Back to basics budgeting in focus this EOFY

As end of financial year approaches, cost of living pressures are prompting many Australians to review their income needs and rein in expenses as part of their financial planning. 

BT’s Technical Services team fields over 8,000 queries from financial advisers each year. Based on the most popular advice themes advisers have raised with us recently, here are some EOFY tips for everyone from retirees to new parents, high-net-worth individuals, and those with self-managed super funds.

1. Boosting income and savings 

Retirees and those nearing retirement are all consumers and many are impacted by cost-of-living increases. Add to this the fact that more than half of Australian homeowners are still paying off a mortgage when they reach retirement*, and it’s clear that the ‘higher for longer’ interest rate environment is making household budgeting and saving for retirement challenging for some. Understandably, back to basics budgeting is top of mind for these clients and their advisers. 

Around 80 per cent of older Australians are feeling the impact of higher living costs, with health costs, energy prices and groceries being the top concerns^. Retirees who are looking for ways to boost their income may benefit from using savings accounts, which are paying better rates while interest rates are high. However, that may not be enough to offset the higher costs of living. Clients may be missing out on better returns that equities and other asset classes can produce over longer investment periods. 

The new financial year is a good time to review investment strategies. Investors might want to weigh up whether riskier but higher return investments are appropriate for those who are investing for the medium to long term.

Clients are also examining their expenses more thoroughly to identify any potential savings, especially in regard to regular bills such as utilities and insurance.

2. Social security payments

When considering how to boost income and find savings, it’s important to assess whether you are entitled to any government support, such as the age pension or concession cards that give access to more affordable health care and medicines.  

To help address cost of living increases, especially housing, Commonwealth Rent Assistance will increase by 10 per cent from September 20, 2024. Regular indexation will also be applied on top of this increase. This social security measure benefits more people than some clients might expect; for example, those who are living in retirement villages may qualify for rent assistance. 

Those who are planning to have children may benefit from the introduction of super guarantee contributions – these will be paid to those in receipt of the government-funded paid parental leave scheme from July 1, 2025.

3. One more year to plan for increased tax on super balances exceeding $3m

The Federal Budget announced in May made no mention of the proposed Division 296 tax which, if passed, will reduce the superannuation tax concessions for those with total super balances that exceed $3 million. This indicates that the legislation relating to Division 296 might go ahead with no significant amendments. 

Under the proposal, from July 1, 2025, these individuals will pay an additional 15 per cent tax on earnings corresponding to the portion of their superannuation balance above $3 million. 

There is no one-size-fits-all formula for calculating the additional tax payable as there are certain circumstances that need to be taken into account.

4. Bear in mind the revised FY25 tax cuts, and contribute to super where you can

Earlier this year the Government announced that it would amend the Stage 3 personal income tax cuts, giving more tax cuts to those on lower income tax brackets. Anyone who has a tax liability will obtain a benefit from the Stage 3 tax cuts, with a lower amount of liability arising from July 1, 2024 – a welcome relief for many working Australians. Relief, but at a reduced level to what was previously proposed, will be provided to those on higher income levels. 

The tax cuts will alleviate some cost-of-living pressures and many people will put the additional money towards paying the mortgage and household bills. If you are able to contribute more towards your super, you should be aware of your available cap space and whether you have any carry forward cap space available. 

‘Cap’ refers to the maximum amount you can contribute to your super each financial year before paying additional tax. Clients should understand the implications if they are at risk of going over their cap.

5. EOFY strategy for self-managed super funds

For SMSFs, a particular strategy to be aware of at EOFY relates to contribution reserving. Put simply, you can make additional contributions to your SMSF in this financial year and make it count as a tax deduction, but you can elect to not have it count towards your cap until the next financial year. 

The ATO normally requires voluntary or concessional contributions received by an SMSF to be allocated to a member within 28 days after the end of the month. However, if the contribution is received by the SMSF in June of a financial year, then the SMSF trustee can elect to have this count towards the next financial year for contributions cap purposes.To implement this contribution reserving strategy, the SMSF trust deed must include certain provisions. 

End of financial year is a great opportunity to check progress towards your financial goals and update your budget and investment strategy. Remember, a financial adviser can help you make financial decisions and plan for the future. If you are considering consulting a financial adviser for the first time, ASIC has some handy information on where to begin: https://moneysmart.gov.au/financial-advice/working-with-a-financial-adviser 

For more tips on managing your finances, planning for retirement, and building wealth, visit the BT website. 

Notes

* In the 2019-20 financial year, the portion of homeowners aged 55 to 64 with mortgage debt reached 54 per cent, Australian Bureau of Statistics figures, referenced in the SMH.  

^ Source: National Seniors Australia website. 


This information was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac) and is current as at December 7, 2023. The information provided is general information only and it does not constitute any recommendation or advice. It is intended to provide an overview or summary and should not be considered a comprehensive statement on any matter or relied upon as such. Any recommendation or opinion provided does not take into account your personal objectives, financial situation or needs, and you should consider its appropriateness having regard to these factors. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation.