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Ivan Fletcher

Superannuation and Tax Changes

Written by Ivan Fletcher

JULY 2024 is the start of a new regime of Superannuation CAPS & Marginal Tax rates that you should all be aware of and you may wish to consider how you might take advantage of these changes.  If you do not adjust to the changes, then you will NOT benefit from them.

SUPERANNUATON  CONTRIBUTION CAPS

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Whilst the SG increase has been legislatively scheduled for some time,  the increases in Contribution Caps are tied to Wages growth or more specifically Average Weekly Ordinary Time Earnings (AWOTE).  With some wages growth coming through the last couple of years, this has now taken effect.

Some Strategies To Think About

If you are maximising you Concessional Caps via salary sacrifice, this translates to an increase in salary sacrifice of $208.33 per month or $96.15 per fortnight.

If you are able to maximise the increase in Concessional Caps of $2,500, this result in a net tax savings as follows  :

  • $425 p.a. if you are in the new 30% tax bracket (32% with Medicare Levy)
  • $600 p.a. if you are in the 37% tax bracket (39% with Medicare Levy);
  • $800 p.a. if you are in the 45% tax bracket) (47% with Medicare Levy);
  • $425 p.a. if you are above $250k Package and paying the additional Division 293 charge of 15% on super contributions.
  • If you are currently maximising your non concessional contributions, there may be some advantage in holding off the trigger of the 3 year bring forward rule until after 30 June 2024.
  • For some this could be cause for further evaluation of re-contribution strategies (to reduce tax impact on your estate).

TAXATION CHANGES

There has been plenty of political conjecture about the promised tax rates being amended.  I will focus on the comparison between the current Tax rates (2023/24) and the newly legislated tax rates (taking effect from 1 July 2024 for next financial year).  The following table highlights the changes in tax rates (Excluding the 2% Medicare Levy) and tax thresholds.

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To translate into the real impact for various levels of taxable income , refer to the following table:

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The following weblink will allow you to type in your own Taxable Income to see what your tax savings are going to be –   https://treasury.gov.au/tax-cuts/calculator


So How Can You use this Tax Saving to advantage ?

  1. Take The Win – Many of us will likely take the win to offset the rising home loan repayments since early 2022. For a $500,000 home loan the tax saving likely equates to the last 2 rate rises which may help with some breathing room if things were getting very tight.
  2. Save for A Holiday – simple maths if you can put aside the tax savings they cold fund a domestic holiday.
  3. Increase Home Loan payments $192 per month.
    An extra $192 per month would see a $500,000 Home loan paid off 3 to 4 years quicker
    (example a 25 Year loan on 6.2% P&I would be paid off in 22 years instead of 25).
  4. Increase Salary Sacrifice to Super
    With a Marginal Tax Rate of 32%  (including the Medicare levy of 2%), the pre tax saving Grosses up from $192 to approx $282.35 per month (pre tax). If this were to be sacrificed to Super with assuming an earning rate of 7% p.a. over 10 years would boost super savings by a further $41,540 and $125,021 (over 20 years).

As always, you need to deliberately harness the Cash flow savings to benefit from them, otherwise it just dissolves into generic lifestyle expenses.

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