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In The Loop with Prime [April]

In The Loop with Prime [April]

By Prime Advisory, 18 April 2023

It’s never too early to start preparing for the end of the financial year—particularly when it comes to tax planning. With a new superannuation tax to take stock of and changes to working from home deductions, we’ve got the inside scoop on all you need to know to stay on top of your finances.

Will You Be Impacted by the New Super Tax?

It’s the announcement no one with a hefty superannuation balance wanted to hear. A new tax is on its way.

In February, the Federal Government declared that it will tax earnings on super balances of $3 million or more at 30% from 2025 onwards. This is double the current rate of 15%.

While the new tariff will only impact about 80,000 Australians by early estimations, this number could climb by the time it kicks in. Why is that? Because there appears to be no plans to index that magical $3 million figure—so that amount will be worth less in years to come.

There are some possible scenarios that raise concerns for those with super balances hovering around $3 million. Worth noting is about how earnings are applied. Earnings mean anything that creates a spike in a super account balance—including growth in assets that a fund hasn’t sold.

What is clear is that getting on the front foot is key to avoiding an unwanted tax burden.

Learn more about this special tax and the likely implications for applicable super members. 

PrimeAdvisory In The Loop

More Young Aussies Now Turning to Self-Managed Super Funds

Self-managed super funds and millennials don’t seem like an obvious pair. However, some recent comments by SMSF Association’s new chief executive, Peter Burgess, suggest that many youngsters are turning to SMSFs to take control of their finances long before retirement.

At the SMSF national conference in February, Burgess said that while the number of new funds created had plateaued in 2022, a change in demographics should give the sector plenty of encouragement.

“[We] need to keep in perspective that the sector is coming off almost record high numbers of establishments in 2020 and 2021, so we were always going to see some come-back to normal,” Burgess shared.

Many SMSFs are being opened by digitally savvy, financially literate up-and-comers on a mission to take charge of their finances as quickly as possible, and who also have the desire and ability to run them. 

Investment Trends’ head of research Irene Guiamatsia said almost half of all new self-managed super funds had been opened by Australians under the age of 45.

“Our research shows that 46 is (now) the average age of SMSF establishment,” Guiamatsia said. “Compare that to ten years ago, and it was 51 years old.”

Read more about how young Australians are driving growth in the SMSF sector.

High Personal Tax Rates? A Testamentary Trust Could Help

Saving on taxes is a universal goal. For young beneficiaries with high personal tax rates, a testamentary trust can be one way to enjoy significant tax savings on income generated from estate assets.

Established by creating a will, testamentary trusts only come into effect upon the death of the will-maker. Who do they suit best? Those with rigorous requirements around the protection of capital, who still need something flexible enough to provide a range of tax minimisation benefits that ultimately protect an inheritance.

The option to inherit via a discretionary testamentary trust, rather than directly, also provides an added layer of protection for beneficiaries who may at some point face the prospect of divorce, bankruptcy, or other legal action. 

They are especially useful when distributed to benefit a child or grandchild under 18 years of age because the income is excepted from the higher income tax rates that otherwise apply to children under 18 receiving unearned income.

However, unlike other superannuation pensions and annuities, testamentary trusts do not qualify for a 15% rebate—meaning they should only be the preferred income tax option under a specific set of circumstances.

Read more on exactly how you can benefit from the use of a testamentary trust.

New Changes to Working from Home Deductions

Did you work from home at the height of the pandemic? Millions of Aussies did exactly that, so it’s worth taking note of the ATO’s latest changes to work from home deductions. 

While the actual cost method of calculating tax deductions hasn’t changed, the ATO has simplified how to claim fixed rate tax deductions incurred while working from home.

If your work from home incurred additional expenses and involved more than just occasionally checking emails or taking phone calls, you’re eligible to use the revised fixed rate method of calculating deductions. 

“Items that are difficult and tedious for everyday Aussies to calculate actual work-use, like phone, internet and electricity expenses, are included in the revised rate,” explained the ATO’s Assistant Commissioner, Tim Loh.

“Assets and equipment that typically give taxpayers a bigger deduction, such as technological items and office furniture, are not included in the revised rate and need to be claimed separately,” Loh said. 

The revised fixed rate method applies from 1 July 2022 and can be used when taxpayers are working out deductions for their 2022-23 income tax returns—with the ATO pointing out that transitional arrangements are in place for those who haven’t kept detailed records this tax year.

Learn more about the ATO’s latest changes to working from home deductions.

Stay On Top Of Your Finances

Between tax-planning season and new rules and regulations around superannuation and trusts, there’s plenty to keep track of in the world of finance. If you’re after expert advice on how to handle your business or personal wealth, simply email [email protected] or call 02 9415 1511 to get started.


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