While staying in tune with your investments is really an ongoing process, the benefit of taking a snapshot now is that there may be an opportunity to take some steps before the end of the 30 June tax year.
They could include ensuring your current asset allocation mix still fits in with your needs and longer-term wealth goals, making asset adjustments as required such as additional investments, and making top-up superannuation contributions if you’re eligible to do so.
1) Checking your asset allocations
A good first step is to check your current asset allocation mix, because it may have shifted over the last year from your intended investment strategy. There can be a range of reasons why that may have occurred, but the most likely relates to the strong growth on global share markets over the 2020-21 financial year. You may find the total amount of money you have exposed to shares is now significantly greater than a year ago, which may not align with your risk tolerance. The simplest way to check your asset allocations is to add up the value of all your investments. Then divide the value of each asset component by the total to calculate the percentage weighting you have to each asset type.
For example, if you have $150,000 in assets and $60,000 of that is in shares, your asset weighting to shares is 40%. If you’re unsure about your asset allocation position and how it fits with your risk tolerance, your financial needs and overall investment goals, it may be prudent to contact a financial adviser. Likewise, to assess the potential tax impact of any investment transactions you plan to undertake before 30 June, you should speak with a professional taxation specialist.
2) Making changes inside superannuation
As well as any investments you have outside of superannuation, keep in mind that asset allocation also applies to how your superannuation money is invested. Most managed superannuation funds allow you to switch your investment weightings within prescribed levels and offer diversified products that do the heavy lifting by automatically rebalancing your holdings based on your chosen investment strategy.
On the other hand, if you operate a self-managed superannuation fund, you have total control over how you invest. As detailed above, if your SMSF’s asset allocation mix has moved out of kilter with your preferred investment strategy, you may want to make some adjustments.
3) Making extra pre-tax super contributions
A potential option before 30 June is to make additional concessional (pre-tax) contributions into your superannuation fund. Concessional contributions include compulsory payments made by your employer as well as any additional contributions you make and are taxed at 15%. The concessional contributions limit is currently $25,000 a year and will be increasing to $27,500 from 1 July.
4) Catching up on super contributions
You may also have scope to make extra concessional contributions under the Federal Government’s “catch-up legislation” introduced from the start of 2019-20. This allows you to carry over any unused concessional contributions on a rolling basis for up to five financial years. To take advantage of this option your overall super balance must be below $500,000 before 30 June. As an example, $10,000 of concessional contributions were made into your super fund last financial year. You therefore have a carried over amount of $15,000 available in this financial year on top of the normal $25,000 annual contributions limit. You’re able to check what’s specifically available to you in catch-up contributions by logging into the myGov website, navigating to the Australian Taxation Office, selecting Super and then “Carry forward concessional contributions” under Information.
5) Making after-tax contributions
Another recent allowance for workers is the ability to make contributions into your super using after-tax income (savings). Because you’ve already paid tax on this money, you’d be entitled to claim a 15% tax deduction in your next annual tax return. You first need to check with your super fund if it allows after-tax contributions to be made and lodge a ‘Notice of intent to claim or vary a deduction for personal contributions’ form when you lodge your next tax return. But keep in mind you’d need to make sure any after-tax contribution you make is recorded in your fund’s account before the close of business on 30 June. These types of after-tax contributions can be used in conjunction with pre-tax contributions up to the current allowable $25,000 a year limit.
6) Making non-concessional contributions
These are typically larger super contributions made using money on which tax has already been paid. The government currently allows non-concessional contributions of up to $100,000 each financial year. However, under what’s known as the three-year “pull-forward” rule, you can make up to three years of non-concessional contributions (currently $300,000) within one financial year. From 1 July the annual non-concessional limit will rise to $110,000 and the three-year limit to $330,000. If you have more than $300,000 available to contribute before 30 June you do have an option to contribute some of that money before 30 June this year and then use the pull-forward rule to contribute additional funds in the next financial year.
Time to reassess your investments
The period immediately before the end of each financial year is a logical point to reassess your investments, whether they’re held outside or inside of superannuation. It may be prudent to take some investment steps, such as adjusting your asset allocation and contributing extra funds into your superannuation.
If you’re unsure of what pre-30 June investment steps make the most sense for you, consider contacting a financial adviser and/or taxation specialist.
Cover image source: ArmadilloPhotograp/Shutterstock.com.au
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Tony Kaye is Senior Personal Finance Writer at Vanguard. He was a former manager at Standard & Poor’s Ratings and has a regular column in the Australian’s Wealth section. Tony has also written for newspapers nationally; The Telegraph, The Herald-Sun, The Advertiser, The Courier-Mail, NT News, Canberra Times and more. He has a Bachelor of Arts and Journalism at Curtin University and Public Relations at RMIT University.
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