How Can I Avoid Paying Capital Gains Tax in Australia?

How Can I Avoid Paying Capital Gains Tax in Australia?

Avoid problems and penalties by understanding how capital gains are taxed, what is exempt, and what happens if you fail to pay capital gains tax on time.

If there is one thing most people have in common, it's a desire to save on their taxes. Unfortunately, the Australian tax code can be confusing, especially when it comes to capital gains tax. This tax can sneak up on you if you aren't prepared for it, resulting in an unexpected bill at the end of the tax year. Luckily, exemptions offer a way to offset capital gains if you know how to use them to your advantage. Let’s look closer at how capital gains tax can affect Australians and foreign residents and what you can do to reduce your taxable income.

What Is the Capital Gains Tax in Australia?

Introduced in September of 1985, the capital gains tax or CGT works much like income tax. When you dispose of an asset, you can do so at a loss or make money based on the asset's original value or purchase price.

If you made money, also known as realizing a capital gain for tax purposes, this profit becomes a portion of your income for the year that you have to pay tax on. In other words, the capital gains tax is more like an additional tax on an individual's income than a separate tax. You may want to reserve a portion of your realized gains to account for the capital gains tax owed in the year of your increased income tax assessment.

The capital gains tax applies to:

• Business, investment, or gifted real estate
• Major capital improvements
• Businesses
• Investment shares, including stocks and bonds
• Collectibles
• Personal use assets
• Cryptocurrency

When you dispose of a taxable resource, taxes are incurred in the year you see a profit. On the other hand, if you report a capital loss, you can't apply that loss to reduce your assessable income or marginal tax rate. However, you may be able to reduce your net capital gain by using capital losses to offset your total capital gains. Likewise, don't forget to deduct capital costs.

As you can see, determining how your asset sale affects your taxable income can be complex. A tax professional can help you calculate your short- and long-term capital gains or losses and understand your income tax rate.

How Do I Avoid Paying Capital Gains Tax in Australia?

There is no surefire way to get out of paying for realized capital gains. Even if you give away assets or sell them for below market value to a friend or family member, one of you can expect to owe the Australian taxation office some money.

Luckily, you may not owe the government every time you see a capital gain, and the amount you owe may decrease the longer you hold onto the asset. For example, holding investment property for over 12 months can result in a 50% reduction in taxable gain.

Like most aspects of the Australian tax code, the capital gain tax has some legal exemptions. For example, you can exclude the disposal of your primary residence when calculating the CGT. Other exemptions that may work in your favour include:

• Personal effects, such as furniture or a car
• Any asset acquired before September 1985
• Depreciating assets such as business equipment or rental property fixtures
• Any assets held in superannuation funds until you retire

It's best to consult with a tax expert regarding capital gain exemptions before filing.

Why Should You Care About the Australian Capital Gains Tax?

Ultimately, everyone has to pay taxes, but understanding how to offset capital gains could mean paying less. By making your capital asset portfolio work for you without subjecting sales or transfers to capital gains tax provisions, you can realize greater retention of your capital gains. Of course, tax advice is helpful along the way, so it is best to wait until you talk to your advisor before making any changes with your investment property or capital assets.

Don't forget the impact capital gains can have on your heirs or beneficiaries. Without the correct ownership structures in place, inheritors of property incur substantial CGT liabilities when they sell an inherited property.

When Are Taxes Due for a Sale of Property or Shares?

You pay capital gains tax in the same year that the asset sold. For instance, if you sell investment properties, the date of the sale and price you agree to determine your cost base, even if you don't see net capital gains until the following year.

It may seem straightforward, but juggling capital losses and taxable capital gain may get confusing when you have multiple transactions taking place in a similar time frame. Working with an expert you trust can help you calculate capital gains tax to avoid penalties down the road.

What If I Don't Pay my Taxes on Time?

Any time you fail to file a tax return on time, you risk facing penalties. Interest may also accrue, increasing the amount due. It would be a shame to lose your property investment and any subsequent capital gain to penalties because you missed a tax deadline.

What Happens to Me if I Don't Pay My Taxes on Time?

The Australian Tax Office (ATO) will work with you to establish a repayment plan on any outstanding capital gains taxes. It's in your best interest to reach out to them or respond to their communication. The longer you wait to settle taxes on capital gains realized, the more penalties may accrue.

If the ATO doesn't hear from you, they may refer your debt to a collection agency. Ongoing failure to pay your taxes can also lead to legal action, seizure of assets, and even bankruptcy proceedings.

Get Help From the Property Tax Experts in Australia!

At House of Wealth Property Tax Experts, we understand the current capital gains tax policy and how to best help you retain your net gain, regardless of your regular income. Our goal is to help you reduce your CGT exposure and see the greatest benefits of your investment strategies. Contact us today to schedule a free consultation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


SMSF forms at End of Financial Year

Is your SMSF ready for the End of the Financial Year (EOFY)?

SMSF forms at End of Financial Year

Is your SMSF ready for the End of the Financial Year (EOFY)?

With the end of the financial year fast approaching, now is the perfect time to make some final checks and ensure everything is in order for your SMSF before 30 June.

