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2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. This article outlines what’s changing and what’s not. It also explains some key considerations and opportunities in the lead up to 30 June and beyond.

Transfer balance cap

The transfer balance cap limits the amount of superannuation that can be used to start a pension, where the investment returns are generally tax free. The transfer balance cap was introduced from 1 July 2017 at $1.6 million and is indexed periodically to the consumer price index (CPI) in $100,000 increments. From 1 July 2021, it increased to $1.7 million and to $1.9 million from 1 July 2023. The transfer balance cap will remain at $1.9 million from 1 July 2024.

Contributions

Some key thresholds that impact contribution planning will increase from 1 July 2024, while others will be unchanged.

Total super balance

The value of the general transfer balance cap is used to determine the total super balance threshold which impacts eligibility for making non-concessional contributions and spouse contributions, as well as receiving Government co-contributions. This will remain at $1.9 million from 1 July 2024.

When determining eligibility for contributions, the total super balance is measured at the previous 30 June, not at the time a contribution is made.

Concessional contributions

The concessional contributions cap is indexed to average weekly ordinary times earnings (AWOTE) in $2,500 increments. The concessional contributions cap will be indexed from $27,500 to $30,000 from 1 July 2024.

This also impacts the concessional contributions that can be made under the five-year carry forward rules by individuals who have a total super balance at the previous 30 June of less than $500,000. The five-year carry forward total super balance threshold is not indexed.

Individuals who have a total super balance at 30 June 2024 below $500,000 will have a concessional contribution cap of up to $135,000 in 2024/25. This includes a maximum of $25,000 for 2019/20 and 2020/21, as well as $27,500 for 2021/22 and 2022/23.

Based on the five-year carry forward rules, from 1 July 2024, any unused concessional contributions from 2018/19 will no longer be available to use. This means that 2023/24 is the last year that individuals can use any unused concessional contribution cap from 2018/19.

Non-concessional contributions

The non-concessional contributions cap is calculated as four times the concessional contributions cap. So from 1 July 2024 the non-concessional contributions cap will be $120,000.

The two- and three-year bring forward limit will also increase to $240,000 and $360,000 respectively from 1 July 2024.

The total super balance thresholds for determining eligibility to make non-concessional contributions will change, as outlined in the table below:

Importantly the three-year bring forward maximum contribution is based on the non-concessional contributions cap at the time the three year bring forward is triggered. There is no benefit from indexation for individuals who have triggered a bring forward prior to 1 July 2024.

Example

Shamal triggered the three-year bring forward in 2023/24 by making a $150,000 non-concessional contribution. Shamal can contribute a further $180,000 prior to 30 June 2026; they don’t benefit from indexation of the non-concessional contributions cap during this time.

Thresholds not indexed

In addition to the threshold for accessing the five-year concessional contributions carry forward, the $300,000 total super balance threshold for determining eligibility for the work test exemption is not indexed.

Summary of rates and thresholds

The table below summarises the key rates and thresholds recently released by the ATO:

Superannuation guarantee contributions

Although not subject to indexation, from 1 July 2024 the superannuation guarantee rate is increasing from 11% to 11.5%. Individuals who make personal concessional contributions or have salary sacrifice contributions made by their employer may need to factor the increase into their arrangements.

Preservation age

From 1 July 2024, the preservation age will be age 60. This means that all individuals who are eligible to commence a pension or take a lump sum payment will not pay PAYG tax on their benefits.

Summary

The superannuation rules changed dramatically in 2017 and introduced a variety of thresholds that determine eligibility for certain tax concessions and the ability to make contributions. The indexation of the thresholds adds an additional layer of complexity from 1 July 2024. Understanding the additional complexities will assist individuals to maximise the opportunities available within super in both 2023/24 and 2024/25.

 

Julie Steed a Senior Technical Services Manager at Insignia Financial.

 

22 Comments
Steve
April 12, 2024

Thanks for the useful update Julie.
Can you or one of your readers please tell me, is there any tax penalty for earnings in a pension fund which take the balance above the transfer cap? ie I establish a pension fund with $1.9m, is there any tax/other penalty on the earnings above $1.9m? Can I go from one financial year into the next with a balance over $1.9m without penalty (having met the drawdown minimums)?
Thanks in advance

Julie Steed
April 25, 2024

Hi James, Apologies for the delay, I have been on leave. There is no limit to the amount that can be retained in pension phase, only a limit on the amount that can be transferred into pension phase to commence a pension. If I started a pension today for $1.9 million and my investment returns less pension payments resulted in my pension growing to $2.1 million, this is fine. It can continue to grow over future financial years without penalty. The pension will generally continue to have tax free investment returns (but there are different rules for self managed super funds in certain circumstances). Regards Julie

tom taylor
April 08, 2024

Only fiscally inept politicians and their bureaucratic controllers could dream up the dogs breakfast we now have.How about putting a cap on the obscene rates of pay and super that we pay these stilborn fiscal pygmies. Governments both Labour and Liberal have demonstrated its all about control so the electorate has to go cap in hand for a few crumbs they deem appropriate.. Having spent 30 in an SMSF we eventually realised the game was up and thankfully we got out before the caps came into effect.

Julie Steed
April 04, 2024

Hi Michael,
You are correct, the maximum downsizer contribution is $300,000 and it is not indexed.
Regards
Julie

Glen Henzell
April 03, 2024

Julie, I commenced a defined benefit pension at the end of FY2006. Can I make use of the defined benefit income cap of $118,750 for FY2023/24 or am I limited to the defined benefit income cap that applied when the new limits (eg transfer balance cap) were introduced on 1 July 2017.

