Reviewing Your Goals at The End of The Financial Year

Reviewing Your Goals at The End of The Financial Year

The new financial year marks the beginning of a new chapter from a taxation perspective. But it's also a useful time to take stock of the your personal, financial and professional goals.

Goals are important from a personal standpoint and essential when it comes to running a successful business. They can provide a clear focus for your efforts, a way to track progress and be a powerful motivator.

Dealing with change

The past couple of years have been a period of profound change, impacting the way we work and live but the reality is there will always be circumstances beyond your control. Your situation is ever evolving, as are your hopes and dreams for your future.

Personal finances and goals

While Australian household financial comfort improved around 3 per cent through the latter half of last year, that may not have been your experience, particularly as the costs of living have steadily increased.i You may be a little behind where you would like to be and wanting to step things up a little or make some adjustments to take into consideration any changes in circumstances. For those whose financial positions have taken a turn for the better, that creates opportunities and it’s worth thinking about what that means for your short-term and longer-term goals.

Even setting the financial side of things aside, it’s important to review whether what you aspire to has shifted. Our values and aspirations change as we move through life and it’s important to check in and see if your goals still resonate as strongly as they once did or whether you need to redefine what you want to work towards.

Goal setting for business

If you run a business, you have made it through ‘interesting times’. Some sectors have prospered while others have been decimated. If it’s been a while since you have thought about your goals in relation to your business, the following tips will help you raise your head above the day-to-day ‘noise’ and adjust your objectives.

Here is a good process to follow which will help you ensure your goals - whether they be personal; or for your business - are still fit for purpose.

Step 1. Review and re-evaluate
The first step is to review your goals, assessing what is REALLY important to you. Reflect on why you set your goals in the first place and make sure they truly reflect your objectives. The goal of building your business to generate a certain amount of revenue may be more about the satisfaction of achieving sustainable growth than a dollar value. Equally, your dreams of early retirement may be more about spending more time with loved ones which you don’t necessarily have to retire to do.

Take into consideration the events of the past 12 months and how they have impacted - positively or negatively – on your progress towards your objectives. If your goals are still as important to you given your present circumstances, think about what it will take to achieve them.

Step 2. Redefine
This is where the real change happens. Allow yourself to redefine what success means to you. That can mean accommodating a change in direction or circumstances; or even letting go of a goal that is no longer relevant or adjusting to accommodate a new goal. It’s important to be realistic about what you can achieve, moving the goal posts does not always mean setting more ambitious goals. It’s fine to pull back a little – particularly if it makes the goal more achievable.

Step 3. Re-engage and commit
The final step after you redefine your goals is to commit to them and fully engage in the goal in order to reap the benefits of the process you have just undertaken. This step can be as simple as breaking your goals down into a series of milestones and creating a process and support structure for achieving them.

In no time at all you will be seeing positive outcomes from your efforts and lining up for that winning kick into your newly aligned goalposts. - GOAL!

i https://www.mebank.com.au/getmedia/9f212517-8d7e-4990-97cd-9dcc36a39a4b/household_financial_comfort_report_Feb_2022.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.


Preparing for Retirement

Preparing for retirement

Retirement means starting a new chapter of your life where you get to decide exactly how to spend your time. Though it may not be part of your immediate plans, there are advantages to giving some thought as to what retirement will look like for you and how to position yourself before you leave the workforce behind.

A time of profound change

Even setting aside the huge financial implications of leaving a regular salary behind, retiring from work represents one of the biggest life changes you can experience.

For most people, the freedom of being able to do whatever you want to do, whenever you want to do it, is pretty enticing. However, it is quite common to have mixed feelings about retiring, particularly as you get closer to retirement. What we do for a living often defines us to some extent and leaving your job can mean a struggle with how you perceive yourself as well as how others view you. Coupled with the desire for financial security in retirement and the need to make your retirement savings last the distance, you have a lot to be dealing with.

So, let’s look at the things you need to be thinking about sooner rather than later, from an emotional and practical perspective, to ensure your retirement is everything you want it to be.

Forge your own path

Don’t be tied to preconceptions of what retirement is all about. Retirement has evolved from making a grand departure from the workplace with the gift of a gold watch to a more flexible transition that may unfold over several years. Equally, if the idea of a clean break appeals to you then that’s okay too and you just need to plan accordingly.

