For everyone Money matters: making the most of changes to super

Changes in the marginal tax rates, effective from 1 July 2024, have been well publicised, but they are accompanied by changes to superannuation that are also worth noting.

Compulsory employer contributions will increase from 11% to 11.5% of gross income. This will be followed by another rise in July 2025, taking the total employer contribution to 12%. No further rises have been legislated. 

Employer superannuation contributions form part of the concessional contribution cap, which can also include salary sacrifice and tax-deductible contributions. For example, if your salary is $80,000 per annum, your employer contribution (11.5%) will be $9,200pa. The tax rate applied to this concessional contribution is a flat 15%, or $1,380, so your super fund will increase by $7,820 net.

The concessional contribution rate cap will increase from $27,500pa to $30,000pa. In the example above, the employer contribution of $9,200 leaves $20,800 of ‘headroom’ under the new cap of $30,000 to make other concessional contributions such as salary sacrifice. If currently salary sacrificing, you may wish to look at increasing the amount.

Salary sacrifice is an efficient savings approach given the significant tax savings involved. For example, on a salary of $80,000, the marginal tax rate from 1 July will be 30% plus the Medicare Levy of 2% (total = 32%). So, on $1000 you pay $320 in tax. However, if you salary sacrifice that $1000, you will pay the concessional tax rate of 15%, or $150 in tax – a saving of $170. If you sacrifice $10,000, you save $1,700 in tax.

Given the new cap of $30,000 and an employer contribution of $9,200pa, you could salary sacrifice at a maximum rate of $20,800, producing tax savings of $3,536pa. Not everyone can afford to make large salary sacrifice contributions, particularly at a young age. But, over time, if personal cost-of-living pressures ease a little, salary sacrifice is a highly effective way to save.

The non-concessional contribution rate cap will increase from $110,000pa to $120,000pa. Opportunities to make large, non-concessional (after tax) contributions to super probably don’t arise very often for most people, but certain circumstances may allow it. A large inheritance or other windfall may provide a lump sum to invest, and super offers a tax-efficient structure if personal objectives can be maintained.

Always keep in mind that superannuation rules generally limit access to your money until you reach your ‘preservation’ age, so other investment options might be more suitable until you are approaching retirement.

Note: This article is in no way intended to provide you with personal advice and you should discuss your own financial circumstances with a qualified financial adviser before committing to any decision on matters raised in this article.