#12 End of another Financial Year!

Share markets were mixed over the last week. US shares pushed higher helped by tech and AI optimism. Eurozone shares recovered some of their losses from the week before as fears around the French election settled down a bit. However, Japanese and Chinese shares fell. Australian shares rose by around 0.8% helped by the positive US lead despite more hawkish comments from the RBA with utility, consumer, health and financial shares leading the gains. Bond yields mostly rose. Oil and metal prices rose but the iron ore price was little changed. The $A rose with slightly hawkish RBA comments, but the $US also rose.

A hawkish hold from the RBA at 4.35%, but we still see a rate cut late this year. The RBA provided no big surprises and is still “not ruling anything in or out”, but its language around inflation still being too high continues to lean hawkish with only a hike or a hold on the table and its arguably a bit more hawkish than in May with the RBA reinstating a comment that it “will do what is necessary” to return inflation to target. Our view remains that inflation will resume its downswing, as has occurred in various other countries after pauses including the US, and that as a result rates have peaked ahead of a start to rate cuts late this year, or if not then early next year. Stalling growth, a cooling labour market and the lower national wage case decision this year are all consistent with that. And the swing back towards more rate cuts this year in the US and UK are also positive signs for what may happen in Australia. However, the risk of another hike in the near term is material and the RBA’s hawkish tone makes the August meeting critical as it will review its forecasts then and will be “live” for another hike if we are wrong and June quarter inflation to be released at the end of July surprises on the upside again. Key to watch will be June quarter inflation data (with another 1%qoq rise or 4%yoy in the trimmed mean likely to be a big concern for the RBA) and any early readings on how the tax cuts are impacting spending.

EOY Checklist

This check list includes some items that aren’t exclusively End of Financial Year or exclusively SMSF related but might be addressed at this time for the sake of convenience. Some items constitute financial advice so require licensing or need closer analysis to ascertain applicability.

1. Check that concessional contributions have not breached the $27,500 limit unless they can be included within an unused concessional contributions allowance. This option requires a total super balance, at 30 June 2023, of less than $500k. Note that contributions need to be physically received by the super fund by the 30th June to be counted in this year. ?
2. If this is a year of unusually high taxable income a double contribution strategy might be considered. This can allow an additional $30,000 to be contributed in June for allocation to the member account in July. Note that this is the cap for next year, which is the year in which its allocation will be treated. Be cautious, as this strategy will utilise all of next year’s contribution limit.
3. Non-concessional contributions can be made for eligible members under 75 provided their total super balance at 30 June 2023 was under prescribed limits. If the 3 year bring forward rule has not yet been triggered then less than $1.68 million (in all funds) will allow a contribution of $330,000, less than $1.79m, $220,000 and less than $1.9m, $110,000. If the 3 year bring forward rule has been triggered previously then these amounts will require adjustment. Note that the NCC cap will rise to $120k next year creating a 3 year bring forward limit of $360k so you might consider not triggering the 3 year bring forward this year, by only contributing $110k in June, followed by a $360k contribution in July. Be careful of total super balance restrictions. To contribute $360k in July would require a 30 June 2024 total super balance of less than $1.66m. ?
4. If the total super balance is in excess of what is required, it might be lowered by lodging a TBEN that reflects the net value of the assets held. (Typically, the total super value of real estate can be reduced by 5% representing selling costs including commission.)
5. Note that:
6. members over 75 may only receive SG contributions
7. the concessional contribution cap includes any employer contributions including SG contributions.
8. all personal contributions are regarded as non-concessional unless the appropriate notification of intent to claim a tax deduction form has been supplied to the trustee within the requisite timeframe.
9. fund expenses that have been paid personally will be deemed non-concessional contributions unless notified as concessional contributions on the approved form.
10. fund expenses that have been paid by any other party will be deemed concessional contributions.

in specie contributions of eligible assets may be made. There may be capital gains tax and stamp duty consequences. Such contributions from an entity other than the member or spouse will be regarded as concessional contributions so be careful.

6. Consider the possibility of a recontribution strategy to lower the taxable portion of the member’s benefit. Failure to do so could result in future claims by adult children who have been subject to avoidable death benefit tax. A withdrawal in June could lower the total super balance sufficient to allow a recontribution in July. Note that changes to pension accounts may trigger a change to the member’s assessment for government pensions and the health care card as grandfathering may be lost.

7. With similar considerations to those above, consider withdrawals from a member with a high balance and the recontribution of the amount to a spouse with a lower balance. As total super balances affect a number of eligibility provisions, and they are not averaged between spouses, this is an opportunity to equalise balances

8.?Consider spouse splitting for eligible spouses who can split 85% of the concessional contributions they made last year, to their spouse this year. This includes concessional contributions that were made under the 5 year unused contribution provisions. Note that this does not affect contribution caps as it’s regarded as a rollover.

9. If any members, from age 55, have sold an eligible dwelling and are still within the time frame (90 days of settlement) consider making a downsizer contribution of up to $300k (including a delayed settlement period for the contribution to be made after 30 June if the resultant TSB increase will adversely affect NCC eligibility in 2025.

10. Consider making an after-tax contribution (non-concessional) into super if you qualify for the government co-contribution.

11. Consider making a spouse contribution for a non-working or low-income spouse.

12. Ensure that all pension minimums have been physically drawn by June 30. A pro rata amount is required if the pension commenced during the year except if it was commenced in June as no pro rata amount is required to be paid for such a pension. Note that the minimum pension is not required to be met, for a non-reversionary pension, in the year of death.

13. Where the pension drawn is in excess of the minimum, consider if these should be reprocessed as lump sum drawdowns from any existing accumulation accounts to maximise the level of fund assets in the tax-free pension environment. If all assets are in pension, consider processing the excess as a partial pension commutation to create additional transfer balance cap room for future pension commencements. This will require suitable documentation.

14. Transition to retirement pensions should be checked to ensure they have not breached the 10% maximum.

15. If a fund is sufficiently in accumulation mode, consider optimising the fund’s overall capital gains tax position by realising capital losses where the fund has realised capital gains for this financial year. Be aware of the Wash Sale provisions which will apply if transactions simply adjust the cost base without altering the investment portfolio or without assuming some investment risk in the process.

16. Ensure that any funds with in-house assets will not breach the 5% limit of fund assets. Note that this is a gross figure, so the balance of any limited recourse borrowing is also counted as a fund asset. Be aware that valuations, yet to be determined for the end of this financial year, will be relevant to this consideration.

17. Ensure that any current rent or previous year’s trust distributions owing from any asset involving related parties has been paid to the fund before June 30.

18. If a fund has both pension and accumulation accounts holding assets in an unsegregated manner, consideration might be given to establishing a second fund to hold the accumulation accounts to achieve effective segregation for tax purposes. There are contribution, CGT and acquisition of assets from related party considerations so be careful.

20. Take this opportunity to check on the validity and appropriateness of any existing binding death benefit nominations.

21. If tax deductible life insurance premiums are applicable to the fund this is a timely opportunity to ensure the benefit will be paid to a tax dependant to avoid generating an untaxed element. If this is not the case, then take remedial action. If it is the case, then consider that eligibility for a future service deduction will be enhanced if premiums are paid monthly.

Happy Investing!!!!!!

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