New Financial Year Health Check 2024

As the new financial year kicks off on 1 July 2024, it’s the perfect time to take a close look at your finances and make sure you’re on track to meet your goals. A thorough financial health check can help you identify areas for improvement, take advantage of new opportunities, and ensure that you’re making the most of the resources available to you.

In this guide, we’ll cover some of the key changes and updates that you need to be aware of, including new superannuation contribution limits, updated Australian tax rates, and more.

Let’s first go through what’s changing in this new financial year from 1 July 2024.

Review of New Superannuation Contribution Limits

Superannuation is one of the most powerful tools you have for building a secure retirement. Starting from 1 July 2024, there are new superannuation contribution limits that you need to be aware of. Understanding these limits and how they affect you is crucial for maximising your retirement savings.

Concessional (Pre-tax) Contributions

Concessional contributions are made from your pre-tax income and include employer contributions, salary sacrifice arrangements, and personal contributions for which you claim a tax deduction. From 1 July 2024, the concessional contribution cap is set at $30,000 per financial year, up from $27,500.

Here’s how you can make the most of the new concessional contribution limits:

• Maximise Salary Sacrifice: If your employer offers salary sacrifice arrangements, consider increasing your contributions to take full advantage of the new cap. This can reduce your taxable income while boosting your retirement savings.
• Catch-up Contributions: If your total superannuation balance is less than $500,000 as at June 30 of the previous financial year, you may be eligible to carry forward unused concessional cap amounts from previous years. This can be a great way to make up for years when you couldn’t contribute as much.
• Review Employer Contributions: Ensure that your employer is contributing the correct amount to your superannuation fund. The Superannuation Guarantee rate increases to 11.5%, so check that this percentage of your ordinary time earnings is being paid into your fund.

Non-concessional (After-tax) Contributions

Non-concessional contributions are made from your after-tax income and include personal contributions for which you don’t claim a tax deduction. The non-concessional contribution cap has increased to $120,000 per financial year, up from $110,000.

Here are some strategies for making the most of the new non-concessional contribution limits:

• Make Voluntary Contributions: If you have surplus funds, consider making additional non-concessional contributions to take full advantage of the higher cap. This can significantly boost your retirement savings.
• Bring-forward Rule: If you’re under 75 years of age, you might be able to bring forward up to three years’ worth of non-concessional contributions, allowing you to contribute up to $360,000 in a single year. This can be particularly beneficial if you receive a windfall, such as an inheritance or a bonus.
• Avoid Excess Contributions: Be mindful not to exceed the non-concessional contribution cap, as excess contributions may be subject to additional tax penalties. Keep track of your contributions to avoid any surprises at tax time.

Overview of New Australian Tax Rates

Understanding the changes to the Australian tax rates effective from 1 July 2024 is essential for effective tax planning. These new rates can impact your take-home pay, investment strategies, and overall financial plan.

Individual Tax Rates

The new tax rates for individuals are as follows:

• 0% on income up to $18,200
• 16% on income between $18,201 and $45,000
• 30% on income between $45,001 and $135,000
• 37% on income between $135,001 and $190,000
• 45% on income above $190,000

These changes reflect a reduction in the 19% and 32.5% tax rates to 16% and 30%, respectively, while the thresholds for the 37% and 45% tax rates have been increased.

How to Optimise Your Tax Position:

• Adjust Withholding Tax: Review your PAYG (Pay As You Go) withholding tax settings with your employer to ensure that the correct amount of tax is being withheld from your salary based on the new rates.
• Tax-deductible Expenses: Identify and claim all eligible tax-deductible expenses, such as work-related expenses, charitable donations, and investment-related costs. Keep thorough records and receipts to substantiate your claims.
• Income Splitting: If you have a spouse in a lower tax bracket, consider income-splitting strategies to reduce your overall tax burden. This can include transferring investments or to the lower-income spouse or exploring super contribution strategies.

Assessing and Adjusting Your Budget

The beginning of a new financial year is the ideal time to review and adjust your budget. A well-structured budget can help you manage your expenses, save for future goals, and avoid unnecessary debt. Here’s how to get started:

• Track Your Expenses: Begin by tracking your expenses for a month to get a clear picture of where your money is going. Use budgeting apps or spreadsheets to categorise your spending.
• Set Financial Goals: Determine your short-term and long-term financial goals. Whether it’s saving for a home, building an emergency fund, or planning for retirement, having clear goals will guide your budgeting decisions.
• Create a Realistic Budget: Based on your tracked expenses and financial goals, create a realistic budget that allocates funds to necessary expenses, savings, and discretionary spending. Make sure to account for any expected changes in income or expenses in the new financial year.
• Review and Adjust Regularly: Your budget should be a living document that you review and adjust regularly. Life circumstances change, and your budget should reflect those changes to stay relevant and effective.

