Financial tips for tax time 

It’s almost time for taxpayers across the country to fill out their return forms as the financial year comes to a close. To assist you through tax time, we speak with financial adviser Nikki Booth from My Wealth Solutions  about the importance of planning ahead, budgeting, and why seeking advice from a professional is a must. Primarily, the reason to prepare for the end of the financial year is to manage your tax liability, to either reduce your tax bill or maximise your return. Tax planning will result in a better outcome and wealth position for you.

Remembering the year that was

As June 30 – the end of the financial year – approaches, it can be beneficial to think about your expenses from the year before. Regardless of whether your working days are long behind you or if you’re just about to retire, Nikki says reflecting on the previous financial year can help you properly plan for the future.

“Generally, retirees do not have much – or any – income to pay tax on, because if they are over 60 and on an account-based pension, all of their income and earnings are tax-free – subject to certain pension rules and limits,” she says. “However, if you have earned an income, either through work or investments, or you have sold a taxable asset and received the proceeds, you may need to pay tax on this. I would encourage looking back on your income and spending to not only make sure you can optimise your tax position before the close of the financial year but also to assist you in planning the year ahead. For example, are you on track or are you spending more than recommended, and what does this mean for your wealth position?”

“For retirees with an account-based pension, making sure you have drawn the minimum pension for the financial year is extremely important,” says. “If you are still earning income, ensure you are aware of your options with making additional contributions, or making non-concessional contributions to move funds into a potentially tax-free environment in retirement (up to the transfer balance cap).”

Nikki points out that your accountant or financial advisor can help you structure your assets or super to reduce your tax and optimise your wealth to ensure you have the best retirement outcome. “Having a chat with your accountant to look at ways to minimise the tax payable on any assets or other income is also going to be beneficial. Some ways you can minimise your tax include contributions to super, pre-paying interest on investment loans, and asset structure.”

“Another thing to consider is estate planning and legacy requirements,’’ Nikki adds. “Depending on if you are happy to spend all of your money, or leave some for the kids, you should consider the tax consequences of the estate funds and possible ways to minimise these tax consequences for your children.”

Plan ahead

According to Nikki, those wishing to retire within the next few years, should plan their finances well in advance. This includes ensuring your post-retirement living expenses are feasible, and that your superannuation account or other assets have sufficient funds in order to live comfortably. Understanding your budget is crucial  – how else will you know what funds you will need and how long they will last!

“You’ll need to consider your living costs to ensure that your money is going to last,” Nikki says. “It could be advantageous to put more money into super leading up to retirement, as it could be the most tax-efficient environment for your money. With changes coming to super for retirees this year, the good news is that retirees aged between 67 and 74 can top up their super without having to satisfy the work test, as long as their super is less than $1.7 million from July 2022.''

Nikki also adds, “If you’re selling your house, or thinking about selling, you could also take advantage of the downsizer scheme. If you are over 60, this means you can add up to $300,000 per person to your super as a once-off payment. Even better, this doesn’t count towards your non-concessional cap.”

People receiving a super pension or income stream in retirement must withdraw minimum amounts each year. These minimum amounts can vary from 4–14 per cent, depending on the recipient’s age. “Make sure that the minimum pension has been drawn out,” Nikki suggests. “Also, if there are any funds still in the accumulation phase, assess whether it needs to be in accumulation or if it would be better off in an account-based pension – if your cap limits allow.”

Set yourself up for success

Nikki highlights that the majority of your cash inflow in retirement could be from pension and investment income, but your cash outflows – basic living costs, such as rates, insurance, gas, electricity, and telephone bills – are dependent on whether you want to live in a reduced way or if you want to maintain your standard of living.

You’ve worked hard your entire life, so now it’s time to live comfortably in retirement – without the fear of running out of money! If you’re retired, or plan to retire shortly, it’s important to prepare a simple budget of your cash flow, both in and out, monitor your spending habits, and decide whether you want to travel during retirement.

“Have a realistic budget in place that accounts for daily living expenses, as well as the ‘nice to haves’,” Nikki says. “One way you could make things work for you, is to treat your pension income like a wage from employment, and break it up into separate accounts for your fixed expenses and discretionary expenses to ensure that you are not overspending.”

Investments can also be a source of income, Nikki mentions. “In the lead up to retirement, you should be aware of what income you could receive from your investments. The earlier you start working to get where you want to be, the more you can achieve.  Investments have the ability to increase in value and can provide a steady income if they are structured correctly. If you’ve borrowed money to purchase these assets, the interest incurred is generally a tax-deductible expense (if you’re still earning a taxable income). However, investing in property or shares comes with inherent risk, which should be considered in light of your timeline and individual circumstances.”

Seek financial advice

Enlisting a good financial adviser or registered tax adviser can help steer you in the right direction when attempting to manage your assets at tax time and throughout your retirement years. They can also advise whether you qualify for any benefits to supplement your income, and how you can claim them.

“One of the biggest risks in retirement is that you haven’t properly planned for your retirement, which causes you to work for longer or live on less. Another risk is that people make bad investment decisions, particularly if there is volatility in the markets. This is why it's valuable to have professional assistance both for retirement planning and investment management,” Nikki says. “A good adviser will be able to help you structure your assets correctly in retirement to maximise growth and portfolio longevity, but also to minimise your risk. They will also be able to help you maximise any social security entitlements that you may be eligible for.”

Finally, Nikki suggests finding a reputable consultant well in advance, even if retirement is merely a speck on the horizon.

“The earlier you seek out an adviser, the better  – even if you are still 15 to 20 years away from retirement,” she says. “It will allow much more time to have the correct structures in place for the future.”

“However, it is never too late to seek assistance and clarity with your tax planning or retirement planning  – there are many benefits, including knowing what is possible for you  – no matter what stage of retirement you are in.”

As the end of the financial year approaches, now is the perfect time to reassess your finances and make the most of your hard-earned cash in retirement. After all, you’ve sowed the seeds  – now reap the harvest.

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Article date: 5 May 2023

Read more:

• What senior concessions are available to you?
• Can pensioners get CTP Green Slip discounts? 
• The pros and cons of downsizing your home

Australian Pensioners Insurance Agency Pty Limited ABN 14 099 650 996.

The information provided in this article has been provided as general advice only. We have not considered your financial circumstances, needs or objectives, and you should seek the assistance of your financial adviser before making any decision regarding any products or services mentioned.

Any general advice has been provided by Nikki Booth – Financial Adviser at My Wealth Solutions Pty Ltd ABN 66 153 751 832 is a Corporate Authorised Representative of GPS Wealth Ltd | AFSL 254 544 Australian Credit Licence 254 544 ABN 17 005 482 726.

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