In January and February, the release of the Consumer Price Index (CPI) and Average Weekly Ordinary Time Earnings (AWOTE) figures will play a pivotal role in determining potential changes to the general Transfer Balance Cap (TBC), contributions caps, and associated Total Super Balance (TSB) thresholds starting from July 1, 2024. While the impact may seem distant, it’s crucial to consider implications for contribution and retirement advice before the end of this financial year.
With the inflation rate showing signs of easing, the likelihood of the general TBC being indexed to $2 million from July 1 seems somewhat improbable. However, it’s advisable to stay vigilant, as any adjustment to a $2 million cap could influence advice early in the upcoming year.
For instance, individuals should weigh the decision of commencing a retirement phase pension before or after July 1. Is it worthwhile to wait for potential indexation and a higher personal TBC? Understanding the costs involved is crucial. It’s also essential to assess the impact of pension refreshes on any indexation of the client’s personal cap, whether performed before or after this critical date.
Additionally, a review of clients with high-balance Transition to Retirement Income Streams is recommended, especially those who may fulfill a full condition of release before the fiscal year’s end. A Transition to Retirement (TTR) pension automatically enters retirement phase when an individual turns 65 or notifies the super fund that they’ve met specific full conditions of release.
These arrangements may necessitate a thorough review, with considerations to either commute part or all of the pension balance back to accumulation. This is done to avoid an excess transfer balance amount or to maximize the personal TBC by ensuring entry into the retirement phase aligns with the higher TBC when it takes effect.
Recent upticks in Average Weekly Ordinary Time Earnings (AWOTE) are pointing towards a potential expansion of contribution caps. This could result in an increase to both concessional and non-concessional caps, potentially reaching $30,000 and $120,000, respectively.
It’s important to note that the general Transfer Balance Cap (TBC) plays a crucial role in determining Total Super Balance (TSB) thresholds, which, in turn, influence non-concessional limits for high-balance clients, including those falling under the bring-forward rule. Consequently, any adjustments to either contribution caps or the general TBC will have implications on the eligibility for non-concessional contributions in the upcoming financial year. The table provided below offers a summary of potential limits effective from July 1, based on potential indexation.
As depicted in the table, the indexation of the general TBC holds the potential to enhance contribution opportunities for high-balance clients. However, it’s noteworthy that if contribution caps increase while the general TBC remains at $1.9 million, eligibility for contributions from July 1 might experience a slight decrease.
Given these potential changes, it is advisable to closely monitor developments early in the new year to maximize contribution opportunities and to be mindful of various scenarios. The table below outlines the potential outcomes to facilitate a better understanding.
As we approach the end of the financial year, it’s crucial to review contribution strategies, especially with the imminent expiration of unused concessional contributions carried forward from FY19 and the commencement of Stage 3 tax cuts on July 1. This presents an opportune moment to ensure clients optimize their use of the concessional contributions cap.
Since July 1, 2018, the ability to carry forward unused concessional contributions for up to five financial years has been in effect. This means that the current financial year marks the final opportunity to capitalize on unused concessional contributions accumulated in FY19. Voluntary concessional contributions can be facilitated through a salary sacrifice arrangement or by claiming a deduction for a personal contribution, if eligible. It’s important to note that only prospective income can be salary sacrificed, necessitating a review of agreements in a timely manner to capitalize on unused concessional contributions. Alternatively, making a personal deductible contribution may be the simplest way to leverage the concessional contributions cap. However, it’s crucial to submit a valid Notice of Intent within the specified timeframes and before any withdrawals, rollovers, or pension initiations.
To determine available unused concessional contributions, clients can log into myGov. Additionally, the Total Super Balance (TSB), which must be below $500,000 on the prior June 30, is displayed on a separate screen, so it’s important to verify both components.
As always at the start of a new year, it’s so important to make sure you have some key dates marked on the calendar to refresh your finances and make sure you take advantage of changes. If you want more information on the above, don’t hesitate to get in touch with us by booking in a free 20 Minute Discovery Call here. Don’t forget to check out some of our other articles on similar topics, like this one here.
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