Superannuation update: year end planning (June 2023)

As we approach the end of another financial year, now is the time for everyone to focus their attention towards superannuation planning with a review of strategies for contributions and pension planning. The indexation of the transfer balance cap from 1 July 2023 increases from $1.7 million to $1.9 million, is just one of these key areas of planning.

Indexation of the Transfer Balance Cap 

A member’s transfer balance cap (TBC) determines the amount that an individual is able to transfer into the ‘retirement phase’ and correlates to the individual’s eligible non-concessional contribution caps based on their total superannuation balance (TSB) at the previous 30 June. 

The current general TBC is $1.7 million and is increasing with indexation from 1 July 2023 to $1.9 million. It is important to note that an individual’s ‘personal’ transfer balance cap may now be somewhere between $1.6 million and $1.9 million as a result of previous reportable transfer balance account events. 

Annual contribution limits

Despite an increase in the transfer balance cap which in turn alters the eligibility of an individual to make non-concessional contributions for the 30 June 2024 financial year, there has been no corresponding increase to the contribution limits themselves and therefore these will remain unchanged for the financial years ended 30 June 2023 and 30 June 2024 

Superannuation Guarantee changes

The minimum superannuation guarantee (SG) rate is increasing from 10.5 per cent (for the financial year ending 30 June 2023) to 11 per cent from 1 July 2023. The Government has also announced in their 2023-24 Federal Budget that from 1 July 2026, employers will be required to pay their employees’ SG entitlements at the same time as their salary. Further details can be found in our Federal budget tax analysis and insights.

As an important reminder for employers, the quarterly super payment due dates for the final quarter of the 2023 financial year is fast approaching, with the following table setting out the payment due dates for the coming financial year. 

Contribution Strategies prior to 30 June 2023

With proper planning prior to 30 June 2023, a number of strategies may now be available to allow individuals the opportunity to maximise the amount contributed into superannuation. This is especially important for those individuals nearing the age limits (particularly those who are no longer required to satisfy the work test) or wish to take advantage of the increased total superannuation balance cut off limits. 

These strategies could include:

• The use of re-contribution strategies where members are eligible to access their benefits then re-contribute the money back into superannuation as either a concessional contribution or a non-concessional contribution.
• Consideration as to whether to delay the making of non-concessional contributions where a members total superannuation balance would likely be close to $1.68 million, enabling them to access the bring-forward non-concessional contribution cap from 1 July 2023.
• The potential for a 74 year old member to maximise their non-concessional contributions of up to $330,000 via the non-concessional bring-forward arrangements, where the appropriate conditions are satisfied.

As mentioned in our year end 2022 superannuation year end planning publication, other strategies that continue to apply include:

• Access to first home super saver scheme. 
• Unused concessional contributions. This provision provides a tax planning opportunity for family groups which can distribute income to individuals, such as children over 18, who have unused concessional contribution caps. Importantly, the 2024 financial year will be the last year that an eligible individual is able to utilise any unused cap amounts from the 2019 financial year. 
• Superannuation downsizer contributions. From 1 January 2023, the age that an individual can make downsizer contributions has been lowered from 60 to 55 years of age. 
• Double deduction strategy where individuals with high taxable income in the 2022-2023 financial year may consider bringing forward their 2024 concessional contributions prior to 30 June 2023.

Other Year End Matters

Minimum pension requirements

An important reminder that the Government’s response to the pandemic which included a 50 per cent reduction in the superannuation minimum income stream drawdown requirements for account-based income streams, market linked income streams and similar products ceases to apply after 30 June 2023. From 1 July 2023, the minimum percentage factor for these products for each age group is noted below: 

Additionally, where you have a lump sum withdrawal arrangement currently in place, now is the time to review and implement any additional documentation instructing the trustee how you wish to receive your benefits prior to 30 June 2023 for the upcoming 2024 financial year. 

Non-arm’s length income amendment and expense update

The Government announced in the 2023-24 Federal Budget that there will be an amendment to the non-arm’s length income (NALI) provisions which applies to expenditure incurred by superannuation funds. Further information can be found in our Federal Budget Tax Analysis and Insights page. 

Additionally, in respect to the compliance relief previously granted by the ATO in relation to non-arm’s length expenditure of a general nature (see our superannuation update from August 2021), the ATO have announced that they have no plans to extend this relief past 30 June 2023. 

Safe harbour interest rate rises for related-party LRBA loans

SMSFs relying on the safe harbour terms set by the ATO in PCG 2016/5 for their related party limited recourse borrowing arrangements (LRBA) will have an increase in the interest rate from 1 July 2023. The interest rate, released in June of each year, is based on the Reserve Bank of Australia Indicator Lending Rates for banks and trustees will need to ensure the applicable adjustment is made from 1 July 2023.