The 2024 financial year is a critical time for trustees looking to maximise their concessional contributions as some opportunities allowing them to do so will no longer be available after 30 June, according to a technical expert.
BT Academy technical consultant Matt Manning highlighted 2023/24 was the last year trustees could make use of accrued unused concessional super contribution caps from the 2019 financial year when the mechanism was first initiated.
To illustrate the situation, Manning used a case study involving 45-year-old Abraham, who had $150,000 in annual income, a total superannuation balance of $450,000, spare cash flow of $1000 a fortnight, $60,000 in remaining unused concessional cap contributions and $150,000 left on his mortgage repayments.
In the context of the case study, he posed the question whether Abraham should consider making voluntary contributions to his superannuation fund or use the money for something else, such as paying off his mortgage.
“My natural inclination is always going to be to pay down debt before everything else, but there’s something a little bit different about this financial year,” he said.
“Firstly, for Abraham, he’s close to the $500,000 total super balance so if he doesn’t use the catch-up this financial year, he might be ruled out in the future depending on what his future total super balances are.
“Also, this is the last chance during 2023/24 to use the unused concessional cap amount for 2018/19. 2018/19 was the first year we could accrue a year [and] 2019/20 was the first year we could use that concessional catch-up, so therefore 2023/24 is the last chance we’ve got to use 2018/19.”
He emphasised those who are thinking of making concessional contributions this financial year should do so to maximise their net benefit as planned tax cuts in the following financial year will reduce the overall benefit.
“The question I’ve asked is: Is the 2023/24 financial year the year of the voluntary concessional contribution?” he said.
“Why this year? We’ve got legislated tax cuts from 2024/25 onwards and if we look at the sort of income territory where those tax cuts are of benefit, the 32.5 per cent and 37 per cent bracket effectively becomes 30 per cent.
“[As] the tax rates are lower, the benefit of that concessional contribution is lower. Including [the] Medicare levy in one of those future years, that’s 32 per cent versus 15 per cent contribution tax.
“[Abraham’s] concessional contribution would only be benefiting by 17 per cent, whereas for the current financial year, he’s on the 39 per cent tax bracket minus three, [equalling a] 24 per cent benefit.”
“The fact is that it’s more beneficial to do it now or later might cause more people to say: let’s take the biggest benefits for the higher tax rate for the current versus the next financial year.”