Top EOFY tips for advisers

As the end of financial year (EOFY) gets closer, BT has shared the top five questions its technical team has received from advisers.

“This year-end, there is a mixed bag of topics advisers are discussing with clients, as there are upcoming changes relevant to just about everyone – from clients with high incomes and superannuation balances, to those who are eligible for social security,” said Tim Howard, technical consultant at BT.

“Impending tax cuts, changes to superannuation thresholds and the recent budget announcements on social security are top of mind for advisers.”

BT said its technical services team fields over 8,000 queries from advisers each year on technical topics regarding superannuation, tax, and social security.

1. Bear in mind FY2025 tax cuts when planning additional super contributions

The Labor government retaining stage three tax cuts means that clients earning an annual income of more than $45,000 will benefit from tax cuts from July 2024.

The impending reduction to personal income tax rates means that for some clients who earn more than $120,000 per annum, putting money into super can prove to be a more attractive tax effective strategy in the current financial year or FY2024, compared with waiting until FY2025.

In FY2025, an individual who has an annual income between $45,001 and $200,000 will be taxed at the flat rate of 30 per cent, rather than 32.5 per cent for those with annual incomes between $45,001–$120,000 and 37 per cent for $120,001–$180,000.

In FY2025, the top tax rate of 45 per cent will move from incomes over $180,000 to incomes over $200,000.

Mr Howard explained: “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 FY2023 or FY2024 is greater, compared to FY2025 when the reduced marginal tax rates take effect.

“To make the most of this benefit, clients may consider maximising their concessional contributions cap space, including any carry forward cap space they might have available.”

2. Remind clients about their cap space and forthcoming increase to the superannuation guarantee

Advisers generally remind clients about their available cap space as part of their year-end advice. BT said when discussing cap space, it’s worth mentioning that the superannuation guarantee is set to increase to 11 per cent in the new financial year. The concessional contributions cap is not increasing, so the mandatory employer contributions into an employee’s super can eat into more of a client’s cap space.

If your client is a small business and has employees, they should adjust their SG payments accordingly.

3. Indexation may benefit those on the cusp of retirement

If your client is approaching retirement and has around $1.7 million to $1.9 million in super, they may benefit from waiting until July to commence their pension because on 1 July 2023, the general transfer balance cap will increase by $200,000 to $1.9 million, due to indexation.

In addition, the maximum total super balance – which can limit the amount of non-concessional contributions you can make – is also increasing to $1.9 million from July.

4. Check if the social security measures announced in the federal budget are relevant

The legislation supporting the proposed increases to certain social security payments was introduced into Parliament in May and is expected to become law and be implemented by 20 September 2023.

BT said in recognition of the challenges that seniors face with finding employment, the higher rate of Jobseeker will be extended. From September, the age threshold will be reduced from 60 to 55.

To help address cost-of-living increases, especially housing, rent assistance will increase by 15 per cent – and this is in addition to the normal increase that occurs due to the rise in the consumer price index.

Mr Howard said: “This significant increase benefits more people than what some might expect; for example, clients who are living in retirement villages may qualify for rent assistance.”

5. Two-year lead time to plan for increased tax relating to super balances exceeding $3 million

The government has proposed to reduce the superannuation tax concessions for those with total superannuation balances that exceed $3 million. Under the proposal, from 1 July 2025, these clients will pay an additional 15 per cent in tax on earnings corresponding to the portion of their superannuation balance above $3 million.

“While still only an announcement, this does mean advisers have two years to consider any changes for impacted clients,” Mr Howard said.

In addition, BT said it’s worth remembering that the preservation age for super will increase to 60 from 1 July for those born after 30 June 1964. The eligibility age for receiving the age pension from the government also increases from 66.5 to 67 from 1 July.

Finally, it’s possible that the government will confirm whether the temporary reduction in minimum pension payments will continue into the new financial year.

Mr Howard said: “These amounts were reduced during COVID, and it’s expected that we may return to full minimums from next financial year.”