The following are some matters that you might want to know more about, particularly if you have taken advantage of some of the COVID-19 relief measures.

If there is anything in this paper that you are unsure about, we encourage you to contact me to discuss your specific circumstances in more detail.

Contributions

From 1 July 2020, if you were under the age of 67 you were able to make voluntary contributions without meeting a work test. This was previously restricted to people below age 65. In addition, if 2020-21 is the first year that you no longer satisfied the work test, you may still be able to make voluntary contributions under the work test exemption if you had a total superannuation balance (TSB) of less than $300,000 on 30 June 2020.

Therefore, it is important to review your contribution strategies before 30 June 2021, to make sure you maximise your contribution opportunities whilst ensuring you are below your contribution caps.

Non-concessional (after-tax) contributions are limited to $100,000 for the 2021 financial year and only available if your TSB was less than $1.6m on 30 June 2020.

If you were under 65 at any time during the 2020-21 financial year, you can potentially contribute up to three times the non-concessional cap (or $300 000) at once. The maximum bring forward non-concessional contribution amount you can make will depend on your TSB on 30 June 2020. Please note that draft legislation to allow older individuals to make up to three years of non-concessional superannuation contributions under the bring forward rules, has yet to be passed.

Concessional (before-tax) contributions are limited to $25,000 for the 2021 year. You may also be eligible, subject to your TSB, to make larger concessional contributions if you have any unused concessional contribution cap from the 2019 financial year onwards.

Where you have made personal contributions and intend to claim a tax deduction in 2020-21, it is important that you reconcile all employer contributions and salary sacrificed amounts to superannuation to make sure you do not breach the annual concessional contributions cap. It is also important to ensure that the relevant notice requirements are met so that you can claim a deduction.

These annual limits will increase on 1 July 2021 to $110,000 for non-concessional contributions and $27,500 for concessional contributions.

The Government also announced in the latest Federal Budget that the work test will be removed altogether to allow voluntary non concessional contributions and salary sacrificed contributions to be made up to the age of 75. If passed, these changes are expected to be available from 1 July 2022.

Investments & COVID Relief Measures

SMSF trustees are required to value the fund’s assets at their market value as at 30 June each year in the annual financial accounts. Although it can be a straightforward process to value assets when it comes to term deposits or listed shares and managed funds, it can be quite difficult to ascertain the value of real estate or private companies and units trusts. When valuing SMSF assets, you must comply with the ATO valuation guidelines for SMSFs. Contact us if you have any questions or require assistance.

For the 2020-21 financial year, getting the value of the fund’s assets correct is important in assessing the impact of COVID-19 on your superannuation benefits. It is even more important for SMSFs relying of the ATO’s in-house asset COVID-19 relief. These SMSFs will have till 30 June 2022 to ensure that in-house asset levels are reduced to less than the allowable 5% limit.

For those SMSFs that took advantage of the property relief measures the ATO implemented to reduce rent in 2020-21, any form of rental relief must end by 30 June 2021. From 1 July 2021, COVID-19 will not be a valid reason for any rental relief and SMSF trustees will need to ensure that all rent is at an arm’s length rate.

For those SMSFs with a limited recourse borrowing arrangement (LRBA), there are additional considerations. Where your SMSF was provided with COVID-19 loan repayment relief to assist in meeting loan repayment obligations, this relief should cease by 30 June 2021. From 1 July 2021, any LRBA should revert to the original terms of the loan to ensure that the arm’s length requirements continue to be met. Where the COVID-19 loan relief has resulted in a variation to the original term of the LRBA, provided that interest continues to accrue on the loan and you repay any deferred principal and interest repayments in accordance with the varied terms, the LRBA will be considered to be consistent with an arm’s length dealing.

Meeting new pension requirements

To help manage the economic impact of COVID-19, the Government reduced the minimum drawdown requirements by half on account-based pensions and market-linked pensions for 2020-21. The Government recently announced the 50% reduced minimum pension drawdown requirements will be extended for 2021-22.

Whether or not you have taken advantage of this reduction, it is important that you reconcile all pension payments received to ensure you do not underpay the minimum pension payment required by 30 June 2021. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investments instead of being tax free.

All pension withdrawals for 2020-21 must be paid in cash by 30 June 2021 and cannot be accrued or adjusted using a journal entry so it is important to attend to this as soon as possible. For example, if you are making pension payments via an electronic transfer, you need to ensure that online transfers show the money coming out of the fund’s bank account by no later than 30 June.

$1.6 million transfer balance cap and total superannuation balance

Ensuring that member’s benefits are shown at market value is important in calculating each member’s TSB and in determining whether a member will exceed their transfer balance cap (TBC).

The $1.6 million TBC applies to SMSF members who are receiving a pension and limits the amount of tax-free assets that can support a pension. To track the relevant events against your personal TBC, SMSFs are required to lodge with the ATO a transfer balance account report (TBAR). The TBAR is separate to an SMSF’s annual return and TBAR lodgment obligations, depend on members’ TSBs.

With the general TBC set to index to $1.7million on 1 July 2021 it is more important than ever to ensure that all your TBAR lodgments are up to date and that you seek help in correctly calculating your entitlement to any proportional indexation of the TBC.

