How to play the looming increase in superannuation contributions caps

The probable increases to superannuation contribution limits that could apply from July 1 this year open up a range of possible strategies to employ over the next few months.

That, of course, assumes you are in a position to take advantage of the changes — with spare cash already in the bank or expected over the next few months. That could include a retirement pay-out, the sale of an investment property or the distribution from a deceased estate.

As a starting point, the amount you already have in superannuation will determine what you can do. All strategies depend on your superannuation account balances on June 30, 2025 or on June 30, 2026.

The first significant figure is your total superannuation balance. The TSB is the grand total of all your superannuation accounts, including the accumulation phase money and money in retirement phase accounts such as an account-based pension.

If this figure is less than $500,000 on June 30, you can make use of the “carry over rules”. This means you can make use of any unused concessional contributions for up to five prior financial years, plus the current financial year. By July 1, that will, of course, mean the next financial year.

With expected increases to the contribution caps to apply from July 1 this year, that figure could be $175,000 less the concessional contributions already received over the same period.

What if you’re just a smidge over the $500,000 figure?

If you have already satisfied a condition of release to access money from super, it can sometimes be worthwhile to withdraw an amount to reduce your super by a few thousand dollars. Even a couple of thousand under the magic $500,000 level allows you to max-out the carry over limits.

That could be a very useful tool to use if you’re about to cash-in an investment property and are staring at a big potential capital gains tax liability.

For those with few or no tax considerations now, super allows you to effectively deposit a large cash windfall into a completely tax-free investment “box”. If you want to keep things safe, you can even access term deposits via this magic tax-free box.

Money first needs to be placed into superannuation, in this case a non-tax deductible contribution of up to $120,000 this financial year.

Here’s the trick.

If you have minimal or less than about $1.7 million in super right now, that $120,000 contribution would not “trigger” a special bring-forward rule. The rule allows you to bring forward up to three years’ worth of non-concessional contributions — or up to $360,000.

However, because that $120,000 is likely to jump to $130,000 on July 1, the bring-forward maximum then rises to $390,000. The bottom line is that you can put in $120,000 or less now and then another $390,000 on July 1. That’s assuming you haven’t made use of the bring-forward rule in the past three years. You also need to be under the age of 75 to do this.

In a nutshell, $510,000 into super over the next four months or so.

Once there, the maximum tax paid by the fund is 15 per cent on the earnings, but if converted to a retirement account like an ABP, that tax drops to zero.

There’s never any tax on withdrawals and no tax on earnings, so you’re likely to be way ahead of just parking the money in a high-interest bank account outside of superannuation.

Because most of the age pension is taxable — even a part-pension — total annual income might see you having to pay tax again if you just stick the money in the bank.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association