Will The Total Super Balance Cap Be Indexed 1 July 2023? | Heffron SMSF

Whilst the news last week was all about the Government’s proposed changes to super tax concessions, the fact that data had been released telling us of the contribution caps for 2023/24 quietly slipped under the radar.

The concessional contributions cap goes up from time to time in line with increases in average wages or AWOTE. In late February each year, the Australian Bureau of Statistics releases the AWOTE figure for the previous December. It is this number which tells us whether the concessional cap will go up on 1 July.

Unfortunately, AWOTE for the December 2022 quarter wasn’t quite high enough for the concessional contributions cap to be indexed from $27,500 to $30,000. This means, subject to any changes in the Federal Budget in May, the concessional cap will remain at $27,500 in 2023/24.

It also means the non-concessional contributions cap for 2023/24 will remain at $110,000 (because it’s always four times the concessional cap).

Combined with the general transfer balance cap increasing to $1.9m on 1 July 2023, that’s the final piece of information we needed to calculate the non-concessional contribution bring forward thresholds in 2023/24 as follows:

The increase in these thresholds provides some important planning opportunities for those wanting to maximise their contributions to super in the next few years.

For example, I met with Jeff last week. He’s 68, retired and wanting to minimise any tax which might be payable when his adult financially independent children inherit his super on his death. I had hoped the 1 July 2022 removal of the work test for non-concessional contributions would have opened up the opportunity for a withdrawal & recontribution strategy for Jeff. Unfortunately, his total superannuation balance at 30 June 2022 was $1.72m, which means his non-concessional contributions cap in the current year is nil. So, there’s no avenue for a withdrawal and recontribution strategy for him in the current year.

But, if his total super balance is less than $1.9m at 30 June 2023, he’ll have a non-concessional contributions cap of at least $110,000 in 2023/24. So, a withdrawal & recontribution strategy is back on the table for 2023/24. Depending on his likely balance at 30 June 2023, it might even be worth Jeff taking a small withdrawal from super before 30 June to ensure his balance remains under $1.79m and increase his non-concessional contributions cap to $220,000 in 2023/24.

Of course, Jeff was rightly wondering if he should bother with strategies like this in light of the Government’s proposed changes. There are a number of reasons why I think Jeff should proceed as planned:

• The Government’s proposals are just that – proposals. They still need to be legislated and there’ll be another federal election before the proposed start date of 1 July 2025,
• As Jeff has reached age 65, his super is fully accessible to him, even any new contributions he might make. Which means he’ll have the opportunity to change tack and withdraw money from super if that’s the preferred course of action in the future, and
• If he doesn’t take advantage of the opportunity to employ strategies like this in 2023/24, he may find his super balance has grown so high that strategies like this aren’t available to him in the foreseeable future.

So, Jeff and I have a tentative plan in place, which we’ll revisit post the Federal Budget on 9 May.

But there’s not a lot of time between 9 May and 30 June. So my plan between now and then is to identify clients like Jeff, together with any other clients where the combination of the 1 July 2022 rule changes and the 1 July 2023 increase in the non-concessional contribution thresholds has opened up strategy opportunities. I’ll then put a draft strategy in place for each client which I can roll out post budget.

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