As the end of financial year gets closer, some investors are thinking about the most effective ways to boost their super balance, particularly with an increase in the caps on contributions from 1 July.
The concessional contributions cap, which is the maximum in before-tax contributions you can add to your super each year without paying extra tax, is increasing to $30,000 from $27,500 in the new financial year.i
The cap increases in line with average weekly ordinary earnings (AWOTE).
It’s a good idea to keep track of your concessional contributions – which include any compulsory contributions made by your employer as well as salary sacrifice contributions – so that you don’t unintentionally exceed the cap. It is particularly important for those with more than one job or super fund because all of the contributions are added together and must not exceed the cap.
You can check your current balance at ATO online services. Log into your myGov account and link to the ATO to see all your details.
It is also useful to be aware of payment and reporting timelines. For example, your employer can make super guarantee contributions up until 28 July for the final quarter of the financial year and salary sacrifice contributions up until 30 June.
Any amounts showing on the ATO website for your account are based on when your fund reports to the ATO.
Carry forward unused amounts
If you haven’t made extra contributions in past years, you may have unused concessional cap amounts.
These can be carried forward, allowing you to contribute more as long as your super balance is less than $500,000 at 30 June of the previous financial year.
You can carry forward up to five years of concessional contributions cap amounts.
Getting close to exceeding the cap?
If you’re worried about going over the cap, you may wish to stop any further voluntary contributions based on an assessment of the extra tax you will pay.
For those with two or more employers, you may opt out of receiving the super guarantee from one of the employers.
Meanwhile, if special circumstances have caused you to exceed your cap, it’s possible to apply to the ATO for some or all of the contributions to be disregarded or allocated to the next financial year.
But, if all else fails and you have exceeded the cap, the excess contributions will be included in your assessable income and taxed at your marginal rate less a 15 per cent tax offset. The good news is that you can withdraw up to 85 per cent of the excess contributions from your super fund to pay your tax bill. Any excess contributions left in the fund will be counted towards your non-concessional contributions cap.
Timing is everything The upcoming Stage 3 tax cuts, which commence on 1 July 2024, may affect the value of your concessional contributions. For some, tax benefits may be greater if contributions are made before the tax cuts begin. Please check with us about your circumstances to make sure you make the most effective move.
Non-concessional cap also increased
The non-concessional contributions cap is the maximum of after-tax contributions you can make to your super each year without paying extra tax.ii
The non-concessional cap is exactly four times the amount of the concessional cap so it increases from $110,000 to $120,000.
If you exceed the cap, you may be eligible to use the ‘bring forward rule’, which allows you to use caps from future years and possibly avoid paying extra tax. It means you can make contributions of up to two or three times the annual cap amount in the first year of the bring forward period. iii
If your total super balance is equal to or more than the general transfer balance cap ($1.9 million from 2023–24 and 2024-25) at the end of the previous financial year, your non-concessional contributions cap is zero for the current financial year.
We’d be happy to help with advice about how the changes in contribution caps might affect you and whether you are eligible for the bring forward rule.
Non-concessional contributions
Bring-forward cap first year (applying to 2023–24 and later years)
Total super balance on 30 June of previous year
Non-concessional contributions cap for the first year
Bring-forward period
Less than $1.68 million
$330,000
3 years
$1.68 million to less than $1.79 million
$220,000
2 years
$1.79 million to less than $1.9 million
$110,000
No bring-forward period, general non-concessional contributions cap applies
Investing successfully and improving your investment portfolio can be as much about minimising mistakes as trying to pick the ‘next big thing’. It’s all about taking a calm and considered approach and not blindly following trends or hot tips.
Let’s delve into some of the most prevalent investment mistakes and look at the principles that underpin a robust and successful portfolio.
Chasing hot and trending shares
Every so often there are industries or shares that are all over the media and you may begin to worry that you are missing out on something. For example, there was the ‘dot com’ bubble in the early 2000s, the social media hyped ‘AMC’ shares in 2020 or the lithium shares in 2022. Jumping on every trend is like trying to catch a wave; you might ride it for a bit, but you’re bound to wipe out sooner or later. That’s because the hot tips and ‘buy now’ rumours often don’t pass the fundamentals of investing test.
The key is to keep a cool head and remember that the real winners are often the ones playing the long game.
Not knowing your ‘why’
What would you like your investment portfolio to achieve? Understanding your motivations and goals will help you to choose investments that work best for you.
If you want to build wealth for a comfortable retirement, say 20 to 30 years down the track, you can afford to invest in riskier investments to play the long-term game. If you have already retired and plan to rely on income from your portfolio, then your focus will be on investments that provide consistent dividends and less on capital growth.
Timing the market
Timing the market involves buying and selling shares based on expected price movements but at best, you can only ever make an educated guess and then get lucky. At worst, you will fail.
As the world-renowned investor Peter Lynch wrote in his book Learn to Earn: “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves”.i
Putting all the eggs in one basket
This is one of the classic concepts of investing and something that you have probably heard many times. But it’s worth repeating because, unless you are regularly reviewing your portfolio, you may be breaking the rule.
Diversifying your portfolio allows you to spread the risk when one particular share or market is performing badly.
Diversification can include different countries (such as adding international shares to your portfolio), other financial instruments (bonds, currency, real estate investment trusts, exchange traded funds), and industry sectors (ensuring a spread across various sectors such as healthcare, retail, energy, information technology).
Avoiding asset allocation
While diversification is key, how do you achieve it? The answer is by setting an asset allocation plan in place.
How much exposure do you want to diversify into defensive and growth assets? Within them, how much should be invested in the underlying asset classes such as domestic shares, international shares, property, cash, fixed interest and alternatives.
Then review your asset allocation from time to time to rebalance any over or under exposure that may occur due to market movements.
Making emotional investment decisions
The financial markets are volatile and that often leads investors to make decisions that in hindsight seem irrational. During the COVID-19 pandemic, on 23 March 2020 the ASX 200 was 35 per cent below its 20 February 2020 peak.ii By May 2021, the ASX 200 crossed the 20 February 2020 peak. Many investors may have made an emotional decision to sell out during the falling market in March 2020 but then would have missed the some of the uplift in the following months in.
Some of the other common investment mistakes include reacting to the noise in media, trading too much, over-diversification, not reviewing your portfolio regularly to ensure it still aligns with your goals, not doing enough quality research and not working with a professional.
Seeking out quality and trustworthy financial advice can help to minimise investment mistakes. Give us a call if you would like to discuss options for growing your portfolio.
The cycle of investor emotions
Behavioural finance is the study of how psychological influences can affect investing and markets. This chart shows how emotions affect an investor’s behaviour at different points in the market.
When your investments are rising, you feel optimistic and eventually reach euphoria which is at the peak of the market and it makes you feel like the smartest person in the room, tempting you to take more risk.
As the markets drop, you may deny it as a short-term blip. As it keeps falling, panic sets in eventually leading to despondency – making you question your entire investment decision.
As markets start to rise again, there is hope which ultimately leads back to optimism which is the start of the cycle all over again.
Having a financial adviser coach you through this wave of emotions can be a way to limit making irrational decisions.
It’s December – the month that always seem to race by as we approach the end of the year and all the festivities it brings. We hope you all have a lovely, happy, and safe festive season.
On the economic news front, there was some good news. Consumer prices eased by more than expected in October. The news that inflation may have been tamed means interest rate rises may be behind us, for now. The positive data also led to a jump in the Australian dollar, taking it to a new four-month high.
Retail spending slowed in October after a short-lived boost in August and September. But, in a further sign of good times ahead, business investment in the September quarter increased by 0.6% to almost $40 billion.
In mixed outcomes for sharemarket investors, there were some devastating lows this year, and a flat performance as November ended, but the ASX200 is up 4 points since the beginning of the year. The unemployment rate has increased slightly to 3.7% with an extra 27,900 people out of work in October.
