Don’t misstep on contribution caps at EOFY

For those looking to target the new cap of $32,500, Chris Reed, director of Business Concepts Group, has reminded them that it doesn’t actually come into effect until the new financial year. 

With this, Reed said the indexation of caps can have an influence on pre-30 June strategies, even though they’re not going up until 1 July 2026. 

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“The concessional contribution cap is indexing up from $30,000 to $32,500 but it is important to remember that is the new financial year cap and $30,000 is the cap for the current financial year,” Reed said. 

“That also means the non-concessional cap goes up as the non-concessional cap is four times the concessional cap and that now becomes $130,000 as of the 1 July. For the current financial year, it’s $120,000.” 

Reed said this will impact the bring-forward amount and, without non-concessional contributions, a member has the ability to bring forward three years into one. 

“At the moment it’s three times $120,000 which is $360,000. If you’re looking at doing non-concessional contributions for the current financial year, you need to work within those caps,” he said. 

“In the new financial year, that becomes $390,000 so we can get a little bit more into superannuation. The final cap that is indexing is the transfer balance cap, which is going up to $2.1 million from $2 million and this affects the amount of money you can have in pension phase.” 

Although it is tax-free, Reed said it can also have an impact on the ability to make non-concessional contributions, and to access the bring-forwards. 

Sarah Power, director of BCG, said that while these cap changes are not coming into force until 1 July, they could influence strategies considered this financial year. 

“There’s a lot of advice and planning that can go around these caps, and consideration of the changes and the increases will need to be done when you’re doing any strategies pre-30 June, because it might just change your thinking of what you’re going to do,” Power said. 

Regarding concessional contributions for which there is a tax deduction, pre-30 June planning is essential. 

“A lot of people are looking for tax deductions, and this is one of the mechanisms to look at. But first you have to be eligible. You need to be mindful about the age limit. If you’re under 67 not a problem, if you’re above 67 you need to pass the work test in order to make concessional contributions,” Reed said. 

“The other age to be wary of is over age 74. Even if you did pass the work test you are not able to make concessional contributions [past that age].” 

He said another strategy that needs planning is if using carry-forward concessional contributions. 

“As I have mentioned, our cap for this year is $30,000 and will be $32,500 in the new financial year.  If you have unused cap space from prior years and your total super balance was less than $500,000 at the start of the financial year, then you can carry forward those unused amounts and bring them into the contributions that you may want to make now,” he said. 

“These can be quite large if you haven’t made much in terms of contributions over the last five years, plus this year’s cap, it can be up over $150,000 worth of deductions, potentially sitting there if you’ve got the cash flow to do it.” 

Power added that this is a big tax deduction if needed but requires income to support it. 

“It can be a significant amount of money to potentially put into super and claim on your own tax return as a deduction. Obviously, you’d want the income to support it. Do you have a capital gain? Do you have a large untaxed income you’d want to be able to claim against it to reduce your tax?” she said. 

“But you also need to understand where you’re at with your caps. Everyone’s different, depending on what they put in during the years, how much they do have to carry forward. You need to know that figure before you potentially put any into super, or you might breach your caps.”