How can we help?

If you have any questions, require assistance or would like further clarification with any aspect of your end of year superannuation matters, please feel free to contact us to arrange a time to  your particular requirements in more detail.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


The financial rewards of optimism

The financial rewards of optimism

There’s no doubt, life has a way of presenting us with the odd difficult challenge now and again. But approaching whatever ups and downs we face with a positive mindset can improve our lives in many ways.

Having a positive outlook not only improves our health and wellbeing, it can also have a meaningful and very positive impact on our finances.

How optimism can improve our finances

If you have a cautious or anxious approach to your finances, such as worrying you’ll never have enough money or being wary of spending, it will likely come as a surprise to hear that being optimistic can improve your financial situation.

A recent study connected the link between financial well-being and an optimistic mindset, finding that people who classify themselves as optimists enjoy 62 per cent fewer days of financial stress per year compared to pessimists.

Superior financial well-being

When you are positive in your outlook, you are also much more likely to follow better financial habits in managing your money. Optimists tend to save for major purchases, with around 90 percent of optimists having saved for a significant purchase, be it a car, a house or an overseas holiday, compared to pessimists at just 70 per cent.i

However, optimism does not equal naivety and optimists still tend to have contingency plans in place for unforeseen events that may detrimentally impact their bottom line. Some 66 per cent of optimists had an emergency fund, compared to under 50 percent of the pessimists.i

This goes to show that maintaining an optimistic approach to your finances does still involve planning for the future. By being prepared, you’ll reduce the stress that comes from feeling the rug could be pulled from beneath you without a safety net.

Your career and earning capacity

An optimistic approach to life and your career leads to achieving greater career success and the financial rewards that come with being successful in your job.

Optimists are 40 percent more likely than pessimists to receive a promotion within a space of twelve months and up to six times more predisposed to being highly engaged in their chosen career.i

Changing your attitude

Knowing that optimism is great for your wallet and your health is one thing, but how do you shift your outlook? If you’re prone to worry, focussing on pessimistic outcomes or a bit of a sceptic, looking on the bright side of life can seem easier said than done.

It is possible to nurture optimism, and you get this opportunity every day. Cultivating optimism can be as simple as adopting optimistic behaviours.

So, what are the financial behaviours of optimists that we can emulate?

Optimists tend to be more comfortable talking about and learning about money and are more likely to follow expert financial advice than their more pessimistic peers.

Positive people display a correspondingly positive approach to their finances. They tend to put plans in place and have the courage to dream big. You don’t have to be too ambitious in how you carry out those plans, every small step you take will help you to get where you want to be.

Everyone experiences setbacks at various times, however optimists rise to these challenges, learning from their past mistakes and persisting in their endeavours. Don’t be too hard on yourself if you are experiencing difficulties. We all face challenges and during these times, focus on solutions rather than just the problems, be conscious of your “internal talk” and don’t be afraid to seek out support. It’s important to focus on what you can do differently going forward, this could be as simple as working towards a “rainy day” fund.

It’s never too late to change your outlook. By embracing optimism, you can reap the rewards that a more positive outlook provides.

i https://www.optforoptimism.com/optimism/optimismresearch.pdf/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Tax Alert June 2021

Tax Alert June 2021

The Government is continuing to support COVID-affected businesses by extending most of its pandemic inspired tax offsets and benefits. But at the same time the ATO has micro businesses like contractors who fail to declare all their income in its sights.

Here’s a roundup of some of the key developments when it comes to tax.

LMITO extended again

For individual taxpayers, an important tax change is the Budget announcement of another one-year extension to the current low- and middle-income tax offset (LMITO) for 2021-22.

This welcome decision will provide a valuable tax offset of up to $1,080 for individuals and $2,160 for dual income families as taxpayers repair their post pandemic finances.

Continuation of full expensing and loss carry-back

Business taxpayers should also be happy with the Budget announcement of an extension to the full expensing and loss carry-back measures. Under the full expensing rules, eligible businesses with an aggregate annual turnover of up to $5 billion are able to deduct the full cost of eligible depreciable assets until 30 June 2023.

Eligible companies can also carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as 2018-19. This tax refund is available when you lodge your business tax return for the 2020-21, 2021-22 and 2022-23 financial years.

ATO tracks contractor payments

While the Budget provided tax incentives, contractors working in courier, cleaning, building and construction, road freight, IT, security and surveillance industries are increasingly under the tax man’s spotlight.

The ATO has announced it’s now combining data from its Taxable Payments Reporting System (TPRS) with its other data and analytical tools to ensure more than $172 billion in payments to contracting businesses have been properly declared. The ATO is now proactively contacting contractors identified as not declaring income reported by their customers through the TPRS.

New food and drink limits

The new reasonable weekly food and drink amounts businesses can pay an employee as a living-away-from-home allowance (LAFHA) have been released.

For this FBT year (starting 1 April 2021), the ATO considers it reasonable to pay an adult working in Australia a total food and drink expense of $283 per week. As an employer, if you pay more than this you will be liable for FBT on the LAFHA over this amount.

New tax umpire

Small businesses will now have more rights to pause or modify the collection of tax debts under dispute with the ATO.

