Maximising Your and Your Spouse’s Tax-Free Superannuation Benefits - MGD
28 September 2023

Richard Marsden

Director - International and Executive

For those with an eye on retirement, the 2023 May Federal Budget was important. Superannuation rules became more favourable for most. The two rule changes (from 1 July 2023) most significant for those with higher incomes are:

1. An increase in Superannuation Guarantee Contributions (SGC) from a legislated 10.5% to 11.0%, with a scheduled increase to 11.5% from 1 July 2024 and 12.0% from 1 July 2025.

2. An increase from $1.7 million to $1.9 million in the caps for how much an individual:

              • Can have in superannuation and still make non-concessional contributions; and
              • Can transfer from their accumulated superannuation into a tax-free superannuation pension, usually after meeting a condition of release by reaching age 60 and retiring.
              • The above allowing up to a total of $3.8 million for a couple in tax-free retirement living!

While perhaps the latter is a stretch goal, let’s review the most important ways to get money into superannuation and the limits that apply.


Concessional Contributions Cap

The concessional contributions cap remains at $27,500 p.a. This cap limits how much total employer and employee pre-tax (salary sacrifice) contributions can be made into superannuation each year. Concessional contributions are taxed at 15%, which is very favourable compared with the top personal tax rate of 45% plus the 2% Medicare levy. The cap is indexed each year to average weekly ordinary time earnings (AWOTE), but only in $2,500 increments. We expect the cap to rise to $30,000 from 1 July 2024. However, there are a few issues:

  • For the SGC, a salary limit applies to how much an employer must pay. That limit is $62,270 per quarter ($249,080 p.a.), after which the employer will no longer be obliged to pay SGC.
  • An extra 15% superannuation contribution tax applies to individuals with incomes over $250,000 p.a. (inclusive of concessional superannuation contributions). Known as a Division 293d assessment, an election can be made to pay that extra tax from the superannuation fund or personally.
  • With the increasing cost of superannuation (and non-superannuation) life insurance premiums, SGC contributions alone may be insufficient to meet the cost of the life insurance premiums, potentially reducing long-term accumulation.


Non-Concessional Contributions Cap

The non-concessional contributions cap remains at $110,000 p.a. This cap applies to after-tax personal superannuation contributions. It is set at four times the concessional contributions cap and is expected to be indexed to $120,000 p.a. on 1 July 2024. A bring-forward rule allows up to $330,000 to be contributed in one year (with indexation that will become $360,000 in one year).

There are a couple of good reasons to make non-concessional contributions:

1. To top up your superannuation fund to pay for life insurance premiums and make sure your fund is growing with contributions as well as investment returns; and

2. In the retirement planning phase, to add larger contributions to your own or your spouse’s superannuation to build superannuation capital towards the $1.9 million limits.


Total Superannuation Balance Cap

The total superannuation balance (TSB) cap is $1.9 million and is the limit of a superannuation fund balance where no more non-concessional contributions can be made. Concessional contributions can continue to be made up to $27,500 p.a. up to age 67 with no work test or up to age 75 by meeting a work test. Downsizer contributions of up to $300,000 p.a. are not subject to the TSB cap.

In combination with the non-concessional contributions cap, the downsizer rule allows a lot of after-tax money to be contributed to superannuation very quickly, for example:

$110,000 2024 FY non-concessional contribution

$330,000 2025 FY non-concessional contribution using bring-forward*

$300,000 2023 or 2024 FY downsizer contribution**

$740,000 for each member of a couple

*Non-concessional contributions cap may be indexed to $120,000 on 1 July 2024, allowing a bring forward of $360,000 in this example.

**As per the 2021 Federal Budget announcement which allows downsizer contributions for people aged 60 and above (from 1 January 2023, downsizer contributions age limit is 55 or above).


