Superannuation Year End Issues

As we enter the final weeks of the financial year, time is running out to ensure your superannuation affairs, and those of your clients, are in order for 2023–24.

Contributions to superannuation

Employer contributions

The superannuation guarantee (SG) rate for the period 1 July 2024 to 30 June 2025 increases to 11.5%, up from the current rate of 11%. The increased rate applies to the ordinary time earnings of salaries and wages paid from 1 July 2024, irrespective of when the work was done or the pay period to which the payment relates.

An employer can claim a deduction for employee superannuation in 2023–24 only if the payment is made by 30 June 2024. This means that the contribution must be received by the employee’s superannuation fund by that date. Amounts sitting in clearing houses on that date are not considered to be received by the fund for income tax deductibility purposes.

Businesses should remember to:

A failure to pay an employee’s SG in full, on time or to the right fund means the employer is:

  • required to lodge an SG statement by the 28th day of the second month following the end of the quarter (in the case of the June 2024 quarter, this is 28 August 2024); and
  • liable for the SG charge.

The penalties on employers for failing to meet their SG obligations are extremely draconian, including non-deductibility, interest and possible personal liability of directors in cases where a company has not met its obligations. Employers must ensure they pay their employees’ superannuation correctly.

Contributions caps

Concessional contributions (CC) cap

The concessional contributions cap for the 2023–24 income year is $27,500 and increases to $30,000 from 1 July 2024. Contributions made over this cap attract excess concessional contributions (ECC) tax. ECC are taxed at your marginal tax rate less a 15% tax offset to account for the contributions tax already paid by your superannuation fund. Up to 85% of ECC can be withdrawn from your superannuation fund but any ECC not withdrawn count towards your non-concessional contributions cap.

Any unused CC cap amounts from (up to) the five previous years may be able to be carried forward to increase your caps in later years where your total superannuation balance (TSB) is less than $500,000 on 30 June of the previous financial year.

Given the tax consequences of exceeding the CC cap, it is important to check the timing and amounts of contributions, including those made under a salary sacrifice arrangement. In particular, have regard to any delays that may arise when intermediaries are involved, such as banks, external payroll providers and clearing houses. Contributions count towards your cap in the year they are received by your superannuation fund.

Non-concessional contributions (NCC) cap

The non-concessional contributions cap for the 2023–24 income year is $110,000 and increases to $120,000 from 1 July 2024. If you exceed the cap this year, you may be eligible to automatically access the cap for two future years under the ‘bring-forward’ rule — up to $330,000 — but only where you are aged less than 75 years.

The amount of the NCC cap that can be brought forward depends on your TSB. If your TSB on 30 June 2023 was:

  • less than $1.68 million — the NCC cap for the first year of the three-year bring-forward period (2023–24 to 2025–26) is $330,000;
  • $1.68 million to less than $1.79 million — the NCC cap for the first year of the two-year bring-forward period (2023–24 to 2024–25) is $220,000;
  • $1.79 million to less than $1.9 million — the NCC cap is $110,000 for 2023–24 (the general NCC cap applies as there is no bring-forward period);
  • $1.9 million or more — the NCC cap is nil.

If you are aged 75 years or older throughout the whole of 2023–24, you are not eligible to use the bring-forward arrangement in 2023–24.

Government co-contribution

If you’re a low-or middle-income earner and make a personal NCC to your superannuation fund, the government may assist by making a co-contribution up to a maximum of $500. An individual is eligible to receive the co-contribution in their superannuation fund for 2023–24 if, broadly:

  • they have made at least one personal NCC to their superannuation fund during the 2023–24 financial year;
  • their total income is less than $57,016;
  • at least 10% of their total income comes from employment-related activities and/or carrying on a business; and
  • they are aged less than 71 years at the end of 30 June 2024.

Division 293 tax

Division 293 tax applies to tax CC of high-income earners. Where an individual’s combined Division 293 income and superannuation contributions exceed the $250,000 threshold, the excess over the threshold or the taxable superannuation contributions (whichever is less) is taxed at 15%. Your Division 293 tax liability can be paid with your own money or by releasing money from your superannuation fund.

