Concessional contribution cap looks set to rise on 1 July
The annual concessional contribution cap is likely to rise from $27,500 to $30,000 on 1 July based on the latest wage data, says an SMSF technical specialist.
Tim Miller, head of education and technical for Smarter SMSF, highlighted in a recent webinar two key indexation factors employed in the superannuation industry – one being the average weekly ordinary time earnings (AWOTE), serving as the primary driver for various aspects within the super sector, excluding the transfer balance cap.
“There is a formula that determines how we index the concessional cap using AWOTE and what we're looking at in December is a factor of 1840.8 to get us an indexation of the caps from $27,500 to $30,000,” he said.
“But the other side of that is the transfer balance cap. Now the transfer balance cap is indexed in line with CPI and the target factor to have an indexation from $1.9 million to $2 million is 137.5 and according to Bureau of Statistics data for December it is at 134.6, so there will be no indexation of the general transfer balance cap, which was to be expected for 1 July 2024.”
Mr Miller said this has flow-on effects concerning certain other measures, for example the bring-forward requirements relating to non-concessional contributions.
“If we look at the charting of how the bring forward requirements will work, we'll see that our 1.9 million dollars will remain the same but that will have the drop-down numbers so the balances will change slightly based on those figures as well,” he said.
The amount of the non-concessional contributions cap you can bring forward depends on total super balance (TSB).
If your TSB on 30 June of the previous financial year was less than $1.68 million, you can contribute three times the annual non-concessional contributions cap over three years ($330,000). Mr Miller said if the indexation goes up, this will change to $360,000.
If your TSB on 30 June of the previous financial year was $1.68 million or above but less than $1.79 million, you can contribute two times the annual cap over two years, which will increase to $240,000. If your TSB on 30 June of the previous financial year was $1.79 million or above, you can't bring forward any amount, but you will be able to make a current-year contribution of up to $120,000.
“So with this impact of inflation if people are looking to make non-concessional contributions, and looking to do it greater than the non-concessional cap, then they want to consider if they contribute pre-30 June and lock themselves in now for a three-year window at the current cap, or wait until 1 July, where there will be a higher cap subject to a member balance,” Mr Miller said.
