By Martyn Johnston, Head of Partnerships, Tandem Securities
With the new financial year fast approaching, now is the time for clients to review their portfolios and position themselves for the year ahead.
The new financial year is set to usher in several important changes, most notably the Stage 3 tax cuts. These changes may affect a client’s overall investment strategy, and they could also create new opportunities to invest more effectively or manage their tax liabilities.
It’s vital that advisers begin to have these conversations with their clients today so they can take full advantage of the new financial year. Here are three ideas to discuss with your clients in order to better prepare them for the upcoming year and grow their wealth.
1. Consider tax loss selling
As the end of the financial year approaches, most investors will be reviewing the performance of their portfolio to assess which shares have delivered good results, and which are lagging behind. In some cases, investors may be considering exiting a position that’s delivered negative returns to free up some cash to take advantage of other opportunities.
Selling out of these companies may also help manage their tax obligations. If managed correctly, this strategy is sometimes referred to as ‘tax loss selling’. Australian investors are required to pay tax on the dividends and capital gains attributable to their portfolio of shares, meaning that selling high-performing stocks can increase their tax bill at the end of the year.
On the other hand, selling out of a business that’s been delivering negative returns means investors will realise a capital loss, which can then offset some of the capital gains achieved by other companies in the portfolio. This means any investor considering adjusting their portfolio may find it more tax effective to do so before the new financial year.
Tax loss selling can be a useful strategy, but it’s crucial that investors don’t try to game the rules. Asset wash sales, where investors attempt to artificially increase losses to reduce their tax bills before reacquiring similar assets immediately afterwards, is a common tax avoidance technique the Australian Taxation Office is carefully monitoring for.[1] Those found to be engaged in asset wash sales will not have their capital losses counted against their capital gains – potentially leaving them with an even larger tax bill.
2. Get your tax deductions into gear
Gearing is a sophisticated investment strategy that can add significant value when returns are greater than borrowing costs. With the new financial year approaching, clients with geared portfolios may benefit from pre-paying some of their investment loan repayments before the end of the financial year.
That’s because the interest payments on some gearing strategies – such as margin loans – may be tax deductible. For some investors, bringing forward these tax deductions to this financial year may be more effective than waiting until after the Stage 3 tax cuts are introduced (and they are on a higher margin tax rate).
The effectiveness of this strategy will depend entirely on the client’s financial circumstances, and any recommendation to bring forward tax deductions should be part of a carefully considered financial plan.
3. Review your contribution strategies
The new tax regime set to commence from 1 July 2024 will see many Australians pocket a little more of their regular payslip. For investors looking to grow their wealth a little bit faster, this modest boost to take-home pay could be just the ticket.
Whether your clients are investing through an SMSF or trying to grow their investment portfolio outside super, making small but regular contributions towards their investment strategy can help them reach their goals faster.
Prior to the EOFY, investors should be reassessing their budgets to see how much of their after-tax income they can comfortably afford to invest. A conversation with a financial adviser can help determine how much is available to contribute.
Clients also need to be conscious of their non-concessional contribution cap, otherwise they may not receive the full benefit of the super tax environment. From 1 July 2024, clients can only contribute an additional $120,000 to super from their after-tax pay (known as a ‘non-concessional’ or ‘voluntary’ contribution) before they incur additional taxes.
New year, same dedicated support
While the new financial year may bring with it several major changes, one thing you can always count on is that Desktop Broker will continue to provide market-leading service and support.
Designed for advisers, Desktop Broker provides flexible brokerage to suit individual business and client needs and can be integrated with several external service providers to create a streamlined brokerage experience, including exclusive access to Bell Potter research.
Please get in touch for additional investment ideas and EOFY support for your clients.
This information is general in nature only and you should consider whether it is appropriate for you. Desktop Broker does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. For more information, visit desktopbroker.com.au or call 1300 786 199. Desktop Broker is the trading name of Third Party Platform Pty Ltd ABN 74 121 227 905, AFSL 314341.
[1] Australian Taxation Office, ‘Wash sales: The ATO is cleaning up dirty laundry’, 27 June 2022, accessed 1 May 2024
