Diary of a self-funded retiree: Entry 12

This is the twelfth entry in our retirement diary, where I've been sharing how my wife and I are preparing for life after full-time work. Previous entries have looked at our investment strategy, retirement budget, spending time overseas and how we've adjusted to my move to part-time work. 

Diary entry 12: What we're planning to do before 30 June 

In this diary entry, I'll run through our EOFY checklist for our personal finances and, more importantly, our SMSF. We usually wait until after the Federal Budget in May to make sure we don't have to revisit any decisions we've made for future years. 

What personal tax planning do we need to do? 

At this time of year, I always try to estimate how much income Jane and I might earn in our own names. Jane has a number of bank accounts that offer high interest rates up to a certain balance, so I need to add up the interest earned in each to get a rough idea of her taxable income.  

I also check that I have maximised my super contributions ($30,000 this financial year, rising to $32,500 from 1 July) and estimate any other income I might receive from bank accounts and elsewhere. Usually, it's not much, as most of our spare cash is held in Jane's name. 

What about contributions to the SMSF? 

One of the main EOFY tips I hear is to make sure any contributions are in the SMSF bank account before 30 June, otherwise they count for next year. 

I have checked how much my employer has already contributed and what I expect to receive before 30 June. I'll then make some salary sacrifice adjustments to get as close as possible to the concessional contribution cap (or just below, as it can be an administrative nightmare to fix if you contribute too much). 

We have made an additional non-concessional contribution for Jane as she is still below the cap. As the annual cap increases to $130,000 from 1 July 2026, we won't need to use any "bring-forward" allowance just yet.  

As Jane doesn't work, she can't make salary sacrifice contributions. She is also over a "certain age" and doesn't meet the work test, so she isn't eligible to claim a tax deduction for a personal concessional contribution. 

We also looked at the government co-contribution for Jane, but as she doesn't work, she isn't eligible. 

We plan to have our super balances approximately the same in a couple of years, so we don't trigger any additional tax if one balance ends up above the new $3 million threshold. 

Should we withdraw and recontribute to reduce tax on inherited super? 

Australia doesn't have inheritance taxes, but the ATO can still tax some super death benefits paid to non-tax dependants, which includes most adult children. In many cases, that tax can be up to 15% plus a 2% Medicare levy on the taxable component of a super balance. The taxable component is generally made up of employer and salary sacrifice contributions, along with investment earnings - interest, dividends and capital gains. 

One way to reduce the tax our adult children may have to pay when they inherit super is to use a recontribution strategy. For readers who aren't familiar with the concept, it involves withdrawing money from super and contributing it back as a non-concessional contribution, which can increase the tax-free component of the balance. 

We could also avoid some of this tax by moving as much as possible into pension mode and withdrawing money to give to the kids before we both die, though we would need a pretty good idea of when that was going to happen! 

After more than 35 years of building our super balances, both of us have accumulated fairly large taxable components. As this is a complex area and we have limited ability to recontribute, we are getting some advice before making any decisions. 

Is there any tax planning we can do in the SMSF? 

We have some investments with large, unrealised capital gains. If we move part of the fund into pension phase before selling them, any future capital gains could be tax-free. Neither of us has moved to pension mode yet, but we plan to start a pension for Jane after 1 July 2026, when the transfer balance cap rises to $2.1 million. 

We have enough money, plus my part-time salary, to cover our current living expenses, so even though we are both old enough, we can wait. 

What about investments outside super? 

I am the sole shareholder of a small company with a lot of cash and a couple of shareholdings that have unrealised gains. I am not in a hurry to sell the shares, as I don't want to crystallise any additional tax liabilities before 30 June. 

There is a fair amount of franking credits in the company, so once my personal tax rate falls, I will start paying myself dividends. 

Does the Federal Budget affect us? 

A lot has been written about the major tax changes announced in the Budget, so I wanted to check whether any of them would affect our plans. 

We don't own any negatively geared property and most of our assets are held in our SMSF, so the proposed CGT changes are likely to have a limited impact on us. We also don't have any family trusts or pre-CGT assets. 

I did have margin loans to invest in shares, and it looks like I can still use margin loan interest to reduce income tax, though the details have not been published yet. In the past, I have prepaid interest on a margin loan to get my tax deduction earlier. 

My top tips 

• Don't wait until 30 June to make your final super contributions. 
   
• If you're paying more than 15% tax, consider maximising your concessional super contributions. 
   
• Review whether there are ways to reduce the tax your children may pay on inherited super. 
   
• If you have a margin loan, consider whether prepaying interest before 30 June makes sense for your circumstances. 

What's next? 

I'll be taking a break from diary writing for a few months, but I'll be back later this year. If there are any retirement topics or issues you would like me to explore when I return, please let me know. Thanks for reading and for all the feedback so far. 

You can read entry 11 here.