How to embrace the start of the financial year
Now that the dust has settled on the EOFY rush, it's time to plan for the start of the financial year.
Most Australians tend to focus their energy on the end of the financial year. But the SOFY, start of the financial year, is a good time to take stock and lay plans for the 12 months ahead.
It's especially important this year because of tax reforms announced in May's Federal Budget. Here are five areas to focus on this SOFY:
1. Have your circumstances changed?
Life doesn't stand still for long, and SOFY is an ideal time to review your goals, finances and family situations.
The arrival of a new child or grandchild, or a divorce or separation, these can be cues for a chat with a financial adviser.
2. Could your super be impacted by the new Division 296 tax and other tax reforms?
July 1 marks the start of Division 296, which will see earnings on super balances of more than $3 million taxed an additional 15% and up to an additional 25% for larger super balances.
If your super is likely to exceed the $3 million threshold over the next 12 months, it can be worth looking at an alternative strategy.
We've seen a strong uplift of interest in investment bonds, not just because of the Division 296 tax, but as a result of the recent Federal Budget proposals to introduce a 30% tax on discretionary trusts.
The driver here is that investment bond income is taxed at a maximum 30% inside the bond, whereas investment income of discretionary trusts will be taxed at a minimum 30%.
Did you know?
From July 1, super balances of more than $3 million will be taxed an additional 15% under the new Division 296 tax reform.
Source: Generation Life
3. Do your estate plans reflect your wishes?
Wills play a useful role in estate planning, however families can be complex, and if you have concerns about possible challenges to your will, investment bonds may suit you.
Not only do investment bonds that are appropriately structured sit separately from other estate assets, they let you decide how and when beneficiaries can access their bond inheritance.
4. Know how much you can add to your investment bond this year
Annual contributions to an investment bond up to 125% of the previous investment year's contributions can be made without changing the tax benefits of the investment bond.
For example, if you contributed $5000 last investment year, you can add a maximum of $6250 in the current investment year without tax payable until after the 10-year advantage period is reset.
If you'd like to contribute more, simply open a new investment bond.
5. Stay informed, have an expert in your corner
There is a lot to think about following the Budget announcements.
Your financial adviser can play a key role, acting as your personal "Chief Interpretation Officer" to help you navigate any Budget fallouts.
Keep in touch with your adviser over the months ahead to stay informed.
What to read next
- Retirement income - avoiding 'regret risk'
- The hidden money strain for women carers
- Smart EOFY tax moves investors can still make
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