Super, tax, and the Federal Budget - here are some of the key changes

Last night the Federal Government handed down the 2024-25 Federal Budget. With plenty of announcements, submissions and speculation over the last 12 months, ANZ Private has distilled the key changes affecting superannuation and tax.

Although inflation has eased since the release of the 2023-24 budget, the Consumer Price Index still gained 3.4 per cent in the 12 months to February 2024, and higher prices continue to weigh on workers.^disclaimer

This year’s budget took additional steps aimed at providing relief. These include providing Australian households with a $300 energy bill rebate, freezing the maximum cost of medications covered by the PBS, and curtailing indexation on some student loans.^disclaimer

Cost of living relief wasn’t exclusive to households either. The budget also outlined several steps it’s taking to reduce the burden of higher costs on businesses.^disclaimer

These include providing businesses with a $325 energy bill rebate, extending the $20,000 instant asset write-off until 30 June 2025, granting additional funding to the Small Business Debt Helpline, and further support for alternative business-to-business dispute resolution services.

Green energy and Australia’s net zero transition was another major focus. Australia is currently lagging behind its commitments under The Paris Agreement and significant investment is needed to meet our climate change goals.

To that purpose, the Federal Government announced almost $20 billion over the next 10 years would be invested into ‘priority industries’ including renewable hydrogen, green metals, critical mineral processing and refinement, and clean energy technologies.^disclaimer This support will come through a combination of direct funding and tax incentives.

Notably, The Hon Dr Jim Chalmers MP, Treasurer, announced a $9.3 billion budget surplus this year, the first consecutive surplus for nearly twenty years. However, the treasurer forecasted a less impressive deficit of 28.3Bn in 2025.^disclaimer

New tax on balances over $3 million

One of the major changes announced over the last 12 months was a new tax on large super balances, set to commence on 1 July 2025. Under this new ‘division 296’ tax, superannuation accounts with balances over $3 million will incur an additional levy of 15 per cent on the portion of earnings above this threshold.

As this tax is applied to unrealised gains within super, there is a concern SMSF holders who later sell assets and incur capital gains taxes on them will be double-taxed. Despite this issue being raised in submissions and directly by several members of the Senate Standing Committee on Economics, the Federal Budget did not resolve this issue or include any measures to prevent this.

Under the changes, super fund members will have 84 days to pay these new tax liabilities instead of the standard 21 days.

This change, encompassed in the Better Targeted Superannuation Concessions bill, was referred to the Senate Economics Legislation Committee in December 2023. An initial report in response to this inquiry was released on 10 May 2024.

The report looked at submissions from several industry groups about how the proposed tax might affect their representatives.

Notably, the National Farmers’ Federation have called for farmers to be exempted as the rule could force some to sell agricultural assets owned through their SMSFs to pay the additional tax.

However, Treasury has indicated that the change to an 84-day tax deadline and the ability for SMSF holders to pay their taxes from personal funds instead of super should provide enough flexibility to meet these new liabilities.^disclaimer

A group representing federal judges also argued for an exemption as their judicial pensions are already taxed at their marginal rate and the Division 296 changes would mean double taxation on super over $3 million. To accommodate this, special rules for calculating the new tax will be applied to this cohort.^disclaimer

Changes to contribution caps

Contribution caps – the limit on how much money you can contribute to your super before incurring additional taxes on the contributions made.

Contribution caps are slated to increase for both concessional and non-concessional contributions from 1 July 2024.^disclaimer

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Non-concessional contribution ‘bring-forward’ cap increased

Depending on how large your super balance is, the ‘bring-forward’ rule may let you make non-concessional contributions in one financial year that are counted towards your contribution caps for the next financial year, or even the two after that.

From 1 July 2024, you’ll be allowed to bring-forward non concessional contributions of up to $120,000 per year – up from this year’s cap of $110,000 per year.

Because the bring-forward rule allows you to make up to three years’ worth of additional contributions in one year, some members will be able to contribute $360,000 without incurring extra tax. However, it is worth noting that these changes don’t apply retrospectively for those who have already reached their bring-forward limits.

There are balance thresholds applied to this rule however - as your balance increases, the number of years you may bring forward decreases, as per the table below.

