Superannuation contribution caps are set to increase for the first time in three years, thanks to robust wages growth data released by the Australian Bureau of Statistics. These caps, which govern both concessional and non-concessional contributions, are tied to wages growth and are periodically adjusted. Come July 1, the concessional contribution cap will climb from $27,500 to $30,000, while the non-concessional cap will rise from $110,000 to $120,000.
The forthcoming rise in super contribution limits is a positive development, especially for older workers who are more likely to have the means to capitalize on these changes. Peter Hogg, the general manager of advice at Aware Super, emphasizes the significance of this adjustment for older individuals, highlighting the opportunity it presents for them to bolster their financial readiness for retirement.
Concessional super contributions, encompassing compulsory payments from employers, pre-tax salary sacrifices, and voluntary contributions, are taxed at a favorable rate of 15%, considerably lower than the typical marginal tax rates. In contrast, non-concessional contributions, often sourced from asset sales, property deals, or inheritances, enjoy the same tax rate advantages within the superannuation framework.
Under the “bring forward” provision for non-concessional contributions, individuals can inject up to three years’ worth of such contributions in a single year. Notably, the concessional cap includes mandatory super contributions from employers, a rate that has risen from 9.5% to 11% since the last cap adjustment in 2020-21, and is slated to increase further to 11.5% on July 1.
With these changes, someone earning $100,000 will receive compulsory super contributions totaling $11,500 in the upcoming financial year, leaving them with an effective voluntary concessional cap of $18,500. This adjustment significantly impacts the potential utility of the increased non-concessional cap in augmenting super balances.
Brooke Logan, the technical and strategy support lead at UniSuper, points out that individuals with less than $500,000 in super savings have the option to leverage their unused concessional contribution caps from the past five years to make catch-up contributions.
As the third stage of income tax cuts comes into effect from July 1, many workers will see an uptick in their take-home pay. While some may allocate these funds to mortgage repayments, older workers, in particular, may find themselves in a position to ramp up their salary sacrifice contributions without compromising their net income due to the tax cuts.
Calculations by HLB Mann Judd illustrate that a person earning $120,000 could potentially make salary sacrifice contributions of up to $3940 before experiencing a reduction in after-tax pay. Similarly, someone earning $140,000 could sacrifice up to $6113 before seeing a decrease in their take-home income.
It is essential to note that the advice provided in this article is general in nature and should not be considered as a sole influence on financial decisions. Readers are encouraged to seek personalized professional advice that considers their unique circumstances before making any financial choices.
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