Here are some of the key issues likely to shape decisions in 2019.
In the second half of 2018, share and residential property markets have fallen by around 10%.
Rising interest rates in the USA, US/China trade tensions and already expensive prices in some markets, is causing stress for investors.
In Australia, high household debt and bank lending restrictions, a 2019 federal election and Labor’s intention to reform tax rules for negative gearing and the refund of share franking credits, could cause a further correction in residential property and sharemarkets as our economy slows.
We would argue that now is not the time to take large risks without very careful assessment.
Action: Revise your financial plan and stick with strategies that are consistent with your goals, time frame and risk tolerance. But make provision for lower investment returns and possibly higher debt repayments. This may mean holding a bigger cash reserve and spending less to meet your financial commitments.
Superannuation Regulation Changes
Your Total Superannuation Balance (TSB) is the sum of all of your superannuation and pension account balances. Checking your TSB will be critical going forward, because it will determine your ability to make most types of contributions.
From 2018/19, where your “TSB” at prior 30th June is less than $500K, and you fail to contribute up to the $25K concessional contribution cap, the “unused amount” can be carried forward for up to 5 years.
From July 2019, a 1 year exemption from the “work test” is available to people age 65-75, to make super contributions providing their TSB did not exceed $300K at 30th June of the prior year.
Also, since July 2017, you may be able to claim a personal tax deduction for super contributions rather than rely upon a salary sacrifice arrangement.
Action: You need to understand the more complex rules to take advantage of tax savings and avoid penalties. Seek advice before taking action.
Self Managed Super Funds
New regulations are set to make life for SMSF trustees a bit more difficult.
If an SMSF supports a retirement phase pension, certain events (eg withdrawals) must be reported to the tax office sooner than when lodging the next annual tax return.
Nominating a beneficiary to be paid a pension following your death may not be entirely plausible, as restrictions apply to the amount of money one can have in retirement pensions.
From July 2018, where an SMSF has established a loan from a “related party” (eg a member) or has unrestricted access to funds, the member’s share of the loan will be counted towards their TSB.
Be very careful about providing services to your SMSF. Doing repairs/renovations, managing property investments etc could result in the fund’s income and future capital appreciation being taxed at 47%.
Action: Seek advice to review strategies already in place and before making future SMSF decisions to avoid breaching the rules and tax penalties.