Self managed super funds (SMSFs) can offer their members many benefits, but one that’s often overlooked is their potential as a multigenerational wealth creation and transfer vehicle.
Family SMSFs are relatively rare. According to the most recent ATO statistics (2022-23), the majority of SMSFs (93.2 per cent) have only one or two members.i Just 6.6 per cent have three or four members and only 0.3 per cent have five or six members (the maximum allowed).
Advantages of a family SMSF
An SMSF is sometimes established when two or more generations of a family share ownership or work in a family business. The fund can then form part of a personal and business succession plan, potentially making it easier to pass on ownership and management of assets to the next generation.
With more members, SMSFs also gain additional scale, allowing them to invest in larger assets (such as property). You can add business premises to the SMSF and lease it back without violating the related parties rule and 5 per cent limit on in-house assets.ii
Reduced tax and administration costs are also a benefit of multigenerational funds.
Running a family SMSF means the costs of establishing and administering the fund are spread across more members. This can be particularly helpful for adult children just beginning to save for their retirement.
In addition, more fund members means more people to share the administrative burdens of running an SMSF, which may be helpful as you get older.
A family SMSF does not need to be automatically wound up if you die or lose mental capacity and they can simplify the process of paying out a member death benefit as well as potentially allowing it to be paid tax-effectively. Note that death benefits paid to non‑tax dependent beneficiaries incur a tax rate of up to 30 per cent plus the Medicare levy.iii
More fund members also make setting up a limited recourse borrowing arrangement (LRBA) easier because their contributions reduce the fund’s risk of being unable to pay the borrowing costs. (An LRBA allows an SMSF to borrow money to buy assets)
Funding pension payments
Another advantage of an SMSF with up to six members may be when the fund begins making pension payments to older members.
If younger members are still making regular contributions, fund assets don’t need to be sold to make pension payments, which avoids the realisation of capital gains on assets.
Family SMSFs can also provide non-financial benefits, helping to transfer financial knowledge and expertise between the generations. And, while your children gain a solid financial education from participating in the running the SMSF, they can also provide valuable investment insights from a different perspective.
Risks and responsibilities
It is important to note that a multigenerational SMSF may not be right for everyone.
SMSFs of any size come with some risks and responsibilities. For example, if you lose money through theft or fraud, the government compensation that covers industry and retail super funds does not protect you. You are personally liable for the fund’s decisions, even if you act on advice from a professional, and your investments may not provide the returns you were hoping for.
Before you start adding your children and their spouses to your fund, it’s essential to spend time thinking about the challenges in running a family SMSF.
Fund members of different ages are at different stages in their retirement journey, with some accumulating savings and others drawing down.
This can make it tricky to administer and invest the fund’s assets in the best interests of all members.
For example, developing an asset allocation strategy catering to different life stages can be complex. Older members may prefer a strategy designed to deliver a consistent income stream, while younger members are usually more focused on capital growth.
Risk profiles are also likely to vary. Typically, younger fund members have a higher appetite for investment risk than members closer to retirement.
Family conflict can also be an issue when relationships are under pressure from divorce, blended families, and personality clashes.
The death of a parent can also create disputes over the distribution of fund assets or forced asset sales. Decisions about the payment of death benefits by the remaining trustees can derail carefully made estate plans and result in expensive legal battles.
Larger families with multiple adult children and partners may also find the six member limit an obstacle, forcing them to look at other options such as running a number of family SMSFs in parallel.
If you would look more information about establishing a family SMSF, call our office today.
10 questions to ask before setting up a family SMSF
How will decisions be made within the fund?
Will each member have an individual vote?
Will voting rights be proportional or in line with an individual member’s balance?
Will the voting system change as members’ balances increase (or decrease)?
Will children’s balances need to remain roughly equal, so they share equally in any asset growth?
How will the fund’s tax strategy cater for members with different incomes and ages?
How will deadlocks (such as over investment strategy) be overcome?
Who will take control if the key trustees die or becomes incapacitated?
How will the fund deal with the implications flowing from a member’s divorce?
What will happen when children have their own partners and children and want to leave and create their own SMSF?
Planning for what happens when you pass away or become incapacitated is an important way of protecting those you care about, saving them from dealing with a financial and administrative mess when they’re grieving.
Your Will gives you a say in how you want your possessions and investments to be distributed. But, importantly, it should also include enduring powers of attorney and guardianship as well as an advance healthcare directive in case you are unable to handle your own affairs towards the end of your life.