The Budget included an announcement that small businesses will be able to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal to have an ATO debt recovery action paused until their case is decided.

End to STP exemption

From 1 July 2021, the exemption for small employers on reporting closely held payees through the Single Touch Payroll (STP) system will end.

This exemption allowed small employers to not report payee information for any individuals directly related to the business. Closely held payees include family members of a family business, directors or shareholders of a company, or beneficiaries of a trust.

More support for brewing

The Budget also recognised the importance of small business entrepreneurs and technology-driven innovators, with incentives to spur economic growth.

Brewery and distillation businesses will also benefit from a new measure giving them full remission (up from 60 per cent) of any excise paid on alcohol produced up to a new $350,000 cap on the Excise Refund Scheme from 1 July 2021.

The Budget also recognised the growth in local digital gaming businesses, with a new Digital Games Tax Offset. From 1 July 2022, eligible game developers will be able to access a 30 per cent refundable tax offset for qualifying Australian games expenditure of up to $20 million a year.

The Government also plans to provide tax incentives for medical and biotechnology companies by introducing a new ‘patent box’ from 1 July 2022. Income from patents will be taxed at 17 per cent, rather than the normal 30 per cent corporate rate.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


How to switch gear when you clock off

How to switch gear when you clock off

Many of us bring stress from work home – frustration at a projects not going to plan, difficult clients, mountainous workloads or clashes with co-workers. Here are a few strategies that will help you leave all that behind.

With greater workplace flexibility, a shift towards remote working arrangements and increasing expectations to always be ‘on’, the distinction between work and home has become increasingly blurred, allowing our workplace stresses to impact our home lives.

As common as this is, taking your workplace stress out on your family and friends has a detrimental effect on your relationships, which then impacts your health and wellbeing. Fortunately there are things you can do to keep work issues at work, rather than creeping ‘home’.

Transitioning from work to ‘home’

It can be challenging to go straight from a tense meeting or hectic workday to suddenly being at home where you’re expected to be present with other family members. This can be especially tricky if you have young children, who won’t understand that you are grumpy from work, rather than angry at them.

Have a ritual that will transition you from work to home mode. Perhaps this is riding your bike to and from work so you can decompress, or lining up an upbeat music playlist for your journey. Would a quick stop-off at the gym help you blow off steam, or if you have a dog, can you take them for a walk as soon as you finish up to get some fresh air? Even a change of clothes can help you switch gears.

You may need to explain this to those you live with, such as a partner or kids – they might not immediately understand that you need some time out in order to be more present, so be open with them about how it will help.

Compartmentalise your work

You may be expected to check your emails and be reachable at all hours of the day, but as much as possible, set boundaries with work. It’s hard to unwind when you’re always working, so develop healthy habits when it comes to checking your email and phone.

Depending on your work situation, try to establish what time you can be reached up until so that you can be present with your loved ones and enjoy your extracurricular activities.

Making time for leisure

Pursuing your hobbies and interests aren’t just important for your own mental and physical health; they can also have a ripple effect at reducing stress within your household, as you will be more relaxed and happier. Making time for your own enjoyment can fall to the end of your to-do list, so prioritise this time to take care of yourself.

That boxing or HIIT class can use up some of your adrenaline, or walking with a friend can give you the opportunity to socialise and exercise. Cooking, painting or DIY can provide a creative outlet that keeps your hands busy, while getting out into nature can help you decompress and put your worries into perspective.

Developing a support network

According to Safe Work Australia, 92% of serious work-related mental health condition claims were attributed to mental stress, with 21% due to work pressure.i

While we can’t eradicate stress entirely, we can improve how we respond to it. As well as developing your own healthy habits, it’s worth cultivating a support network. This may come in the form of selected friends and family you can openly talk to about work pressures, or a more formal arrangement with a mentor, life coach or counsellor.

Being able to express what you’re going through can help remove the weight of the situation from your shoulders. We all deal with work stress from time to time, but if you are feeling overwhelmed or finding it hard to balance your job with your home life, reach out to get a helping hand.

i https://www.safeworkaustralia.gov.au/doc/infographic-workplace-mental-health

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Changes afoot: time to review your income protection cover?

Changes afoot: time to review your income protection cover?

Major changes to income protection and salary continuance insurance schemes are set to take place here in Australia, in October 2021. As such, it’s important to review your cover and needs before insurers start altering their offerings.

If you’ve had one of these policies for any length of time, you’ve probably seen your premiums increase. That’s because insurers have been struggling to cover large losses on these productsi.

Given ongoing competition and generous features in some products, the Australian Prudential Regulation Authority (APRA) has introduced new rules to ensure income protection cover remains sustainable and affordable for customers.

What is income protection?

Income protection cover protects your most valuable asset – your ability to earn an income. It acts as a replacement income if you are injured or disabled and will help support your family and current lifestyle while you recover.

What’s more, your premiums are generally tax-deductible, so they can potentially help reduce your tax bill.

Major changes to income protection

Reform of income protection policies started back on 1 April 2020, when insurers were no longer permitted to offer customers Agreed Value income protection policies. Agreed value income protection provided more certainty about the amount you would be paid if you claimed and was based on your best 12 months earnings over a three-year period.

