Advice Manager Iby Ibrahim reviews the significant changes to income tax, superannuation contribution rules and the Government Age Pension and what it can mean for you and your super.
Income tax cuts
On 1 July 2024 every employed Australian received a boost to their take home pay from the Federal Government’s legislated tax cuts. The ATO tax cut calculator is a quick and easy way to work out how much tax you will save.
How much extra income could you receive?
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These tax cuts are like getting a pay rise, because people end up with more take home pay, and the extra money may help ease cost of living pressures for many working Aussies. But if you’re able to do so, contributing just part of the extra income into super via salary sacrifice, means you benefit not only by keeping some extra funds now, but you can also potentially benefit later from a boost to retirement savings.
How it works
Here’s how salary sacrificing can boost your super:
- Penny is 55 and earns $80,000 a year. She plans to contribute half of her tax savings into super via salary sacrifice – about $21 per week. Over 10 years, this could add up to an extra $11,000 in super.
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- To see how your contributions today could boost your retirement savings over time, simply log into your account and enter your salary sacrifice numbers into My Retirement Planner™. The earlier you can start, the bigger the benefit will be.
* This is based on superannuation balance projections for a typical female member at age 55, invested in the Aware Super MySuper lifecycle strategy. Net investment return is based on CPI+ objectives. Results are based on today's dollar deflated using wage inflation of 3.5% p.a. Projected balances are rounded to the nearest $1000 and tax savings across 10 years is rounded to the nearest $10. These projections are estimates and not guaranteed. The actual amount of money you will get in your retirement may be very different from the estimates.
Just $10 extra a week invested over ten years can make a big difference to your super balance. And while you’re working and putting it into super you pay only 15% tax on that investment*. When you’re withdrawing your super at retirement after age 60, for most there’s no tax. It’s a win-win for your income now and in retirement.*
Retirees who are taxpayers in retirement because of income sources other than super, will pay less tax but are likely to only see the benefit of a lower tax liability when they complete their tax returns for the year.
* Subject to certain thresholds. Before contributing, consider these thresholds including the current annual limit for all before-tax contributions and after-tax contributions. Exceeding any of these thresholds, may reduce any tax benefits you could receive.
Superannuation
The superannuation guarantee (SG), the compulsory amount of super contributions employers pay their workers, increased half a percent to 11.5% on 1 July 2024. Next financial year the SG it will reach the final legislated increase of 12%.
Increase to before-tax contribution caps
From 1 July 2024, the concessional (before-tax) contribution cap increased to $30,000 a year, up from $27,500. That means you can contribute extra to your super at a lower tax rate. Concessional contributions are part of the taxable component of your super, when time comes to withdraw funds. These contributions are taxed at only 15% instead at time of contribution to super instead of the of your marginal tax rate which could be as high as 45%, making super one of the most tax effective ways of investing your money.
Meanwhile under the carry forward provisions (which allow unused concessional caps from up to five previous financial years to still be used), any unused cap amounts from the 2019-20 financial year expired on 30 June 2024. Unused cap amounts from the 2019-20 financial year will expire at the end of this financial year.
To be eligible to utilise any unused concessional contribution caps in the 2024/25 financial year, your total super balance needs to be less than $500K on 30 June 2024.
Changes to after-tax contribution caps
From 1 July 2024, the cap on non-concessional (after-tax) contributions increased to $120,000 a year, up from $110,000. Because tax has already been paid on non-concessional contributions, these funds are part of the tax-free component of your super.
The increase impacts the bring forward provisions for after-tax contributions, increasing the maximum to $360,000 depending on the total super balance at the end of the previous year (see table). If you are in an existing bring forward arrangement, you won’t benefit further from these changes.
Scroll table horizontally on mobile
| After-tax contribution caps Bring forward provisions |
|||
|---|---|---|---|
| Total Super Balance* |
Age |
Bring Forward |
Cap |
| < $1.66 mil | 74 or under | 3 years | $360,000 |
| $1.66 mil to < $1.78 mil | 74 or under | 2 years | $240,000 |
| $1.78 mil to < $1.9 mil | 74 or under | No bring forward | $120,000 |
| $1.9 mil+ | (<75 ) 75 or under | Nil | Nil |
* Measured to 30 June the preceding financial year
Book in to a see a Financial Planner to see how these changes could benefit you. Call 1300 192 602 to book appointment.
Changes to preservation age
From 1 July this year the preservation age for super, that’s the minimum age that people can start using their super, has been locked in at 60 years. Previously a person's preservation age ranged from age 55 to 60 years, depending on their date of birth. From this financial year, everyone including those between 55-60 years of age, now has a preservation age of 60 years.
Changes to accessing the Government Age Pension
Thanks to the changes in the marginal tax rates effective from 1 July this year, the income that retirees 67-years or over can earn before they pay any tax, has increased. Taking into account both the Low-Income Tax Offset and Seniors and Pensioners Tax Offset, a single person could now earn up to $35,813 before paying tax. Members of a couple could earn $31,888 each before paying tax.
Also changed from 1 July is an increase in the amount of income singles or couples can earn before it impacts their age pension entitlement.
The calculations around the income test deeming can be complex. A financial planner can work through these and other 1 July changes, and help you create the right strategies to achieve your financial goals in retirement. They’ll explain any next steps, fees and charges before progressing.
Disclaimer
This is general information only and does not take into account your specific objectives, financial situation or needs. Seek professional financial advice, consider your own circumstances and read our Financial Services Guide, any relevant product disclosure statement & Target Market Determination, before making a decision. Call us or visit our website for a copy.
Issued by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL No. 238430), wholly owned by Aware Super (ABN 53 226 460 365) whose trustee is Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340). For customer service please call 1800 620 305. Financial planning services are provided by Aware Financial Services Australia Limited, ABN 86 003 742 756, AFSL No. 238430. Estate planning services are provided by Aware Super Legal Pty Ltd (ACN 606 835 170), an Incorporated Legal Practice.