Overseas, China’s plan to bolster support for infrastructure drove iron ore prices 36% higher than the low in May. Although prices slipped $4 in November from a one-year high of $138 per tonne. While oil prices have steadied with cuts to production on the table to reduce stocks. Brent crude ended the month at around $83.
How to give back
Australia is a giving country, but we often give in kind rather than financially.
Whenever there is a disaster here or overseas, Australians rush to donate their time, household goods and cash. However, we still lag other countries when it comes to giving money.
According to Philanthropy Australia, our total financial giving as a percentage of Gross Domestic Product is just 0.81 per cent, compared with 0.96 per cent for the UK, 1 per cent for Canada, 1.84 per cent for New Zealand and 2.1 per cent for the US.i
Currently the number of Australians making tax deductible contributions is at its lowest levels since the 1970s.ii Despite this, the Australian Tax Office reports that deductible donations claimed by individuals rose from $0.74 billion in 1999-2000 to $3.85 billion in 2019-20.iii
Considering an estimated $2.6 trillion will pass between generations over the next 20 years, the opportunities for increasing our financial giving abound. Philanthropy Australia wants to double structured giving from $2.5 billion in 2020 to $5 billion by 2030.iv
Many ways to give
There are many ways of being philanthropic such as small one-off donations, regular small amounts to say, sponsor a child, donating to a crowd funding platform or joining a giving circle.
For those with much larger sums to distribute, a structured giving plan can be one approach.
Structured giving
You can choose a number of ways to establish a structured giving plan including through a public or private ancillary fund (PAF), a private testamentary charitable trust or giving circles.
Whichever way you choose, there are attractive tax incentives to encourage the practice.
The type of vehicle will depend on:
the timeframe of your giving
the level of engagement you want
whether you want to raise donations from the public
whether you want to give in your lifetime or as a bequest
whether you want to involve your family to create a family legacy.
Private ancillary fund
A private ancillary fund is a standalone charitable trust for business, families and individuals. It requires a corporate trustee and a specific investment strategy. Once you have donated, contributions are irrevocable and cannot be returned. To be tax deductible, the cause you are supporting must be a body identified as a Deductible Gift Recipient by the Australian Tax Office.
The benefits of a PAF are that contributions are fully deductible, and the deductions can be spread over five years. The assets of the fund are exempt from income tax.
The minimum initial contribution to a PAF is at least $20,000. The costs of setting up a PAF are minimal and ongoing costs are usually about 1-2 per cent of the value of the fund.
Each year you must distribute 5 per cent of the net value of the fund to the designated charity.v
Testamentary charitable trust
An alternative to a PAF is a testamentary charitable trust, which usually comes into being after the death of the founder. The governing document is either a trust deed or the Will.
With a testamentary charitable trust, trustees control all the governance, compliance, investment and giving strategies of the trust. The assets of the trust are income tax exempt. The minimum initial contribution for such a fund is usually $500,000 to $2 million.vi
Philanthropy through structured giving still has a long way to go in Australia. The latest figures for total giving in Australia is $13.1 billion, of which $2.4 billion is structured giving. Currently the number of structured giving entities stands at just over 5400.vii
As the baby boomers pass on their wealth to their families, there is a wide opening for some of this money to find their way into charities and causes through structured giving.
If you want to know more about structured giving and what is the right vehicle for you to help the Australian community at large, then give us a call to discuss.
The lenient approach taken by the ATO during the pandemic is over, with its focus now returning to traditional debt collection. With several key areas under the spotlight, some small businesses should consider taking advantage of the current amnesty to get their reporting in order. Here’s some of the latest developments in the world of tax.
Reminder on late lodgment amnesty
If your small business is not up-to-date with its tax lodgments, it’s worth noting the government’s current Lodgment Penalty Amnesty ends on 31 December 2023.
The amnesty allows small businesses to lodge any outstanding income tax and FBT returns or business activity statements (BAS) due between 1 December 2019 and 28 February 2022 without lodgment penalties being applied (general interest charges still apply).
Businesses with an annual turnover under $10 million when the original lodgment was due are eligible for the amnesty.
Warning on ATO’s ‘back to business’ focus
In recent speeches, the ATO has put small business on notice that its lenient attitude during the pandemic is being replaced with a much tougher approach designed to re‑establish its traditional culture of ensuring taxpayers pay on time.
With collectable debt rising dramatically over the past four years, the ATO is returning to its normal debt collection stance and is taking firmer action with taxpayers.
Five areas the ATO is particularly focussing on are unpaid Super Guarantee Charge; debt arising from ATO audit adjustments; refund fraud; aged, high-value debts; and employers with new self-assessed debt.
Employer SG compliance under the microscope
The ATO is expanding its use of the information reported by employers through the Single Touch Payroll (STP) system in relation payment of employees’ Super Guarantee (SG).
Employers are required to make SG payments quarterly and the ATO is now using STP and Member Account Transaction Service information to check whether an employer has paid on time.
The new checks will help the ATO follow-up non-compliant employers and prepare for the introduction of the new rules requiring employers to make SG payments at the same time as wages, which commence on 1 July 2026.
Sharing economy reporting expands
Businesses connecting customers with people who provide services or hiring personal assets through a website or app are increasingly being added to the Sharing Economy Reporting Regime (SERR).
Platforms providing taxi services (including ride-sourcing) and short-term accommodation were required to start collecting seller transaction information from 1 July 2023.
From 1 July 2024, all other sharing economy platforms will be required to start collecting and reporting personal and contact details, business information and financial identifiers related to transactions twice a year to the ATO.
Tax residency test updates
A new one-stop shop tax ruling to help people self-assess their residency for tax purposes has been released by the ATO to help people going to work overseas or moving to Australia.
Taxation Ruling TR 2023/1 replaces older tax rulings with more contemporary guidance reflecting modern global work practices and recent court decisions. It also contains information on the 183-day residency test for people arriving on short-term work and holiday visas.
The tax office uses different rules to the Department of Home Affairs, meaning it is possible to be an Australian resident for tax purposes without being a citizen or permanent resident.
SMSF promoter scheme warning
The ATO is once again reminding trustees of self-managed super funds (SMSFs) to be wary of people promoting illegal schemes for early access to super.
Warning signs of an illegal scheme can include claims you can access your super and put it towards anything you want, charging high fees and commissions, and requesting your identity documents.
Anyone approached about these types of schemes should not sign any documents or provide any personal details, and should immediately report the interaction to the ATO.
Keep your ABN details updated
Ensuring your ABN details are up-to-date on the Australian Business Register is an important requirement of being in business.
Without it, you could also miss out on valuable financial assistance or government information.
Emergency services and government agencies also use ABN details to identify businesses in areas affected by emergencies, so it’s important to keep your physical business and postal address current.
Making sure your deductions don’t get personal
It can be easy to overlook your personal use of business assets when it comes to completing your business and self managed super fund tax returns but be warned, the ATO is taking an interest in this area.
The ATO’s Small Business Random Enquiry Program found around 16 per cent of small businesses were either carelessly or deliberately overclaiming expenses in their tax returns.
If business assets are used for a mix of business and private use – such as vehicles and phones – the amount claimed must reflect only the business-related portion of the expense.
Holiday home rentals are also an area where many taxpayers are failing to follow the tax rules.
Deductions for holiday home expenses can only be claimed to the extent they relate to producing rental income, so you need to apportion your expenses if the property is only genuinely available for rent part of the year.
Apportionment is also required if you use the property for private purposes during the year, only use part of it to earn rent, or if it is used by family or friends at various times during the year.
Expenses relating solely to the rental of the property (such as agent commissions and advertising costs), don’t need to be apportioned.
Avoiding mistakes
To ensure you don’t invite attention from the ATO, review your treatment of business asset expenses annually, in case your private usage has changed.
