Big shake-up for superannuation and tax in EOFY overhaul

The end of the financial year is always an eventful change but this year there are a lot more changes coming through than usual.

This time superannuation is undergoing what is really a momentous change with the system finally hitting maturity as the super guarantee rate increases from 11.5% to 12%.

This is the final planned increase in the percentage of working payroll that gets paid into superannuation by employers.

Super system finally hits maturity

This final piece in the super puzzle should have the effect of greatly increasing the number of workers who retire with a healthy nest egg that will provide them with an acceptable standard of living well into retirement.

Obviously, it will still take many years for those getting the 12% super payment to finally reach retirement but the trend towards higher retirement balances should remain quite steady for the next few decades.

Other super changes

Another superannuation change is an increase in what is known as the transfer balance cap, which will increase by $100,000 from $1.9 million to $2 million.

This represents the top limit for the total amount of super that can be transferred into the retirement phase, so it can also act as something of a “stretch target” for those in the accumulation stage.

Of course, not everyone will even come close to reaching that target and that is absolutely fine – many people will retire well below that limit and have plenty of money in retirement, particularly those who manage to combine a part-pension with a super income.

The other thing to remember here is that many retired people find that their superannuation rises quite a lot even after it enters into the drawdown or pension mode – particularly if they take on a little more risk in their investment style and during the early years when minimum drawdowns are just 4%.

Indexation doesn’t apply to some other superannuation thresholds, with the $30,000 annual cap on concessional tax-deductible contributions and the $120,000 cap on non-concessional contributions both remaining the same.

Another super change is that superannuation payments will start being paid on the government’s Parental Leave Pay.

This means parents getting the support will get an extra 12% of their payment as a contribution to their super fund, which should help to boost the retirement accounts of parents who have broken employment.

The amount of Parental Leave Pay available will also increase to 24 weeks, up from 22 weeks and the amount of leave will increase by two weeks until it reaches 26 weeks from July 2026.

That amount is shared between parents and from July 1, three weeks of leave will be reserved for the parent who is not using the majority of the leave.

Tax interest charges no longer deductible

There are a few other financial year changes which are not so desirable, with the main one being that interest on overdue tax debts will no longer be tax deductible.

This is known as the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) and the lack of tax deductibility is expected to boost tax revenue by $500 million in 2026 and 2027.

The ATO applies the GIC when a tax debt hasn’t been paid by the due date, including when a tax return has been lodged late while the SIC applies when your tax return is amended and it results in a tax shortfall.

Minimum wage set to rise

Other expected changes that have not yet been quantified as yet include an upward adjustment in the minimum wage of $24.10 an hour and rises in Family payments, including the Family Tax Benefit, Newborn Supplement and Multiple Birth Allowance.

Age Pension, Disability Support Pension and Carer Payment recipients will also have increases to their income and asset thresholds, with the amounts yet to be confirmed.

Medicare surcharge limit rises

Also rising is the threshold for the Medicare Levy Surcharge, which is the extra tax you have to pay if you earn over a certain amount and don’t have private health insurance.

Singles who earn over $101,000 and families who earn over $202,000 and don’t have appropriate private hospital insurance will now have to pay the surcharge, up from $97,000 and $194,000, respectively.

The final change, which has not yet been legislated is an increase in the minimum income above which HECS student debt repayments are due, which is set to increase to $67,000, up from the current $54,435.