As the end of the financial year quickly approaches, high-earning executives should consider engaging in strategic financial planning. This period presents a unique set of opportunities and challenges, especially with the impending Stage 3 tax cuts and adjustments in superannuation contribution caps. Understanding these shifts is key to making informed decisions that align with both your immediate financial goals and long-term wealth-building strategies.
Strategic Tax Planning for Executives
The recent passage of the Albanese Government’s Stage 3 tax law amendments marks a significant shift for high earners, particularly those earning $190,000 per year. With these changes set to reduce the tax rate from 45% to 37% for those earning $135,001 to $190,000 starting 1 July 2024, individuals earning in excess of $190,000 per annual stand to gain an additional $4,529 annually, or about $377 per month. This adjustment provides a strategic opportunity for high-earning executives to enhance their financial standing.
While the additional funds can undoubtedly ease everyday living costs, there’s a real risk they could quickly be spent on non-essential items. Alternatively, if directed thoughtfully, this money has the potential to considerably enhance your financial well-being. Allocating this money towards paying down debts can expedite the repayment of home loans, especially beneficial for high-earning couples who could effectively double their payment impact. On the other hand, investing your additional income in high-quality shares for long-term appreciation is a prudent strategy, particularly appealing since any dividends received will come from funds you previously didn’t have. By applying a dollar-cost averaging method and compounding with your extra income, you stand to see substantial growth in wealth over time.
Moreover, contributing the extra funds to your superannuation is another prudent strategy. Not only will this boost your retirement savings, but it will also allow you to take advantage of the lower tax rate on super contributions (15%), compared to personal income tax rates. Given the upcoming increase in contribution caps to $30,000 for concessional contributions, starting 1July 2024, this is an opportune moment to enhance your superannuation benefits substantially. Additionally, if you have unused concessional contribution space from the past five years and a total super balance under $500,000 as of 30 June 2023, utilising the catch-up contributions this year could be especially advantageous.
Family and Spouse Superannuation Strategies
Contribution splitting in superannuation is an invaluable tool for couples looking to balance their retirement savings and manage tax liabilities effectively. By transferring up to 85% of concessional contributions from the higher-earning partner to the lower-earning partner’s super, families can combine retirement savings and potentially reduce the higher earner’s super balance below thresholds that may result in additional taxes. Moreover, making spouse contributions is another strategic move; contributing up to $3,000 to a spouse’s super can earn the contributing spouse a tax offset of up to $540 if the recipient spouse earns $37,000 or less annually.
For executives with Executive Share Schemes, strategic planning becomes even more critical. Consulting with a professional to tailor these strategies to your personal circumstances can yield significant benefits. Additionally, understanding the implications of capital gains tax and planning the sale of assets accordingly can help minimise tax burdens and maximise net returns.
Immediate Actions
To ensure your super contributions count towards this tax year, complete your contribution transactions early. Financial institutions may not process transactions in time if you leave it to the last minute, so plan to complete your contribution transfers by June 17. Evaluate your current financial situation, focusing on paying down high-interest debt and exploring investment opportunities. Review your compensation package, including bonuses and share awards, to identify any immediate tax planning opportunities. Additionally, consider pre-paying deductible expenses to bring forward tax deductions for this financial year, especially if you anticipate a reduction in your marginal tax rate due to the Stage 3 tax cuts.
Plan Ahead
Looking forward, high-earning executives should continually monitor legislative changes and adjust their financial strategies accordingly. Regularly review your superannuation contributions and take advantage of catch-up provisions if eligible. Consider long-term investment strategies, such as dollar-cost averaging, to build wealth over time. Engaging with a financial advisor can provide personalised guidance and ensure you are maximizing your financial potential.
Furthermore, planning to allocate some of your tax savings from the Stage 3 tax cuts towards your super can provide long-term financial benefits. The Super Guarantee rate will rise to 11.5% from 1 July 2024, and further to 12% from 1 July 2025, automatically increasing your retirement savings without extra effort from you.
By taking a proactive approach to your financial planning and leveraging the upcoming changes in tax law and superannuation contribution caps, you can position yourself to achieve your financial goals and build long-term wealth effectively.
If you need advice about superannuation, your executive share scheme and financial planning, please contact James Marshall on +61 (0) 7 3007 2080 or email contact@executivestrategies.com.au
Learn more about James here.
Executive Strategies is a specialised information hub for executives and senior managers who may have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that addresses the often-complex issues affecting their personal prosperity.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.
*Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.