The same applies for your timeframe for retirement. The idea that you ‘have’ to retire at a certain age is no longer relevant given advances in healthcare and longer lifespans. If work makes you happy and fulfilled, then it can make sense to delay your departure from the workforce.

Planning how to spend your time

It sounds obvious but you’ll have more time on your hands so it’s important to think about what you want to devote that time to. A study found that 97 per cent of retirees with a strong sense of purpose were generally happy and satisfied in retirement, compared with 76 per cent without that sense.i Think about what gives your life meaning and purpose and weave those elements into your plans.

If you are part of a couple, it’s critical to ensure that you are both on the same page about what retirement means to you. This calls for open and honest communication about what you both want and may also involve some degree of compromise as you work together to come up with a plan that meets both of your needs.

Practical considerations

There’s a myriad of practical considerations once you have started to plan how you’ll spend your time.

Here are a few things you may wish to consider:

  • Where do you want to live? Do you want to be close to a city or are you interested in living in a more coastal or rural area? Are you wanting to travel or live overseas for extended periods?
  • What infrastructure and health services might you need as you age? Are these services adequate and accessible in the area you are thinking of living in?
  • What hobbies and activities do you want to be involved in. Do you need to start developing networks for those activities in advance?
  • Who do you want to spend time with? If you have children and grandchildren, think about what role you’d like to play in their lives upon retirement.

The best laid plans...

Of course, with all this planning it’s also important to acknowledge that the best laid plans can go astray due to factors beyond your control. It’s important to keep an open mind and be adaptable. While redundancy or poor health can play havoc with retirement dreams, it’s still possible to make the best of what life throws at you.

And of course, we are here to help you with the financial side of things to ensure that retirement is not only something to look forward to, but a wonderful chapter of your life once you start to live out your retirement dreams.

i https://www.inc.com/magazine/201804/kathy-kristof/happy-retirement-satisfaction-enjoy-life.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.


How To Manage Your Money With Higher Interest Rates

How To Manage Your Money With Higher Interest Rates

Rising interest rates tend to get a bad press from the media and many politicians. But they're by no means bad news for everyone.

Higher interest rates are a worry for people with home loans and borrowers generally. But they are good news for older Australians who depend on income from bank deposits and young people trying to save for a deposit on their first home.

Rising interest rates are also a sign of a growing economy, which creates jobs and provides the income people need to pay the mortgage and other bills. By lifting interest rates, the Reserve Bank hopes to keep a lid on inflation and rising prices. Yes, it’s complicated.

How high will rates go?

Yesterday, June 7th, 2022,  the Reserve Bank lifted the official cash rate to 0.85%, having increased it just one month ago to 0.35%  from the historic low of 0.1%. The reason the cash rate is watched so closely is that it flows through to mortgages and other lending rates in the economy.

To tackle the rising cost of living, the Reserve Bank expects to lift the cash rate further, to around 2.5 per cent.i Inflation is currently running at 5.1 per cent, which means annual wages growth of 2.4 per cent is not keeping pace with rising prices.ii

So what does this mean for household budgets?

Mortgage rates on the rise

The people most affected by rising rates are likely those who recently bought their first home. In a double whammy, after several years of booming house prices the size of the average mortgage has also increased.

According to CoreLogic, even though price growth is slowing, the median home value rose 16.7 per cent nationally in the year to April to $748,635. Prices are higher in Sydney, Canberra and Melbourne.

CoreLogic estimates a 1 per cent rise would add $486 a month to repayments on the median new home loan in Sydney, and an additional $1,006 a month for a 2 per cent rise.

The big four banks have already passed on the Reserve Bank’s 0.25 per cent increase in the cash rate in full to their standard variable mortgage rates which range from 4.6 to 4.8 per cent. The lowest standard variable rates from smaller lenders are below 2 per cent.

Still, it’s believed most homeowners should be able to absorb a 2 per cent rise in their repayments.iii

The financial regulator, APRA now insists all lenders apply three percentage points on top of their headline borrowing rate, as a stress test on the amount you can borrow (up from 2.5 per cent prior to October 2021).iv

Rate rise action plan

Whatever your circumstances, the shift from a low interest rate, low inflation economic environment to rising rates and inflation is a signal that it’s time to revisit some of your financial assumptions.