Following this initial change, APRA is implementing further changes from 1 October 2021 that will make new income protection policies much less generous. The reforms mean insurers will be offering new policies that base insurance payments on your annual income at the time you make a claim (or the previous 12 months), not on an agreed earnings amount.ii

For people with a fluctuating income, insurance payments will be based on your average annual earnings over a period appropriate for your occupation and will reflect future earnings lost due to the disability.

To further reduce costs, new policies will no longer offer supplementary benefits like specified injury benefits.

Limits on income payments

Other changes include a requirement for the maximum income replacement payment for the first six months to be capped at 90 per cent of earnings, reducing to 70 per cent after six months.ii If your insured income amount excludes superannuation, the Superannuation Guarantee can be paid in addition to the 90 per cent cap.

One of the most significant changes is that the terms and conditions of an existing income protection policy will no longer be guaranteed until age 65. Policies will no longer be offered for longer than five years, so your policy and its terms will be reviewed every five years.

You won’t need to undergo medical review, but any changes to your occupation, financial circumstances or taking up a dangerous pastime will need to be updated in the policy. Even if your circumstances remain the same, you will still be required to review the policy.

If your policy has a long benefit period, you are also likely to face a tighter definition of disability, rather than the previous definition of simply being unable to perform your ‘normal job’. APRA is keen to ensure claimants who are able to return to some form of paid employment do so, rather than remaining at home and receiving a payment.

Impact on existing and new policies

So what does this mean for you?

If you currently have an income protection policy outside your super, you will not be immediately affected by these changes, but it would be wise to check your policy is still appropriate for your circumstances.

Given the extent of the changes to income protection cover, if you have let your insurance lapse or don’t currently have income protection, it could make sense to consider signing up before 1 October 2021 to take advantage of the more generous current arrangements.

Income protection is often overlooked because of a perception that it’s too costly or not essential, but like all insurance, the cost of not being insured can be far greater. This type of cover offers valuable benefits that should be a key component in your wealth creation - and preservation - strategy.

If you would like help reviewing or selecting appropriate income protection cover, call our office today.

i https://www.apra.gov.au/news-and-publications/apra-resumes-work-to-enhance-sustainability-of-individual-disability-income

ii https://www.apra.gov.au/final-individual-disability-income-insurance-sustainability-measures

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Counting down to June 30 - Ways to Reduce Tax and Boost Savings

Counting down to June 30 - Ways to Reduce Tax and Boost Savings

It’s been a year of change like no other and that extends to tax and superannuation. As the end of the financial year approaches, now is a good time to check some new and not so new ways to reduce tax and boost your savings.

With so many of us confined to our homes over the past year, the big deductible item this year is likely to be working from home expenses.

Home office expenses

If you have been working from home, the Australian Taxation Office (ATO) has introduced a temporary shortcut method which can be used for the 2020-21 financial year. This allows you to claim 80c for each hour you worked from home during the year.i

The shortcut method covers the additional running costs for home expenses such as electricity, phone, internet, cleaning and the decline in value of home office furniture and equipment.

Some people may get a better result claiming the work-related portion of their actual working from home expenses using the actual cost method.

Alternatively, if you do have a dedicated home office, you can claim using the fixed rate method. The fixed rate is 52c an hour for every hour you work at home and covers things like gas and electricity, and the decline in value or repair of office furniture and furnishings. On top of this, you may be able to claim the work-related portion of phone and internet expenses, computer and stationery supplies, and the decline in value of your digital devices.ii

Pre-pay expenses

While COVID has changed many things, some things stay the same. Such as the potential benefits of pre-paying next year’s expenses to claim a tax deduction against this year’s income.

Some examples are pre-paying 12 months’ premiums for your income protection insurance and work-related expenses such as professional subscriptions and union fees. If you are unsure what you can claim, the ATO has a guide for a range of occupations.

If you own an investment property, you might also consider pre-paying 12 months’ interest on your loan and other property-related expenses.

Top up your super

If your super could do with a boost and you have cash to spare, now is the time to check whether you are making the most of the contribution strategies available to you.

You can make tax-deductible contributions up to $25,000 a year, including Super Guarantee payments by your employer. You can also contribute up to $100,000 a year after tax. From July 1 these caps will increase to $27,500 and $110,000 respectively, so it’s important to factor this into decisions you make before June 30.

For instance, if you recently received a windfall and are considering using the ‘bring forward’ rule, you might consider holding off until after July 1. This rule allows you to bring forward two years’ after-tax contributions. By holding off until July 1 you could contribute up to $330,000 under the new limits.

Also increasing on July 1 is the amount you can transfer from your super account into a pension account. The transfer balance cap is increasing from $1.6 million to $1.7 million.

So if you are about to retire and your super balance is close to the cap, it may be worth delaying until after June 30. Finally, from 1 July 2020, if you are under age 67 you can now make voluntary contributions without meeting a work test. And if 2020-21 is the first year that you no longer satisfy the work test, you may still be able to add to your super if you had a total super balance below $300,000 on 1 July 2020.

