SUMMER 2024
Summer 2024
Welcome to summer and, for many, an active season with last-minute tasks and celebrations with family and friends. We take this opportunity to wish you and your family a joy-filled and safe festive season!
While headline inflation eased to 2.8% in the September quarter, the Reserve Bank remains unmoved on interest rates. RBA Governor Michelle Bullock says the drop in the cost of living may be welcome relief for most of us, but the Board’s measure to watch is trimmed mean inflation and that’s still not “sustainably” in the desired target range of 2-3%. It’s not likely to get there until late in 2026, the RBA predicts.
The sharemarket reacted sharply to the Governor’s comments in the last days of a month that had seen several all-time highs. US President-elect Donald Trump’s promise for 25% tariffs on Canadian and Mexican goods also contributed to the billion dollar shares sell-off. Nonetheless, the S&P ASX200 finished November 3.4% higher.
The Australian dollar is also taking a beating from the possibility of both the US tariffs and the RBA’s rates forecast. It hit a seven-month low below 65 US cents near the end of the month.
And, in good news the ANZ-Roy Morgan Consumer Confidence Index, while down slightly has stayed above a mark of 85 points for the sixth week in a row for the first time in two years. Commonwealth Bank projections expect a boost in sales for small businesses thanks to the Black Friday and Cyber Monday sales and the coming festive period.
Dollar cost averaging: can it work for you?
Australian share prices have seen record highs in 2024 after a sluggish couple of years.
The S&P ASX200 index added just under 7 per cent in the 10 months to October 31 closing at 8160.i It reached its previous all-time high of 8355 just two weeks before.
So, if you were invested in an index fund or a basket of shares mirroring the ASX200 for the entire period, it’s likely you would have added some value to your portfolio.
Over the course of the year, the index has ebbed and flowed, recording several all-time highs and some jarring notes in response to global events.
Geopolitical tensions have also played a part in market skittishness as the wars in the Middle East and Ukraine continue and economists argue about the future impact on Australia of a Trump presidency.
US share prices surged the day after Donald Trump’s election in what many saw as a positive reaction to the returning President’s policies. Since then, prices have declined in a not-unexpected correction. Various analysts are predicting future volatility as markets respond to the proposed policies including tariffs and mass deportations promised by the President-elect.
These ups and downs in prices can have investors scurrying to hit the ‘buy’ or ‘sell’ buttons. They may be desperate to save further losses when share prices are falling rapidly or wanting to cash in on a rising market. Meanwhile, those with lump sums to invest may delay, trying to pick the time when prices are lowest.
Timing the market
It’s a strategy – known as timing the market – that may work for some, particularly if you need access to your investment in the short term. But, for mid- to long-term investors, it’s generally accepted to be problematic.
To begin with, predicting the next market movement is extremely difficult – even for experienced investors – because of the endless factors that can influence the markets.
Reacting to major market movements by selling or keeping a lump sum in cash until ‘the time is right’ means you run the risk of missing the market’s best days and reducing your overall return.
Countless studies show that better long-term results are achieved by consistent investing over time.
In Australia, $10,000 invested in the ASX/S&P 200 during the 20 years to October 2024 would have increased to $60,777. ii But, if you had missed the 10 best days during that time, your total investment would be just $36,014.
Dollar cost averaging
One way of removing the emotion and guesswork is to consider investing at regular intervals over time, ignoring any market signals, in a strategy known as ‘dollar cost averaging’.
The strategy works best if you are investing over the medium to long term because it helps to smooth out the price peaks and troughs.
In fact, compulsory superannuation paid by employers is a form of dollar cost averaging. Smaller, regular amounts are invested automatically, regardless of market movements and, over time, the investment grows.
However, the jury is out on whether dollar cost averaging is a useful strategy when you have a lump sum in cash to invest.
Some advocates of dollar cost averaging argue that there’s a better return because you reduce the risk of making a large investment just before markets plunge.
Those opposed to the strategy for lump sum investing say that, with a lump sum sitting in a bank account as you chip away at regular stock purchases, there is a risk that you will miss the best of the market.
A 2023 study found that investing a lump sum in the markets at once over the long term delivers a better return than a dollar cost averaging strategy.iii
So, avoid the risks of timing the market and consider whether dollar cost averaging might be an appropriate strategy for you.
We’d be happy to discuss how best to ensure your regular investing strategy or investment of a lump sum, takes account of future market movements and volatility.
i Australia Stock Market Index | Trading Economics
ii Timing the market | Fidelity Australia
iii Lump-sum investing versus cost averaging: Which is better? | Vanguard
Tax update December 2024
GST focus remains, while community tip-offs increase
Fraudulent claims for GST refunds continue to be a major focus for the ATO, with several new pilot programs announced to help small businesses with GST reporting.
Here’s a roundup of the latest tax news.
New PAYG adjustment factor
Pay As You Go (PAYG) instalments – whether you pay quarterly or twice-yearly – has been increased to 6 per cent for 2024-2025 to reflect the latest GDP increase.
The change in the adjustment factor does not affect taxpayers who work out their own instalments or pay annually.
PAYG instalment amounts can be varied through the ATO’s Online services for business if you believe your current instalment amount will be more or less than your expected tax liability for the year.
Pilot programs to protect GST system
The ATO will be running a number of pilot programs during 2025 that aim to improve the digital tax experience for small businesses.
The pilot programs will encourage more frequent payment and reporting by small businesses and try to reduce complexity by embedding the tax rules and logic into small business software.