Denis
April 02, 2024

For a TSB of $1.69mil to $1.9mil the non concessional contribution cap is $110,000 this year. Can the full $110,000 contribution be made, even if it adds up to more than $1.9mil with the TSB?

Julie Steed
April 04, 2024

Hi Denis,
Yes, this was one of the government’s “concessions” for simplicity.
The total super balance is only measured at 30 June and not at the time a relevant transaction is made.
For a total super balance of between $1.79 million and less than $1.9 million at 30 June 2023, the NCC cap in 2923/24 is $110,000.
If my total super balance at 30 June 2023 was $1.88 million, I can still contribute $110,000 in 2023/34. It doesn’t matter that the contribution will put me over the total super balance threshold.
Regards
Julie

Peter
March 30, 2024

Speaking of implications, a fortunate mathematical consequence of the maximum super contribution base going to $65070 as well as the contribution rate going to 11.5% from 1 July 2024 is that anyone hitting that contribution base limitation every quarter has $29932 put into their super in 2023/24 - conveniently only $68 under the concessional contributions cap.

Vanda
March 29, 2024

Since when are taxes ever fair? A single person with no one to depend on didn't have a job for 7years and still hasnt got a job due to health reasons, is not eligible for any help just because one owns PPR above threshold. One sells a non income earning asset to boost retirement savings. Now ATO wants to tax someone like that like a multimillionaire with 15% deductible super plus additional Div293, MLS. Super takes their share of additional fees due to additional contributions. ATO further taxes interests from term deposits within Super. LOL, this system is not about assisting anyone who has a little investment to stay self sufficient at retirement.

Scott
March 30, 2024

PPOR excluded,

Al
March 29, 2024

What has happened to the proposal to lift the tax rate to 30% for income on balances above $3m from 2025. Has it passed, in draft legislation, stalled? The lack of indexation and including unrealised gains is very unfair.

Julie Steed
April 04, 2024

Hi Al,
It’s definitely not law yet.
The draft legislation was refered to the Senate Economics Committee who are due to issue their report on 10 May (two working days before the Federal Budget).
Regards
Julie

Mal
March 28, 2024

My understanding is that the $1.9M cap only applies to new pensions. Those who have moved to pension when the transfer can was $1.6M or $1.7M are stuck on that limit.

This seems very unfair as the inflation pressures on those already retired are just as great as those retiring now. It is not unusual for the already retired to get money from inheritance or non-super investments. If the $1.9M Transfer Cap was available that those on the old $1.6 would be able to add $300K to their super.

Regards

Peter
March 30, 2024

Yes Mal - lots of super limits are unfair - but the Transfer Caps themselves don't stop you putting funds into an accumulation account. If you can or should do that (there's a range of scenarios too wide to cover here, including whether it's a couple or a single person individually hitting the Cap), an accumulation account earns a little less than an account in pension mode but the funds are still in a low tax environment.

Dudley
March 30, 2024

"Transfer Caps themselves don't stop you putting funds into an accumulation account":

Total Super Balance Cap >= 1,900,000 stops personal non-concessional contributions;
https://www.mlc.com.au/personal/retirement/super-and-retirement-rules/non-concessional-contributions-cap

Jon Kalkman
March 31, 2024

Mal,
The Transfer Balance Cap (TBC) is an allowance. The TBC was $1.6m in 2017. If you started a pension with $800,000 at that time, you only used 50% of your allowance. Therefore, you are entitled to use 50% of the increase in the TBC since 2017. That is 50% x ($1.9m - $1.6m) or $150,000.
If you started a pension in 2017 with the full $1.6 m you have used all of your allowance and have no more TBC available but you’ve had the advantage of growth within your pension fund since that time.
If you haven’t started a pension yet, your allowance is $1.9m.

George B
March 31, 2024

"but you’ve had the advantage of growth within your pension fund"
I think Mal's point is that growth is eroded by inflation (it is also subject to a minimum pension draw-down rate of 4-14% depending on age) so growth rate would need to match inflation plus draw-down rate just to stand still - let alone maintain growth in real terms.

Jon Kalkman
April 01, 2024

George B
You can’t have it both ways..You can’t have a pension fund that is exempt from both income tax and CGT without also mandatory drawdowns.
If you don’t like the mandatory drawdowns, you can leave your super in an accumulation account and leave your super to grow and remain untouched until death (which makes a great estate planning tool) but then your super fund pays tax on its income and CGT. Your choice.

Dudley
April 01, 2024

"If you don’t like the mandatory drawdowns, you can leave your super in an accumulation account and leave your super to grow and remain untouched until death (which makes a great estate planning tool) but then your super fund pays tax on its income and CGT.":

When personal taxable income exceeds tax free threshold, $59,566 for SAPTO couple, the marginal ta rate for aged 67+ eceeds 31.5%:
https://freeimage.host/i/marginal-tax-rate-67-plus.J1zLbJj

Then, if personal expenditure is less than personal taxable income, commuting some or all capital in Disbursement ('Pension') to Accumulation accounts can reduce total tax paid because reduced mandatory withdrawals do not add to personal capital and potentially reduce personal taxable income.

George B
April 02, 2024

“You can’t have it both ways..You can’t have a pension fund that is exempt from both income tax and CGT without also mandatory drawdowns.”
Jon the point is that is exactly what we were promised by the superannuation industry when contributing to super was entirely voluntary, as an incentive to lock up our money for thirty years or more. So it is not surprising that those that have kept up their side of the bargain are feeling let down by the raft of changes to super that have come just as the 30 years has run its course.

Michael
March 28, 2024

I assume from the above that the downsizer contribution of $300k is NOT indexed at 1/7/2024? Is it ever indexed?

Felix
April 01, 2024

Under a Labor government, I'd assume that answer is no. It should be, though, given the housing issues.

 

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