Manage investment gains and losses

Now is a good time to look at your portfolio for any loss-making investments with a view to selling before June 30. Any capital loss may potentially be used to offset some or all of your gains.

Of course, any decisions to buy or sell should fit with your overall investment strategy and not for tax reasons alone.

For all the challenges of the past year, there are still many ways to improve your overall financial situation. So get in touch to make the most of strategies available to you to before June 30.

i https://www.ato.gov.au/general/covid-19/support-for-individuals-and-employees/employees-working-from-home

ii https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim/home-office-expenses/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Australian Federal Budget 2021-2022

Australian Federal Budget Analysis 2021-2022 : Investing in recovery

Australian Federal Budget 2021-2022

Australian Federal Budget 2021-2022 Analysis: Investing in recovery

In his third and possibly last Budget before the next federal election, Treasurer Josh Frydenberg is counting on a new wave of spending to ensure Australia’s economic recovery maintains its momentum.

As expected, the focus is on jobs and major new spending on support for aged care, women and first-home buyers with some superannuation sweeteners for good measure.

With the emphasis on spending, balancing the Budget has been put on the back burner until employment and wages pick up.

The big picture

This year’s Budget is based on a successful vaccine rollout which would allow Australia’s borders to open from mid-2022. The Treasurer says he expects all Australians who want to be vaccinated could have two doses by the end of the year.

So far, the economic outlook is better than anyone dared hope at the height of the pandemic just a year ago, but challenges remain.

Unemployment, at 5.6%, has already fallen below pre-pandemic levels and is expected to fall sharply to 5% by mid-2022. But wage growth remains stubbornly low, currently growing at rate of 1.25% and forecast to rise by just 1.5% next year. This is well below inflation which is forecast to rise 3.5% in 2020-21 and 1.75% in 2021-22.

The treasurer forecast a budget deficit of $161 billion this financial year (7.8% of GDP), $52.7 billion less than expected just six months ago, and $106.6 billion (5% of GDP) in 2021-22.

Net debt is forecast to increase to an eye-watering $617.5 billion (30% of GDP) by June this year before peaking at $920.4 billion four years from now.

The large improvement in the deficit has been underpinned by the stronger than expected economic recovery and booming iron ore prices. Iron ore prices have surged 44% this year to a record US$228 recently.i

Funding for aged care

The centrepiece of the Budget is a $17.7 billion commitment over five years to implement key recommendations of the Aged Care Royal Commission. This includes $7.8 billion to reform residential aged care and $6.5 billion for an immediate investment in an additional 80,000 Home Care Packages.

In other health-related initiatives, the Treasurer announced additional funding of $13.2 billion over the next four years for the National Disability Insurance Scheme, taking total funding to $122 billion.

And in recognition of the toll the pandemic has taken on the nation’s mental health, the Government will provide an extra $2.3 billion for mental health and suicide prevention services.

Focus on Women

After criticism that last year’s Budget did not do enough to support women’s economic engagement, this Budget works hard to restore gender equity. The Women’s Budget Statement outlines total spending of $3.4 billion on women’s safety and economic security.

Funding initiatives include:

  • Funding for domestic violence prevention more than doubled to at least $680 million.
  • Funding for women’s health, including cervical and breast cancer and endometriosis and reproductive health, boosted by $354 million over the next four years.ii
  • Increased subsidies for second and subsequent children in childcare from a maximum of 85% to 95%, while families with household incomes above $189,390 will no longer have their annual payments capped at $10,560.iii

While childcare is of benefit to all parents, it is generally mothers who rely on affordable care to increase their working hours.

As widely touted, proposed changes to superannuation and support for first home buyers also have women in mind.

Superannuation gets a boost

In a move that will benefit part-time workers who are largely women, the Treasurer announced he will scrap the requirement for workers to earn at least $450 a month before their employers are obliged to pay super.

The Government will also expand a scheme allowing retirees to make a one-off super contribution of up to $300,000 (or $600,000 per couple) when they downsize and sell their family home. The age requirement will be lowered from 65 to 60.

In addition, from 1 July 2022 the work test that currently applies to super contributions (when either making or receiving non-concessional or salary sacrificed contributions) made by people aged 67 to 74 will be abolished.

Despite opposition from within Coalition ranks, Superannuation Guarantee payments by employers will increase from the current 9.5% of earnings to 10% on 1 July and then gradually increase to 12% as originally legislated.

Support for first home buyers

Housing affordability is on the agenda again as the property market booms. To help first home buyers and single parents get a foot on the housing ladder, the Government has announcediv:

The Family Home Guarantee, which will allow 10,000 single parents to buy a home with a deposit of just 2%.

  • An extra 10,000 places on the First Home Loan Deposit Scheme in 2020-21. Now called the New Home Guarantee, the scheme gives loan guarantees to first home buyers, so they can buy a home with a deposit as low as 5%.
  • An increase in the maximum voluntary contributions that Australians can release under the First Home Super Saver Scheme from $30,000 to $50,000.

Improvements to the Pensions Loan Scheme

In a move that will please cash-strapped pensioners, the Treasurer announced that the Pensions Loan scheme – a form of reverse mortgage offered by the Government – will allow people to withdraw a capped lump sum from 1 July 2022. Currently income must be taken as regular income, which makes it difficult to fund larger purchases or home maintenance.

