Superannuation update: year end planning (June 2024)

As we approach the end of another financial year, now is the time for everyone to focus their attention towards superannuation planning, including review of contribution, pension and estate strategies. At the forefront for many members however when formulating these strategies, will be the impact of the proposed ‘additional’ tax on earnings on an individual's superannuation benefits over $3 million at the end of a financial year (as summarised in our October 2023 update). 

Although these changes are not due to commence until 1 July 2025, given the draft legislation that is currently before Parliament proposes to include within the tax calculation movements in unrealised asset valuations during a relevant year, this will create for some members a desire to review their current retirement and investment strategies, as well as their ongoing cash flow requirements given this tax may need to be funded by assets that are yet to realise their value. It is recommended that individuals who are considering restructuring their superannuation affairs in light of the above, should seek professional tax and financial advice on their specific situation prior to commencing any restructure.

Annual contribution limits

As noted in the table below, there will be an increase in the general superannuation contribution caps for the 30 June 2025 financial year, with the contribution levels for the current year ended 30 June 2024 remaining the same as last year.  There will be no corresponding increase to the transfer balance cap (TBC) limit from 1 July 2025, which will remain at $1.9 million, with the TBC being used to determine both the amount an individual is able to transfer into the ‘retirement phase’ and correlates to an individual’s total superannuation balance (TSB) and eligibility to make non-concessional contributions.

It’s important to note that individuals who are currently in non-concessional bring forward arrangements are not eligible to receive any indexation to their remaining bring-forward cap on 1 July 2024.

Similarly, the indexation of the concessional contributions cap does not increase a prior year’s cap that is able to be utilised as part of an individual's unused carry-forward concessional contribution cap.

Finally, as a reminder, the below limits are available to all members under the age of 67 years. If you are aged 67 years or over, the work test rules apply to voluntary concessional contributions. Individuals aged 75 years and older can generally only receive mandated employer contributions equal to the prevailing superannuation guarantee (SG) rate.

Use it or lose it: 2018-19 financial year carried forward concessional contribution caps

Individuals who are eligible to utilise their unused carry-forward concessional contributions on a rolling five-year basis and have unused cap available from the 2018-19 financial year, have until 30 June 2024 to make any concessional contributions above their normal annual concessional contribution cap of $27,500.

Any unused concessional contribution cap capacity from the 2018-19 financial year that is not utilised prior to 30 June 2024 will be unavailable from 1 July 2024. As this is the first time that unused contribution capacity from prior years is set to expire since the introduction of the catch-up concessional contribution scheme, careful consideration should be given to whether an individual maximises their concessional contributions to superannuation prior to 30 June 2024, especially in the context of reduced individual marginal tax rates applicable to many taxpayers from 1 July 2024 when claiming concessional contributions as a personal tax deduction.

Those individuals who may be able to utilise their unused concessional contribution caps could include:

• Young adults who were not working and receiving employer contributions in the 2018-19 financial year but have since started working and wish to contribute to superannuation;
• Individuals who were overseas tax residents in the 2018-19 financial year and did not have any superannuation contributions but have since commenced employment in Australia and became Australian tax residents; or
• Children who have recently turned 18, who wish to contribute to superannuation using funds they receive from a family group.

Contribution strategies prior to 30 June 2024

With proper planning prior to 30 June 2024, there are quite a number of strategies that may allow individuals the opportunity to maximise the amount contributed into superannuation. This is especially important for those individuals nearing the ages of 67 or 75 years.

These contribution strategies, in addition to the utilisation of unused carry forward concessional contributions discussed above, 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. This could be used as a way to equalise for example, superannuation balances between spouses;
• Consideration as to whether to delay the commencement of a proposed non-concessional bring forward contribution arrangement, enabling an individual to access the increased bring-forward non-concessional contribution cap of up to $360,000 from 1 July 2024;
• The potential for a 74 year old member to maximise their non-concessional contributions via a non-concessional bring-forward arrangement, by using their non-concessional contribution caps from financial years in which they would not ordinarily be able to make a voluntary contribution to superannuation, where the appropriate conditions are satisfied;
• Access to the first home super saver scheme; 
• Superannuation downsizer contributions; or
• Double deduction strategy where individuals with high taxable income in the 2023-24 financial year may consider utilising their 2025 concessional contribution cap prior to 30 June 2024. Please refer to our 2022 superannuation year end planning publication for examples of how this could be utilised and note that additional processing time is needed to allocate any contributions to a future financial year.