New or additional private usage of the asset means you need to recalculate the percentage of business used to determine the correct deduction claim.
Proper business records explaining all relevant transactions (including payment to and receipts from employees, shareholders and associates) need to be kept to support your claims.
Common taxpayer errors
The ATO says there are some common errors when it comes to claiming deductions.
Taxpayers are not permitted to claim any deductions against business income for expenses relating to an asset entirely used for private purposes.
An example is an asset (such as a boat or plane) purchased and used for private purposes.
Deductions can only be claimed for the relevant percentage of business use. For example, if the private use component represents 60 per cent, only 40 per cent of the expense amount can be claimed in your return.
FBT and deemed dividends
Another common mistake is claiming a deduction for an asset giving rise to a deemed dividend. This arises when an asset is purchased through a company and used for private purposes by a company shareholder or their associates.
Under the tax rules, both the company and the dividend recipient must record such dividends in their income tax returns, as the asset is being used for their personal benefit.
Some small businesses also misunderstand the implications of purchasing an asset (such as a motor vehicle), that is used by an employee or the associate of an employee for personal purposes.
When this occurs, the benefit must be reported in the business’s fringe benefit tax (FBT) return and the resulting FBT liability paid.
Fixing lodgement mistakes
To avoid finding your business in the ATO’s spotlight, check you have correctly apportioned all expense claims before lodging your business or SMSF return.
You also need to consider whether the rules for private company benefits and FBT apply to any of your business assets. If you make a mistake with a deduction claim, you will need to amend or lodge an income tax or FBT return to correct your tax position. There are time limits on both business and super amendments.
We can help you to correct any mistakes and to deal with the ATO to ensure your tax reporting is smooth and worry-free.
September is upon us, and spring is in the air. It’s time to shake off the winter cobwebs, get out into the garden or the great outdoors. Meanwhile, AFL and NRL fans will be hoping the sun shines on their team this finals season.
After endless gloomy forecasts, there was a glimmer of hope last month that the cost of living might be easing. Inflation fell in July to 4.9% from 5.4% in June, despite predictions by economists of a rise.
While housing prices are still rising, up by 7.3 per cent for the 12 months, and total dwelling approvals recorded a sharp decline in July, the next Reserve Bank Governor Michele Bullock believes prices in some areas will fall by five per cent or more by 2050 because of climate change.
Consumer confidence is continuing to slowly improve. The ANZ-Roy Morgan Consumer Confidence has now increased for a record 26 weeks in a row. Unemployment was up slightly by 0.2% to 3.7%, meaning an extra 36,000 people are now looking for jobs.
China looms large as a threat to Australia’s economy. As our largest two-way trading partner, China’s worsening economic conditions are concerning for Australian investors although stronger demand from steel producers led to a small increase in iron ore prices. The ASX200 ended the month down, gains in financial stocks were offset by losses in mining and energy shares because of their dependency on China. The Australian dollar rebounded slightly based on improved confidence in the US.
How the Aussie dollar moves your investments
It has been a wild ride for the Australian dollar since the Covid-19 pandemic struck and that could mean good news or bad news for your investment portfolio.
In March 2020 the Aussie dipped below US58 cents for the first time in a decade. Since then, a high of just over US77 cents in 2021 has been followed by a rollercoaster ride, mostly downhill.
In October 2022 the dollar plummeted to US61.9 cents, bounced its way back up to US71.3 cents in February this year but by mid-August it had slipped to a nine-month low at under US64 cents.i
Many analysts agree that further falls are on the cards with some even predicting the dollar could fall to as low as US40 cents within five years.ii
What’s driving the dollar?
Given any currency’s susceptibility to changing economic conditions both at home and overseas, the Aussie has had quite a bit to deal with lately.
Rising interest rates can boost the Australian dollar by making us more attractive for foreign investors, providing our rates are rising ahead of the US and others.
If foreign investors buy more Australian assets because they can get a bigger return on their investment, more money flows into Australia which increases demand for Australian dollars. And if investors hold more Australian assets than overseas ones, less money leaves the country, decreasing supply. So, increased demand and decreased supply see the Australian dollar rise.
While the Reserve Bank of Australia (RBA) has increased rates by 4 per cent in Australia since May last year as it battles to get inflation under control, rates have also been rising in the US.
The US Federal Reserve has undertaken its most aggressive rate-rising cycle in 40 years with rates now at a 22-year high and signs of further increases likely. This has put pressure on the Australian dollar, narrowing the difference between the US and Australian rates, meaning foreign investors will look for better returns elsewhere.
Changing economic conditions
The value of the Australian dollar is also affected by changes in economic conditions as well as rises and falls in other financial markets. For example, in August news that the unemployment rate had increased slightly and an easing in wage price growth led to speculation that the RBA would put a hold on rates, putting a dampener on the Aussie.
Also affecting the dollar was a decline in US share markets in August, confirming the typical pattern of the Australian dollar falling when prices in equity markets drop.
Meanwhile, the performance of China’s economy plays a significant part in Australian dollar movements. China is currently battling soaring unemployment, particularly among young people, falling land prices and a housing crisis, among other ills.
As Australia’s largest trading partner, both in terms of imports and exports, any slowdown in China means lower sales of our commodities and other goods and services and less investment in property and business.iii
How the dollar affects us
There are advantages and disadvantages of a falling Australian dollar. On the plus side, our exports will be more competitive because our customers will pay less for our goods and services compared with those produced overseas. Conversely, imported goods will be relatively more expensive.
There could also be an increase in tourism – the cost of travel in Australia will be cheaper for those coming from overseas. Unfortunately, those planning an overseas trip will need to find a significantly greater pile of Australian dollars to pay for airfares, accommodation and shopping.
For investors, it is a useful exercise to review the currency’s effect on your portfolio.
For example, if you’re invested in Australian companies that rely on overseas earnings, look at how they handle their exposure to the currency risk. A lower dollar is good news for those with overseas operations and those that export goods. On the other hand, those that need to buy in components or products from overseas may suffer.
In any case, have a chat to us to look at the best way forward in these uncertain times.
Lodgement amnesty and new landlord data matching program
While the government is boosting the tax deductions available for small business spending on staff training, other taxpayers such as landlords are facing closer scrutiny from the Australian Taxation Office. Here are some of the latest developments in the world of tax.
Amnesty for small business late lodgements
If your small business is not up-to-date with its tax lodgements, it could be a smart idea to take advantage of the government’s current Lodgement Penalty Amnesty.
The program is designed to encourage small businesses to re-engage with the tax system and fix any outstanding income tax, FBT returns and business activity statements due between 1 December 2019 and 28 February 2022.
Taxpayers have until 31 December 2023 to lodge their overdue forms without lodgement penalties being applied (general interest charges still apply).
Businesses with an annual turnover under $10 million when the original lodgement was due are eligible for the amnesty.
Insurance focus for latest data-matching
As part of its ongoing data-matching program, the ATO has announced it will require both income protection (IP) and landlord insurers to provide information on their customers for the period 2021-22 to 2025-26.
Insurers must provide detailed information on the policy and policy owner to help the ATO “identify and educate” taxpayers failing to meet their lodgement obligations.
The landlord data is expected to net records relating to around 1.6 million landlords, while the IP data will cover 800,000 individuals.
New skills and training boost starts
Small business owners keen to upskill their employees can now take advantage of the government’s new skills and training boost if they spend money on these activities before 30 June 2024.
If you have an aggregated annual turnover of less than $50 million, you can claim a bonus deduction equal to 20 per cent of qualifying expenditure on external training courses provided by eligible registered training providers.
You can also claim an additional 20 per cent bonus for expenditure on digitising your business operations and relevant assets such as portable payment devices, cyber security systems and subscriptions for cloud-based services.
Tax penalties increase again
The unit amount used by the ATO to calculate penalties it imposes has increased again, rising to $313 from 1 July 2023.