At the heart of your estate planning is a valid and up-to-date Will that has been signed by two witnesses. Just one witness may mean your Will is invalid.
You must nominate an executor who carries out your wishes. This can be a family member, a friend, a solicitor or the state trustee or guardian.
Keep in mind that an executor’s role can be a laborious one particularly if the Will is contested, so that might affect who you choose.
Around 50 per cent of Wills are now contested in Australia and some three-quarters of contested Wills result in a settlement.i
The role of the executor also includes locating the Will, organising the funeral, providing death notifications to relevant parties and applying for probate.
Intestate issues
Writing a Will can be a difficult task for many. It is estimated that around 60 per cent of Australians do not have a valid Will.ii
While that’s understandable – it’s very easy to put off thinking about your own demise, and some don’t believe they have enough assets to warrant writing a Will – not having one can very problematic.
If you don’t have a valid Will, then you are deemed to have died intestate, and the proceeds of your life will be distributed according to a statutory order which varies slightly between states.
The standard distribution format for the proceeds of an estate is firstly to the surviving spouse. If, however, you have children from an earlier marriage, then the proceeds may be split with the children.
Is probate necessary?
Assuming there is a valid Will in place, then in certain circumstances probate needs to be granted by the Supreme Court. Probate rules differ from state to state although, generally, if there are assets solely in the name of the deceased that amount to more than $50,000, then probate is often necessary.
Probate is a court order that confirms the Will is valid and that the executors mentioned in the Will have the right to administer the estate.
When it comes to the family home, if it’s owned as ‘joint tenants’ between spouses then on death your share automatically transfers to your surviving spouse. It does not form part of the estate.
However, if the house is only in your name or owned as ‘tenants in common’, then probate will probably need to be granted. This is a process which generally takes about four weeks.
Unless you have specific reasons for choosing tenants in common for ownership, it may be worth investigating a switch to joint tenants to avoid any issues with probate.
You will also definitely need probate if there is a refund on an accommodation bond from an aged care facility.
Super considerations
Another important consideration when dealing with your affairs is what will happen to your superannuation.
It is wise to complete a ‘binding death benefit nomination’ with your super fund to ensure the proceeds of your account, including any life insurance, are distributed to the beneficiaries you choose. You can nominate one or more dependants to receive your super funds or you could choose to pay the funds to your legal representative to be distributed according to your Will.
If a death benefit is paid to a dependant, it can be paid as either a lump sum or income stream. But if it’s paid to someone who is not a dependant, it must be paid as a lump sum.
If your spouse has predeceased you and you have adult children, they will pay up to 32 per cent on the taxable component of your super death benefit unless a ‘testamentary trust’ is established by the will, naming them as beneficiaries.
A testamentary trust is established by a Will and only begins after the person’s death. It’s a way of protecting investments, cash and other valuable assets for beneficiaries.
Rights of beneficiaries
Bear in mind that beneficiaries of Wills have certain rights. These include the right to be informed of the Will when they are a beneficiary. They can also expect to hear about any potential delays.
You are also entitled to contest or challenge the Will and to know if other parties have contested the Will.
If you want to have a final say in how your estate is dealt with, then give us a call.
Unexpected outcomes
David died in his early 60s. He left his estate to his wife Sally in accordance with his Will.
It seemed sensible at the time. But after a few years, Sally remarried. Unfortunately, the marriage did not last. When Sally died some 20 years later, her estate did not just go to her and David’s children but ended up being shared with her estranged second husband.
A testamentary trust, stipulating that the beneficiaries of both David’s and Sally’s estates were to be only blood relatives, may have solved this issue.
With heavy hearts we announce the passing of Peter Ferguson. As some of you are aware Peter had been unwell for some time which led to his retirement in 2020.
We cannot overstate his importance to both Dominion in his role as a financial planner and the service he provided our good clients. Everyone who was lucky to have worked with and alongside Peter will miss him.
We are sending our love and condolences to his wife, Barbara, and his family. Please think of them during this difficult time.
At this stage funeral arrangements have not been finalized, should you wish to be notified please contact the office.
Welcome to Spring, a season that might be motivational for personal, business and financial renewal. We hope you enjoy the sunshine and warmer weather.
Global stock markets – including the ASX – largely stabilised by the end of August after a turbulent month.
