Clever contribution strategies for navigating an unusual EOFY

There are many advice opportunities to consider with the end of financial year (EOFY) fast approaching. There are some that arise each EOFY (e.g., maximising entitlement to government co-contributions, spouse contributions tax offset), as are the usual administrative considerations (e.g., checking contribution deadlines and submitting a notice of intent or contribution splitting application).

However, this EOFY and from July 1, there are a number of new opportunities and considerations relating to super contributions. This is a result of changes including the indexation of contribution caps and the revised Stage 3 tax cuts. Here are my top tips and traps to maximising contribution strategies before and after 30 June 2024.

1) Check TSB thresholds for NCC and when to use the bring-forward

Beware of changes to June 30 TSB thresholds for NCCs in 2024/25 If you have clients with a high total super balance (TSB), changes to caps and contribution eligibility thresholds from July 1 make it important to double check contribution eligibility for the new financial year, and to consider options to maximise non-concessional contribution (NCC) opportunities.

From 1 July 2024, the annual NCC cap is increasing to $120,000, also increasing contribution opportunities using the bring forward rule. However, the general transfer balance cap (TBC) will remain unchanged at $1.9 million. This means the TSB thresholds for bring forward NCC eligibility will reduce compared to 2023/24 and is the result of the interaction between the annual NCC cap and the general TBC in determining these limits.

Table 1 summarises the TSB thresholds and maximum NCCs for 2023/24 and 2024/25. For example, in 2023/24, a client with a TSB of less than $1.68 million at 30 June 2023 can use the three-year bring forward rule. However, the ability to use the three-year bring forward rule in 2024/25 requires the client's TSB to be less than $1.66 million at 30 June 2024.

It's also important to note that clients within an existing bring-forward period triggered in either 2022/23 or 2023/24 don't gain access to the increased NCC cap in 2024/25. This is because the maximum NCCs that can be made under a bring forward are determined in the year the bring forward is triggered.

Consider timing when triggering new bring forward Clients in their final year of NCC eligibility (due to age or TSB being likely to exceed and stay above the limits), can maximise their available NCCs by triggering the bring forward immediately. For other clients, delaying the triggering of the bring forward rule will generally enable them to make greater NCCs (subject to the reduced TSB limits explained above).

Table 2 outlines alternative contribution sequences where a client has a contribution timeframe of four years (and the potential to use the three-year bring-forward twice), assuming they are eligible to contribute each year. Future indexation of caps is ignored for simplicity.

2) Don't miss the last chance to use unused CCs

Unused concessional contribution (CC) cap amounts from 2018/19 will expire if not used by 30 June 2024, as unused CCs expire once outside the previous five financial year window under the catch-up CC rules. This is the first time there are five previous financial years available, which means up to $157,500 (current year CC cap plus five prior years) may be contributed, assuming no CCs are made since 2018/19.

In 2024/25, this increases to $162,500 due to the annual CC cap increasing to $30,000 in 2024/25, and $25,000 from 2018/19 falling out of the rolling five previous financial year window. To be eligible to make additional CCs under the catch-up rules in 2023/24, individuals must:

• be eligible to contribute (e.g. satisfy age and work test requirements where applicable)

• have a total super balance (TSB) of less than $500,000 on the prior June 30 (2023), and

• have unused CCs from any of the previous five financial years.

Individuals need to exceed the current annual CC cap ($27,500 in 2023/24 and $30,000 in 2024/25) before they can access unused CC amounts from previous financial years, which then depletes unused CC amounts from the earliest available financial year to the latest.

It is important to monitor a client's TSB when contributing to ensure it does not impact any future contribution strategies, e.g., whether to make catch-up CCs now or subsequent financial years if TSB is approaching $500,000. Consideration should also be given to potential Division 293 tax for higher income earners.

3) Determine the impact of revised Stage 3 tax cuts from 1 July 2024 Impact of the Stage 3 tax cuts The revised tax rates and thresholds from July 1 incorporates the following changes:

• the 19% tax rate is reduced to 16% • the 37% tax bracket is retained, but the lower income band is increased from $120,000 to $135,000, and

• the threshold above which the 45% tax rate applies is decreased from $200,000 to $190,000.

Table 3 compares the 2023/24 and 2024/25 tax rates and thresholds:

Benefit of deductible super contributions greater in 2023/24

Making voluntary CCs may provide a greater tax benefit in 2023/24 for most clients, as marginal tax rates (MTR) for most clients will be lower in 2024/25 when the Stage 3 tax cuts commence. Table 4 compares the net tax savings in 2023/24 and 2024/25 if clients with different taxable incomes make CCs of $10,000.

It also shows the additional tax benefit that may be available from CCs made this financial year. The figures assume taxable income is unchanged in 2024/25 and the client doesn't fall into a lower tax bracket because of making the CCs. Before deciding whether to make PDCs before or after July 1, consider the net benefit of the timing of contributions from a tax perspective, especially for clients who may be able to make larger CCs under the catch-up rules.

When considering whether to use the current annual cap and/or any unused CCs on or after 2019/20 (as unused CCs from 2018/19 are not available in 2024/25), compare the tax savings in the current financial year and 2024/25. Amplifying tax cuts by making pre-tax contributions in 2024/25 Other things being equal, the tax cuts from July 1 will provide most clients with additional after-tax cashflow, which could be used to meet the rising cost of living, reduce debt, contribute to super (either as CCs or NCCs) or a range of other purposes.

There is also the opportunity to magnify the benefits of the tax cuts by using the pre-tax equivalent of the tax savings to make additional CCs. This can provide significant benefits if a client can maintain the same level of post-tax income in 2024/25 and want to use the tax savings to grow their super. Table 5 illustrates the potential benefits for clients with different taxable incomes.

Clients will need to factor the increase to the super guarantee to 11.50% in 2024/25 before making additional CCs. Those who want to use the additional tax flow to fund larger salary sacrifice contributions will need to amend their salary agreement.