New changes to Superannuation in 2023

We’re already midway through March, and 2023 seems to be flying by.

This year brings some important changes to the Australian superannuation system that individuals and businesses will want to be aware of. From increased Super Guarantee liability for employers to changes in tax-free limits on superannuation contributions, there are several key changes to pay attention to. In this blog post, we’ll cover some of the most significant updates.

Super guarantee increase

Employers will see an increase in their SG liability this year. The rate of SG will increase from 10.5% to 11% from 1 July 2023, before gradually hitting 12% on 1 July 2027 as follows:

SG is payable on ordinary time earnings, but not on overtime payments and may be payable to contractors as well as employees. A contractor may be liable for his/her labour or skills if their contract is wholly or principally for them.

The increased rate of 11% will need to be applied to any payments of ordinary time earnings made on and after 1 July 2023, even if some or all of the relevant pay period relates to work performed before 1 July. 

Returns are generally healthy 

All things being equal, you can expect a positive return on your super this year.

While returns were minus almost 5% in 2022, negative returns are the exception. There have been only four negative years since 2000 in a period that spanned September 11, the GFC, and COVID-19. 

The average return for the average balanced fund since 2000 is 6.1% – that’s $61,000 a year for every $1 million you can get into super. After double-digit returns in 2017, 2019 and 2021, 6.1% may sound modest, but it is entirely reasonable. In fact, 6-7% is what you can expect over the long term. The period of artificially low rates that inflated annual returns is over, with interest rates now normalised. Estimate your super investment growth using a 6.1% annual return.  

A cap to end all caps 

As was announced on 28 February by the current government, a cap on the amount you can have inside superannuation taxed at 15% (not just in a tax-free retirement account) may be imminent. At present, the amount of super on which earnings are taxed at just 15% is unlimited. The government has announced that this 15% rate of tax will be limited to $3 million. Earnings on amounts exceeding that will be taxed at 30% from 1 July 2025, the government has announced. However, even if this cap finds its way into law, 99.5% of individuals will not be impacted as they hold less than $3 million in their super fund.

An extra $200,000 into super this year

Although indexation has adversely contributed to the cost of living, it does have a superannuation upside!

The massive 7.8% inflation rate has triggered what’s called a double indexation in super – and means that the amount of money that can be put into tax-free super is going to turbocharge super contributions.

From July 1, the amount an individual can have in super where the earnings are tax-free in your retirement phase will jump from $1.7 million to $1.9 million. This is a significant change – the tax-free limit has only moved higher once since it was introduced in 2016 (moving by $100,000, from $1.6 million to $1.7 million). The $200,000 increase is a formality unless the government announces an indexation freeze in the upcoming May federal budget. 

Super advice?

Your superannuation is likely to be one of your most significant investments. Our team of in-house accountants and financial advisors can provide proactive solutions tailored to your individual and business needs. Book a free chat today.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent. Content developed in partnership with IFPA.