Top five concessional contribution tips for 2023/24 and beyond
Here are five key strategies to get the most out of your contributions this financial year and beyond.
Background
Boost your super and potentially reduce your tax bill by making voluntary concessional contributions to your super. This includes options like salary sacrifice and personal deductible contributions.
Consider the potential benefits of making concessional contributions (CCs) before June 30th. The effects of Stage 3 tax cuts coming into effect on July 1st could mean:
- Greater tax savings for contributions made by the end of the current financial year.
- Increased cash flow to fund contributions in the coming year.
- An opportunity to magnify tax benefits by making contributions using the pre-tax equivalent of your tax savings in the next financial year.
Additional factors to consider:
- This is the final year to utilise unused CC cap amounts from 2018/19 under the ‘catch-up’ rules (for eligible clients).
- The annual CC cap will increase to $30,000 in 2024/25, and the super guarantee rate will rise to 11.5%.
In this blog post, we dive into important considerations for making concessional contributions (CCs) throughout the financial year, with a focus on maximising your benefits before June 30th. We’ll explore key opportunities and potential challenges to navigate when making CC decisions.
1. Benefit from greater tax savings before 30/6/2024
While voluntary CCs can be a valuable tool, for many clients, contribution strategies focused on the current tax year may offer greater advantages. This is due to the upcoming changes in marginal tax rates associated with Stage 3 tax cuts (see Appendix).
For many clients, strategically utilising voluntary CCs could offer a more favourable tax outcome in the 2023/24 financial year. This is due to changes in the marginal tax rate structure coming into effect in 2024/25 with the implementation of Stage 3 tax cuts (See Appendix).
| Taxable income | Marginal rate in 2023/24 | Net tax saving on $10,000 CC | Marginal rate from 1/7/2024 | Net tax saving on $10,000 CC | Additional tax saving from CCs in 2023/24 |
|---|---|---|---|---|---|
| $80,000 | 34.5% | $1,950 | 32% | $1,700 | $250 |
| $135,000 | 39% | $2,400 | 32% | $1,700 | $700 |
| $160,000 | 39% | $2,400 | 39% | $2,400 | $0 |
| $180,000 | 47% | $3,200 | 39% | $2,400 | $800 |
| $190,001+ | 47% | $3,200 | 47% | $3,200 | $0 |
Related advice considerations
- You can potentially maximise your tax savings in 2023/24 by making larger contributions to your retirement accounts under the ‘catch-up’ rules (see Tip 2).
- While the tax rates and potential tax benefits from concessional contributions (CCs) remain unchanged for certain income brackets in 2023/24 and 2024/25, there are still strategies to maximise the advantages of the Stage 3 tax cuts in the coming year
- Starting July 1st of this year, low-income earners (between $18,201 and $45,000 taxable income) will see a reduction in their marginal tax rate from 19% to 16%. This change makes alternative superannuation strategies, like spouse contributions and NCCs for the Government co-contribution, even more attractive for this income bracket.
2. Use unused CC cap from 2018/19 before 30/6/2024
Under the “catch-up” within the CC rules, this allows eligible clients to use leftover CC amounts from the past five years. The 2018/19 financial year was the first year when clients could save unused CC amounts for later use. It’s important to note that these unused amounts expire after five years. Therefore, the current year, 2023/24, is the last chance to use any unused CC amounts from 2018/19.
In order to be eligible to make catch-up contributions (CCs) in 2023/24, your client needs to meet three requirements:
- Their total super balance (TSB) must have been under $500,000 on June 30, 2023.
- They must have unused concessional contribution (CC) cap amounts available from any of the past five financial years, including 2018/19.
- They need to make CCs exceeding the current annual cap of $27,500 before June 30 this year.
Where a client exceeds the current year cap, unused amounts will be deducted from the earliest financial year to the latest. The maximum amount that can be contributed in 2023/24 under the catch-up rules is $157,500, assuming no CCs have been made since 2018/19. This represents the current year annual cap ($27,500) plus the sum of the five previous financial years, being 2018/19 to 2022/23 inclusive. The table below summarises the annual CC caps since 2018/19.
If the client hasn’t used his full concessional contribution (CC) limit in previous years, he may be able to make larger contributions in the current year (2023/24). The catch-up rules allow him to contribute unused amounts from the past five years (including 2018/19) on top of the current year’s cap. This means the maximum contribution for 2023/24 could be $157,500, which is the sum of the annual CC caps from 2018/19 to 2023/24 ($27,500 each year).
| Annual CC Cap Since 2018/19 | |||||
|---|---|---|---|---|---|
| 2018/19 | 2019/20 | 2020/21 | 2021/22 | 2022/23 | 2023/24 |
| $25,000 | $25,000 | $25,000 | $27,500 | $27,500 | $27,500 |
Related advice considerations
- If your client’s total superannuation balance (TSB) will be more than $500,000 by June 30, 2024, this may be their final opportunity to make catch-up concessional contributions (CCs).
- The concessional contribution cap is increasing to $30,000 on July 1, 2024. This means clients may be able to contribute up to $162,500 in 2024/25. This includes the $30,000 annual cap for 2024/25 and any unused concessional contribution caps from the five financial years between 2019/20 and 2023/24.
3. Magnify Stage 3 tax cuts in 2024/25
The Stage 3 tax cuts will mean more money in your pocket after taxes. This extra cash could help you with various expenses, such as the rising cost of living, debt reduction, or contributions to your superannuation.
Clients can also maximise their Stage 3 tax benefits by reinvesting the tax savings into additional concessional contributions (CCs). This strategy is ideal for those who are content with maintaining their current after-tax income in 2024/25 and want to leverage the tax breaks to grow their superannuation balance.
This case study showcases how the strategy can be applied for a client earning $150,000 in taxable income for the 2023/24 tax year. The table below explores the potential benefits for clients across different taxable income brackets.
Case study – client with taxable income of $150,000
In the 2024/25 financial year, thanks to Stage 3 tax cuts, 55-year-old Horace earning a taxable income of $150,000 will see a tax reduction of $3,730. Since his current post-tax cash flow meets his needs, he plans to allocate these tax savings to increase his superannuation contributions in 2024/25.
In the 2024/25 financial year, he chooses to make a salary sacrifice contribution of $6,120. This will allow him to keep his take-home pay the same from 1 July onwards. Since his salary sacrifice contributions are taxed at a lower rate of 15%, the net amount going into his super will be $5,202. By doing this, he essentially converts $918 in tax savings ($6,120 x 15% tax rate) into an additional $5,202 for his retirement nest egg. This translates to a net extra benefit of $1,472.
| Taxable incomes in 2024/25 | Tax savings in 2024/25 | Pre-tax equivalent of tax savings which could be salary sacrificed | Net amount salary sacrificed | Net additional benefit of salary sacrificing pre-tax equivalent of tax savings |
|---|---|---|---|---|
| $50,000 | $930 | $1,395 | $1,190 | $260 |
| $100,000 | $2,180 | $3,200 | $2,720 | $540 |
| $150,000 | $3,730 | $6,120 | $5,202 | $1,472 |
| $200,000 | $4,530 | $8,540 | $7,260 | $2,730 |
Related advice considerations
- To take advantage of the tax cuts through salary sacrifice, you’ll need to update your salary agreement (see Tip 4).
- Salary sacrifice isn’t the only option. Consider tax benefits from Personal Deductible Contributions (PDCs) as well. However, the process and timing of tax advantages differ.
4. Review salary sacrifice agreements
It’s important to regularly review salary sacrifice agreements to ensure they align with both your evolving financial situation (cash flow and goals) and any adjustments in the relevant regulations or policies that might affect the plan’s effectiveness.
There are several important factors to consider when advising clients on their super contributions for the upcoming 2024/25 financial year:
- Clients can potentially increase their tax benefit from the Stage 3 tax cuts by salary sacrificing the amount they expect to save in tax. (See Tip 3)
- The maximum amount that can be contributed as concessional contributions (including salary sacrifice) will rise to $30,000.
- Employers’ mandatory contributions (SG) will also increase, impacting the CC cap as they count towards it alongside personal contributions.
- Clients with unused contribution caps from the past five years can utilise “catch-up” contributions to maximise their super savings. (See Tip 2)
5. Complete ‘Notice of intent’ and other key PDC steps
To ensure the validity of your Personal Deductible Contributions (PDCs), it’s crucial to submit a Notice of Intent (NOI) to the fund. This NOI must be filed:
- Within the designated timeframes and confirmation of receipt obtained from the fund.
- Before you file your tax return for the year the contribution was made.
- Prior to any rollovers, lump sum withdrawals, pension commencement, or other specified events.
Appendix – Personal income tax rates and thresholds
The table below compares the personal income tax rates and thresholds that will apply in 2023/24 and from 1 July 2024.
| In 2023/24 | From 1 July 2024 | ||
|---|---|---|---|
| Taxable income | Tax rate | Taxable income | Tax rate |
| Up to $18,200 | Nil | Up to $18,200 | Nil |
| $18,201 - $45,000 | 19% | $18,201 - $45,000 | 16% |
| $45,001 - $120,000 | 32.5% | $45,001 - $135,000 | 30% |
| $120,001 - $180,000 | 37% | $135,001 - $190,000 | 37% |
| > $180,000 | 45% | > $190,000 | 45% |