Superannuation Guarantee changes

The minimum SG rate is increasing from 11.0 per cent (for the financial year ending 30 June 2024) to 11.5 percent from 1 July 2024. 

As an important reminder for employers, the quarterly super payment due dates for the final quarter of the 2024 financial year is fast approaching, with the following table setting out the payment due dates for the coming financial year.

There are also potential legislative changes on the horizon with the Government having announced in the 2023-24 Federal Budget that from 1 July 2026 “pay-day super” will apply, meaning that employers will be required to pay their employees’ SG entitlements at the same time as their salary. Treasury continues to consult with industry stakeholders with the exact payment rules, requirements for each specific entity, and potential penalties for non-compliance with the proposed law changes yet to be announced.

Finally, given the Australian Taxation Office (ATO) has published in December 2023 its guidance as to whether an individual is an employee or independent contractor for the purposes of pay-as-you-go withholding (PAYG) and SG, it is both timely and relevant for employers to review their contractor arrangements to ensure all of their obligations are being met.

Minimum pension requirements

For the financial year ended 30 June 2024 the general minimum percentage factors for account based pensions for each age group is noted below:

Self-managed superannuation funds (SMSF) trustees should review pension payments for the 2024 financial year-to-date to ensure they meet the minimum pension payment requirements.

Additionally, where members maintain both an income stream and accumulation account and 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 2024 for the upcoming 2025 financial year. 

Non-arm’s length income and expenses 

With the non-arm’s length income (NALI) provisions, particularly in respect to expenditure, now being in place for a number of years, and with the ATO having ceased their compliance relief in respect to general expenses, it’s imperative that trustees undertake a review of their arrangements, including:

• All expenses currently being paid by the Fund or any associated unit trust. Are there any expenses that the Fund or unit trust is not currently paying or for which it is not paying market value? Are the arrangements within these unit trusts and any investments purchased on an arm’s length basis?
• Duties the trustee might be undertaking on behalf of the Fund. Would any of these be minor, infrequent or irregular or involve the use of a license held by them individually?
• Is the trustee using their business or employer to provide services to the Fund or related trust at a lower than market rate, or is this a service offered widely to all employees of the organisation?
• Is the Fund part of a family office, and if so are all of the services provided to the Fund or related unit trust charged at a commercial market rate?
• Ensure all acquisition of assets are undertaken on an arm’s length commercial basis, including any associated financing arrangements undertaken within the Fund or a unit trust.

See our superannuation update from October 2023 for an update on the current areas of ATO focus and the proposed legislation change in respect to NALI.  

Safe harbour interest rate rises for related-party LRBA loans

SMSFs relying on the safe harbour terms set by the ATO in its Practical Compliance Guideline PCG 2016/5 for their related party limited recourse borrowing arrangements (LRBA) are expected to have an increase in the interest rate payable on these loans from 1 July 2024. 

The interest rate, released in early June of each year, is based on the Reserve Bank of Australia Indicator Lending Rates for banks. 

Trustees will need to familiarise themselves with the updated rate once it is released and ensure the applicable adjustment is made from 1 July 2024. 

Reduced GST input credits for advice fees in Superannuation

The ATO has clarified its view and interpretation of the Goods and Services Tax Ruling GSTR 2006/9 in respect to superannuation funds and investor-directed portfolio services investment platforms that claim reduced GST credits for ongoing portfolio advice fees charged by financial advisers. 

In relation to how this will impact SMSFs, as the advice relates to an individual’s interest (member balance) in the superannuation fund, the ATO generally considers the advice to be a supply to the individual for GST purposes, meaning the amounts are not considered a creditable acquisition of the Fund. This does not however prohibit SMSFs from continuing to pay for advice in relation to its members' benefits.

The ATO has advised that they will not actively devote compliance resources to review the treatment of these types of transactions for GST lodgement periods ending prior to 1 July 2024.