Under the new rules, a single person will be able to withdraw up to the equivalent to 50% of the maximum Age Pension each year, currently around $12,385 a year ($18,670 for couples).

The Government will also introduce a No Negative Equity Guarantee which means the loan amount can never exceed the value of the home.

Tax cuts for low-and-middle-income earners

Approximately ten million Australians will avoid a drop in income of up to $1,080 next financial year, with the low-and-middle-income tax offset extended for another 12 months at a cost of $7.8 billion.

Anyone earning between $37,000 and $126,000 a year will receive some benefit, with people earning between $48,001 and $90,000 to receive the full offset of $1,080.

Low and middle income tax offset

Taxable incomeOffset
$37,000 or less$255
Between $37,001 and $48,000$255 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,080
Between $48,001 and $90,000$1,080
Between $90,001 and $126,000$1,080 minus 3 cents for every dollar of the amount above $90,000

Source: ATO

Job creation and training

With companies warning of labour shortages while the nation’s borders are closed, the Government has been under pressure to do more to help unemployed Australians back into work.

So, the focus in this Budget is squarely on skills training with $6.4 billion on offer to increase workforce participation and help boost economic growth.

This includes a 12-month extension to the Government’s JobTrainer program to December 2022 and an additional 163,000 places. The Treasurer also announced funding of $2.7 billion for 170,000 new apprenticeships.

Job creation is also at the heart of an extra $15.2 billion in road and rail infrastructure projects, expected to create 30,000 jobs. This is on top of the existing 10-year $110 billion infrastructure spend announced previously.

Looking ahead

With an election due by May 21 next year, this is as much an election Budget as a COVID-recovery one. Although another Budget could be squeezed in before an election, it would have to be brought forward from the normal time.

The Government will be hoping that it has done enough to provide funds where they are needed most to continue the job of economic recovery.

If you have any questions about any of the Budget measures and how you might take advantage of them, don’t hesitate to call.

Information in this article has been sourced from the Budget Speech 2021-22 and Federal Budget support documents.

It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.

https://tradingeconomics.com/commodities (viewed 11/5/2021)

ii https://www.health.gov.au/ministers/the-hon-greg-hunt-mp/media/354-million-to-support-the-health-and-wellbeing-of-australias-women

iii https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/making-child-care-more-affordable-and-boosting

iv https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/improving-opportunities-home-ownership

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Understanding Bitcoin, Cryptocurrencies and Blockchain - A Quick Overview for Australian Investors

Understanding Bitcoin, Cryptocurrencies and Blockchain – A Quick Overview for Australian Investors

Whether it’s the skyrocketing price of Bitcoin, or record-breaking prices for investments bought with digital currencies, cryptocurrencies continue to feature in the media and dinner conversations everywhere. This has reignited debate about whether we are witnessing an old-fashioned bubble about to burst or a new asset class in the making.

The price of Bitcoin has gone from around $13,800 a year ago to a recent high of $84,350.i Undoubtedly, some people have made money on the way up, but experts urge caution. While cryptocurrencies are being accepted more widely, the Australian Securities and Investments Commission (ASIC) warns they are high risk, difficult to value and unregulated.*ii

You may also have seen recently that a digital artist known as Beeple sold a work at auction for $89 million, while Twitter founder Jack Dorsey sold his first tweet for $3.8 million. Both were paid for in cryptocurrencies in a trend called non-fungible tokens (NFTs).iii NFTs are a unique bit of digital code that cannot be duplicated or counterfeited, making them particularly attractive for collectors.

Cryptocurrencies and NFTs have one thing in common – they are both enabled by a technology called blockchain.

What is blockchain?

Blockchain is a system of recording and storing information that helps keep track of ownership securely and transparently.

It is essentially a digital ledger of transactions stored in blocks that is duplicated and distributed across a network of computer systems forming a blockchain. Every new transaction that occurs on the blockchain is added to every participant’s ledger.

This means if one block in the chain is changed, it would be immediately apparent that it had been tampered with, making it near impossible to change, hack or cheat the system.

History teaches us that fortunes are more likely to be made selling shovels to miners in a goldrush, than buying a shovel and joining them. So could it be that long-term value is more likely to come from investing in the underlying blockchain technology than chasing quick profits from the likes of Bitcoin and NFTs?

Given rising concerns about hacking and data breaches, it’s no surprise that blockchain is being embraced by government and businesses alike.

Government backs digital technologies

In the 2020 Federal Budget, the Australian government set aside $800 million to invest in digital technologies, including blockchain technology pilots to cut business compliance costs.iv

This followed the launch two years ago of the government’s National Blockchain Roadmap, developed in collaboration with industry and universities to highlight the technology’s potential to save businesses money and open new business and export opportunities.

According to the Roadmap, blockchain technology is predicted to generate an annual business value of over US$175 billion by 2025. By 2023, blockchain will support the global movement and tracking of US$2 trillion worth of goods and services annually. By next year, it is predicted to save the financial services industry US$15-20 billion annually.v

Practical uses of blockchain

In Australia, the biggest user of blockchain is the financial services industry. For example, the Australian Securities Exchange (ASX) is working on a new blockchain system to finalise local equity trades which will replace the old CHESS system in early 2022.