Tax offset for spouse contributions

If you make a NCC to a superannuation fund on behalf of your spouse (married or de facto) and their income is less than $40,000, you may be eligible to claim a tax offset of up to $540. A range of eligibility conditions apply.

The tax offset amount phases out when your spouse’s income exceeds $37,000 and is completely reduced when your spouse’s income reaches $40,000. The contributions are treated as NCC in your spouse’s superannuation account and the tax offset is claimed in your tax return.

Does the work test still apply to personal contributions?

Either the work test or work test exemption must be satisfied to claim a deduction for a personal superannuation contribution if you are aged 67 to 74 years. The work test is satisfied if you are gainfully employed for at least 40 hours during a consecutive 30-day period in the financial year in which the contributions are made.

The work test exemption — which allows voluntary contributions to be made for an extra 12 months from the end of the financial year in which you retire — is satisfied if:

  • you satisfied the work test in the financial year before the year in which you made the contributions;
  • your TSB is less than $300,000 at the end of the previous financial year; and
  • you did not use the work test exemption in a previous financial year.

If you are aged less than 67 years, your fund can accept all types of contributions other than downsizer contributions, which can be made only if you are aged 55 years or older.

If you are aged 75 years or older, your fund can accept:

  • compulsory employer (SG) contributions;
  • downsizer contributions; and
  • voluntary employer (salary sacrifice), personal and spouse contributions made within 28 days after the end of the month in which you turn 75 years.

Transfer balance cap

The general transfer balance cap (TBC) for 2023–24 is $1.9 million and places a limit on the total amount of superannuation that can be transferred into the retirement phase. Earnings on assets held in the retirement phase are tax-free.

When you start a retirement phase income stream for the first time, your personal TBC is equal to the general TBC at that time. Over time, the general TBC increases due to indexation. If, at the time you commenced your income stream, you:

  • maximised your personal TBC — your personal TBC does not increase with indexation;
  • only partially used your personal TBC — your personal TBC is proportionately indexed, based on the highest ever balance of your TBC.

It is important to ensure that you work out the amount of your personal TBC if you have commenced a retirement phase income stream so that you do not exceed your personal TBC.

If you exceed your personal TBC, you may have to:

  • commute the excess into a lump sum payment or back into accumulation phase (where the earnings on the assets held in accumulation phase will be taxable); and
  • pay tax on the notional earnings related to the excess.

The ATO will advise you of the amount that needs to be commuted as well as the tax on the notional earnings.

Pension standards — minimum annual payments

When you have commenced a retirement phase income stream, minimum payment rules apply. (A maximum amount of 10% of your account balance applies only for transition to retirement pensions that are not in the retirement phase.)

For account-based pensions, you must pay a minimum amount at least once a year, based on your age on 1 July in the financial year in which the payment is made (or the commencement day of the pension if it started during the year). An exception applies for pensions that commence on or after 1 June in a financial year.

The minimum payment amounts returned to normal levels for 2023–24, following a halving of the minimum percentage for the 2019–20 to the 2022–23 income years.

If the minimum pension amount for 2023–24 is not paid:

  • the income stream ceases;
  • you are treated as if you did not pay an income stream from the start of 2023–24;
  • any payments you received during 2023–24 will be treated as lump sum payments; and
  • the income (earnings) from assets supporting the pension cannot be treated by the fund as being exempt from tax.

While the Commissioner has the discretion to allow an income stream to continue even if it does not meet the minimum pension standards, this applies in only limited circumstances so it is important to ensure that you meet the requirements of the law.

Claiming a deduction for personal contributions

If you want to claim a deduction for a personal superannuation contribution you have made during the 2023–24 income year, you will need to:

  • give your fund trustee a notice of intent to claim a deduction for personal superannuation contributions before the earlier of the day on which you lodge your 2024 tax return or 30 June 2025; and
  • receive a written acknowledgment of the receipt of the notice from the fund trustee.

A range of circumstances can invalidate a notice provided to your fund trustee so it is important to ensure that the notice is validly provided to the trustee to enable you to claim a deduction for the contribution. Any personal contributions that are not deductible are treated as non-concessional contributions (NCC) and count towards your NCC cap.

What we are still waiting on

Non-arm’s length income (NALI) amendments

Proposed retrospective amendments to the NALI provisions which apply to expenditure by superannuation funds from 1 July 2018 will:

  • limit the amount of NALI arising from a general non-arm’s length expense for SMSFs and small Australian Prudential Regulation Authority (APRA)-regulated funds to twice the level of a general expense;
  • exempt large APRA-regulated funds from the NALI provisions for both general and specific expenses of the fund; and
  • exempt expenditure that occurred prior to the 2018–19 income year.

The enabling Bill is currently before the Parliament.

The ATO has not extended its administrative approach in PCG 2020/5 to the 2023–24 income year.

Increase in penalty units

The Government is increasing the amount of a penalty unit from 1 July 2024 from $313 to $330.

The increased amount of a penalty unit will affect a range of penalties across the tax and superannuation laws, particularly the administrative penalties that individual SMSF trustees and directors of corporate trustees are personally liable to pay if they contravene certain provisions of the Superannuation Industry (Supervision) Act 1993. The administrative penalty can be as much as $19,800. Directors of corporate trustees are jointly and severally liable to the penalty. Individual trustees are each liable to the penalty.

The enabling Bill to increase the amount of a penalty unit is currently before the Parliament.

Division 296 tax from 1 July 2025

The Government proposes to introduce a new tax from 1 July 2025 that will mean individuals with a TSB of more than $3 million at the end of the 2025–26 financial year will be subject to a 15% tax on earnings attributable to that part of their balance that exceeds $3 million.

Division 296 tax will be levied directly on individuals and imposed separately from personal income tax and superannuation fund tax. Individuals will have the option of paying their tax liability by either releasing amounts from their superannuation or using amounts outside of the superannuation system.

Notably, it is proposed that:

  • unrealised gains will be taxable under the new regime — this is a significant departure from core tax principles of not taxing income, profit or gains until they are realised (extensive advocacy efforts have been undertaken by The Tax Institute and others expressing our concerns to the Government about the dangerous precedent this policy sets for future tax proposals);
  • the $3 million threshold will not be indexed; and
  • losses will be able to be carried forward and used to reduce the amount of superannuation earnings subject to Division 296 tax in future income years, but cannot be carried back to reduce or receive a credit for Division 296 tax previously paid.

While this proposed measure does not affect superannuation for the 2023–24 financial year, it is important that individuals who have, or expect to have, more than $3 million at the end of the 2025–26 financial year start to turn their minds to understanding the proposed new tax and its implications. This includes how payment of a Division 296 tax liability will be funded and the cash flow implications for those affected individuals who have predominantly non-liquid assets in their superannuation funds.

The enabling Bill is currently before the Parliament.

Payday super from 1 July 2026

The Government proposes to require employers to pay their employees’ superannuation at the same time as their salary and wages from 1 July 2026. Payday super will change the timing of the payment of employer superannuation from at least quarterly to every week, fortnight or month in line with each employee’s payroll cycle.

While this proposed measure does not affect superannuation for the 2023–24 financial year, everyone involved in superannuation — employees, employers, superannuation funds, tax practitioners, payroll providers, clearing houses, digital service providers and other intermediaries — must start to turn their minds to understanding the proposed new regime and its implications.

Targeted consultation continues with key industry stakeholders ahead of the expected introduction of enabling legislation later in 2024. Payday super represents a golden opportunity to reform the operation of the archaic SG charge regime so it safeguards employees’ superannuation entitlements while encouraging employers to rectify shortfalls by imposing proportionate penalties based on their behaviour.

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