From top bracket taxpayers to people eligible for social security, the new financial year will bring changes that are relevant to just about everyone.
As July 1 approaches, the questions financial advisers are asking BT’s Technical Services team are a good gauge of the issues that are top of mind for their clients. This year, the top queries relate to future tax cuts, changes to superannuation cap thresholds, and recent Budget announcements on social security.
Here are the top five themes raised by advisers in the June quarter, along with a few tips on how to navigate them.
1. The impact of FY25 tax cuts on additional super contributions
Anyone earning more than $45,000 a year will benefit from tax cuts kicking in from July 2024. Ahead of that, putting more money into superannuation can prove to be a more tax effective strategy, particularly for people earning more than $120,000 a year.
At the current marginal tax rates, and bearing in mind the 15 per cent concessional tax rate within superannuation, the tax saving resulting from putting money into super in FY23 or FY24 is greater, compared to FY25 when the reduced marginal tax rates take effect.
2. Increase to the superannuation guarantee
Advisers generally remind clients about their available superannuation cap space as part of their year-end advice. ‘Cap’ refers to the maximum amount you can contribute to your super each financial year before paying additional tax.
So, it’s worth noting that the superannuation guarantee paid by employers is set to increase to 11 per cent in the new financial year. Contribution caps, however, are not increasing, so the mandatory employer contributions into super can eat into more of a client’s cap space. Clients should be aware if they are at risk of going over their cap.
3. Indexation impact on superannuation balances
The cap on superannuation transfer balances will increase by $200,000 to $1.9 million from July 1 due to indexation. The transfer balance cap is the amount of superannuation that can be transferred to a tax-free retirement income stream such as pensions.
That means that for people approaching retirement, with a high transfer balance and unused cap space, it might benefit them to wait until the new financial year to commence their pension.
4. Changes to social security payments, and other benefits
Advisers have been asking us about changes to social security payments announced in the May budget.
Legislation for proposed increases to certain social security payments was introduced into Parliament in May, and is expected to become law and be implemented by September 20, 2023.
The base rate of working age payments will be increased, including Jobseeker and Youth Allowance. In recognition of the challenges that seniors face with finding employment, the age of eligibility to receive the higher rate for Jobseeker will be reduced to 55 from September, from 60 currently.
To help address cost of living increases, especially housing, rent assistance will increase by 15 per cent – this is in addition to the normal increase that occurs to adjust for inflation. Advisers should bear in mind that clients who are in retirement villages may qualify for rent assistance. Some parenting payments will also increase.
5. Planning for coming tax increase on superannuation balances exceeding $3 million
From July 1, 2025, it has been proposed that superannuation tax concessions for people whose total superannuation balances exceed $3 million will be reduced. In effect, they will pay an additional 15 per cent in tax on their earnings. This means that advisers have two years in which to put in place a plan that would be more tax-effective for impacted clients.
In addition to the above tips, it’s worth remembering that the preservation age for super will increase to 60 from 1 July for those born after June 30, 1964. Previously, the preservation age that applied was lower, depending on the year you were born.
Advisers may also wish to remind their clients that, from July 1, the eligibility age for receiving the age pension from the government increases from 66.5 to 67.
As always, it’s important to stay on top of regulatory changes which can affect your investments. A good first step is to seek financial advice to check your options.
DISCLAIMER: The information in this article is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and you should consider its appropriateness with regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed.