The 2 big changes you need to know in FY25

New year, new you. Wondering what on earth I’m talking about? There are two big changes for the 2024/2025 financial year that you should know about – and perhaps you could take advantage of them to change your finances.

This could be the year you build your super, or the year you finally get your investment plans sorted. Or perhaps simply the year to get your finances back in the black.

It all sounds tempting, doesn’t it?

I spoke to Sarah King, Head of Client Care and Advice for Stockspot about the changes for this financial year and how you could take advantage of them.

Change 1: Stage 3 tax cuts

The much-heralded stage 3 tax cuts are finally here – “it’s a combination of lower marginal rates and increases in thresholds.”

You can see this below:

“For example, an individual earning a $200,000 pre-tax income, the expected tax cut will be $4,529,” says King.

How to take advantage of this

The changes were designed to help Australians with the cost-of-living challenges – but if it means you have more money in your pocket, there are a range of things you could consider doing.

King encourages investors to visit the ATO calculator to understand their expected tax cuts.

There are four options she suggests:

1. Boost your emergency fund
   “The general wisdom is to hold 3-6 months of expenses in an emergency account,” says King. She’s seen the highest number of clients selling down positions to pay bills in recent months she’s ever come across, with the savings Australians accumulated during COVID all but gone. In challenging times, it can’t hurt to think about a safety buffer.
2. Pay down non-deductible debt
   Debts like mortgages aren’t tax deductible and simply accrue with interest over time. King suggests investors could think about paying down these debts with the boost from the tax cuts which can help put them in a better financial position.
3. Add it to your investment portfolio
   “You could use the funds to start investing to help you grow and accumulate wealth for your future goals. If you are already investing, you could add the savings to your existing portfolio,” King says.
4. Top up your superannuation
   Remember you can make both concessional (pre-tax) and non-concessional (after-tax) contributions – more on that shortly – so this could be your chance to bump a bit extra in there for your longer-term spending needs.

“Make sure you review any salary sacrifice or personal deductible contribution strategies you have in place that may be impacted by the reduction in the lowest marginal rate from 19% to 16%,” says King.

Change 2: Increases to the superannuation guarantee (SG) rate and contribution caps

SG are those contributions to your super that your employer makes on your behalf and the rate is increasing this financial year. It is rising 0.5% to 11.5%. It will increase to a capped rate of 12% pa from FY26.

“This will help Australians to grow their super balances more by contributing a higher amount to superannuation each year, which has the benefit of a lower tax rate of 15% in super vs most individuals' marginal tax rate,” King says.

Added to this, the caps on contributions are going up this financial year too – remember that SG falls under these.

• Concessional contributions caps – aka those contributions you make to your super from your pre-tax salary (including SG) – are increasing from $27,500 to $30,000 per financial year. A 15% tax applies to these contributions rather than your usual marginal tax rate unless you earn over $250,000 per annum, in which case an additional 15% tax may apply.
• Non-concessional contribution caps – anything you add to your super after you’ve paid tax – are increasing from $110,000 to $120,000.

Super strategies for your wealth

• You can ‘carry forward’ unused concessional contributions from the last five years if your total superannuation balance is under $500,000.
• You can ‘bring forward’ three years’ worth of non-concessional contributions which would allow you to contribute up to $360,000.
• Those who earn under $45,400 and are aged under 71 years old as of 30 June 2024, may be eligible for a government co-contribution of up to $500 if they make a non-concessional contribution of $1,000 (and don’t claim it as a tax deduction).
• If your spouse earns below $40,000, you can contribute $3,000 or more to their superannuation and receive a tax offset of 18% to a maximum of $540. This counts as a non-concessional contribution.
• Those earning up to $37,000 may be eligible for the Low Income Superannuation Tax Offset where they can have the 15% contributions tax on their SG contributions refunded to their superannuation balance.

Ensure you check the fine details at ato.gov.au.

Final words to remember

You can’t get used to having ‘more money to spend’ if you’ve already accounted for and planned for how to take advantage of it. Where you can continue to budget on the income you had last financial year, it frees up that ‘bonus’ from the tax cuts to put towards debt, investments, or savings.

Seek expert advice if you need it too.

“Having an adviser to help you stay on track is usually critical for long-term success,” says King.