The government had already increased the penalty amount for the 1 January to 30 June 2023 period, making this the second increase this calendar year.
If the ATO decides to impose a penalty, the unit amount is used to calculate your actual fine. Activities such as giving false or misleading statements, or behaving with intentional disregard for example, result in a 60 penalty unit fine.
GST food and beverage list updated
If you supply or sell food and beverage products, it’s time to recheck the ATO’s detailed food list showing the GST status of major food and beverage product lines, as the tax regulator recently made around 30 updates to the list.
Although some changes corrected existing entries, new food and beverage lines have been added and some current entries deleted.
The ATO encourages businesses to review this list regularly to ensure they are meeting their GST obligations accurately.
Reminders about tax offsetting rules
The ATO is currently writing to businesses with a debt on hold of more than $10 to explain its tax offsetting process.
Under the offsetting rules, any tax refund and credit entitlements are automatically used to pay off an existing tax debt.
If you have an outstanding tax debt, you can choose to pay all or part of it at any time, including through a payment plan.
New-look ATO Charter
Taxpayers could find their interactions with the ATO improving following the release of its revised Taxpayers’ Charter, now called the ATO Charter.
The Charter explains what you can expect when interacting with the ATO, the regulator’s commitments to taxpayers, and the steps you can take if you’re not satisfied.
The 1% rule – tiny changes add up to a BIG difference
Personal transformation can be challenging. We all have habits we’d like to break and behaviours we’d like to do more of. But when we do some self-examination and think about what is involved in navigating change, it can seem overwhelming to get to where we need to be, whether that is personally or professionally.
That’s where small incremental change can be a powerful tool.
The power of one per cent
Just a tiny shift of something like one per cent, does add up. A compelling example of the power of one per cent incremental change is the story about Sir David Brailsford and the British Cycling Team. The team hadn’t produced a rider able to win the Tour De France in its entire history. Brailsford felt that by improving in achievable one per cent increments in a lot of areas, the team could produce a cyclist who could win the Tour de France in five years.
They made one per cent improvements in obvious areas such as nutrition, bike aerodynamics, weight, and seat comfort as well as in areas others didn’t think about. They located a pillow that provided slightly better sleep and travelled with it and another gain was made through adjustments to sleeping posture. Then, someone found a massage gel that worked marginally more effectively, and so on. These minuscule one per cent gains added up to a win in two and a half years instead of the predicted five years, and the team went on to win six races since 2012.
Why incremental change works
While you may not be gearing up to win the Tour De France, you can apply this powerful method of incremental improvement to your own life, to improve your health, relationships, finances, career, or business.
Too often we convince ourselves that impressive results demand massive action and fail miserably as we have bitten off a lot more than we can chew. However, making tiny adjustments to your life are much easier to manage and much more likely to be sustained than a huge shift.
It’s also common to think of a big win or achievement as a single event but the reality is that it’s generally the result of a series of tiny moments that each propel us one step further toward our goal.
The one per cent rule is so effective, as it can be scaled. The method works because you are making many small tweaks and building on those tweaks as they become habits.
Applying incremental change to transform your life
The starting point is to think of an area of your life you want to improve. Then think of small ways you can tweak your life to achieve that objective. The tweaks obviously don’t have to literally be as tiny as one per cent, but the objective is a series of minor changes, which built upon on a regular basis, really add up.
For example, if you are wanting to improve your health you don’t have to overhaul your lifestyle to reach your health goals, go for small, achievable changes. Try drinking an additional glass of water when you wake up, take some fruit to work to snack on, take the stairs instead of the lift at work, or get off the train one stop early to walk a little further home.
Or if you are wanting to further your career, try spending 10 minutes per day on expanding your network, incorporate some small productivity tweaks into your daily routine like not checking your emails constantly, and commit to self-growth by asking a single question every day to improve your knowledge. Building upon little, easy tasks like these can help you on your path to success.
Reaping the benefits
It is important to build though. One small tweak alone will not make an enormous difference. The challenge is to continue to make one per cent changes, without dropping the changes you’ve already made.
The key to this method, is to be consistent; it takes around 60 days to establish a habit so make sure you hang in there. You might have to even put a pause on adding any more changes to your routine as you adjust at various points along the way but just make sure you persevere to establish the changes you’ve already made.
There is no better time than the present to get started, so make the first micro change to your life today and watch each one per cent improvement add up to success.
Welcome to our June newsletter and, as the winter sets in and the end of the financial year approaches, it’s a good chance to spend some time tidying up and reviewing your finances.
Concerns that the Reserve Bank may lift interest rates this month, along with the drama over the US debt ceiling and the worry that the US Treasury may run out of cash, have affected local markets and the Australian dollar.
The dollar is at its lowest level in six months, at just under US65 cents, while the ASX200 ended the month nearly 3% down thanks also to weaker commodity prices. Energy and mining stocks led the falls. Brent Crude was down 7.5% for the month while iron ore prices hit a six-month low.
Inflation rose 6.8% in the 12 months to April, up from 6.3% in March and the number of housing approvals nosedived in April, down 8.1% after a 1.0% fall in March.
The rising prices have continued to dent consumer confidence. The ANZ-Roy Morgan Consumer Confidence survey has now spent 13 straight weeks at its lowest mark since the 1990-1991 recession. The survey reveals that only 7% of Australians expect good times ahead for the Australian economy in the next 12 months. With less money to go around, retail trade has plateaued over the past six months.
The latest unemployment figures show a slight increase to 3.7% in April and a slight decrease in the participation rate.
Setting yourself up for success in the new financial year
The start of a new financial year is the perfect time to get your financial affairs in order. Whether it’s tidying up your paperwork, assessing your portfolio or dealing with outstanding issues, there are plenty of practical actions you can take.
Here are some strategies for starting the new financial year on the right foot.
Tidy up your paperwork
Dealing with the paperwork is the task most of us love to hate. But taking a day to trawl through the ‘To Do’ pile and the growing mountain of filing could be a good investment in yourself. What’s more, you might identify some savings.
Set your budget
A lot can happen in a year, so it makes sense to review your budget to ensure it still works towards your goals in the new year. This will help you track your changing expenses and ensure you’re not overspending. And if you haven’t got a working budget, now’s a great time to start. There are plenty of budgeting apps and tools available online that can help you get started.
Assess your portfolio
Another important step to take as you start the new financial year is to assess your investment portfolio.
Some important questions include:
Why did you start investing and have your circumstances changed? For example, you may have started investing to receive a better return than your term deposits but now that term deposits rates have increased and share markets are challenged, should you revisit that goal?
What is the investment performance? Is it in line with your expectation and the benchmark?
Should you consider diversifying into different asset classes?
Is dividend reinvestment the best option for you or should you take the dividend income into cash?
Is your risk appetite still the same, or should you be aggressive or more conservative?
Check your insurance
Now is a good time to examine your insurances closely and to consider whether they match your needs and risks. It is also a good reminder to take note of policy renewal dates so that you can shop around to make sure you get the best price.
Understand Federal Budget changes
Keeping up to date with the commentary about Federal Budget initiatives may be useful.
The measures aimed at easing the cost of living will provide a boost to some. They include energy bill relief for concession card holders and energy saving incentives. Meanwhile those with chronic health conditions will benefit from a number of changes announced in the budget.
The Budget also included support for families with cheaper childcare and a more flexible Paid Parental Leave scheme, and incentives for some types of new home building projects.
Review your superannuation
A review – at least annually – of your super account is vital to make sure that:
Your investments and risk strategy are still right for you
The fees are reasonable
Any insurance policies held in your super account are appropriate
Your employer contributions are being made
Your death benefit nomination is relevant
You don’t have multiple accounts incurring unnecessary fees
You might also consider a salary sacrifice strategy, where you ask your employer to make extra super contributions from your pre-tax salary. These additional contributions are taxed at 15 per cent within the super fund, plus an additional 15% if Division 293 tax applies to you (income over $250,000).