The first thing you need to do is update your budget to factor in higher loan repayments and the rising cost of essential items such as food, fuel, power, childcare, health and insurances. You could then look for easy cuts from your non-essential spending on things like regular takeaways, eating out and streaming services.

If you have a home loan, then potentially the biggest saving involves absolutely no sacrifice to your lifestyle. Simply pick up the phone and ask your lender to give you a better deal. Banks all offer lower rates to new customers than they do to existing customers, but you can often negotiate a lower rate simply by asking.

If your bank won’t budge, then consider switching lenders. Just the mention of switching can often land you a better rate with your existing lender.

The challenge for savers

Older Australians and young savers face a tougher task. Bank savings rates are generally non-negotiable, but it does pay to shop around.

By mid-May only three of the big four banks had increased rates for savings accounts. Several lenders also announced increased rates for term deposits of up to 0.6 per cent.v

High interest rates traditionally put a dampener on returns from shares and property, so commentators are warning investors to prepare for lower returns from these investments and superannuation.

That makes it more important than ever to ensure you are getting the best return on your savings and not paying more than necessary on your loans. If you would like to discuss a budgeting and savings plan, give us a call.

i https://www.rba.gov.au/speeches/2022/sp-gov-2022-05-03-q-and-a-transcript.html

ii https://www.abs.gov.au/

iii https://www.canstar.com.au/home-loans/banks-respond-cash-rate-increase/

iv https://www.apra.gov.au/news-and-publications/apra-increases-banks

v https://www.ratecity.com.au/term-deposits/news/banks-increased-term-deposit-interest-rates

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 Compliance Checklist For June 30th (EOFY)

SMSF Compliance Checklist For June 30th (EOFY)

Ensuring your SMSF meets all compliance obligations is vital as we approach EOFY, i.e. the end of the financial year.

Failure to meet the ATO's strict rules can mean paying out significantly more tax than necessary.

Here are some key tasks trustees need to complete prior to 30 June 2022:

Check minimum pension drawdowns

Check that any members being paid an account-based pension have received the right amount for the current financial year.

Even though the government has extended its 50 per cent reduction in the minimum pension payment, underpayment can cause compliance problems for your SMSF. So ensure pensioner members have been paid at least their minimum percentage factor prior to 30 June. Documentation needs to be updated and minuted to avoid any problems with the fund’s auditor.

Trustees should also discuss with members receiving a super pension whether they intend taking advantage of the temporary extension in the coming financial year.

Stay within the contribution rules

For 2021-22, the general cap on concessional (before-tax) contributions is $27,500, while non-concessional (after-tax) contributions are limited to $110,000.

An individual member’s annual cap may be different to these amounts, so check that members have verified their current position before accepting contributions. Otherwise, they may face tax penalties.

Legislation has now passed abolishing the work test from 1 July 2022 for contributions made by older SMSF members. For this EOFY, however, trustees still need to check whether contributing members aged between 67 and 75 meet the work test (or work test exemption) before accepting their contributions.

Verify bring-forward contributions

An important EOFY strategy for many SMSF members is using a bring-forward arrangement to access up to three years annual non-concessional contribution caps. For eligible fund members, this can be up to $330,000 in a single year.

SMSF trustees should remind members commencing a bring-forward arrangement they need to meet all the eligibility criteria and that their personal non-concessional cap may be lower if they already have a large Total Super Balance (over $1.48 million).

Although members aged 67 to 74 are unable to commence a bring-forward arrangement in 2021-22, your fund will be able to accept these contributions from older members once 1 July 2022 arrives.

Review the fund’s investment strategy

Other important trustee tasks prior to EOFY are checking the fund has a documented investment strategy and that it has been reviewed for its ongoing suitability.

Trustees are required to minute all investment decisions, including why an investment was chosen and whether all trustees agreed with the decision.

You also need to ensure your SMSF’s investments (such as real estate and collectibles) are valued at market value prior to EOFY. The valuation must be based on objective data with supporting documentation, so if a professional valuation is required, don’t leave it to the last minute.

Get the paperwork in place

Trustees are also required to consider whether members should be provided with life and Total and Permanent Disability (TPD) insurance, so ensure this has been reviewed and documented.

If your SMSF is required to hold insurance for members, check the current insurance policies provide adequate cover and all premiums are paid before 30 June.