By staying informed about the new superannuation limits and tax rates, you can make strategic financial decisions that will benefit you throughout the year. A proactive approach to budgeting and financial planning will help ensure that you’re well-prepared for any challenges and opportunities that come your way in the new financial year.

Investment Portfolio Review

Your investment portfolio is another crucial area that deserves attention as the new financial year begins. Markets are always changing, and what worked well last year may not be the best strategy moving forward. Here’s how to ensure your investments are aligned with your financial goals:

• Evaluate Performance: Look at how your investments performed over the past year. Identify which ones met or exceeded your expectations and which ones fell short.
• Rebalance Your Portfolio: Ensure that your asset allocation still aligns with your risk tolerance and financial goals. If certain investments have grown significantly, they may now represent a larger portion of your portfolio than intended.
• Consider Market Conditions: Stay informed about current market trends and economic forecasts. This can help you make informed decisions about where to allocate your funds.
• Diversify: Make sure your portfolio is diversified across different asset classes and sectors to spread risk. Diversification can protect your portfolio from significant losses if one sector underperforms.

Tax Planning and Deductions

Effective tax planning can help you minimise your tax liability and keep more of your hard-earned money. As you prepare for the new financial year, consider the following strategies:

• Maximise Deductions: Identify all possible deductions you can claim. This includes work-related expenses, charitable donations, investment-related costs, and education expenses.
• Prepay Expenses: If you have the cash flow, consider prepaying expenses such as interest on investment loans, subscriptions, or insurance premiums to bring forward deductions.
• Defer Income: If possible, defer receiving income until the next financial year, especially if you expect to be in a lower tax bracket in the future.
• Use Offsets: Take advantage of any tax offsets available to you, such as the low-income tax offset or the seniors and pensioners tax offset.

By incorporating these strategies into your financial plan, you can ensure that you’re making the most of the new financial year’s opportunities and setting yourself up for a successful year ahead.

Insurance and Protection

Insurance is a critical component of a robust financial plan. The start of the new financial year is an ideal time to review your insurance policies to ensure you have adequate coverage.

• Review Coverage Levels: Check your existing policies to ensure that the coverage amounts are still appropriate for your needs. This includes life, health, home, and auto insurance.
• Update Beneficiaries: Make sure that the beneficiaries listed on your policies are up-to-date, especially if you’ve had significant life changes such as marriage, divorce, or the birth of a child.
• Compare Policies: Shop around to compare premiums and coverage options. You may find better deals or additional benefits by switching providers or updating your policies.
• Consider Additional Coverage: If you have any new risks or liabilities, consider adding additional coverage. This could include disability insurance, critical illness insurance, or umbrella policies to provide extra protection.

Estate Planning

Estate planning ensures that your assets are distributed according to your wishes and can help minimise the tax burden on your beneficiaries. Here’s what to consider in your estate planning:

• Update Your Will: Review and update your will to reflect any changes in your assets or personal circumstances. Make sure it is legally binding and clearly outlines your wishes.
• Power of Attorney: Ensure you have designated a power of attorney for both financial and medical decisions. This person will act on your behalf if you are unable to make decisions yourself.
• Review Trusts: If you have set up any trusts, review the terms and conditions to ensure they still align with your current goals and circumstances.
• Plan for Taxes: Work with a financial advisor or estate planner to understand the tax implications of your estate and explore strategies to minimise taxes for your heirs.

Superannuation Strategy for Expats

For Australian expats, managing superannuation can be a bit more complex, but it’s still a crucial part of your financial planning. Here are some tips to help you navigate your superannuation while living abroad:

• Understand Your Options: Determine whether you can continue to contribute to your Australian superannuation fund while living overseas. Some funds allow contributions from abroad, while others do not.
• Maximise Contributions: Take advantage of the increased concessional and non-concessional contribution caps to boost your retirement savings.
• Consider Exchange Rates: Be mindful of exchange rate fluctuations when transferring money to your superannuation fund. Timing your transfers can make a significant difference in the amount you save.
• Stay Informed: Keep up-to-date with any changes in superannuation laws and regulations that may affect expats. This includes understanding any tax implications of your contributions and withdrawals.

Conclusion

Conducting a financial health check at the start of the new financial year is an essential step in maintaining and improving your financial well-being. By understanding the new superannuation contribution limits and tax rates, reviewing your budget and investment portfolio, and staying informed about insurance, estate planning, and government benefits, you can set yourself up for a successful year ahead.

Take the time to review your finances, make necessary adjustments, and seek professional advice if needed. Your future self will thank you for it.

Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.

Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.

Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.

General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.