Meanwhile, it is not too late to top up your super balance for this financial year using either concessional contributions (from your pre-tax income) or non-concessional contributions (after-tax income). Don’t forget the caps on payments, which are $27,500 for concessional contributions and $110,000 for non-concessional.
It is a good idea to get some expert advice regarding your super contributions, we can assist with the best ways to manage your contributions.
So, set yourself up for a fresh start to the year with some simple strategies to help you achieve your financial goals.
Tax Alert June 2023
Budget incentives and crackdowns on unpaid tax debts and rental deductions
Although this year’s Federal Budget was short on big changes when it came to tax, there still have still been some important developments in this area. Here are some of the latest developments in the world of tax.
Small business tax incentives and write-offs
The budget ushered in some valuable new tax incentives for small businesses, including halving the increase in quarterly tax instalments from 12 per cent to 6 per cent for both GST and income tax during 2023-24.
The government also introduced a bonus 20 per cent deduction for businesses with turnovers under $50 million when they spend on energy saving upgrades. Up to $100,000 of total expenditure will be eligible, with the maximum bonus tax deduction being $20,000 per business.
Although smaller than the previous year, the instant asset write-off continues in 2023-24 with up to $20,000 available for immediate deduction on eligible assets.
The planned third tranche of personal income tax cuts due to start next financial year also remained in place, while >the low and middle income tax offset was not extended.
Super changes for employers
Another significant tax change announced in the budget will affect employers. From 1 July 2026 employers will be required to pay their Super Guarantee (SG) obligations at the same time they pay employee salary and wages.
The ATO has received additional resources to help it detect unpaid super payments earlier.
Employers also need to remember the SG amount for employee super rises to 11 per cent from 1 July 2023.
Tax debt warnings sent out
The ATO is continuing to write to directors of companies with tax debts warning if the company hasn’t paid the amount owing or contacted it to make other arrangements, a director penalty notice(DPN) may be issued.
DPNs are issued to current directors and anyone who was a director at the time the company failed to pay. They make directors personally liable for failure to meet pay-as-you-go withholding (PAYGW), GST and Super Guarantee Charge obligations.
Directors receiving these letters need to arrange payment of the overdue amount or enter into a payment plan.
Data will be obtained from financial institutions including all the major banks, regional banks and building societies.
The information is being collected following the ATO’s identification of a tax gap of $1 billion for individuals in the 2020-21 financial year due to incorrect reporting of rental property expenses.
Self-education expenses under spotlight
The ATO is currently developinga new draft taxation ruling covering the deductibility of self-education expenses incurred by an employee or an individual carrying on a business.
The draft ruling will reflect the current rules in this area following repeal of several sections of the Income Tax Assessment Act and some new legal decisions. The new ruling is expected to be completed in late June.
Taxpayers claiming self-education expenses recently had the existing requirement to exclude the first $250 of deductions removed.
GST fraud enforcement continues
Search warrants were executed in three states against individuals suspected of promoting the fraud. This follows previous compliance action against more than 53,000 people, with two individuals sentenced to jail time for their GST fraud activities.
Cyber safety checklist released
The ATO is again emphasising the importance of business cyber safety by releasing a new checklist for small businesses.
The tips include simple ideas for keeping business and client data safe from cybercriminals, such as turning on automatic updates and using multi-factor authentication when possible.
Resources for training staff on preventing, recognising, and reporting cyber incidents are available from the government’s Australian Cyber Security Centre.
The importance of getting enough ZZZZ’s
Who says we can’t achieve more if we sleep less? Science, that’s who!
To be fair, there are many successful people who credit their success to managing or indeed thriving, on a few hours’ sleep so they can get more done. Martha Stewart, the American media personality, sleeps around four hours a night, stating: “Sleep is not the most important thing.” While Thomas Edison, the inventor of the electric light, kept the lights on – rejecting the idea of sleeping at night for napping for 15 minutes every four hours.
The science of sleep
The idea that successful people don’t sleep is an odd one, when you consider the science.
Scientists have long theorised about why we need to sleep. The most respected theories see sleep consisting of restorative processes that occur when normal brain function is partially suspended, and brain activity suggests information is being “replayed” during certain stages of sleep to consolidate memory.
A good night’s sleep
Given that sleep is as critical to our survival as food and oxygen – how much sleep is enough?
While there may be some individuals who function ok on just a few hours’ sleep, it’s thought that most adults need between 6- and 9-hour’s sleep for optimal health and wellbeing. On average, we manage less than six.i
It looks like those successful people who “humble boast” about how little sleep they get, might be in fact jeopardising their success by missing the benefits of a good night’s sleep.ii
The impact of sleep deprivation
Sleep deprivation has a powerful impact on your thought processes so it’s quite ironic that there are those who credit their success in part to sleeping less than the recommended amount.
Sleep duration and quality impacts more than just the obvious things like your mood and clarity of thought. Inadequate sleep can compromise decision-making processes, impact creative thought and the retention of information.
Sleep is also critically important to our physical wellbeing. Sleep deficiency is linked to many chronic health problems, including heart disease, kidney disease, high blood pressure, diabetes, stroke, and obesity.
How do I get a better night sleep?
If you are one of those ‘too busy to sleep’ people, it might be time to prioritise restful sleep. And if you are tossing and turning at night there is a lot you can do to get a better night’s sleep.
To sleep well, the most important thing you can do is set the scene to easily drift off to sleep and then stay asleep. That means making sure your sleeping environment is comfortable, quiet, and dark. Exposure to light, particularly light from screens like your phone or computer at night-time can mess up the body’s production of a hormone called melatonin that helps us to fall asleep, and sleeping in a room that is not very dark is not conducive to quality sleep – so close those blinds and turn off those devices.
Setting yourself up for a good night sleep can also involve a combination of deep breathing, relaxation, and creative visualisation techniques. This infamous sleep ‘hack’ is used by the US military to help soldiers in the field get to sleep involving these practices is considered amazingly effective, if practiced regularly.iii
Going to bed at the same time every night can also help establish good sleep habits and not eating too late at night, and avoiding stimulants like alcohol and caffeine late in the day will also improve your sleep quality.
Treasurer Jim Chalmers bills his 2023 Federal Budget as an economic strategy to help ease cost-of-living pressures.
To that end, he has delivered a modest but welcome package of cuts to healthcare, housing and energy costs as well as boosts to welfare payments for single parents and the unemployed.
Banking an unexpected bonus in increased tax revenue and rising commodity prices, the Albanese government has aimed to help the most disadvantaged while also looking ahead with new plans for renewable energy, defence and the arts.
But it has kept its spending under control to deliver a forecast $4.2 billion budget surplus – the first in 15 years.
The Treasurer sums up his second budget as “a plan for security, for prosperity, for growth”.
The big picture
While the first budget surplus in a decade and a half is to be celebrated, the joy will be short-lived. By next year’s budget, it’s expected there will be a return to small deficits for the next few years.
That’s because the global economy is slowing thanks to persistent inflation and higher interest rates. Aside from the pandemic and the 2007 Global Financial Crisis, the next two years are expected to be the weakest for global growth in more than two decades.
As a result, the government expects Australia’s economic growth to slow from 3.25 per cent in 2022-23 to just 1.5 per cent the following year, before recovering a little to 2.25 per cent.
In this environment, the treasurer continues to mark inflation as the government’s primary economic challenge. He says that is why the budget is “calibrated to alleviate inflationary pressures, not add to them”.
The good news is that the Reserve Bank says inflation is falling slightly faster than it had first forecast and has now passed its peak.i It is expected to be around 4.5 per cent by the end of the year, a long way from last year’s CPI rate of 7.8 per cent.ii
Easing the cost of living
The government’s $14.6 billion package of cost cuts aimed at helping some of those most affected by rising costs covers energy bills, health and medical services, and welfare payments.