Also check the SMSF’s recordkeeping is updated, fully documented and ready for inspection by the fund’s auditor or accountant. This includes minuting trustee decisions; collating bank, dividend and investment statements; and preparing details of any asset purchases or sales.

Review the capital gains position

If your SMSF has members in accumulation phase, review any capital gains made during the financial year and the period these assets have been held.

It may be worth considering whether to dispose of investments with unrealised capital losses if the fund made capital gains during 2021-22. The realised capital losses can then be offset against the capital gains to potentially reduce the fund’s tax bill.

Prepare for the audit

Trustees must have appointed an approved SMSF auditor no later than 45 days before you need to lodge your SMSF annual return. You need to have an auditor organised, even if no contributions or payments have been made during 2021-22.

SMSF auditors are required to examine both the fund’s financial statements and assess its compliance with super law, so ensuring all the fund’s records are in order and ready for review will streamline the audit process.

If you would like help preparing your SMSF for the financial year end, contact our office today.

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.


Superannuation Maintenance For The Financial Year End

Superannuation Maintenance For The Financial Year End

As the financial year draws to a close, it’s a good time to take a good look at your super and consider your options for boosting your retirement funds. It’s also an opportunity to save tax by making a few changes too.

There are a handful of positive changes to super due to start next financial year, but for most people, these will not impact what you do before June 30 this year.

Changes ahead

Among the changes from 1 July, the superannuation guarantee (SG) will rise from the current 10 per cent to 10.5 per cent.

Another upcoming change is the abolition of the work test for retirees aged 67 to 74 who wish to make non-concessional (after tax) contributions into their super. This will allow eligible older Australians to top up their super even if they are fully retired. Currently you must satisfy the work test or work test exemption. This means working at least 40 hours during a consecutive 30-day period in the year in which the contribution is made.

But remember you still need to comply with the work test for contributions you make this financial year.

Also on the plus side, is the expansion of the downsizer contribution scheme. From 1 July the age to qualify for the scheme will be lowered from 65 to 60, although other details of the scheme will be unchanged. If you sell your home that you have owned for at least 10 years to downsize, you may be eligible to make a one-off contribution of up to $300,000 to your super (up to $600,000 for couples). This is in addition to the usual contribution caps.

Key strategies

While all these changes are positive and something to look forward to, there are still plenty of opportunities to boost your retirement savings before June 30.

For those who have surplus cash languishing in a bank account or who may have come into a windfall, consider taking full advantage of your super contribution caps.

The annual concessional (tax deductible) cap is currently $27,500. This includes your employer’s SG contributions, any salary sacrifice contributions you have made during the year and personal contributions for which you plan to claim a tax deduction.

Claiming a tax deduction is generally most effective if your marginal tax rate is greater than the 15 per cent tax rate that applies to super contributions. It is also handy if you have made a capital gain on the sale of an investment asset outside super as the tax deduction can offset any capital gains liability.

Even if you have reached your annual concessional contributions limit, you may be able to carry forward any unused cap amounts from previous years if your super balance is less than $500,000.

Once you have used up your concessional contributions cap, you can still make after-tax non-concessional contributions. The annual limit for these contributions is $110,000 but you can potentially contribute up to $330,000 using the bring-forward rule. The rules can be complex, especially if you already have a relatively high super balance, so it’s best to seek advice.

Government and spouse contributions

Lower income earners also have incentives to put more into super. The government’s co-contribution scheme is aimed at low to middle income earners who earn at least 10 per cent of their income from employment or business.

If your income is less than $41,112 a year, the government will contribute 50c for every after-tax dollar you squirrel away in super up to a maximum co-contribution of $500. Where else can you get a 50 per cent immediate return on an investment? If you earn between $41,112 and $56,112 you can still benefit but the co-contribution is progressively reduced.

There are also incentives for couples where one is on a much lower income to even the super playing field. If you earn significantly more than your partner, ask us about splitting some of your previous super contributions with them.

Also, if your spouse (or de facto partner) earns less than $37,000 a year, you may be eligible to contribute up to $3000 to their super and claim an 18 per cent tax offset worth up to $540. If they earn between $37,000 and $40,000 you may still benefit but the tax offset is progressively reduced.

As it can take your super fund a few days to process your contributions, don’t wait until the very last minute. If you would like to discuss your super options, call now.

