People eligible for the higher transfer cap include anyone yet to commence receiving a retirement income stream as well as those already receiving a retirement income stream who haven’t previously reached their transfer balance cap.

This may enable eligible retirees to place larger sums into tax-free retirement products. It can also open up new strategies to those retirees close to maximising their caps.

"With regards to making non-concessional contributions, your total superannuation balance as at 30 June the previous financial year needs to be under $1.48m to fully utilise the bring-forward rule,” Ms Cauchi said. “If it was $1.48 million to $1.59 million, you could make two years’ worth – $220,000 – because you are unable to exceed your transfer balance cap.” The increase in this cap to $1.9m as of 1 July 2023 increases the amount you can have in superannuation and still be able to fully utilise the bring forward rule.

Keep in mind that if you reach your cap limit at any point, you won’t be able to take advantage of subsequent increase to the transfer balance cap that may be made in future years.

Upsizing the downsizer cohort

Downsizer contribution rules now allow individuals aged 55 and older to contribute an additional $300,000 to their super from the sale of their home.

The money that’s been contributed could be placed into a retirement income stream to benefit from tax exemptions (so long as it’s within the transfer balance cap), or it could be taken from super and then recontributed, potentially making it tax-free for dependants in an inheritance.

Downsizer contributions must be made within strict timeframes and within tight eligibility criteria. Individuals should seek professional advice to make sure they’re complying with the rules.

Check Super Guarantee contributions

From 1 July 2023, employer Super Guarantee contributions increase to 11%. That means employer super contributions for workers earning $250,000 or more could push above the $27,500 concessional contribution cap.

Individuals who are currently salary sacrificing additional payments into super should check what their Super Guarantee contributions are and how it might affect their annual concessional contribution amount.

Super is a long-term play

It’s vital to remember that superannuation is meant to be a long-term investment strategy, even though the rules that govern it are subject to change.

Although it’s vital to be aware of changes made to the system, you should always consider your longer term goals before making any adjustments to your super settings.

Beyond super: Important tax considerations

Interest payments

Interest payments on certain investment loans, such as margin loans and property investment loans, may qualify for tax deductions. That means investors may be able to pre-pay interest on these loans now to receive a tax deduction for this financial year.

Property expenses

Depreciation on the value of some property items can also be claimed as a tax deduction. It’s important for property investors to know what can and cannot be depreciated, and whether any other property expenses incurred in that financial year are deductible.

It’s also vital to keep documents and receipts related to repairs, so deductions can be calculated accurately.

Insurance payments

Premiums paid on some insurances – including income protection insurance – can be claimed for tax deductions. As deductions only apply to certain policies, individuals should review their insurance arrangements with a finance professional.

Donations

Philanthropy may also offer tax benefits, as donations to registered charitable organisations are tax deductible.