There will be energy bill relief to around five million households and one million small businesses. From July 2023, eligible households will receive up to $500 and eligible small businesses up to $650.
The government will also introduce a number of energy saving programs for households including low-interest loans and funds for upgrades to social housing. And there will be access to better information on reducing energy bills.
Health and medical
Countering a major expense for many, the government is pouring in billions of dollars to ease health and medical costs and access to services.
It will spend an extra $3.5 billion to provide incentives to doctors to bulk bill Concession Card holders and children under 16. It’s expected that the increased bulk billing incentive will help around 11.6 million people.
The cost of medicines is also likely to change for many who suffer chronic health conditions. From 1 September 2023, some patients will be eligible to be prescribed two months’ worth of medicine at a time, instead of one month’s worth. It’s expected this change will cut the number of visits to GPs and pharmacies, and the government estimates at least six million people will see their bills for medicines reduced by half.
The government is also providing $2.2 billion over five years for new and amended listings to the PBS, including treatment for cystic fibrosis.
Meanwhile, to improve access to care and reduce the strain on hospitals, a further $358.5 million will be spent to open a further eight Urgent Care Clinics. The clinics will bulk bill and remain open for longer hours.
Welfare boost
Income support payments including JobSeeker, Austudy and Youth Allowance will rise by $40 a fortnight following a concerted campaign by lobby groups in the months leading up to the budget.
And, recognising the extra challenges faced by older people looking for work, those aged 55 and over and out of work for at least nine continuous months, will now receive the higher rate JobSeeker payment currently paid to those over 60. Around 52,000 people will receive the increase of $92.10 a fortnight.
There will be more support for eligible single parents from September 2023. They will receive the Parenting Payment until their youngest child turns 14 (currently up to eight years old). Those receiving the payment will also benefit from more generous earning arrangements compared to JobSeeker. Eligible single parents with one child will be able to earn an extra $569.10 per fortnight, plus an extra $24.60 per additional child, before their payment stops.
Housing assistance
While rents continue to climb sharply around the country, the government has provided only limited assistance to renters. Those receiving Commonwealth Rent Assistance will see a 15 per cent increase in their payments from 20 September 2023.
Eligibility for the Home Guarantee Scheme will be expanded beyond first home buyers to include any 2 eligible borrowers beyond married and de facto couples, and non-first home buyers who have not owned a property in Australia in the preceding 10 years.
The government’s other housing initiatives are medium to long term solutions to the housing crisis.
There are new tax incentives to encourage the construction of more build-to-rent developments. The government claims an extra 150,000 rental properties could be delivered as a result in ten years.
The government is also focusing on providing more affordable housing by supporting more lending to community housing providers for social and affordable housing projects.
Pay rise for aged care workers
Severe staff shortages in the aged care sector, largely been driven by low wages, may abate a little with the government’s commitment to fund a pay rise.
More than $11 billion has been allocated to support an interim 15 per cent increase in award wages.
Support for families
Childcare will be cheaper from July 10, when the government subsidy will increase to 90 per cent for families on a combined income of $80,000 or less.
For families earning over $80,000, the subsidy rate will taper down by 1 percentage point for every additional $5,000 of family income until the subsidy reaches 0 per cent for families earning $530,000.
A more flexible and generous Paid Parental Leave scheme will also be introduced in July. A new family income test of $350,000 per annum will see nearly 3,000 additional parents become eligible for the entitlement each year.
Superannuation
Superannuation is in the government’s sights and employers and individuals with larger balances will be affected.
The concessional tax for those with balances exceeding $3 million will increase from 1 July 2025 to 30 per cent. Earnings on balances below $3 million will continue to be taxed at the concessional rate of 15 per cent.
Meanwhile from 1 July 2026, employers will have to pay their employees’ super at the same time they pay their wages. The government says that in 2019-20, employers failed to pay $3.4 billion of super owing to their employees.
Looking ahead
The stormy global economic outlook will keep Australia on its toes for the next two years or so but the government has attempted both to support those who are particularly vulnerable now and keep an eye to the future with some bigger thinking.
Moving forward, the government wants to position Australia a “renewable energy superpower” with a new Net Zero Authority to help attract new clean energy industries and help workers in coal regions to find new jobs.iii
The arts received a boost with almost $1 billion going to art galleries, museums, arts organisations and the film sector to help address “a decade of chronic underfunding”.iv,v
And there is the much debated investment in defence – more than $30 billion over the next ten years. Treasurer Chalmers says that while we may have a lot “coming at us – we have a lot going for us too”.
In the lead up to the Federal Budget, better-than-expected inflation figures were cause for optimism that the lengthy run of cash rate hikes have had an impact.
US stocks in April saw the biggest rally that has been experienced for months, as investors looked beyond gloomy economic data.
Local markets were buoyed by the Wall Street rally, as well as welcome signs of inflation easing, with the ASX200 ending the month slightly higher.
Please get in touch if you’d like assistance with your personal financial situation.
Interest rates are an important financial lever for world economies. They affect the cost of borrowing and the return on savings, and it makes them an integral part of the return on many investments. It can also affect the value of the currency, which has a further trickle-down effect on other investments.
So, when rates are low they can influence more business investment because it is cheaper to borrow. When rates are high or rising, economic activity slows. As a result, interest rate movements are also a useful tool to control inflation.
The cash rate or headline rate you hear mentioned regularly in the media is the interest rate on unsecured overnight loans between banks. The Reserve Bank of Australia (RBA) sets the rate and meets every month, except January, to consider whether it should move up, down or stay the same. This rate then usually flows through to market interest rates causing, for example, mortgage rates to rise or fall.
Rising steadily
For the past few years, interest rates have been close to zero or even in negative territory in some countries, but that all started to change in the last year or so.
Australia lagged other world economies when it came to increasing rates but since the rises began here last year, the RBA has introduced hikes on a fairly regular basis. Indeed, the base rate has risen 3.5 per cent since June last year.
Australian Cash Rate Target
Source: RBA
The key reason for the rises is the need to dampen inflation. The RBA has long aimed to keep inflation between the 2 and 3 per cent mark. Clearly, that benchmark has been sharply breached and now the consumer price index is well over the 7 per cent a year mark.
While interest rates are the key monetary policy weapon to control inflation and dampen the economy, there can be a risk of taking it too far and causing a recession. Economic growth is forecast to slow to around 1.5 per cent this year as high inflation, low consumer confidence and rising rates take their toll.i
Winners and losers
There are two sides to rising interest rates. It hurts if you are a borrower, and it is generally welcomed if you are a saver.
But not all consequences of an interest rate rise are equal for investors and sometimes the extent of its impact may be more of a reflection of your approach to investment risk. If you are a conservative investor with cash making up a significant proportion of your portfolio, then rate rises may be welcome. On the other hand, if your portfolio is focussed on growth with most investments in say, shares and property, higher rates may start to erode the total value of your holdings.
Clearly this underlines the argument for diversity across your investments and an understanding of your goals in the short, medium, and long-term.
Shares take a hit
Higher interest rates tend to have a negative impact on sharemarkets. While it may take time for the effect of higher rates to filter through to the economy, the sharemarket often reacts instantly as investors downgrade their outlook for future company growth.
In addition, shares are viewed as a higher risk investment than more conservative fixed interest options. So, if low risk fixed interest investments are delivering better returns, investors may switch to bonds.
But that does not mean stock prices fall across the board. Traditionally, value stocks such as banks, insurance companies and resources have performed better than growth stocks in this environment.ii Also investors prefer stocks earning money today rather than those with a promise of future earnings.
But there are a lot of jitters in the sharemarket particularly in the wake of the failure of a number of mid-tier US banks. As a result, the traditional better performers are also struggling.