Source: ATO

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 2022

Tax Alert June 2022

ATO crackdown on family trusts and GST fraud:With attempted GST fraud on the rise and certain family trust payments under a cloud, the tax regulator is stepping up scrutiny of more transactions.

Here’s a roundup of some of the latest developments in the world of tax.

GST fraud warning

The Australian Taxation Office (ATO) has issued a strong warning to taxpayers not to engage in GST fraud and for current participants to come forward before it takes tougher action, such as imposing tax penalties and seeking criminal charges.

Using sophisticated risk models and intelligence from the banks, AUSTRAC and the Reserve Bank, the ATO has identified a significant fraud involving fake businesses claiming false GST refunds through fictitious activity statements. The average fraudulent amount being claimed is $20,000.

The ATO is aware information on how to attempt the fraud is being shared via social media and has reminded taxpayers they are not anonymous online, with around 40,000 scheme participants already identified.

New rules on family trusts

Taxpayers with family trusts need to check the implications of a new ATO draft guidance package on the taxation of family trust payments that could reduce the attractiveness of these tax structures.

Under its new approach in this area, the ATO will focus on common tax planning strategies relying on the section 100A exclusion covering distributions to companies and family members. The draft ruling clamps down on the use of agreements involving ‘ordinary family or commercial dealing’, making the section 100A exemption unavailable in some situations.

Although parts of the package are draft guidance, taxpayers with a discretionary trust should consider its implications prior to 30 June 2022, particularly where there are parent controllers of the trust and adult child beneficiaries.

SG contribution deadline approaching

Employers planning to claim a tax deduction in their 2021-22 tax return for Super Guarantee (SG) contributions made on behalf of their employees need to ensure their contributions are received by the employee’s super fund prior to 30 June 2022 to be eligible for the deduction.

Your payroll system also needs to be updated to accommodate the 1 July 2022 increase in the SG contribution rate to 10.5 per cent and removal of the existing $450 a month minimum threshold for employees to qualify for SG contributions.

Disclosure of business tax debts

The ATO is currently writing to businesses with tax debts to warn them their liabilities may be disclosed to credit reporting bureaus (CRBs) under the Disclosure of Business tax debts measures.

Disclosure to CRBs can be avoided by engaging with the tax office and making full payment or negotiating a payment plan.

Deductions available for work-related COVID-19 tests

Taxpayers have another tax deduction they can claim in their annual returns after legislation covering the deductibility of COVID-19 testing costs received Royal Assent prior to Parliament rising for the Federal Election.

Expenses incurred by individuals from 1 July 2021 in relation to work-related COVID-19 testing can be claimed as a tax deduction, provided you can substantiate the expenditure.

Employers are also exempt from paying FBT where they pay for or reimburse work-related COVID-19 testing costs for employees.

Lower tax instalments in 2022–23

The GDP ‘uplift’ rate used to calculate both pay-as-you-go (PAYG) and GST instalments has been announced for the 2022-23 financial year. The new rate applies to instalments due after 31 March 2022.

The new rate is only two per cent (which is lower than the 10 per cent rate applying under the statutory formula), providing valuable additional cash flow to small and medium businesses, sole traders and individuals with passive income. If a business’ earnings exceed the amount calculated, it would then need to pay the extra tax owed at the end of the financial year.

While businesses will still be able to manually set instalments with the ATO, the new PAYG formula is reportedly designed to avoid penalties arising from underpayments.

Attracting ATO attention

New information has been issued on the behaviours, characteristics and tax issues of privately owned and wealthy groups that attract the ATO’s attention.

It is interested in entities with a tax or economic performance not comparable to similar businesses; low transparency when it comes to their tax affairs; and large, one-off or unusual transactions, including wealth transfers. Aggressive tax planning and outcomes inconsistent with the intent of tax law also interest the ATO.

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 Share Market Outlook

Australian Share Market Outlook

Trying to time investment markets is difficult if not impossible at the best of times, let alone now. The war in Ukraine, rising inflation and interest rates and an upcoming federal election have all added to market uncertainty and volatility.

At times like these investors may be tempted to retreat to the ‘’safety” of cash, but that can be costly. Not only is it difficult to time your exit, but you are also likely to miss out on any upswing that follows a dip.

