Maximize Your Tax Savings
Maximize Your Tax Savings with the July 1, 2024, Super Contribution Cap Increase
If you think you're paying more in taxes than necessary, you're probably right. The good news? The ATO has announced a significant change to the super contribution cap for 2025, which could help you save on taxes.
What’s New for the 2025 Financial Year?
Starting July 1, 2024, the amount you can contribute to your superannuation account is increasing.
Concessional Contributions: The pre-tax contribution limit will rise from $27,500 to $30,000.
Non-Concessional Contributions: The after-tax contribution limit will go up from $110,000 to $120,000.
Who Stands to Gain from the Super Cap Increase?
This increase is beneficial for anyone with the means to contribute to their super, particularly those who’ve experienced financial windfalls, a successful business year, or a profitable exit.
How Super Contributions Can Help Reduce Your Taxes
You may be eligible for a tax deduction on personal super contributions. Pre-tax super contributions are typically taxed at a reduced rate of 15%, allowing you to lower your overall tax bill by channeling more income into your super. Additionally, once you retire, the withdrawals from your super may be tax-free.
For instance, if your business has performed well or you've recently sold your business, these contributions can be an effective tool for reducing your tax liability.
Three Strategies to Lower Your 2024 Taxes Using Your Super
Timing Your Contributions
Super contributions don't just impact your income tax; they can also reduce other taxes, like capital gains tax. If you've sold an asset or received an inheritance this year, contributing those funds to your super can lower your taxes. Be sure to consult with your accountant to ensure compliance with the rules.Leveraging ‘Catch-Up’ Contributions
If you've contributed less than the limit over the past five years, you can make additional contributions this year—provided your super balance is below $500,000. For example, if you contributed $15,000 in 2023, you could contribute up to $42,000 in 2024 by adding the unused $12,000 from 2023 to this year’s $30,000 cap. Remember, any unused limits from 2018-19 must be utilized this year or they’ll expire.Important Considerations for Retirement
Although contribution limits are increasing, the cap on the amount you can transfer into a tax-free retirement account remains at $1.9 million for 2024.
Prepaying Deductible Contributions
Members of Self-Managed Superannuation Funds (SMSFs) might have the option to prepay deductible contributions, though this comes with specific compliance requirements. Consult with a professional to determine if this strategy is suitable for you.