It was a rocky start when markets everywhere fell after news of high unemployment figures in the US and an interest rate move by Japan’s central bank. Despite the dramas, the S&P/ASX 200 closed 1.28% higher for the month marking a gain of just over 10% for the 12 months to date.
A slight drop in inflation figures – down to 3.5% in July from 3.8% the previous month – had investors checking the Reserve Bank’s reaction but most economists agree there’s no chance of an interest rate cut this year. The RBA’s not forecasting inflation to get to its preferred levels until late 2026 or early 2027.
While the cost of living has dropped ever so slightly (and partly due to $300 federal government rebates on electricity bills), wages have risen. The Australian Bureau of Statistics reports that wages rose by 4.1% in the year to June. It means that wages are now keeping up with the cost of living.
The good news from the markets and inflation data contributed to a small upswing in consumer confidence although there’s still much ground to recover after the losses caused by Covid-19.
How do retirement income options compare?
Retirement is filled with opportunities and choices. There’s the time to travel more, work on long-delayed personal projects or volunteer your help to worthwhile causes.
You also have a host of choices to make when it comes to funding your new life away from paid work. Here are four different options to consider.i
Account-Based Pension
An account-based pension (ABP) using your superannuation is one of the most common retirement income options. The amount you receive depends on the balance of your account and the drawdown rate you choose, subject to the minimum pension requirements set by the government.
Some considerations:
Tax benefits – Investment earnings, capital gains and withdrawals are tax-free, unless you have an untaxed component within your super.
Payment flexibility – Subject to pension minimums, most super funds allow you to adjust the payment amount and frequency, and even make partial or full lump-sum withdrawals if needed. You can also return to work and continue to receive a pension.
Longevity and market risks – You might outlive your account balance, especially if your withdrawals are high or your investment returns are poor.
Transition to Retirement
A transition to retirement (TTR) strategy allows access to some of your superannuation while still working, if you have reached age 60 (based on current rules).ii
Some considerations:
Flexible work options – You can reduce your working hours and supplement your income from your super.
Limits on pension rates – Similar to an ABP, there is a minimum annual pension rate. However, there is also a maximum annual withdrawal of 10 per cent of your TTR account balance.
Reduced retirement savings – Drawing on your superannuation while still working means your retirement savings might grow more slowly.
Annuities
An annuity is a financial product that provides a guaranteed income for a specified period or for the rest of your life. There are various types of annuities, including fixed, variable, and indexed annuities. You can purchase annuities or lifetime income streams using your superannuation.
Some considerations:
Predictable income – Provides a stable income stream, which can be reassuring for financial stability and provide an income for as long as you live.
Lack of flexibility – Once you purchase an annuity, the terms are generally fixed and you cannot alter the income amount. There’s a restriction on capital withdrawals or in some instances no access to capital at all.
Inflation risk – Fixed non-inflation-linked annuities may not keep pace with inflation unless specifically indexed to inflation.
Innovative Retirement Income Stream
An Innovative Retirement Income Stream (IRIS) is provided by a newer range of products. These were introduced after changes to regulations designed to deliver more certainty to retirement income by paying a pension for life without running out of funds.
Some considerations:
Age Pension benefits – Centrelink only counts 60 per cent of the pension payments received as assessable income and only 60 per cent of the purchase price of the product counts as an assessable asset until age 84 when it is reduced.
Certainty – Some IRIS products offer a stable guaranteed income stream, providing financial security.
No minimum requirements – IRIS products do not require an annual minimum amount, instead just requiring at least one annual payment.
Complexity – Features vary widely between different IRIS products and may involve complex terms or conditions.
Next steps
How do these different options suit your personal needs and how would they affect your retirement income? Consulting with a financial advisor can help you navigate these choices and tailor a plan that best suits your needs. Speak to us, so we can help you structure a plan to fund the retirement lifestyle you’ve worked so hard for.
Employers need to check that payroll systems reflect recent legislative changes, and the ATO is highlighting deduction opportunities available to some small businesses. Here’s your roundup of the latest tax news.
Updated employer obligations
The ATO is reminding employers to stay on top of legislative changes affecting payroll systems.
The Super Guarantee rate increased on 1 July 2024 to 11.5 per cent of ordinary times earnings, so all payments (starting with those for the July to September quarter) to super accounts for eligible workers must reflect the new rate.i
Individual income tax rate thresholds and tax tables changed also changed on 1 July 2024 so you may need to check calculations for your Pay As You Go Withholding obligations.
