As the end of the financial year approaches, working professionals planning for future wealth should review their financial strategies to make the most of available opportunities. This year, special attention should be given to end of financial year (EOFY) super contributions, understanding the effects of indexation, and leveraging salary sacrificing.

With the upcoming Stage 3 tax cuts, planning effectively now is more crucial than ever.

EOFY Superannuation Considerations

EOFY is a critical time to consider voluntary concessional contributions to your superannuation. With the Stage 3 tax cuts set to take effect from 1 July 2024, making contributions this year while higher marginal tax rates are still in place can result in significant tax savings. Beginning 1 July 2024, the concessional cap will increase to $30,000 and the non-concessional cap to $120,000, providing more room to contribute to a tax-favourable super environment. Acting now allows you to benefit from the current higher marginal tax rates, resulting in potentially greater tax savings.

Utilising Unused Concessional Contributions: The ATO's superannuation catch-up rules allow you to carry forward unused concessional contributions from the past five years. Your Total Super Balance (TSB) must be under $500,000 as at 30 June in the previous financial year. This can help boost your retirement savings significantly by utilising the unused cap amounts from previous financial years as far back as 2018/2019. This opportunity can be particularly useful for those who may have been unable to contribute in certain years due to factors like being out of the workforce.

Super Strategies for Couples: Couples can make their super contributions more effective through:

Contribution Splitting: If one partner has a higher super balance, splitting contributions can help manage overall super savings and tax benefits more effectively. Ensure this is done before June 30 and submit the necessary paperwork. This strategy can help balance superannuation savings between partners, potentially providing better access to benefits and tax efficiencies.
2. Spouse Contributions: If your spouse earns $37,000 or less, contributing up to $3,000 into their super account can earn you a tax offset of up to $540. This offset phases out at incomes above $40,000. This can be a valuable way to support your spouse’s super while providing you with a tax offset.

Stage 3 Tax Cuts

Planning for Tax Cuts: From 1 July 2024, the Stage 3 tax cuts will come into effect, reducing the marginal tax rate for many Australians. Planning to allocate some of these tax savings towards your super can provide long-term financial benefits. Additionally, the Super Guarantee rate will rise to 11.5% from 1 July 2024, and further to 12% from 1 July 2025, automatically increasing your retirement savings without extra effort from you.

Impact on Financial Planning: The upcoming tax cuts and super changes necessitate a review of your financial planning strategies. These changes could mean adjusting your super contributions, revisiting salary sacrificing arrangements, and ensuring you’re taking full advantage of any available tax offsets and deductions. For instance, individuals earning $190,000 will save $4,529 annually in taxes, which can be redirected towards super contributions or other financial goals. This significant tax saving can help manage living expenses, reduce debt, or enhance retirement savings.

Here’s a link to the Treasury website where you can use the calculator to determine how much the tax cut will contribute to your household.

So, what are your options for using your financial windfall from the tax cut?

Spend and Enjoy: Any extra cash from tax savings can help relieve cost of living pressures. If you choose to spend it on non-essentials, enjoy the freedom to treat yourself.

Pay More to Your Home Loan: Using extra funds to pay down your home loan can be beneficial. Paying additional amounts towards your loan repayment or an offset account can reduce your interest and help you pay off your loan sooner. Every extra dollar counts when it comes to reducing debt.

Review Your Insurances: Consider using savings to review and adjust your personal insurances. Ensuring adequate coverage is a key component of a comprehensive financial plan.

Indexation and Salary Sacrificing

Pre-Pay Deductible Expenses: Consider pre-paying expenses to bring forward tax deductions for this financial year. This strategy can be particularly useful if you anticipate a reduction in your marginal tax rate due to the Stage 3 tax cuts. Pre-paying certain expenses can help lower your taxable income for the current financial year, enhancing your overall tax efficiency.

Salary Sacrificing: Salary sacrificing involves redirecting a portion of your pre-tax income into your super. This reduces your taxable income and benefits from the lower 15% super tax rate. Given the upcoming changes, it might be advantageous to start or increase your salary sacrificing contributions now. By doing so, you can take advantage of the current higher marginal tax rates and improve your retirement savings.

Contribute to Super and Boost Your Retirement Lifestyle

Directing extra cash into your super fund or topping up your employer’s contributions to the 1 July increased annual superannuation cap of $30,000 can enhance your retirement savings. Contributing extra cash to super also provides an additional tax benefit, as funds in super are taxed at a flat 15% rate, much lower than the higher marginal tax rates.

Navigating the complexities of EOFY super contributions, indexation, salary sacrificing, and understanding the impacts of the Stage 3 tax cuts can be challenging. As the end of the financial year approaches, now is the perfect time to consult with your financial adviser about regular super contributions, catch-up contributions, and bring-forward rules.

Keep in mind that only contributions received by your super fund before June 30 will be eligible for a tax deduction in this financial year. For tailored advice and to discuss your specific circumstances, contact Matt Lane or Alec Winter at 07 3720 1299 or email admin@wealthfundamentals.com.au. Let’s work together to achieve your financial goals.

Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.

This information is of a general nature only and does not consider your personal circumstances. It is based on our understanding of legislation at the time of writing and may be subject to change. Always seek professional advice specific to your situation before making financial decisions.