A little tax bonus at year end

Concessional contributions SMSF

The indexation of the concessional contributions cap due on 1 July will give SMSF members the ability to enjoy a small tax advantage.

This time of year usually has SMSF trustees considering their final contribution strategies for the current financial year. However, the lead-up to 30 June 2024 is slightly different as individuals can enjoy an additional bonus when it comes to their concessional contributions.

As reported a few months earlier in this publication, the next round of indexation is set to be applied to the concessional contributions cap, effective 1 July. To this end, it will be increasing from $27,500 a year to $30,000.

The change puts SMSF members in a unique situation as they can effectively claim a deduction for this year’s cap and the 2024/25 cap in the current income year. The strategy of contributions reserving is what makes this possible.

This outcome can be achieved if an individual makes concessional contributions fully utilising both caps, or $57,500, before 30 June. How is this possible without having a member breach their yearly cap? Well the way the superannuation rules operate, SMSF trustees have up to 28 days after the end of a calendar month to allocate a contribution to a specific member. That means the $30,000 relating to the concessional cap for 2024/25 will not be assigned until July. The deduction for the both caps, however, can be claimed in the 2024 income year.

It is important to note though that invoking this course of action means under normal circumstances no additional concessional contributions can be made for the 2025 financial year.

This strategy can of course be implemented at the end of income year, but using it before 30 June will give SMSF members a small bonus due to the impending indexation measure. Basically they will be able to claim a tax deduction for an extra $2500 worth of contributions.

This may be particularly handy if the fund is expected to incur a significant tax liability in the current income year.

And the strategy is pretty much in the domain of SMSF members only. Yes, people belonging to public offer funds can legally do it as well, but Australian Prudential Regulation Authority-regulated fund trustees only have three business days in which to allocate a contribution. So from a practical perspective, gaining a tax benefit in this way can basically be ruled out.

While there is this bonus from a concessional contribution perspective, the indexation to be applied on 1 July has a slight catch when it comes to non-concessional contributions.

The methodology behind determining contributions thresholds dictates the non-concessional cap constitutes the concessional cap multiplied by four. So at the start of the new fiscal year, the annual non-concessional cap will jump from $110,000 to $120,000. However, this does not mean the new threshold applies to all aspects of non-concessional contributions immediately and this is why SMSF members must be careful in relation to these parameters.

In short, individuals who have triggered the non-concessional contribution bring-forward provisions prior to 1 July are bound by the existing limit. So over the relevant three-year period they can still only contribute a maximum of $330,000.

In other words, SMSF members in this situation should be of the belief that the bring-forward limits will increase to $120,000 for one year and $240,000 for two years from 1 July 2024.

But this little trap aside, SMSF members who obey the given rules in June, can reward themselves with a nice little windfall.


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