What's top of mind for advisers in 2024?

Bearish predictions about the Australian property market in 2023 have turned out to be wrong, with population growth and a short supply of housing pushing prices up, especially in capital cities.

To combat the rising cost of living, it seems many Australians are realising the values of their properties wisely, as part of their superannuation and tax strategies.

Good old real estate and the strategies around property ownership will continue to be topical amongst financial advisers and their clients, going into 2024.

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.

Clients are discussing with their advisers how downsizing from a large property they no longer need can be integrated into their financial plan, especially if they are looking to self-fund all or part of their retirement.

And as part of this, they're exploring what's the most tax-effective strategy in regard to the sale proceed.

Based on the more than 8000 questions that the BT Technical Services team fielded from advisers in 2023, here are the topics that will be top of mind for advisers and clients in the new year.

1. Downsizing the tax-effective way

Clients who are downsizing can make contributions from the sale proceeds of their home into their super, which can be a more tax-effective environment compared to, for example, putting it all in a savings account.

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.

To be eligible, clients also need to have owned their home for 10 years or more. Downsizer contributions to a maximum of $300,000 per eligible person do not count towards any of the contribution caps, and can still be made even if a person has a total super balance exceeding $1.9 million.

2. Business clients transferring commercial property into SMSFs

High inflation rates and reduced consumer spending in some sectors are biting into the revenues of small businesses - prompting business owners to ease cash flow for their business by using their SMSFs to buy their commercial properties, often with gearing involved.

A typical scenario in this arrangement is the SMSF buys the commercial property, sometimes with a limited recourse borrowing arrangement, which can then be leased to the business that one of the trustees owns.

The sale contract and lease - and loan, if relevant - have to be formalised and the arrangements must be at market rates, and so it's advisable to engage lawyers who can prepare the appropriate commercial documents.

Clients with SMSFs need to be careful of any improvements they make to real estate assets owned via their SMSF, as these can potentially be regarded as a superannuation 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.

3. The $3m super tax looms

The government has proposed to reduce the superannuation tax concessions for those with total superannuation balances that exceed $3 million. Legislation implementing this change was introduced into parliament on 30 November 2023. Its passage through parliament will be delayed through the referral of the Bill to a committee for review and comment.

Under the proposal, from 1 July 2025, affected clients will pay an additional 15% in tax on earnings corresponding to the portion of their superannuation balance above $3 million. Advisers have plenty of lead time to update impacted clients' super strategies.

4. Tax cuts for many Australians from July 2024

Many clients may not be aware of the impending cuts to income taxes. 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. The reduced tax rates will be a welcome reprieve for clients facing cost of living pressures.

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% 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.

5. Quality of Advice reforms - what to expect and when

The Government has recently made some additional announcements on its intended position on the Quality of Advice, including the ability for superannuation funds to provide advice to their members.

While these latest announcements may provide further clarity, it will be important to wait and see how draft legislation intends to implement these reforms, to gain a full understanding of how the proposed regulations can deliver more affordable and accessible avenues to quality advice.

There is still a way to go. We saw the release of the first tranche of draft legislation for consultation. And now with the government's latest announcement around some of the big-ticket items that will impact advisers the most in terms of simplifying advice - changes to the statement of advice and the best interest duty - we are starting to get a fuller picture of how the advice environment might change in the future.

Advisers have dealt with a great deal of complexity in recent years and are vested in how these proposed changes might be implemented.

Whilst further consultation may take more time, it's important that collectively we stay invested in the process to gain the best possible outcome from implementation.