These super balance thresholds are lower than the current ones, meaning that even though the cap is increasing, the amount you personally can contribute may decrease from next financial year.

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Last chance to make carry forward contributions for 2018-19

If a super member didn’t use up all their contribution caps in the previous five financial years, they can make contributions towards those caps in the current financial year in addition to their current cap. This is known as the ‘carry forward’ rule.

This means that you might be able to make more than a year’s worth of contributions within the upcoming financial year. As the carry forward rule only extends back five financial years, the 2024-25 financial year will be your last chance to make contributions under your 2018-19 contribution cap.

Transfer balance caps remain the same

The amount of money you can transfer from your super account into one or more ‘retirement phase’ accounts is limited by your transfer balance cap.^disclaimer This is because earnings on retirement phase accounts are tax free.

Transfer balance caps are applied for life – that is, if you hit your cap limit you cannot place more money into the retirement phase, even if a subsequent Federal Budget sees the cap limit increased.

If you do not reach your cap limit, the amount you can contribute may increase over time, as the general transfer cap limit – the limit applied to your retirement phase account when you start one – is indexed to inflation.

These rules have not changed since last year. You can review your personal transfer balance cap using the ATO’s online services by logging into your MyGov portal.

Superannuation guarantee increased to 11.5 per cent

The mandated Superannuation Guarantee – that is, the amount of super your employer is required to contribute – is increasing from 11 per cent of your base earnings to 11.5 per cent.

This increase has been legislated for several years now, and is part of a larger plan to bring the Superannuation Guarantee rate up to 12 per cent from 1 July 2025 by making incremental annual increases.

These larger contributions should mean bigger super balances at retirement, although younger members will benefit more than those nearing retirement.

Super included on government paid parental leave

A major change included in the Working For Women strategy – released in March 2024 – was a commitment from government to pay super on paid parental leave.

This will be administered by the ATO, and will help close the gender gap in retirement savings.

Although this was introduced earlier this year, this scheme is not set to commence until 1 July 2025.

Preservation age increased to 60

Currently, the age at which you may access your super (known as your ‘preservation age’) sits between 55 and 60.^disclaimer Your exact preservation age will vary depending on the year you were born.

From 1 July, however, preservation age will be increased to 60, meaning anyone under this age will typically be unable to access their super.

This also means the ‘low-rate cap’ is no longer applicable. This low-rate cap allowed Australians between preservation age and 59 years old to withdraw lump sums of up to $235,000 from their super and pay only 17 per cent in tax on that money. Amounts above this cap were taxed using an individual’s marginal rate, which was often higher.

Non-arm’s length expenses

Last year, the Federal Government outlined several changes it planned to non-arm’s length expenditure (NALE).^disclaimer This refers to expenses that an SMSF might incur at a discounted rate because of the relationship between its trustee and the service provider.

For example, an accountant who has their own SMSF might choose to manage their own books for free, despite normally charging $4,500 for this service. To stop people using non-arm’s length arrangements to exploit super’s lower tax rates, an SMSF fund that’s benefiting from non-arm’s length transactions could have some or all of its income taxed at the top marginal rate of 45 per cent under the current legislation.

From 1 July 2024, the amount of income that can be taxed at 45 per cent will be capped to two times the general price of the non-arm’s length expense.

To use our earlier example, if our accountant’s SMSF generates $20,000 in income, $9000 would be taxable at 45 per cent - equivalent to his usual service fee ($4,500) multiplied by two.

These rules will not apply to large APRA-regulated funds.

Stage 3 tax cuts come into effect

The Stage 3 tax cuts – first legislated in 2018 and then updated in January 2024 – will be introduced from 1 July 2024.

In his January 2024 press release, Prime Minister Albanese stated that these changes will deliver “a tax cut for every Australian taxpayer”.^disclaimer

Here’s what’s changing under Stage 3:

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What’s next?

If you’re unsure what this may mean for you, or are concerned you may need to take action, ANZ Private can provide additional support.

Remember, super is a long-term investment – the changes announced in this budget may affect you immediately, or over a number of years.

Equally, any actions you take today may affect your balance at retirement. It’s important to consider not only the impact of the budget but how any changes you make to your retirement strategy may affect you both now and in years to come.

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