Transfer Balance Cap

The transfer balance cap (TBC) of $1.9 million is the maximum amount that can be transferred into a tax-free superannuation pension. To transfer to a superannuation pension, a ‘Condition of Release’ must be met, and the most relevant in the retirement planning phase are:

  • Age 60 and ceasing employment (releasing superannuation benefits accrued up to the date of ceasing employment); or
  • Age 60 and permanently retired; or
  • Age 65.

A superannuation pension is the pot of gold at the end of the superannuation rainbow with the following features:

  • No tax on the investment returns of the superannuation pension fund;
  • A minimum income draw based on age (4% of the balance from age 55-65, 5% from age 66-75, etc.);
  • No restriction nor any tax on the withdrawal of any income or lump sum amounts with all amounts being regarded as tax-exempt (meaning there is no reporting in a tax return); and
  • Death benefits payable as a reversionary pension to a spouse or as a lump sum to a spouse or financial dependent tax-free (17% tax on the taxable component to a non-financial dependent).

It behoves anyone contemplating a tax efficient retirement to understand the importance of planning to maximise superannuation pensions up to the $1.9 million TBC.


Other Superannuation Rules That Can Help

There are a range of other superannuation rules that may be integrated into comprehensive retirement planning:

  • Downsizer contributions: allowing up to $300,000 to be contributed to superannuation in excess of normal non-concessional contribution rules.
  • Super splitting: where 85% of a person’s previous year’s concessional contributions can be transferred to a spouse.
  • Spouse contribution: providing a taxpayer with an 18% tax rebate on contributions made to a low-income spouse’s superannuation account, up to a $540 rebate limit.
  • Co-contributions: where the government will make a co-contribution up to $500 to a low-income earner’s superannuation fund to match non-concessional contributions.
  • Catch-up contributions: where those with a total superannuation account below $500,000 can use up to five years of previous unused concessional contribution caps. This year, for example, a person who has not previously made any concessional contributions could contribute up to $157,500 and claim that amount as a personal tax deduction.


Superannuation Combinations with Spouses

There are many rules and combinations of contributions that can be used depending on individual and spouse circumstances. With our clients who have spouses, we see a number of common and very effective combinations, particularly where a spouse is a lower income earner:

  • Maximising concessional contributions to reduce tax, including catch-up contributions where taxable income is high – for example where a property is sold and there is a large capital gain;
  • Making large non-concessional contributions as they approach retirement;
  • Making spouse contributions and co-contributions to take advantage of government incentives;
  • Super splitting to help even up superannuation account balances over time and where the higher income earner is projected to exceed the $1.9 million TSB and TBC caps; and
  • Making downsizer contributions where a home is sold.


Questions You Should be Asking and Answering on Superannuation Strategy

1. With the cost of life insurance rising, how much and what types of insurance do I and my spouse need, and how do I balance that need with cost? When is it prudent to dial my insurances down or drop them entirely?

2. How can I take best advantage of the range of superannuation rules to minimise tax and optimise financial outcomes?

3. What superannuation funds and/ or superannuation portfolio options meet my goals and needs?


Final Thought

MGD believes superannuation strategy (contributions, investment, insurance, and retirement income) must be planned and integrated with broader financial strategy relating to family lifestyle, home ownership, property, share investment, and other significant life circumstances that have financial consequences.

Superannuation has a myriad of rules with applications and benefits depending on individual and family circumstances. There are a range of superannuation fund options and combinations that can be best fitted to meet individual goals and objectives.

The information in the above article is general in nature. We strongly recommend you seek professional advice to make sure any superannuation strategies you contemplate are suitable for your own circumstances.

We invite you to contact us if you would like to have a chat about your situation on (07) 3391 5055 or at Initial discussions are complimentary.

Any advice included in this communication is general and has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider its appropriateness having regard to these factors before acting on it. Any tax information refers to current laws, is not based on your unique circumstances and should not be relied on as tax advice. Before you make any decision about whether to acquire a certain financial product, you should obtain and read the relevant product disclosure statement.