Getting ready for tax time should go well beyond bundling receipts into a shoe box for your accountant. The run up to 30 June is a critical time for investors to take a good look at their investment portfolio.
Your goals and needs may have shifted over the year, and your portfolio needs to keep up with the right blend of assets to meet your goals. Even if nothing has changed on the personal front, investment markets don’t sit still for long.
Property investors in Sydney and Melbourne for instance, have enjoyed tremendous value gains over the past few years but this may mean the weighting of your portfolio is dramatically skewed towards bricks and mortar.
If that sounds like you, bear in mind rental yields on property are sitting at just 3.7% across our state capitals, and a significant chunk of your wealth could be tied up in low-yielding assets.
Consider new legislation
The need to review your portfolio ahead of 30 June isn’t just about market performance. It can also involve taking advantage of, or responding to, new legislation.
We’ve heard lots of speculation recently about Labor’s plan to scrap cash refunds for excess franking credits on Australian shares.
So far, this policy has been amended to include a so-called Pensioner Guarantee that will exempt full and part-time pensioners including those who are recipients of a self-managed superannuation fund.
Nonetheless, jumping the gun and altering your portfolio based on what may – or may not – happen further down the track is a gamble, and on this particular score it could be worth taking a wait and see approach.
In the meantime, plenty has happened in other areas that could directly impact your portfolio.
As a guide, since 1 July 2017 property investors can no longer claim the cost of travel to inspect a rental property. This could be a significant downside for investors who own an interstate property – especially if part of the appeal was a tax break on an annual trip to check out the property.
Also, from 1 July 2018, those aged 65 and over may be able to contribute up to $300,000 from the sale of their main residence to super without the money counting towards contribution caps.
Each member of a couple can take advantage of the $300,000 limit, potentially adding $600,000 to their combined nest egg. It could be an option worth considering if you’re thinking about downsizing.
Get your portfolio in shape for a new financial year
Fine-tuning your portfolio ahead of 30 June can mean paying costs, and capital gains tax may apply to any profit you make on the sale of an investment. The upside is hitting the new financial year with a portfolio that’s in tune with your goals and lifestyle.
Set a date to speak with your financial adviser to review your portfolio before the end of the financial year. It can be a valuable step to ensure your money continues to work hard for you.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.