After stronger wage inflation figures this financial year, industry analysts now calculate on July 1 the annual pre-tax (concessional) super cap will rise from $27,500 to $30,000. The change is due to inflation indexing.
The new setting will bring the amount a salary earner can put into super before tax back where it was eight years ago when the Coalition cut super contribution tax breaks.
Separately, the higher super ‘contributions cap’ will have a knock-on effect on so-called post tax (or non-concessional) contribution caps, which will automatically lift at the same time — the new cap is expected to be $120,000 a year, up from $110,000.
For once, the change means younger salary-earning Australians get an improved super setting.
However, it is expected recent CPI movements imply there will be no change for older Australians hoping for expansions in the amount you can have underpinning a tax-free income in super. That cap is expected to remain unchanged at $1.9m
Why a lift in contribution caps but not in the tax-free thresholds? The answer is linked to the over-engineered tax arrangements in super where contributions caps are linked to wage inflation, specifically the AWOTE (Average Weekly Ordinary Time Earnings) and tax free thresholds are linked to the more widely used Consumer Price Inflation measure (which recently dropped lower than economists had forecast).
If you are planning to take advantage of the forthcoming changes, keep in mind pre-tax caps must include the Superannuation Guarantee Charge. Consequently, if you are making a voluntary contribution you must first subtract from the ‘cap’ the money which automatically goes through from the SGC — which is currently set at 11 per cent and will rise to 11.5 per cent — by July 1.
In practice this would mean from July 1 someone earning $150,000 who wished to make a maximum pre-tax contribution would first need to subtract the SGC amount for the 12 months to June 30 2025 — 11.5 per cent of $150,000 is $17,250 — the gap between the SGC figure and the forthcoming cap of $30,000 is the amount you are allowed to voluntary contribute — which equals $12,750.
Peter Burgess, CEO of the Self Managed Super Funds Association says: “Looking at the wage inflation figures we think it’s pretty certain we can say already there has been enough wage lifts to trigger the indexation.
“Investors and advisers should be making plans now, and keeping in mind that sometimes it might be worth waiting until after July 1 to make a contribution,” Burgess suggests.
Advisers also suggest salary earners are likely to make errors in super contributions this coming year as many may not be aware settings are due to change around the SGC, pre-tax contributions, and post-tax contributions.
The long wait for the lift in contribution caps reflects the slow wage growth in 2021 and 2022 when wage inflation was often slower than wider inflation. The last time pre-tax caps were lifted was in 2021 when they rose from $25,000 to $27,500.
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