Owning business property within an SMSF and downsizer contributions are likely to be areas of concern for financial advice clients facing cost-of-living pressures in 2024, according to the trend in current inquiries received by financial services firm BT.
Looking over more than 8000 questions received by the BT Technical Services team from advisers in 2023, BT head of financial literacy and advocacy Bryan Ashenden revealed real estate and property ownership strategies and preparation for changes in taxation would be topical going into the next year.
“Australians have long had a love affair with property and so for many who are on the cusp of retirement, the family home is their most valuable asset,” Ashenden said, adding increases in the cost of living are leading more people to sell their home as part of their superannuation and tax strategies.
“The BT Technical Services team are consistently fielding high levels of calls on downsizer contributions.
“It would not be surprising if some of this is driven by the rising cost of living and retirees needing to explore options to boost their savings or increase cash flow.
“Another potential reason is this strategy has become accessible to more Australians, with the eligibility age reduced down to 55 years at the start of 2023.”
He pointed out property was also a concern for small business clients who were seeing a decline in revenue due to high inflation and reduced consumer spending, with some opting to ease their cash flow by having their SMSF buy their commercial properties and lease them back to the business.
While this usually took place via a limited recourse borrowing arrangement, he said all transactions had to be at market rates and business owners should be cautious in using the SMSF to make any improvements to real estate assets within the fund that may be considered a contribution.
“If the value of that improvement, together with other contributions, is below the client’s caps, it’s not an issue. If their contribution limits have been breached, there may be penalties,” he said.
He also said in relation to plans to reduce tax concessions for people with total superannuation balances over $3 million, advisers will have a long lead time to update clients’ super strategies and should instead focus on the planned income tax changes coming in 2024.
“Working Australians will see more in their pay packet from July 2024, with anyone earning an annual income of $45,000 or above benefiting from tax cuts,” he said.
“For those who have the capacity to top up their super with personal deductible contributions and are considering the best timing for doing so, at the current marginal tax rates, and bearing in mind the 15 per cent concessional tax rate within superannuation, the tax saving resulting from putting money into super in FY2024 is greater compared to FY2025 when the reduced marginal tax rates take effect.”