Claims for energy expenses
Many small business are eligible for a bonus 20 per cent tax deduction for new assets (or improvements to existing assets), that support more efficient energy usage.
The Small Business Energy Incentive applies to eligible assets first used or installed ready for use between 1 July 2023 and 30 June 2024.ii
Eligible expenditure for external training courses for employees incurred between 29 March 2022 and 30 June 2024 could also qualify for a 20 per cent bonus tax deduction from the Small Business Skills and Training Boost.iii
Pay less capital gains tax (CGT)
While a business can reduce capital gains made during a tax year by offsetting them with capital losses from the same or previous income years, not all capital losses are eligible.iv
Capital losses carried forward from previous years need to be used first, with losses from collectables (such as artwork and antiques) only permitted to be offset against capital gains from collectables.
Losses from personal use assets (such as boats or furniture), CGT exempt assets (such as cars and motorcycles), paying personal services income to yourself through an entity you set up, and leases producing income (such as commercial rental property), are ineligible as offsets.
Fuel tax credit rates change
Before claiming fuel tax credits in your next Business Activity Statement (BAS), check you are using the latest rates as they have changed twice in the new financial year.v
On 1 July 2024, the rate for heavy vehicles travelling on public roads changed due to an increase in the road user charge, with the rate altering again on 5 August 2024 due to a change in fuel excise indexation.
Different rates apply based on when you acquired fuel for your business’ use, so ensure you use the correct rate. If you are unsure, try the ATO’s online Fuel Tax Credit Calculator to work out the amount to report in your BAS.
Records essential for rental expense claims
Rental property investors without correct documentation to substantiate their expense deductions may find their claims declared invalid.vi
The ATO is warning investors they need all receipts, invoices and bank statements plus details of how deductions were calculated and apportioned for a valid claim.
Lodging a ‘nil’ BAS
While taxpayers registered for GST automatically receive a Business Activity Statement and are required to lodge and pay in full by the due date, businesses with nothing to report are still required to lodge.
If you have paused your business, you are required to lodge a ‘nil’ BAS by the due date either online or via the ATO’s automated phone service.vii
With the cost of doing business continuing to squeeze the bottom line, careful cash flow management has never been more important.
Not only is the ATO paying extra attention to timely payment of tax debts, but once the new payday super rules commence, many small businesses will no longer have access to one of their traditional sources of emergency funding.i
The government recognises how important cash flow is in small businesses and allocated an additional $23.3 million in the May 2024 Federal Budget to boost the adoption of eInvoicing. This electronic system is designed to help improve cash flow and productivity in smaller operations.
If you don’t have clear insights into your cash flow position and are not careful in managing income and expenses, it’s much harder to pay your bills and meet your tax, super and employer obligations.ii
A cash flow projection or budget helps to ensure there is enough cash available to meet upcoming expenditure. You will be able to understand your likely cash position at any time, identify fluctuations that could lead to potential cash shortages and plan for tax payments and major expenses.
The three main things to consider when creating a cash flow budget are timing, fixed and variable costs, and your income.
While cash flow projection tools can be off-the-shelf digital products or simple templates, we can also work with you to use the ATO’s Cash Flow Coaching Kit to improve management of this critical area.iii
Improving your position
When you have completed a cash flow projection and understand your position, it is time to work on ways to improve it.
One of the most important ways to improve cash flow is to ensure your invoices are paid as quickly as possible. Make sure invoices are sent out as soon as you can and, if possible, ask for immediate payment.
Consider shortening your payment terms, particularly if they are currently longer than 30 days. Some businesses offer an early payment discount or charge interest on overdue accounts to help speed up payments.iv
Setting clear payment guidelines for your customers is also valuable and think about taking action with customers who regularly fail to pay on time.
Review your payment cycle
Check suppliers’ payment terms to make sure you are not paying earlier than required (unless there is a discount on offer!).
Using a business credit card with an interest-free payment period can be an easy way to smooth your cash flow.
Separating your personal and business expenses makes tracking your business cash flow and expenses easier and reduces the time required for reconciliations.
Check stock levels
If you sell or supply products, carry out regular reviews of your inventory to ensure you are only holding the stock needed and are not tying up valuable cash flow and possibly increasing storage and insurance costs.
An inventory management system can be helpful to automate ordering and reduce lags between placing and receiving orders, and to identify unwanted or outdated stock.
Also review your pricing and margins to see if it is possible to raise prices without losing business.
