Superannuation Update – Summer edition

Superannuation – what lies ahead in 2025?

There are certainly a few big-ticket items causing quite a stir in the world of Superannuation.

$3m Super Cap – Division 296

Fortunately, the proposals around the Division 296 “$3m super cap” didn’t get passed through the Senate on the last day of sitting.

Senate sittings resume in February 2025; however, we have a Federal election looming which needs to be held before 17 May 2025. As a result, we await with bated breath as to when this is called, and whether there is any time for Division 296 to be tabled for debate in the new year.

It’s important to note that all outstanding Bills not voted into law are null and void on announcement of an election.

Early this year will be an interesting time to see what happens next with this contentious matter.

What is the proposed Division 296?

This proposed change tothe superannuation concessions with the introduction of Division 296 tax means that, from 1 July 2025, Australians will be subject to an additional 15% tax on calculated earnings (including realised or unrealised gains) where Total Superannuation Balances exceed $3 million.

Should this new Bill go through, we have little time to act before it could become law on 1 July 2025. It is critical that trustees stay informed and ensure strategies remain adaptable to potential changes in the superannuation landscape. Have a plan in place that can be executed if and when the time comes.

Non-Arm’s Length Expenditure (NALE)

Prior to the end of the 2024 financial year, the Federal Government finally passed the long-awaited Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023. This legislation contains changes to the non-arm’s length expense provisions (Schedule 7).

The passing of this legislation generally means that SMSF trustees are often reminded of the need to ensure that all their fund’s transactions are entered into and carried out at ‘arm’s length’.

However, many SMSF trustees are not aware that their SMSF’s expenses are also considered when determining whether their SMSF’s income is to be taxed as non-arm’s length income. That is, the requirement to transact on arm’s length terms applies to both income and expense transactions within the super fund.

Trustees should be aware that the failure to comply with this requirement can lead to some unwanted outcomes, including tax being applied to the fund’s income at the top 45% rate of tax.

Objective of Superannuation

Again, in 2024 the Superannuation (Objective) Bill 2023 was passed, cementing the objective of superannuation: “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.” This objective ensures superannuation is purely for retirement purposes.

The concept of an objective of super was first tabled by previous Liberal Governments but nothing was legislated under their leadership. With Labour now legislating this, Parliament will need to ensure legislation addresses these objectives when considering future changes to the superannuation sector.

SGC Contribution Levels

There are further increases in the level of employer support coming. This is to take effect from 1 July 2025. This is great for all employees, not so great for all employers.

The minimum SG rate you must pay for each eligible employee from 1 July 2024 was 11.50% of their ordinary time earnings (OTE). This is legislated to increase to 12% on 1 July 2025.

History of the SGC requirements from 2002 to 2026 is as follows:

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Rate

9.00%

9.25%

9.50%

10.00%

10.50%

11.00%

11.50%

12.00%

Please note, if your employer doesn’t pay the required rate of SG into your super account by the quarterly due date, they may have to pay a Superannuation Guarantee Charge (SGC) to the ATO. The SGC includes all the SG amounts owing to their employees, plus interest and an administration fee.

Employers who don’t pay the SG into the correct super fund by the due date must report and rectify the missed payment by lodging an SG Statement and paying the SGC.

Tax offset for super contributions on behalf of your spouse

Want an extra refund on your tax return?

You may be able to claim a tax offset of up to $540 per year if you make a super contribution on behalf of your spouse (married or de facto) of $3,000 if their income is below $40,000. Please note that contributions you make to your spouse’s super are treated as their non-concessional contributions, whether you’re eligible for the super tax offset or not.

General eligibility conditions

• the contribution must be made to either a complying super fund, and
• both you and your spouse must be Australian residents when the contribution is made, and
• the contribution is not deductible by you, and
• you and your spouse must not be living separately and apart on a permanent basis when making the contribution.

Specific eligibility conditions

• their income is less than $40,000 in the income year in which the contribution is made, calculated as the sum of their:
  • assessable income (disregarding any amount released to your spouse under the first home super saver scheme), and
  • total reportable fringe benefits amounts, and
  • total reportable employer super contributions.
• your spouse did not exceed their non-concessional contributions cap in the income year in which the contribution is made, and
• your spouse had a total super balance less than the general transfer balance cap (being $1.9 million for FY2025) immediately before the start of the income year in which the contribution is made, and
• for the 2020–21 and later income years, your spouse was under 75 years old when the contributions are made.