Fixed interest options
Fixed interest investments include government and semi-government bonds and corporate bonds. If you are invested in long-term bonds, then the outlook is not so rosy because the recent interest rates increases mean your current investments have lost value.
At the moment, fixed interest is experiencing an inverted yield curve which means long term rates are lower than short term. Such a situation reflects investor uncertainty about potential economic growth and can be a key predictor of recession and deflation. Of course, this is not the only measure to determine the possibility of a recession and many commentators in Australia believe we may avoid this scenario.iii
What about housing?
House prices have fallen from their peak in 2022, which is not surprising given the slackening demand as a result of higher mortgage rates.
Australian Bureau of Statistics data showed an annual 35 per cent drop in new investment loans earlier this year.iv The consequent reduction in available rental properties has put upward pressure on rents which is good news if you have no loan, a small loan or a fixed interest loan on the property.
The changing times in Australia’s economic fortunes can lead to concern about whether you have the right investment mix. If you are unsure about your portfolio, then give us a call to discuss.
With Autumn underway, the changing season is a reminder to take stock and prepare for what’s ahead as the financial year heads towards its final quarter and the May Federal Budget.
The gloomy prospects for economic growth, both in Australia and overseas, are occupying the minds of investors, businesses and political leaders.
The Reserve Bank of Australia believes global growth will remain subdued for the next two years and that Australia‘s economy will slow this year because of rising interest rates, the higher cost of living and declining real wealth. The RBA forecasts the unemployment rate, currently at a low 3.5%, to rise by mid year and inflation, which was 7.8% over 2022, to drop to by around 2-3% over coming years thanks to an easing in global prices that will eventually flow through to Australian prices. Oil prices fell almost 3% in February reversing the increase of the previous month.
There have been some economic bright spots recently such as the rebound in retail trade in January of 1.9% after a 4% plummet in sales figures in December. And, Australia‘s current account surplus increased $13.3 billion to $14.1 billion in the December quarter 2022 supported by sustained high commodity prices including $400 billion worth of mining commodity exports during 2022.
That positive news was enough to lift the Australian dollar slightly to just over US67c, halting a slow decline during February.
Australian shares were down by almost 3% during February, while US stocks were down by just over 2% for the month and more than 7% for the past year.
Flexing your retirement plans
The concept of retirement is changing, with fewer people working towards a final retirement date and then clocking off for good.
Instead, those who have the flexibility to choose are often transitioning out of the workforce over several years, or even returning after a break.
Whether you simply want to wind back your working hours to explore other interests, or don’t want to cut your ties with work completely, to make it work you need to plan.
Choosing your retirement date
There is no set retirement age in Australia, but most people will not be eligible to receive an Age Pension until they reach age 67.i This means you need enough savings to provide another income source if you retire earlier.
Although most of us have super, you are not permitted to access it until you reach your preservation age, which can vary.
Withdrawing your super also requires you to meet a condition of release. There are various conditions, but the most common one is reaching age 60 and permanently retiring from the workforce. Once you turn 65, you can access your super whether you are working or not.ii
Keep in mind, tax also affects your super, with different rates applying depending on your age. Most people can access their super tax-free once they reach 60.
Paying for your retirement
Unfortunately, there is no simple answer to how much income you will need in retirement. It depends on your current lifestyle and planned retirement activities, but a good place to start is the ASFA Retirement Standard.
For around 62% of the population aged 65 and over, the main source of retirement income is the Age Pension and government payments.iii
Eligibility for an Age Pension is assessed using your age, residency status and personal income and assets. These determine whether you receive the full fortnightly payment rate, which is currently $1,547.60 a fortnight for a couple.iv
As part of your planning, check for other potential sources of income from investment assets, contract work, or rent from investment or Airbnb properties.
Using your super savings
While you may dream of retiring early, many of today’s retirees can expect to live well into their 80s, so your super may need to provide income for more than 20 years. If you are unsure whether your super is on track, we can help you check your progress and put strategies in place to achieve your retirement goals.
Most super funds provide online calculators to give a rough estimate of your likely retirement balance and how much income it will provide.
ASIC’s MoneySmart Retirement Planner is another resource for working out your retirement income and potential Age Pension payments.
Transition-to-retirement (TTR) pensions
If you would like to ease into retirement, it can be worth investigating a TTR pension. These allow you to cut back working hours while using your super to supplement your income without compromising your lifestyle.
If you are aged under 60 you will pay some tax on pension payments, but they are tax-free once you reach age 60.v
TTR pensions also allow you to continue topping up your super through a salary sacrifice arrangement with your employer. You only pay 15% tax on these contributions, which may be lower than your marginal tax rate.v
Giving super a late boost
If you have income to spare as you move towards retirement, perhaps from an inheritance or downsizing your home, there are now additional opportunities to continue adding to your super.
You can make personal after-tax contributions of up to $110,000 a year until you reach age 75, even if you are not working. You may even be eligible to use a bring-forward arrangement and add up to $330,000 in a single year.
Once you hit 60, if are planning to sell your current home you can also make a downsizer contribution of up to $300,000 ($600,000 for a couple) into your super account.
Retiree concessions
When you are doing your retirement sums, don’t forget some of the concessions on offer to older Australians. If you are aged 60 and over and working less than 20 hours per week, your state’s Seniors Card can provide discounts on public transport and some goods and services.
You may also be eligible for the Commonwealth Seniors Health Card for cheaper prescriptions and medical appointments, or a Pensioners Concession Card for discounted public transport.
If you would like to discuss your retirement options and how to fund them, give us a call.
Family trust rules and new guidance on contractors
The Australian Taxation Office (ATO) has confirmed its position on family trust distributions, while also providing employers with new information to simplify completion of Single Touch Payroll (STP) activity statements. Here are some of the latest developments in the world of tax.
Prefilling of PAYGW
Completion of PAYG withholding via STP will become easier for employers when the ATO begins prefilling some of the required activity statement data.
From the July 2023 statement, PAYG withholding labels W1 and W2 will be prefilled for all monthly PAYG employers. Quarterly withholders will find the information on their September 2023 statement.
The ATO is also piloting an employer reminder system for businesses with a late activity statement and STP-reported PAYG withholding. If you fail to lodge by the reminder date, the ATO will consider there are no corrections to report and the recorded amounts will be added to your client account.
Final rules on family trusts
Taxpayers with family trusts should check the implications of the ATO’s final guidance on the taxation of family trust payments, as the new rules may reduce the attractiveness of these tax structures.
Under the ATO’s new approach, common tax planning strategies relying on the section 100A exemption covering trust distributions to companies and family members may no longer be available in some situations.
Taxpayers with a discretionary trust should discuss the implications with us, particularly where there are parent controllers of the trust and adult-aged child beneficiaries. The ATO website provides a number of case studies outlining common situations.
Employees vs. independent contractors
The ATO is consulting on its new draft guidance covering both classification of employees and independent contractors, and its proposed compliance approach in this area.
The draft guidance outlines the regulator’s priority areas, which include situations where particular risk factors are present and where an unpaid superannuation query has been received from a worker.
The guidance also indicates employers must have specific advice from an appropriately qualified third-party confirming their classification of a worker as a contractor is correct.
Recordkeeping for self-education expenses eased
Taxpayers claiming self-education expenses will find things a little easier this tax time, as new legislation has removed the requirement to exclude the first $250 of deductions for education courses.
The new rules can be used when completing your 2022-23 tax return, while for employers, the change applies to the Fringe Benefits Tax year starting 1 April 2023.
Sharing economy reporting extended
Providers of ride-sourcing and short-term accommodation services will find themselves swept into the compulsory Taxable Payments Reporting System (TPRS) from 1 July 2023.
Electronic platform operators for these services (such as Uber and Airbnb) are required to report all transactions involving Australian purchasers under new legislation passed in December 2022.
