What does EOFY have in store for advisers?

With the end of financial year around the corner, maximising concessional superannuation contributions and 2024 tax planning will be on advisers’ minds.

Treasurer Jim Chalmers’ 2023–24 budget was released last month, with many of the changes coming as no surprise due to previous announcements. 

The measures, including a $14.6 billion cost-of-living plan, balance a fine line between providing support to vulnerable Australians while mitigating inflationary pressures.

Many of the changes would only come into play over the next few years, such as the 30 per cent concessional tax on future earnings for super balances exceeding $3 million that would kick in in mid-2025. 

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Tim Howard, advice strategy and technical specialist at BT Financial, told Money Management that EOFY for advisers this year would be largely ‘business as usual’.

“It’s a normal end of financial year when you’re looking at the usual strategies. There’s nothing the budget presented which changes anything, as a lot of the announcements were either existing announcements due to come in future years or existing legislation,” he said.

Instead, this EOFY was an opportunity for advisers to assess what future actions should be taken for clients set to be impacted in two to three years’ time. 

For example, Australians who anticipated being affected by the super earnings cap or personal income tax rates could focus on future planning with their adviser. 

Changes to superannuation

Mike Miller, financial adviser and founder of Emerging Wealth, noted that super contributions would be a key focus for this EOFY.

In particular, unused concessional caps from the financial year 2018–19 would expire on 30 June 2024. 

“If we have members who have experienced significant capital gains this year and require an additional tax-deductible super contribution, we are checking whether they have any unused carry forward super contributions available for utilisation, where their super balance is under $500,000,” he said. 

If a spouse earned less than $37,000, clients could utilise the spouse contribution of $3,000 and benefit from a maximum tax offset of up to $540.
 
“Although these may be considered minor contributions, they can accumulate significant advantages over the long term, particularly when the focus is on debt repayment,” Miller added. 

Speaking to Money Management, Robert Rich, financial adviser and director of Unite Wealth, said maximising clients’ concessional contributions was one of the main ways advisers could add value to their clients.

The current contribution cap was $27,500, with amounts under figure this taxed at 15 per cent. 

Another super-related change was the super guarantee (SG) rate rising from 10.5 per cent to 11 per cent on 1 July 2023. Thus, the maximum super contribution base per quarter would index to $62,270.

Miller encouraged advisers to “make members aware they may need to speak to payroll about reducing their salary sacrificing arrangements, slightly, with the increase of employer super guarantee going to 11 per cent”. 

Self-employed members would also need to make relevant payroll changes to increase their super guarantee with the current rate.

BT’s Howard reminded advisers to take into account what their client’s unused concessional contribution cap space would be with the changing SG. 

“If you’re fortunate enough to be in a position where you’re going to have an increase in your salary or wages next year, that’s more income with a higher rate of SG,” he said.

“That means more going into super which is great, but it would require an adjustment of how much you’re choosing to put in personally. Don’t forget how that will change strategies around that area.”

The increasing indexation of the general transfer balance cap would also impact this EOFY, which will rise by $200,000 on 1 July 2023.

“Delaying commencement on any pensions until next year could mean that a client benefits from partly or fully from this double indexation,” Howard added.

This would be most relevant to clients who had close to $1.7–$1.9 million in super.

Personal income tax planning

The 2023–24 budget made no changes to the stage 3 personal income tax rate changes set to come in on 1 July 2024. 

This included increasing the $45,000–$120,000 bracket to $200,000, reducing the 32.5 per cent marginal rate to 30 per cent and eliminating the 37 per cent tax rate. 

The top marginal rate of 45 per cent would apply to those earning over $200,000, compared to $120,000 previously. 

“Bring forward deductions where possible and forward planning around the management of additional free cash flow,” recommended Howard. 

For someone on a middle to high income, the value of personal super contributions would be greater before the introduction of 2024 tax cuts.

“Clients in this position are going to have more free cash flow going forward in two years’ time, which can then be allocated to their financial objectives,” he said. 

Unite Wealth’s Rich recommended usual tax-effective strategies including claiming deductions for work-related expenses, charitable donations, income protection insurance premiums, and other allowable expenses.

Advisers should also consider the unrealised capital gains tax implications of assets and if the timing was right to liquidate them, Rich explained.

“We review portfolios and may consider offsetting capital gains by selling underperforming investments to minimise capital gains tax. Making sure when we rebalance, to also utilise the CGT discount by holding assets for more than 12 months,” echoed Miller. 

Social security measures

Increased support for parents is among the social security announcements in the budget, costing the government $1.9 billion over the next two years, meaning there could be improvements for parents or expectant parents.

This includes extending the Parenting Payment (Single) until the youngest child was 14 years old, previously at eight years old. 

Moreover, eligible single parents currently on JobSeeker would receive an additional $176.90 per fortnight.

“We are currently assisting expecting families with their parental leave planning. Starting from 1 July 2023, the government has extended parental leave to 18 weeks, eliminating the concept of primary claimants and introducing a family income limit of $350,000,” said Miller.

“As a result, some fathers may be able to take some time off and receive government support.”

Reviewing whether clients would be eligible for the childcare subsidy was also on his mind, with the income limit set to increase from $356,756 to $530,000 from 10 July 2023. 

Ultimately, this EOFY would be focused on reviewing clients’ financial goals and examining their progress in achieving these objectives. 

“You can use this opportunity to celebrate their successes, identify any challenges or gaps, and adjust their strategies accordingly. You can also update their risk profiles, cash flow projections, and asset allocations based on their current situation and market conditions,” suggested Rich.

Communicating regularly and proactively with clients during EOFY is also crucial. This could include offering to sit in on meeting with accountants, sending checklists with actions they need to take before the EOFY, and updating clients on the latest tax laws affecting them.

Asking clients for feedback on your service and how you could further improve was another key recommendation as you continue to work with them into the new year.