Reduce your outgoings
Keeping a close eye on regular expenses and one-off spending helps to keep outgoings to a minimum.
Look for opportunities to save money by streamlining operations and reducing operating costs by cutting energy expenses and reviewing existing service contracts including phone and insurance.
Negotiating better prices with suppliers and more tightly targeting marketing expenditure can also boost your cash flow.
Make your asset work harder
If your business includes expensive assets like vehicles and equipment, ensure they are working hard for you.
Consider leasing or hiring assets to reduce upfront costs, sell assets you no longer need, and review any asset financing to make sure that it is competitive.
While these general tips may help improve your cash flow position, don’t forget we can provide advice tailored to the specific needs of your business. So, call us today if you would like our help.
The new financial year brings a host of changes to taxes that affect all 13.6 million taxpayers.i
The biggest and most high-profile change is the cuts to tax rates from 1 July, which will deliver a benefit to every taxpayer, according to the Federal Government.ii
With the changes and extra income on the table it could be useful to review your current tax, super and investment strategies.
This will ensure you maximise the benefits from the tax cuts and make informed decisions when it comes to areas such as debt repayment, salary packaging and super contributions.
The new rates for each income tax bracket see the current 19 per cent tax rate reduce to 16 per cent, while the 32.5 per cent rate drops to 30 per cent. The income threshold at which the existing 37 per cent tax applies increases from the current $120,000 to $135,000.iii
In addition, the income threshold at which the 45 per cent tax rate applies increases from $180,000 to $190,000.
The government says the new rates provide taxpayers with greater protection against bracket creep (particularly low- to middle-income taxpayers) and result in lower average tax rates for all taxpayers.iv
More income but salary packaging impact
With additional disposable income now available, the start of the financial year is a good time, depending on your individual circumstances, to consider contributing more to your super account or paying down non-deductible debt such as your mortgage.
If you have a salary packaging arrangement currently in place, it’s worth noting the reduction in the lowest tax rate from 19 per cent to 16 per cent may affect the value of these types of strategies for some taxpayers.
For example, someone packaging $15,000 of debt repayments in 2023-24 saved around $5,000 with the 37 per cent tax rate, but under the new, lower 2024-25 tax rate of 30 per cent, this tax saving is significantly reduced.
Medicare Levy threshold uplift
Some taxpayers will also see changes due to the May 2024 Federal Budget increase to the low-income threshold for the Medicare Levy.
The lift in the existing income thresholds is designed to ensure low-income taxpayers continue to be exempt from the Medicare Levy or pay a reduced levy rate.
For the 2024-25 year, the income threshold exempts people earning $26,000 or less from paying the Medicare levy. After that, the levy increases gradually, with the full 2 per cent levy paid by anyone earning more than $32,500.v
Tax cuts impact businesses
Employers will also feel the impact of the new income tax rates and need to ensure they are withholding the right amount of pay as you go (PAYG) withholding tax from each employee’s pay, starting from 1 July 2024.
Employers should check their payroll software is using the correct, new withholding rates. An easy way to do this is to use the ATO’s online Tax Withheld Calculator.
Unincorporated businesses (such as sole traders) also benefit from the tax cuts as income received is taxed under the new, reduced individual income tax rates and thresholds.
SG rate changes for employees
From 1 July 2024, the Super Guarantee (SG) that employers are required to pay into their employees’ personal super accounts increased from 11 per cent to 11.5 per cent of ordinary times earnings. The SG will rise again on 1 July 2025 to reach its final level of 12 per cent.
The quarterly maximum super contributions base (MSCB) also rose to $65,070 (up from $62,270) from 1 July. Employers are not required to provide SG contributions for any salary amount paid to an employee above the quarterly MSCB limit.
Super contribution caps rise
From 1 July, there were increases in the annual caps governing the amount of contributions you can make into your super account before additional tax becomes payable on the contribution amount.
The concessional (before-tax) contributions cap increased to $30,000 (up from $27,500 in 2023-24), while the annual non-concessional (after-tax) contributions cap rose to $120,000 (up from $110,000 in 2023-24).viii
The increase in the non-concessional contributions cap means the limit for bring forward contributions now sits at $360,000 over three years (up from $330,000 over three years in 2023-24). The cap on your total super balance remains at $1.9 million, as does the general transfer balance cap.
