Markets have continued to sell off although it may surprise some that May actually showed a slight gain for US stocks. The Australian market has fared comparatively well due to the higher weighting to commodities which have benefited from the Ukraine related resource shortages.
Inflation remains on an upward trend and the outlook on interest rates has followed suit with the RBA raising rates for the first time in 11 years. The central bank has doubled down on this with yesterdays 0.5% increase being the largest in 22 years. The bond market has predicted further rate increases of 2.0% by Christmas this year. This will concern those who took out mortgages under the RBA guidance that rates will remain on hold until early-2023. The housing market may give back some of the 35% gains of the last 2 years which will at least please some first home buyers.
The stock market has also given back some of the gains made in the last 2 years with a typical Balanced fund down around 8% since 1 July 2021. It is still unclear as to when the inflation trend may start to turn around. Market sentiment is likely to be volatile in the meantime. We have been ensuring clients portfolio’s include assets such as property, infrastructure and floating rate bonds which are better equipped to defend against inflationary impacts.
The Australian dollar has also fallen as can be the case when there is increased turbulence and a flight to the safety of the US dollar. This has helped the returns of unhedged global investments which are denominated in foreign currency. To ensure that clients aren’t disadvantaged by this trend reversing we have been investing new funds with some managers that have hedged against a potential increase in the Australian dollar.
Financial Year-end Super contributions
With the financial year end approaching it is important to review your Super contributions strategy and your ability to maximise the deductible concessional contributions of $27,500.
Remember your employer will only be contributing 10% of your salary to super so it is up to all of us to contribute additional amounts by salary sacrificing and the like. The easiest way to invest the remainder is by making a ‘Personally Deductible Contribution’ from your bank account when you know what headroom you have left under the $27,500. These days this can be done as a simple BPAY or Electronic Funds transfer to your Super account.
Remember to allow a few days and ideally a week for the Super fund to both receive the contribution and allocate it to your account. If it hits your Super account in July it will need to be claimed as a deduction until the following tax year.
Catch-up concessional contributions
For those whose Super balance was lower than $500,000 on 30 June 2021 then you also have the ability to ‘catch up’ on the unused concessional caps from 2019, 2020 and 2021 years.
This can often result in a generous tax benefit and a healthy injection for your Super balance. With the recent cost of living increases, the challenge may be coming up with the cash to make the contribution.
The other issue may be determining how much you can catch up on previous years. Rest assured ‘Big Brother’ has already been keeping these records for you on your Mygov website.
MyGov / ATO / Super / Information / Carry-forward concessional contributions.
The appropriate amount to claim and contribute is also dependent on your expected taxable income for the year. Once you have reduced your taxable income to below $45,000 your marginal rate is only 19% and there may be less incentive to send amounts into Super.
Payments from for Life and TPD policies structured inside Super can also counted as contributions when they are paid from your personal bank account or credit card as opposed to paying out of your super fund. Be careful to include these when totalling your YTD contributions.
Minimum Pension Payments from Super
For those whose Super is in the pension phase, it is also important to make sure you pay yourself the minimum pension before the year-end. The current minimum amount is based on the pension balance at the start of the year and depends on your age as follows:
Age Pension Min
Under 65 2.0%
65 - 74 2.5%
75 - 79 3.0%
80 - 84 3.5%
85 - 89 4.5%
90 – 94 5.5%
Over 95 7.0%
Federal Election - Changes
The incoming government chose a small target approach and did not rock the boat with material changes to Super this time around. Some promises that may benefit some clients include
Commonwealth Seniors Health Card - More clients that are over Aged pension age will be eligible to receive the CSHC. The maximum amount a couple can earn will be increased from $92,416 to $140,000. For a single, the income test has been increased from $57,761 to $90,000.
This card is particularly useful for Pharmacy and medical costs but may also help with the increasing costs of utilities. In practice, the new maximums will include most clients who are no longer working.
Downsizer eligibility - In our last newsletter, we noted that those over 65 can contribute $300,000 into super following the sale of a home they have owned for more than 10 years.
The eligible age for this was to reduce to age 60 from the 1st of July 2022. The proposed eligibility is now from age 55. This is an opportunity for those in this age bracket who have seen the children move out of home and no longer need a large house.
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