Annual TPRS reporting is already compulsory in industries such as building and construction, cleaning, courier and security services.
Plug-in hybrid electric vehicles to face FBT
Under rules applying from 1 April 2025, plug-in hybrid electric vehicles will no longer be considered zero or low emissions vehicles and will not be eligible for the fringe benefits tax exemption applying to these vehicles.
You can apply for the exemption if the hybrid vehicle was exempt before 1 April 2025 and there is a financially binding commitment to continue providing private use of the vehicle after this date.
No business activity could mean no ABN
The ATO is again reminding small businesses their Australian Business Number (ABN) may be flagged for cancellation if there is no reported business activity in their tax return, or no signs of business activity in other lodgements or third-party information.
If an ABN is identified as inactive, the ATO will contact the holder by email, SMS or mail to check if the ABN is still required and explain the action required to keep it. Where the business is no longer operating, the ABN will be cancelled.
Time to refinance? Considerations for mortgage holders and businesses
With the cost of living continuing to rise, it can feel increasingly hard to make ends meet in terms of your personal finances, and it can also be challenging running a business in an inflationary environment. One way of combatting inflation is to reduce the escalating cost of borrowing by reviewing your current arrangements.
A new record has been set for refinancing, with more than $19.5 billion of loans changing lenders in late 2022.i If you’re feeling like it’s time you reviewed your borrowing arrangements – either from a personal or business perspective, here are a few things to consider.
Tips for mortgage holders
With rates on the rise, it makes sense to shop around for the best deal. That could mean replacing your existing home loan with another loan from either your current lender or a different financial institution.
If you are refinancing with your current lender, the process can be simpler as your lender already has all your information and it can be easier to renegotiate than switch to a different provider. You may also incur lower or fewer fees by sticking with your current lender, but this will vary according to providers and loans. External refinancing is generally a little more complex but gives you the opportunity to compare providers.
Things to consider when comparing providers and loans include:
Interest rates
Seeking out a lower interest rate is usually the first thing on people’s minds when they review loans and providers. But it’s important to weigh up other factors as well.
Timing
Fixed rate and introductory period loans can be lower to start with but generally revert to a standard variable rate after a predetermined period so it can make sense to review your situation before the fixed rate ends.
Loan term and payment frequency
Adjusting your loan term and home loan repayments could potentially save you money over the life of the loan.
Access to more loan features
Features such as an offset facility or splitting your loan may be appealing. Some lenders also offer cashback deals, although it is important to weigh up what the loan offers rather than be swayed by the promise of a cash give away.
Tips for small businesses
For businesses it also might be time to review your borrowing arrangements.
If you have a loan and your financial situation and credit score have improved over the course of your loan repayments, you might also be in a position to take advantage of a lower rate and more favourable terms than your current loan.
Some things to consider as a business include:
Consolidating existing debts
If you have multiple debts incurring high interest repayments it can also be beneficial to combine them into one loan at a lower rate.
Changing the loan amount or the term of the loan
It’s common for businesses to refinance to take advantage of the equity built up in their business and that may mean increasing their borrowings. If expenses are increasing or you are seeking greater cashflow you can refinance your loan amount to be repaid over a longer term and decrease your monthly repayments.
Removing a secured asset
If your home or another personal asset is being used as collateral for your loan and your business is now in a position to borrow without it, you may wish to consider switching from a secured to an unsecured loan.
There are also other ways of accessing finance as a business, including having an overdraft or invoice finance where money is loaned against unpaid invoices, that you may wish to explore.
It’s important to evaluate each method of borrowing or accessing finance and review your situation on a regular basis to ensure your arrangements suit your needs and that you are not paying too much in the way of fees and interest. If you are considering changing providers to seek a better deal, make sure you weigh up all the pros and cons of making the switch and the various deals on offer.i https://www.theadviser.com.au/broker/43888-all-time-high-november-housing-refinancing-hits-19-5b-abs
Retirement is a phase of life most of us look forward to. It’s a chance to pursue other interests, travel and maybe do some part-time work or volunteering.
Thanks to more than 30 years of compulsory superannuation, we are also retiring with more savings than previous generations and have higher expectations of the lifestyle we wish to enjoy. But that also brings its challenges.
According to the government’s Retirement Income Review, the average age of retirement in Australia is around the ages of 62 to 65.i At the same time, today’s 65-year-old men and women can expect to live to 85 and 88 respectively, on average, and many will live well into their 90s.
To make the most of your retirement years, it’s important to have confidence that your savings will last the distance. The best way to achieve that is to have a plan that will help you avoid some common and preventable retirement mistakes.
Mistakes people make
While it’s impossible to predict what financial challenges lie ahead, these eight common retirement mistakes remain the same:
1. Not knowing your living costs
When you are receiving a regular income, you may be tempted to focus less on keeping a track of your living costs. When the regular income stops at retirement, you can be unaware of whether your investment income and/or pension payments will support your lifestyle costs.
Knowing what your living costs are before you retire can help manage expectations accordingly.
2. Not looking at your super until just before retiring
What if your super was invested in conservative assets throughout your working life? It could mean that your super would not have grown to the level needed to fund your retirement. What if your super’s insurance premiums and fees consumed the returns?
It is vital to review your super account as early and as regularly as possible to ensure it is appropriate for each stage of your life.
3. Underestimating the impact of inflation
Australia’s rate of inflation hovered around 1 per cent to 3 per cent per year between June 2012 and early 2020. Since the onset of the global pandemic in March 2020, inflation has jumped to more than 7 per cent.ii This along with a disruption to the global supply chain and the Russia-Ukraine war has lifted the cost of living to levels that require you to reassess your retirement planning.
4. Not understanding your government entitlements
If you’re age 66 or older, you may be eligible for a full- or part-Age Pension. However, even if your level of wealth puts you above the pension limits, you may still be eligible for other entitlements.
These can include the Seniors Card, Pensioner Concession Card, income tax offsets or pensioner stamp duty exemption/concession.
5. Letting the noise affect your investment decisions
Negative news grabs headlines, such as talk of billions being wiped off share markets, but you rarely read about the billions made during the rebound. There is no denying that the financial markets face volatility during periods of uncertainty. However, as history has shown, over the long run the market trends upwards.
All this noise makes it difficult to stick your long-term strategy, when in fact such events can present opportunities in the markets too.
6. Trying to time the financial markets
“We haven’t the faintest idea what the stock market is gonna do when it opens on Monday — we never have,” said legendary share investor Warren Buffett. Say you invested $10,000 in the ASX 200 index by trying to time the market and you missed the 40 best days between October 2003 to October 2022, your investment would be worth $9,064, whereas if you remained fully invested it would be worth $46,099.iii
Trying to time the markets is never a good idea, especially with your retirement savings.
7. Being asset rich and cash poor
You may have built up a strong balance sheet of assets, but in retirement it is income you require. For many Australians, their family home could be their biggest asset and its value is sometimes unlocked by downsizing into a smaller home, but many Australians remain living in a family home that has surged in value while they struggle to find enough income to live on.
Are your assets generating enough income to support your lifestyle? This income can include rent from an investment property, share dividends or managed fund distributions. If the income is insufficient, you may have to sell some of your assets to provide that liquidity or tap into the equity in your home by taking out a reverse mortgage-style loan.
8. Not consulting professionals
Financial advisers, accountants and other financial professionals can help set you on the right path by navigating the complexities of superannuation, investments, constant rule changes and other factors that affect your retirement. A good retirement plan, implemented correctly, can set you up for life.
Start Planning
Whether it’s due to lack of time or awareness, too many people tend to make these same mistakes when entering retirement which can lead to unwanted financial surprises.
A phase of life you have looked forward to for so long deserves careful planning. So please get in touch if you would like to review your retirement income needs.i Retirement Income Review Final Report, July 2020 page 63 Retirement Income Review Final Report (treasury.gov.au)