Take Australian shares. Despite COVID and the recent wall of worries on global markets, Aussie shares soared 64 per cent in the two years from the pandemic low in March 2020 to the end of March 2022.i Who would have thought?

So what lies ahead for shares? The recent Federal Budget contained some clues.

The economic outlook

The Budget doesn’t only outline the government’s spending priorities, it provides a snapshot of where Treasury thinks the Australian economy is headed. While forecasts can be wide of the mark, they do influence market behaviour.

Australia’s economic growth is expected to peak at 4.25 per cent this financial year, underpinned by strong company profits, employment growth and surging commodity prices. Our economy is growing at a faster rate than the global average of 3.75 per cent, and ahead of the US and Europe, which helps explain why Australian shares have performed so strongly.ii

However, growth is expected to taper off to 2.5 per cent by 2023-24, as key commodity prices fall from their current giddy heights by the end of September this year.

Commodity prices have jumped on the back of supply chain disruptions during the pandemic and the war in Ukraine. While much depends on the situation in Ukraine, Treasury estimates that prices for iron ore, oil and coal will all drop sharply later this year.

Share market winners and losers

Rising commodity prices have been a boon for Australia’s resources sector and demand should continue while interest rates remain low and global economies recover from their pandemic lows.

Government spending commitments in the recent Budget will also put extra cash in the pockets of households and the market sectors that depend on them. This is good news for companies in the retail sector, from supermarkets to specialty stores selling discretionary items.

Elsewhere, building supplies, construction and property development companies should benefit from the pipeline of big infrastructure projects combined with support for first home buyers and a strong property market.

Increased Budget spending on defence, and a major investment to improve regional telecommunications, should also flow through to listed companies that supply those sectors as well as the big telcos and internet providers. But there are other influences on the horizon for investors to be aware of.

Rising inflation and interest rates

With inflation on the rise in Australia and the rest of the world, central banks are beginning to lift interest rates from their historic lows. Australia’s Reserve Bank is now expected to start raising rates this year.iii

Global bond markets are already anticipating higher rates, with yields on Australian and US 10-year government bonds jumping to 2.98 per cent and 2.67 per cent respectively.iv

Rising inflation and interest rates can slow economic growth and put a dampener on shares. At the same time, higher interest rates are a cause for celebration for retirees and anyone who depends on income from fixed interest securities and bank deposits. But it’s not that black and white.

While rising interest rates and volatile markets generally constrain returns from shares, some sectors still tend to outperform the market. This includes the banks, because they can charge borrowers more, suppliers and retailers of staples such as food and drink, and healthcare among others.

Putting it all together

In uncertain times when markets are volatile, it’s natural for investors to be a little nervous. But history shows there are investment winners and losers at every point in the economic cycle. At times like these, the best strategy is to have a well-diversified portfolio with a focus on quality.

For share investors, this means quality businesses with stable demand for their goods or services and those able to pass on increased costs to customers.

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

i https://www.commsec.com.au/market-news/the-markets/2022/mar-22-budget-sharemarket-winners-and-losers.html

ii https://budget.gov.au/2022-23/content/bp1/download/bp1_bs-2.pdf

iii https://www.finder.com.au/rba-survey-4-apr

iv https://tradingeconomics.com/united-states/government-bond-yield

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 use salary sacrificing to cut tax and boost your super

How to use salary sacrificing to cut tax and boost your super

Salary sacrificing has become a popular technique for reducing personal tax and increasing superannuation. As we draw near to the start of a new financial year, it's a good time consider it.

Simply talking to your employer about setting up an arrangement to “sacrifice” some of your pre-tax salary could potentially lower your tax bill – and boost your retirement nest-egg.

Reducing your tax bill

A salary sacrifice arrangement simply involves coming to an agreement with your employer to pay for everyday items or services you would normally pay for out of your after-tax salary directly from your before-tax salary. This might include things like childcare, health insurance or super. The benefit is that this reduces the level of income the ATO uses to calculate your tax bill.

If you set up a salary sacrifice arrangement with your employer, it’s important to understand that while your taxable income is lower, the benefits are still listed on your annual payment summary. For some people, this reduces the tax offsets, child support payments or other government benefits they receive, limiting the value of salary sacrifice.

Salary sacrificing options

The items or services you can pay for using salary sacrifice depends on your employer.