But it also has applications across the economy in sectors including trade, logistics, real estate, energy, water, resources and agriculture. The cost to Australian food and wine producers of direct product counterfeiting and substitution was estimated to be over $1.7 billion in 2017 alone.vi

Take the example of the wine industry. Blockchain can help with inventory tracking, facilitate automated payments between supply chain members, and reduce counterfeiting through provenance transparency.

Investment opportunities

Thanks to government and industry support, a growing number of blockchain companies are listing on the ASX. There are companies using blockchain to:

• Keep track of financial data and identity documents for compliance

• Verify human engagement on social media to prevent interaction with bots and fake profiles

• Make supply chains transparent in combination with artificial intelligence technology.vi
Other companies have integrated blockchain into parts of their business to enhance security on digital platforms or to accept and settle payments.

While the local ASX-listed technology sector is still relatively small and high risk, it does offer investors increasing opportunities to invest in cutting-edge technologies with real world applications.

If you would like to discuss your overall investment strategy, don’t hesitate to get in touch.

i https://au.finance.yahoo.com/quote/BTC-AUD/history/?guccounter=1

ii https://moneysmart.gov.au/investment-warnings/cryptocurrencies-and-icos

iii https://www.businessinsider.com.au/what-are-risks-of-investing-in-nft-2021-3

iv https://www.coindesk.com/australia-to-spend-575m-on-tech-including-blockchain-to-boost-pandemic-recovery

v https://www.industry.gov.au/sites/default/files/2020-02/national-blockchain-roadmap.pdf?ref=hackernoon.com

vi https://stockhead.com.au/tech/these-asx-blockchain-companies-are-leading-the-distributed-ledger-race/
*NB: We cannot advise clients on investments in Bitcoin or any other cryptocurrency as they are not regulated financial products.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Find the weak links in your business and make it stronger

Find the weak links in your business and make it stronger

The many upheavals of the COVID pandemic have provided a grim reminder that in business, there will always be factors beyond our control. That’s why it’s important to put measures in place to manage those factors we actually can control.

Many businesses have recently been given some strong lessons in where their vulnerabilities lie. Even if your business came through 2020 relatively unscathed it’s now a good time to think about these areas and put some measures in place to become more robust. While it can be difficult to protect your business against all of the potential unknowns out there, let’s look at some common risks and business weaknesses that you can address.

Disaster recovery plan

A disaster recovery plan (DRP) helps keep your business afloat and functioning well despite an emergency – whether it be through an information security risk, the loss of assets from a natural disaster such as bushfires, or even human error, such as deleting data.

These plans are quite often developed in the early days of a business and then kept in a drawer, only to be forgotten about in the day to day running of the business. While you shouldn’t need to consult the plan on a regular basis, it pays to re-familiarise yourself with it and if you don’t have one at all, now is the time to make one!

Interruptions to supply

Another area to investigate is your relationship with your suppliers. Are you reliant on particular suppliers or contractors? If so, you’re open to risk. What would happen if they are no longer able to supply to you because they cease their current services or their business folds?

Perhaps geographical instability or supply chain uncertainty could affect your supplier or contractor. The Global Supply Chain Risk Report found that increasingly buyer relationships are with suppliers located in high-risk countries.i

Assess and develop redundancies to ensure the continuation of a quality supply of the product or service. Figuring this out before an issue arises will mean you have options, should the situation unfortunately rise.

Client experience

You know your business back to front, but put yourself in the shoes of your customer. How do they access information about your business, where do they go for help and what potential roadblocks do they face in securing your services?

It’s worth testing every touch point your client makes with your business. Doing so will give you valuable insight into what their customer journey is like, whether it’s experienced in person, online, through support, accounts and day to day.

Mystery shoppers, a service often provided by market research organisations, are trained to report on what they find when doing an ‘audit’ of a business. You don’t necessarily need to hire a research company, a family member, friend or acquaintance could undertake the process. Perhaps they walked into the reception of your office and were ignored by your receptionist, or they had the door held open for them and were offered a friendly greeting. They may have had issues navigating your website or were left hanging on the phone for a long time. Their perspectives, as people with no vested interest in your organisation, are incredibly valuable.

Online assets

Don’t just focus on the external ‘face’ of your business though – you also should ensure that internal systems and intellectual property are protected. This has become increasingly difficult as the traditional work paradigm moves to remote work and flexible work arrangements. Penetration testing, or a pen test is where a simulated ‘cyberattack’ is performed so any weaknesses can be detected. Through this test you’ll find out how vulnerable your systems are to unauthorised hacks.

This preventative measure can save your business by establishing and strengthening security measures which ensure your continued service online, workflow within the business and client data management.

Reviewing where you are vulnerable and assessing which aspects of your business or processes can be improved is a worthwhile task for any business. Knowledge is power and identifying your weaknesses gives you the opportunity to address them and build a stronger foundation for business growth and success.

i https://www.dnb.co.uk/perspectives/supply-chain/global-supply-risk-report-q12018-cranfield.html

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.