Offset amount

The tax offset amount reduces when your spouse’s income is greater than $37,000 and completely phases out when your spouse’s income reaches $40,000.

The tax offset is calculated as 18% of the lesser of:

• $3,000 minus the amount by which your spouse’s income exceeds $37,000, or
• the sum of your spouse contributions in the income year.

Example (full offset availability)

Robert and Judy are spouses. Robert earns $19,000 in FY2025 and Judy makes a $3,500 contribution to Robert’s super fund.

Both Robert and Judy meet the eligibility requirements to claim a tax offset.

Judy can claim a tax offset in her 2024–25 tax return for the contributions she makes to Robert’s super fund.

The tax offset is calculated as 18% of the lesser of:

• $3,000 minus the amount over $37,000 that Robert earned (in this case, nil), and
• the value of the spouse contributions (in this case, $3,500).

Judy can claim a tax offset of $540, being 18% of $3,000.

Example (partial offset availability)

Carmel and Adam are married and living together. Carmel is 46 years old, and her income is $38,000 per year. Carmel has not exceeded her non-concessional contributions cap for the income year, and her total super balance is under $1.9 million.

Adam wishes to make a super contribution of $3,000, on Carmel’s behalf, to her complying super fund.

Carmel’s income is under the threshold. Adam is eligible for a tax offset. As Carmel earns more than $37,000 per year, Adam will not receive the maximum tax offset of $540. Instead, his entitlement is 18% of the lesser of:

• $3,000 reduced by every dollar over $37,000 that Carmel earns, and
• the value of spouse contributions.

Carmel earns $1,000 over the $37,000 income threshold. Adam’s tax offset is $360. This is calculated as 18% of $2,000 ($3,000 reduced by the $1,000 that Carmel earned over the $37,000 income threshold).

Claiming the offset

You claim the offset in your tax return during the financial year when the contribution was made on behalf of your spouse

Only 30% of Australians to achieve ‘comfortable retirement’

New research from the Association of Superannuation Funds of Australia (ASFA) outlines that only 30% of Australians can afford a ‘comfortable’ retirement as defined by ASFA’s ‘Comfortable Retirement Standard’.

A ‘comfortable’ retirement is defined as having an ability to manage everyday expenses, going out for the occasional restaurant meal and taking an overseas holiday every seven years.

Based on ASFA’s comfortable retirement standard, couples aged 65-84 who own their own home now need at least $690,000 in super to fund their retirement, while singles need $595,000. This equates to $73,337 a year for a couple and $52,085 a year for a single.

Interestingly, couples are more likely to reach the ASFA Comfortable Retirement Standard than single people due to the combined superannuation balances and shared living expenses, which enable them to stretch their resources further.

The report’s findings also highlight there are still considerable gaps in knowledge and preparedness among individuals approaching retirement and it really emphasises the value in engaging expert financial advice to support retirement outcomes.

How much do you have in superannuation? Will it provide you with a comfortable retirement?

We can support you in planning for a comfortable retirement by assisting with:

Optimise Retirement Outcomes

Our Advisers can assess your current superannuation balances, predict future needs, and tailor a strategy to help you achieve a comfortable retirement, factoring in individual goals and inflation.

Investment Returns and Managing Risk

The volatility of investment returns in superannuation adds another layer of complexity. To reduce this type of exposure, our financial advisers can help you manage this volatility by recommending diversified portfolios and managing risk according to your retirement goals and risk tolerance.

Tax Efficiency

The importance of managing your taxes during the accumulation and retirement phases is critical. By talking with our financial advisers, you can leverage tax-efficient strategies, such as transition-to-retirement income streams or making use of concessional contributions. This can significantly reduce your tax liabilities both before and after retirement, helping to stretch your superannuation savings further.

Managing High-Balance Accounts and New Tax Implications

It’s estimated that 80,000 people will be impacted by the proposed tax on superannuation balances over $3 million. If you are an individual with a high superannuation balance over this threshold, the newly proposed Division 296 taxes will have some impacts on you if they become law. If this happens, our financial advisers can provide critical tax planning strategies to help mitigate the impact of these changes.

Superannuation Gender Gap and Finanical Advice

Unsurprisingly, women face unique challenges in superannuation due to lower average balances and time out of the workforce for caregiving. Although the gap between men and women is closing, it’s still significant.

Financial advisers can play a vital role in helping women catch up through strategies such as salary sacrificing, government incentives like the Low-Income Superannuation Tax Offset (LISTO), and ensuring women receive super contributions on paid parental leave.