What do the 2024 tax cuts mean for your super contributions?

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What to think about if you’re a low-income earner
Using your tax cut to boost your super contributions
Deductible contributions – is now better than later?
Where to now?

Most Australians will pay less tax from 1 July 2024, thanks to the introduction of the Stage 3 tax cuts. We all know this means more dollars in our pockets, but thinking through the impact on your super contribution strategy may be trickier.

We’ve put together some ideas to get you started.

Need a refresher on what the tax cuts mean? Take a look at how the tax brackets and rates are changing.

What to think about if you’re a low-income earner

If you earn between $22,275 and $45,000 during the year, the maximum tax payable on your last dollar of income reduces to 16% in 2024–25 from 19% in 2023–24. Medicare Levy of up to 2% is added to these rates (the levy phases in when income reaches a threshold determined by your family circumstances).

The difference between your income tax rate including Medicare Levy and the 15% tax on concessional super contributions reflects the tax saving you can make by making salary sacrifice or personal tax-deductible contributions to super. This saving is a maximum of 6% in 2023–24 and a maximum of 3% in 2024–25 for incomes between $22,275 and $45,000.

You might feel that the tax discount available in the new year is no longer big enough to encourage you to lock money away in super where you can’t generally access it until retirement age. It is worth doing your numbers though, because the low-income tax offset (LITO), low-income super tax offset (LISTO) and the way Medicare Levy is calculated can provide additional incentive to make concessional contributions to super. It’s not as simple as 16% tax (or 18% including Medicare Levy) versus 15% tax.

If you’re earning $22,575 or less in 2024–25 you won’t pay any income tax at all due to the tax-free threshold and low-income tax offset. You won’t save any tax by making concessional super contributions.

After-tax (non-concessional) super contributions are worth considering if you have total income below $60,400 in 2024–25 and are earning at least 10% of your income from work or running a business. In this situation, after-tax contributions may entitle you to a co-contribution from the government.

Learn more about co-contributions and how to choose the best mix of contributions.

Case studies

Lan and the LISTO

Lan is self-employed and earns $25,900 per year. She already contributes $1,000 after tax to get the $500 co-contribution from the government.

Lan is interested in contributing another $3,000 to her super and claiming a tax deduction for this amount, but her friends have told her it’s not worth it because of the small difference between her income tax rate of 16% and the 15% contribution tax (Lan doesn’t pay Medicare Levy because she earns below $26,000 per year).

However, because Lan earns less than $37,000, she is eligible for LISTO of 15% of her concessional contributions, up to a maximum of $500. If she contributes $3,000, the contribution tax that is deducted will be fully refunded to her super account after the end of the financial year by the offset ($3,000 x 15% = $450).

Thanks to LISTO, Lan can make her planned deductible contribution to super, reduce her income tax by $480 (16% x $3,000), and have all her super contributions tax refunded. Lan is happy with this saving and decides to go ahead with her super contribution.

Faye and the LITO

Faye is working part time earning $40,000 per year.

She is considering salary sacrifice of $1,500 in 2024–25, on top of the $1,000 after-tax she contributes to maximise her co-contribution.

Faye estimates she will save 3% in tax, or $45 ($1,500 x 3%) due to the 3% gap between her income tax rate (18% including Medicare Levy) and the super contribution tax of 15%. She thinks salary sacrificing is probably not worth it.

When she runs the numbers through, Faye finds her Low-Income Tax Offset (LITO) will increase by $75 if she salary sacrifices the $1,500 as she planned. This means she will save a total of $120 ($75 LITO boost plus $45 income tax reduction). Faye is still unsure if she will proceed but is happy the saving is bigger than she thought.

Using your tax cut to boost your super contributions

If you’re comfortable with your current income the tax cut could be a painless way to increase your super contributions. Rather than allowing the savings to flow into what you take home, why not consider directing the windfall to super?

The increase in the concessional contribution cap from $27,500 to $30,000 per year also provides the freedom to put more into super if you’re already contributing.

Example: $90,000 income

Ravindra earns $90,000 per year and is not contributing to super. His take home pay in 2023–24 is $68,483 and he is comfortable with this amount.

To maintain the same take home pay in 2024–25, Ravindra can salary sacrifice $2,836 for the year. If he chose to take this amount as cash, 32% tax (including Medicare Levy) would be deducted. By directing it to super instead, Ravindra will pay the 15% super contribution tax – saving 17% (or $482.12) in tax. The lower super tax rate leaves more money to be invested for retirement.

Ravindra is delighted that he can start contributing to super without noticing any difference in his pay.

Deductible contributions – is now better than later?

If you’ve got some lazy money hanging around that you’ve been meaning to put into super it’s worth thinking about whether you’re better off biting the bullet before 30 June 2024. Changing tax rates could mean that you can reduce your tax bill by more with a tax-deductible contribution in 2023–24 than the following financial year.

If you’re reading this after the deadline, don’t assume you’ve missed out. There are still tax savings available in the new financial year.

Example: $130,000 income

Brodie has $10,000 saved that he would like to contribute to super and claim as a personal deductible contribution. He expects his total income to be $130,000 in both 2023–24 and 2024–25 and has no other tax-deductible expenses.

In 2023–24, the last $10,000 of Brodie’s income is in the 37% tax bracket (39% including Medicare Levy). If he makes his $10,000 deductible contribution before 30 June 2024, he will trade his 39% tax rate for 15% tax on super contributions, saving 24% tax or $2,400 in the process.

In contrast, in 2024–25, the tax rate on Brodie’s last $10,000 of income will be 30% (32% including Medicare Levy). If he puts off his contribution until on or after 1 July 2024, he will trade his 32% tax rate for the 15% tax on super contributions, saving 17% tax or $1,700.

Brodie decides to contribute before 30 June because his tax saving will be $700 more than if he waits until the following financial year.

Where to now?

To plan your super contributions for the new financial year you might like to put some scenarios into paycalculator.com.au. This tool has been updated with the new tax rates and can build in salary sacrifice to super, after-tax contributions and the co-contribution, and carry-forward concessional contributions. Be sure to select the financial year you want to look at in the tax year drop down box.

For example, you might want to check your take home pay for 2023–24 and 2024–25, then experiment to see how much more you could contribute to super in 2024–25 to maintain the same take home pay as the previous tax year.

If it’s too much to tackle on your own chat to your super fund, accountant, or financial planner for some help. Many super funds can provide free advice about contributions.