Some employers let their employees salary sacrifice for expenses such as cars, health insurance, school fees and home phones. Others are not prepared to do this, as they may end up paying Fringe Benefits Tax (FBT) on the benefits you receive.

Employers are usually more willing to allow you to package FBT-exempt work-related items such as portable electronic devices, computer software, protective clothing or tools of trade, as these generally don't result in FBT bills.

Boost your super account

One of the most popular forms of salary sacrifice is redirecting some of your pre-tax salary into your super fund. Most companies are willing to provide this option as it not only helps you build retirement savings, but it can also earn them a tax deduction.

When you salary sacrifice into your super, your contributions are taxed at 15 per cent when your super fund receives the money. For most people this is a lower tax rate than if they received the money as normal income.

A further bonus with salary sacrificing into super is you only pay 15 per cent on any investment earnings you receive inside super, instead of your marginal tax rate for investments held outside super.

Find out what’s on offer

If you’re interested in a salary sacrifice arrangement, it’s a good idea to discuss the subject with your employer or HR team to find out the company’s policy.

It’s also a good idea to talk to us, as the value of these arrangements needs to be weighed up carefully against your reduced take-home pay and the potential loss of government benefits.

These arrangements should be put in writing before you earn the income you are sacrificing, so you need to talk to your employer prior to the start of the new financial year if your salary will change from 1 July.

Tips for employers

Allowing your employees to salary sacrifice can help them reduce their tax bill and it boosts engagement with your business. Another overlooked benefit is if your employee salary sacrifices into their super, you can claim a tax deduction for their contributions, as they are considered employer contributions.

To do this, you need to ensure you create an 'effective' salary sacrifice arrangement meeting the ATO’s guidelines. Otherwise the benefits your employee receives are considered part of their taxable income.

Effective arrangements require a clear agreement stating the terms and conditions and they must be documented in writing to avoid any uncertainty or future disputes.

Sacrifice arrangements can only apply to wage and salary payments for work yet to be performed, not past earnings. Salary and wages, leave entitlements, bonuses or commissions accrued prior to the arrangement cannot be used.

A simple way to avoid problems is to document your employees’ salary sacrifice arrangements before the start of a new financial year – or whenever there is a change to their salary – so it covers future earnings.

You need to keep detailed records of these arrangements for five years and list all sacrifice amounts on the employee’s annual payment summary.

If you would like help working out if a salary sacrifice arrangement makes sense for you, call our office today.

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 offset vs tax deduction: What are the differences?

Tax offset vs tax deduction: What are the differences?

This year’s Federal Budget was full of talk about one-off support for households in the form of tax offsets, but most people are a bit hazy on the difference between a tax offset and a tax deduction.

Both can help reduce the amount of tax you pay each year, but a tax offset generally results in a bigger dollar tax saving than a tax deduction of the same amount. The key difference is the point at which they are applied to your income when calculating the final amount of tax payable.

What is a tax deduction?

A tax deduction is one of the first things applied to your income when calculating your tax bill. It reduces your taxable income and hence the amount of tax you pay, potentially moving you into a lower tax bracket. Deductions are intended to ensure you only pay tax on income exceeding the costs associated with earning that income.

For a small business, deductions ensure it doesn’t pay tax if its running costs exceed its revenue. Common deductions include operating expenses such as stationery, and capital expenses such as equipment.

There are also temporary deductions, such as the additional 20 per cent deduction for costs related to digital adoption (like portable payment services and cyber security) and employee training expenditure announced in the 2022 Federal Budget.

Employees can claim deductions in a similar way. Personal deductions include work-related expenses like the cost of a computer if you have a home office, or supplies purchased for classroom use by a teacher. Other deductions include the cost of managing your tax affairs, donations and income protection insurance.

Offsets are similar but different

Tax offsets on the other hand, are deducted at the end of the calculation process and directly reduce the tax you pay.

Offsets are used by the government to encourage specific outcomes, such as uptake of health insurance through the Private Health Offset, or adding money to your spouse’s super through a contribution offset. They are also used to provide tax relief or financial support to certain groups in the community.

Calculating tax using offsets and deductions

The easiest way to understand the difference between an offset and a deduction is to walk through an example.

In the table below, we have two taxpayers. One person has an income of $30,000 a year paying tax of 19c on every dollar above the tax-free threshold of $18,200. This results in tax of $2,242 before any deductions or offsets. The other earns $130,000 a year, paying the top marginal tax rate of 37c in every dollar above $120,000, resulting in tax of $33,167.

