SMSF advisers and trustees should start preparing for the likelihood of a number of changes to the superannuation contribution caps driven by the expected indexation of the transfer balance cap (TBC) in 2024.
BT Financial Group head of financial advocacy and literacy Bryan Ashenden said the indexation of the TBC is likely to be confirmed when the December quarter consumer price index (CPI) data is released at the end of January.
“[We may see] possible indexation of the total super balance and the transfer balance cap again from 1 July 2024, lifting it from [the current total] of $1.9 million up to $2 million,” Ashenden said.
“What is certainly I think more likely is that we will have a probable indexation of the contribution caps from 1 July 2024.
“Confirmation of that will actually come through towards the end of February 2024, with the calculation of that index based on movements in average weekly ordinary time earnings.
“If that occurs, and we expect it will, then we’ll see the concessional cap index from the current $27,500 up to $30,000 and we’ll see the non-concessional cap index from the current 110,000 up to $120,000.”
He added the indexation of the caps presented an opportunity for trustees and their advisers to discuss potential strategies to make use of the expanded caps, including using the bring-forward arrangement.
“Potentially from 1 July 2024, your bring-forward opportunities will increase to $240,000 if it’s a two-year bring-forward or $360,000 if it’s a three-year bring-forward,” he noted.
“What does that mean for this year’s contribution? Are we potentially holding off on using the bring-forward during the current year to use a higher level next year from 1 July 2024 or do we just want to do it now?”
However, he advised practitioners to carefully think about the effects of employing contribution strategies and how they might affect their clients’ overall superannuation balances before deciding on a course of action.
“To use an example, we could put in a $300,000 downsizer contribution this year, provided we meet the eligibility requirements for that. Not an issue at all,” he said.
“But when it comes to 1 July 2024 and working out the level of non-concessional contributions that we can make in that financial year, the downsizer that we have put in this financial year will form part of our year-end total super balance.
“So it will have an impact potentially on our eligibility to do non-concessional contributions and bring-forward contributions. So [think] about taking that into account, does that impact whether we actually use the bring-forward [arrangement] this year?”