The ATO also hopes to empower small businesses by providing more information to help them get their GST right from the start, providing them with more time to focus on their business, rather than their tax obligations.
Community tip-offs increasing
The community appears increasingly willing to report tax cheats. The ATO received more than 47,000 tip-offs during 2023-24, with around 90 per cent deemed suitable for further investigation.
Building and construction, cafes and restaurants, and hairdressing and beauty services topped the list of industries reported.
Common tip-offs include taxpayers not declaring income, demanding cash from customers, paying workers in cash to avoid paying tax and super, not reporting sales, and where someone’s lifestyle did not appear to match their income.
Obligations for festive season employees
Hiring new employees to help out during the festive season brings with it the same tax and super obligations as for regular employees.
The ATO is reminding employers to ensure they withhold the right amount of tax from any payments made and also to pay all eligible employees’ super funds the correct amount of Super Guarantee to avoid paying the Super Guarantee Charge.
Employers without an approved exemption, deferral or concession must lodge the necessary information for new employees through the Single Touch Payroll system from their first payday.
GST fraudster imprisoned
Stamping out GST fraud continues to be a priority for the ATO, with a Victorian woman sentenced to four years imprisonment after claiming nearly $600,000 in GST refunds from 27 fraudulent business activity statements.
She is also being pursued for the amount she fraudulently obtained by submitting the multiple false claims for a fake cleaning business.
The case is part of the ongoing ATO-led Operation Protego, which was set up in response to numerous cases of attempted GST fraud. So far 104 people have been arrested and 59 convicted.
Eligibility for small business litigation funding
If you have a dispute with the ATO being heard by the Administrative Review Tribunal, you may be eligible for litigation funding to cover “reasonable” legal expenses.
To qualify, you must be a small business (sole trader, partnership, company or trust) operating a business for all or part of the relevant income year and have a turnover under $10 million.
Funding is available only if the matter does not involve a tax avoidance scheme, fraud or cash economy issues. You must not have a history of failing to lodge tax returns.
Updating your ABN details
The ATO is reminding taxpayers holding an Australian Business Number (ABN) they need to regularly ensure their current contact details are correct so they don’t miss out on important help, information, or support like financial grants.
Check both your physical business address and postal address are listed on the Australian Business Register, together with your authorised contacts, contact details and business activities.
Gifting for future generations
At this time of year, when giving is particularly on our minds, some might turn their attention to how best share their wealth or an unexpected windfall with their loved ones.
You might be thinking about handing over a lump sum to help them with a major purchase or business opportunity, or be keen to help reduce or extinguish their student loans. Alternatively, it might be about helping to solve a housing problem.
Whatever the reason there are some rules that it is worth being aware of to ensure both you and they are protected.
Giving a cash gift
You can give anyone, family or not, a gift of cash for any amount and, as long as you don’t materially benefit from the gift or expect anything in return, no tax is paid on the amount by either you of the receiver.i
The same applies if you’re planning to pay out your child’s student loans.
However, be aware that if the beneficiary of your cash gift is receiving a government benefit, such as an unemployment benefit or a student allowance, there is a limit on the size of the gift they can receive without it affecting their payments.
They may receive up to $10,000 in one financial year or $30,000 over five financial years (which can not include more than $10,000 in one financial year).ii
Helping out with housing
Many parents also like to help their children get into the property market, where possible.
It’s been a difficult time for many in the past few years in dealing with the COVID-19 pandemic, the rising cost of living and interest rates, and a housing crisis.
A Productivity Commission report released this year found that while most people born between 1976 and 1982 earn more than their parents did at a similar age, income growth is slower for those after 1990.iii
With money tight and house prices climbing, three in five renters don’t believe they will ever own a home even though most (78 per cent) want to be homeowners, according data collected by the Australian Housing and Urban Research Institute (AHURI).iv
Just over half of those surveyed (52 per cent) were renting because they didn’t have enough for a home deposit and 42 per cent said they couldn’t afford to buy anything appropriate, the AHURI survey found.
So, in this climate, help from parents to buy a home isn’t just a nice-to-have it’s becoming a necessity for many.
Moving home
Allowing your adult child, perhaps with a partner and family, to share the family home rent-free is common option, giving them the chance to save up for a deposit.
One Australian survey found that one-in-10 people had moved back in with their parents either to save money or because they could no longer afford to rent.v
If it gets too much living under the same roof, building a granny flat in your backyard may be an option. Of course there are council regulations to consider, permits to be obtained and the cost of building or buying a kit but on the upside, it may add value to your home.
Becoming a guarantor
Another way to help might be to become a guarantor on your child’s mortgage. This might be the best way into a mortgage for many but before you sign, think it through carefully, understand the loan contract and know the risks.vi
Don’t forget that, as guarantor, you’re responsible for the debt. You will have to step in and repay if the lender can’t afford to repay, and the loan will be listed as a default on your own credit report.
Any sign that you are being pressured to be a guarantor on a loan may be a sign of financial abuse. There are a number of avenues for advice and support if you’re concerned.
It’s vital that you obtain independent legal advice before signing any loan documents.
If you would like more information about how to provide meaningful financial support to your children, we’d be happy to help.
i Tax on gifts and inheritances | ATO Community
ii How much you can gift – Age Pension – Services Australia
iii Fairly equal? Economic mobility in Australia – Commission Research Paper – Productivity Commission
iv Rising proportion of ‘forever renters’ requires tax and policy re-think | AHURI
v Coming home: 662,000 Australian households reunite with adult children – finder.com.au