Welcome to the Autumn 2021 edition of The BFG Report
Make a Super Plan for the New Year
On 1 July 2021, both the concessional and non-concessional superannuation contribution limits, also known as ‘super contribution caps’, will rise. The concessional cap will increase to $27,500 from 1 July 2021. The non-concessional contribution cap is calculated as 4 times the concessional contribution cap and so will increase to $110,000 from 1 July 2021.
Which contributions – concessional or non-concessional?
Concessional contributions can reduce your taxable income and your end-of-year tax liability. Concessional contributions are subject to just 15% tax in your super fund compared to your upper marginal tax rate which could be as high as 39% or 47%, including the medicare levy, if you’re in one of the highest tax brackets. An additional 15% tax may apply to concessional contributions if your income is over $250,000.
How to make concessional contributions
Additional concessional contributions to super can be made by ‘salary sacrificing’ through your employer or via ‘personal deductible contributions’. Both methods have the same tax benefit so the method you choose comes down to what suits you:
- Salary sacrificing comes out of your pre-tax salary and reduces your net taxable income meaning you may pay less tax on your personal income.
- Personal deductible contributions are paid by you, and you can then claim a tax deduction when completing your tax return. If you choose this method, you need to submit a form to your super fund by a certain time advising your ‘intent to claim a deduction’ on your super contribution.
Making the most of ‘catch up’ contributions
‘Catch up’ contributions may allow you to use the previous years’ unused contribution caps in the current financial year if you meet certain requirements. The 2018/19 financial year was the first financial year you could accumulate unused concessional contributions. Unused carried forward concessional cap amounts expire after five years.
Non-concessional contributions do not entitle you to a tax deduction but you won’t pay any additional tax as you’ve already paid tax via your personal income tax liability. Also, earnings on the contributions are taxed at only 15% (not your marginal tax rate) within your super fund.
Making the most of the ‘bring forward rule’
If you were age 64 or less at 1 July 2020 you may be eligible to use the ‘bring forward rule’ and use up to two future years’ worth of your non- concessional contribution caps. Depending on your total superannuation balance this may allow you to contribute up to $300,000 (3 x $100,000) into super this financial year, increasing to $330,000 next financial year. You generally need to meet a ‘work test’ if you are 64 to 74 years old at the time of contribution.
At the time of writing legislation is pending to increase the age at which you can trigger the bring forward rule from age 64 or younger as at 1 July of the relevant financial year to age 66 or younger. enter
Investment Market Review – Quarter Ended 31 December 2020
The S&P/ASX 300 Accumulation Index outperformed global markets in the December quarter, rising strongly by 13.8%. The financials sector was the top performer (up 26.2%), followed by the energy sector (up 21.8%). By contrast previous ‘high-flyers’ such as health care struggled (down 1.1%) with utilities the worst performers (down 7.1%).
Financial stocks benefitted from the lifting of the 50% payout cap on dividend payments, where the Australian Prudential Regulation Authority (APRA) had only permitted banks to pay dividends up to 50% of their profits). Energy stocks outperformed thanks to the surge in oil prices accompanying successful vaccine trials by Pfizer and Moderna which saw investors anticipate an earlier return to a pre-COVID-19 world.
|Australian Shares||1.70% (1 yr)||8.80% (5 yr)||7.70% (10 yr)|
Listed Property Trusts
The Australian Real Estate Investment Trust (A-REIT) sector performed strongly, rising 13.2% during the December quarter, continuing to make up for losses experienced during the March 2020 quarter decline but still below its pre-COVID-19 pandemic highs.
The easing of lockdown restrictions across Australia was a key driver, with the recovery in retail sales benefitting large corporations such as Scentre Group (owner of Westfield shopping centres) and Vicinty Centres (owner of Chadstone and other major retail shopping centres).
|Listed Property Trusts||– 4.00% (1 yr)||7.40% (5 yr)||11.30% (10 yr)|
International shares had a weaker quarter compared to the Australian market with the MSCI World Index in Australian dollar terms rising 5.9%.
COVID-19 vaccine rollouts was a key driver as was the conclusion of US election uncertainty following the election of Joe Biden as President, defeating incumbent President Trump. The vaccine news saw investors rotate away from technology stocks towards more cyclical companies as they anticipated a strengthening of the global economic recovery. In that environment companies with commodities exposure stand to benefit more from stronger economic growth.
The Australian dollar rose 4.5% against major trading partners during the quarter which detracted from unhedged global equity returns. Hedged global equities rose 11.7%, outperforming by contrast.
|International Shares||5.60% (1 yr)||10.90% (5 yr)||13.00% (10 yr)|
The Australian bond market benchmark, the Bloomberg AusBond Composite Index, fell 0.1% during the December quarter.
On the one hand, the Reserve Bank of Australia (RBA) rate cut of 0.15% in November would normally benefit bonds by making them more attractive to hold instead of cash. However, the COVID-19 vaccine news and the subsequent shift in risk sentiment saw investors more willing to sell bonds and seek riskier investments instead. Accordingly, the RBA rate cut was dwarfed by the selling pressure in bonds which saw prices fall and yields rise. Bond yields remain low however with the 10-year Government bond yielding 0.98% compared to 1.2% in December 2019.
|Fixed Interest||4.50% (1 yr)||4.60% (5 yr)||5.60% (10 yr)|
The Cash benchmark, the Bloomberg AusBond Bank Bill Index, rose 0.02% during the September quarter.
|Cash||0.40% (1 yr)||1.50% (5 yr)||2.40% (10 yr)|
High Yielding Internet Savings Accounts
Financial Institution Interest Rate** Financial Institution Interest Rate**
RaboDirect Bank 1.50% p.a. ING Savings Maximiser 1.35% p.a.
Macquarie – Savings Account 1.10% p.a. ME Bank Online Saver 1.10% p.a.
IMB – Reward Saver 1.20% p.a. Australian Unity – Active Saver 1.00% p.a.
** Rates are subject to conditions and change. Rates are correct as at 09/03/2021.