Super contribution caps could rise soon: what this means for you
The Australian Bureau of Statistics is set to release new wage data later this month, and it's believed that shortly thereafter, this data could trigger an increase in the superannuation concessional contribution cap from $27,500 to $30,000.
These contribution caps are not arbitrary but are influenced by economic indicators, specifically the Average Weekly Ordinary Time Earnings (AWOTE), a metric that measures the average earnings for a standard workweek in Australia.
This anticipated change would also raise the non-concessional cap, making this a great time to consider boosting your super contributions.
If you missed our guide on super contributions, here's a little refresher on the types of contributions most of us can make.
Concessional contributions, which are currently capped at $27,500 and may soon rise to $30,000, offer significant tax advantages. These contributions include the Super Guarantee (SG) that your employer contributes on your behalf, as well as any voluntary contributions you make, such as salary sacrifice or personal contributions for which you claim a tax deduction.
Concessional contributions are taxed at 15%, often lower than your personal tax rate, leading to immediate tax savings. Plus, investment earnings within the fund are also taxed at this lower rate, enhancing growth potential.
Non-concessional contributions are made from after-tax income. While these contributions don't offer an upfront tax benefit, investment earnings are taxed at a lower rate as they grow, potentially leading to higher net returns over time. The current cap is $110,000, but this could increase if the concessional cap rises.
Just keep in mind that if the value of your super fund is $1.9M or more, you’re not eligible to make non-concessional contributions unless you want to pay a penalty (this number is tied to a different wage metric than AWOTE and is not expected to change).
Even if the caps don’t increase this year, they will eventually. Regardless, the current caps offer valuable opportunities for tax benefits that shouldn't be overlooked. It's important, however, to seek advice from a financial advisor to craft the best strategy for your unique situation.