The say that the days are long, but the years fly by. Well, as June 30 fast approaches I am inclined to agree based on how quick this financial year has gone.
Not to worry, there is still time to implement some strategies in the final weeks of the 2022 Financial Year. Below are some of the superannuation and investment strategies that could have an impact on personal finances. Get proactive to ensure you are across these.
With market volatility spiking in recent months, it is critical to lift the hood of your investment portfolio to assess individual investments’ capital gains/loss status. While your overall portfolio may be positive, there could be opportunities to exit positions where your investment conviction has changed, and importantly, the sale will trigger a capital loss.
Being proactive ensures you do not waste a crisis and can be tax-effective whilst also recalibrating your portfolio for the current conditions. The benefit of this is that capital losses can be used to offset capital gains, either this financial year or be carried forward into future financial years.
Ideally, you would want to start this process sooner rather than later, as, from experience, tax-loss harvesting tends to peak late into the financial year. This can cause extra weakness in investment values which have suffered in the preceding 12 months. You want to get ahead of the herd.
If you move from growth assets to growth assets, your broader investment strategy may not be materially impacted. It may allow you to improve your overall portfolio mix based on new information available.
Many investors may have capital gains implications from solid investment returns in the first half of the financial year, and concessional superannuation contributions are a simple way to reduce this.
It is common for there to be a disparity between spouses’ super balances, which presents an opportunity to reduce tax and make progress in getting more balance between accounts. Important not to fixate on the current financial year but to think long term concerning the balance transfer cap (currently $1.7m). If it is likely, that one spouse will exceed this level and the other fall short, annual super contribution strategies for both spouses should be front of mind.
Consider utilising carry forward contributions where one member of the couple has a total superannuation balance below $500,000 as at 30 June 2021. They can carry forward any unused concessional contributions cap amounts accrued from 2018/19 to 2020/21 to increase their concessional cap in 2021/22. This may be particularly useful where a large asset has been sold, such as an investment property. If you are unsure what you have available to contribute, chat with your adviser or check your myGov account.
If concessional contributions are not appropriate for your circumstances, or you have maxed out that cap then consider non-concessional contributions (after-tax) with your surplus savings.
If your Total Superannuation Balance is below $1.48m, you may be eligible to make non-concessional contributions of up to $330,000 in a single financial year or over a 3-year period using ‘bring-forward’ provisions.
With recently passed legislation, retirees who previously could not make contributions based on their age should review their eligibility. Under current rules, you need to be less than 67 on 1st July of a financial year to be eligible to use the bring-forward rule. From 1 July 2022, you may be able to access the bring-forward rule if you’re aged less than 75 on the prior 1 July. Other eligibility rules will continue to apply, such as the total super balance limits, so make sure you understand your eligibility before making any contributions.
The Government has announced that the 50% reduction in pension minimums requirements will be extended for the 2022/2023 financial year. These measures have been in place since the 2019/20 financial year, and the extension provides an opportunity for individuals to preserve their tax-free pension balance. This is a big win for self-funded retirees, who may have other assets to draw upon to support their lifestyle in less tax-effective structures.
The simple approach to this opportunity is to assess whether you require any more than the reduced minimum pension requirement to support your lifestyle. If not, then it may be beneficial to retain your funds within the tax-free pension environment—allowing them to continue compounding. Important to remember that the reduced minimums are an option and not a mandatory reduction to your payments.
If you aren’t quote sure how to implement the above strategies or whether they would benefit your personal situation then please get in touch and book a chat with one of our advisers.
Pete is the co-founder and oversees the investment committee for Pekada. He is a qualified financial planner with 17 years of experience. Based in Melbourne, Pete is on a mission to help everyday Australians achieve financial independence and the lifestyle they dream of. Pete has been featured in Australian Financial Review, Money Magazine, Super Guide, Domain, American Express and Nest Egg.