As we enter the 2024 financial year, another round of changes to superannuation have arrived.
Some have been legislated and are already in effect, and others not yet finalised with draft legislation still to be published. This article outlines each important change to be aware of, and what you need to consider for the next 12 months.
Changes to the minimum pension drawdown requirement
For those drawing a pension from their superannuation, the minimum pension drawdown requirement has returned to pre-COVID levels from 1 July 2023. As you may recall, the Australian Government reduced the minimum pension requirement by 50% due to the disruption of COVID. For reference, the new minimum drawdown rates are:
|Age at 1 July||Annual payment as % of account balance at 30 June 2023
|55 - 64||4%
|75 - 79||6%
|80 - 84||7%
|85 - 89||9%
|90 - 94||11%
With the increase in drawdown rates, it is important that trustees review their investment strategy to ensure their super fund has sufficient liquidity levels to cover the increase in pension withdrawals. It is also crucial that you ensure your annual minimum pension requirement is met by 30 June each financial year, as the ramifications of not doing so can be severe.
Changes to contribution eligibility
As a recap, there are two main types of contributions members can make to superannuation; concessional, which include employer and personally deductible contributions, and non-concessional, which are from your after-tax income and not taxed in superannuation. The annual cap for each type of contribution remains unchanged, being $27,500 and $110,000 respectively.
Prior to making a non-concessional contribution, individuals must ensure they have a Total Superannuation balance of less than $1.9 million at 30 June 2023. This has increased from $1.7 million in the previous year. Coinciding with this increase is the adjustment to the non-concessional contribution bring forward thresholds as follows:
* ‘Total Superannuation Balance’ is the value of your total superannuation interests in all super funds at a point in time.
|*Total superannuation balance on 30 June 2023||Bring forward amount if triggered in 2023/24||Bring forward period if triggered in 2023/24
|Less than $1.65m||$330,000||3 years
|$1.68m to less than $1.79m||$220,000||3 years
|$1.79m to less than $1.9m||$110,000||n/a
|$1.9m or more||$nil||n/a
The increase in these thresholds provides some important planning opportunities for those wanting to maximise their contributions to super in the next few years.
Indexation of the transfer balance cap
As a recap, the transfer balance cap (TBC) limits the total amount of superannuation that can be transferred into a retirement phase pension, where there is no tax on investment earnings. From time to time, the TBC is indexed in line with CPI.
On 1 July 2023, the TBC increased from $1.7 million to $1.9 million. This cap only applies to individuals who have not held a retirement phase income stream between 1 July 2017 and 30 June 2023. If you have held a retirement phase income stream between this period, you will have a pro-rated TBC between $1.7 and $1.9 million.
The easiest way to work out your own TBC is by logging into your ATO myGov account. If you would like instructions on where to find this information, please contact our office.
Proposed changes to increase tax for super balances above $3 million
In the lead up to the 2023 Federal Budget, and reiterated in the Budget itself, the Australian Government intends to reduce the tax concessions available to individuals with a total superannuation balance (TSB) exceeding $3 million, from 1 July 2025. Any individual with a TSB less than $3 million will remain unaffected.
Individuals with a TSB in excess of $3 million will be subject to an additional tax of 15% on ‘earnings’. ‘Earnings’ is calculated with reference to the difference in TSB at the start and end of the financial year, adjusted for withdrawals and contributions. Negative ‘earnings’ can be carried forward to offset against future year ‘earnings’.
To better understand the proposed changes, we have provided an example below:
Gary, with a TSB over $3m
- Gary is 48 and has a total super balance of $4 million as at 30 June 2025
- He makes no withdrawals or contributions, and has a total super balance of $5 million at 30 June 2026
- Gary’s calculated “earnings” are: $5 million – $4 million = $1 million
- His proportion of “earnings” corresponding to funds above $3 million is: ($5 million – $3 million) / $5 million = 40%
- Therefore, his additional tax liability for the 2025-26 year is: 15% x $1 million x 40% = $60,000
The main question on everyone’s mind is whether I should be thinking about restructuring my SMSF now to fall below the $3 million threshold. Our recommendation here is to sit tight and see how the dust settles. The Government’s proposed changes are just that – proposals. Draft legislation hasn’t been released, and there will be another federal election before their proposed start date of 1 July 2025.
As and when more information becomes available, we will provide you with an update.
For further information please contact Harrison Mathias, Superannuation Senior Manager at [email protected]
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Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.