Noel Whittaker writes exclusive weekly blog updates for the Ban Tacs Group, with IN8 Business Advisory, a member of that group. Here, he talks about what to expect for the new tax year and how to have a more secure financial future
Welcome to a new financial year – the perfect time to take stock of where you are and think about strategies for the coming 12 months. It’s certainly been a horrendous year for stock markets everywhere, and there is no sign that the situation will improve soon. However, I take solace in the knowledge that historically the Australian stock market has four bad years in every 10, and has never failed to recover strongly after a major downturn. I feel a bit like the farmer going through a drought – I know the rain will come – I just don’t know when.
There is no doubt we are living in unusual times, but I have long believed that if you take charge of the things you can control, you should be well-placed to handle the things you can’t.
Inflation and rising interest-rates are the dominant factors and the Reserve Bank has made it abundantly clear that rates are on the rise – probably in regular increments of 50 basis points. Obviously, it is far better to prepare for a rate rise in advance than to find yourself in a financial bind when it happens. Therefore make an effort to maintain home loan repayments of at least $8 a thousand a month – that’s $3,200 a month on a $400,000 loan. Repayments at this rate will have your loan out of the way in 15 years if interest rates are 5%. If they don’t go this high your loan will be paid off much faster and you will have given yourself a valuable safety buffer.
If you are over 55 pouring as much money as you can into superannuation. Yes, you need to keep cash on hand for emergencies, but there is no point in leaving money in bank accounts where the interest is fully taxable, when you can move it to superannuation where the income will be taxed at just 15%. I’ve been receiving scores of emails asking whether it’s wise to keep making contributions when the market is down. It’s the perfect time – it lets you get the assets at sale prices.
Remember too, a major benefit of placing money in super is that Centrelink does not count it until you reach pensionable age. For example, if the male partner was 67 and the female partner was 59, moving a large amount of superannuation from his name into her name could maximise his age pension benefits.
Major changes to superannuation came into force on 1 July. One of the most significant is the ability to contribute non—concessional contributions to superannuation to age 75 without passing the work test. This enables older retirees to take money out of the bank and put it into superannuation where the returns should be much better. Of course, you still need to keep at least 3 to 4 years expenditure in cash to give the market time to recover.
You can now make tax-deductible contributions between 67 and 75 provided you can pass the work test. I have written extensively about the benefits of using catch-up contributions to reduce or eliminate capital gains tax. Make sure you are right across them so you can use them to your benefit if appropriate.
Most of my articles have been built around one common theme: helping yourself so that you can have a more secure financial future. It is the actions you take today that will make the difference in the long term.
4 July 2022