As you can see in the table below, the impact of a $1,000 tax deduction provides a bigger tax saving of $370 for the higher income earner, compared with $190 for the lower income earner.

However, not only does a $1,000 tax offset provide both taxpayers with a bigger tax saving of $1,000 each, but it’s worth relatively more to the lower income earner at 3.3 per cent of $30,000 compared with less than one per cent of $130,000.

Impact of a $1,000 tax deduction and tax offset on tax owed

How tax offsets affect the tax you pay

Unlike tax deductions, the ATO automatically applies most offsets to your tax payable when you lodge your tax return.

In general, tax offsets can reduce your tax payable to zero, but they can’t be used to generate a tax refund if you don’t pay tax. If your taxable income is $18,200 or less, an offset won’t reduce the tax you pay as your tax payable is already zero. If you have paid any tax on this amount, you receive the tax back as a refund, but no offset is applied.

Also, most tax offsets don’t reduce the Medicare Levy and Medicare Levy Surcharge (if any) you are required to pay.

The amount of tax offset you receive also depends on the particular offset and your taxable income. For example, with the Low and Middle Income Tax Offset (LMITO) for 2021-22, if your taxable income is $37,0000 or less, you will receive a $675 offset on your tax payable when you lodge your tax return. If your income is $48,001 to $90,000, however, the offset is worth $1,500.

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.


Succession Planning for Farmers

Succession Planning for Farmers

Succession planning can be difficult at the best of times without dealing with the added pressures farmers have recently faced with droughts, fires and floods.

And that’s why it is even more important to plan early and get it right when you are on the land. You are not just dealing with a business, but invariably also with a home.

Some 99 per cent of the 134,000 farms in Australia are family owned with the average age of farmers being 52.i It is believed that farmers are five times more likely than other Australians to be working beyond the age of 65. There are a variety of reasons for this, from a reluctance to relinquish control, to a lack of family willing to take over the reins and financial necessity.

Given the physicality of farming, it would seem to make a lot more sense to start thinking about succession planning well before that stage.

Often such planning is put into the too hard basket because there are so many variables to consider. But this will not solve the problem, so it’s better to get good advice and get it early.

Start talking

The first thing you need to do is open the doors of communication. Arrange a time to talk with your family to discuss:

  • Who wants to inherit and work on the farm and who wants to leave the property
  • Whether they agree each child should be treated equally or accept that the one inheriting the farm should receive preferential treatment
  • How everybody feels about splitting the property between siblings, or
  • The way forward if none of your children wants to stay on the land.

These are all considerations that need to be addressed and revisited over time to ensure they meet with everybody’s wishes.

If just one of the children wants to remain on the property, will they need to find the finance to pay out the other siblings? If so, then the next decision is how that finance will be found.

Perhaps the answer is to transfer the property before you die. If that is the case, then where will you live in retirement and what will be your source of income once you retire? Again, you need to examine the options. Perhaps you may receive an ongoing income from the property, or maybe find income from other investments. Importantly, you also need to revisit these options over time to ensure they still work for you.

One danger of not having a succession plan and working well beyond your best years, is that you can run the farm into the ground and make it a far less attractive property to sell.

Structure your plans

There are so many questions to ask and what is right for one family, may not be right for another.

But once you determine how you want to move forward, you then need to examine the best structures to put in place to make the process as efficient as possible. Some of the key advice you may need is on tax, trusts and land ownership and the intersection of all three.

Tax is particularly important as you want to avoid or at least minimise capital gains tax (CGT).

If you are 55 years of age or more and retiring and have owned your property for at least 15 years, then you may qualify for the small business 15-year CGT exemption on your entire capital gains. Other concessions may apply if you don’t qualify the 15-year exemption.

For couples where the family farm is held in their own name, perhaps you might want to consider a joint tenancy agreement as it leads to automatic transfer of ownership if one dies.

Or you might consider putting the farm into a family trust or perhaps holding it as an asset in your self-managed super fund. There are so many what-ifs to consider when it comes to rural properties. If you want to discuss how to move forward on your estate and succession planning and what will work best for you, then give us a call.

i https://www2.deloitte.com/au/en/pages/consumer-business/articles/succession-family-farm.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.