For 2024-25, the CGT cap amount (or lifetime limit) for eligible business owners wanting to make tax advantaged contributions into their super account is $1,780,000 (up from $1,705,000 in 2023-24).ix
If you need help navigating the updated tax and super rules in place for the new financial year, call our office today.
Income tax rates for Australian tax residents
Income tax rates for Australian tax residents
Taxable income range ($) 1 July 2020 – 30 June 2024
Marginal tax rate (%)
Taxable income ($) From 1 July 2024
Marginal tax rate (%)
Tax payable
0 – 18,200
Tax free
0 – 18,200
Tax free
Nil
18,201 – 45,000
19
18,201 – 45,000
16
16c for each $1 over $18,200
45,001 – 120,000
32.5
45,001 – 135,000
30
$4,288 + 30c for each $1 over $45,000
120,001 – 180,000
37
135,001 – 190,000
37
$31,288 + 37c for each $1 over $135,000
Above 180,000
45
Above 190,000
45
$51,638 + 45c for each $1 over $190,000
These rates do not include the Medicare Levy, which remains at 2%
Treasurer Jim Chalmers has high hopes that his 2024 Federal Budget will rein in inflation earlier than expected, ease cost-of-living pressures and build a stronger economy in the future.
It’s a Budget for the here and now, he says, but also for the decades to come.
More than $8.4 billion has been allocated to quick-fix cost-of-living adjustments along with the previously announced Stage 3 tax cuts and the waiving of $3 billion in student debt.
With a federal election due next year, the Federal Government has announced spending of almost $83 billion on housing, infrastructure, health and a Future Made in Australia project to build a more resilient economy for the future.
The big picture
While Treasury is forecasting a $9.3 billion surplus for 2023-24 after the previous year’s $22.1 billion surplus, the books will look considerably different the following year with a $28.3 billion forecast deficit expected.
That’s against a backdrop of an uncertain global economic outlook with wars in the Middle East and Ukraine as well as slowing growth in China and elsewhere.
“Most advanced economies recorded subdued outcomes during 2023, with around a third of OECD nations recording a technical recession,” notes Treasury in the Budget papers.
“Global inflation has moderated but remains too high, and there are risks it will persist. Tackling inflation remains the primary focus but, as inflationary pressures abate and labour markets soften, the global policy focus will increasingly shift to managing risks to growth.”
There are some bright spots for Australia though.
Treasury is forecasting inflation could return to the target rate of between 2 and 3 per cent earlier, perhaps by the end of the year, the Treasurer says.
Jobs growth is stronger here than in any major advanced economy and real wages are growing again for the first time in almost three years.
Cost of living
This year’s Budget aims to help out those struggling to pay the bills with a range of tax cuts and subsidies.
Every taxpayer will pay less tax as part of the Stage 3 tax cuts announced earlier this year. The average tax cut is $36 a week or an annual $1,888.
More than 10 million households will receive a total rebate of $300 on their electricity bills and eligible businesses will receive $325.
The government says its Energy Bill Relief Plan has kept electricity price increases to two per cent through the year to the March quarter this year. Without it, prices would have increased by 14.9 per cent.
While it won’t provide immediate relief, the government has grocery prices in its sights. It’s taking steps to make a Food and Grocery Code mandatory with penalties up to 10 per cent of turnover for major breaches. It also directed the Australian Competition and Consumer Commission to investigate pricing and competition in the supermarket sector.
Commonwealth Rent Assistance has been increased by a further 10 per cent, there is a $138 million boost to emergency relief funding and financial support services, and the freeze on the deeming rate for income support recipients has been extended. The deeming rates are used by Centrelink to predict earnings from super and investments over the 12 months ahead. The lower deeming rate will remain at 0.25 per cent and the upper rate will remain at 2.25 per cent until 30 June 2025.
Anyone with a student debt will welcome a change to the indexation rate for the Higher Education Loan Program (HELP). The government says it will cut $3 billion in student debt for more than three million Australians.
Health
Medicines can be a big cost for many people and a new $3 billion agreement with community pharmacies is expected to help. The government is expecting the deal to deliver cheaper medicines and better patient health.
There will be a one-year freeze on the maximum patient co-payment and a five-year freeze for pensioners and other concession cardholders. This change means that no pensioner or concession card holder will pay more than $7.70 (plus any applicable manufacturer premiums) for up to five years.
Almost half of Australians live with a chronic health condition and the Budget provides more than $141 million for research and services for conditions including bowel and skin cancer, diabetes and dementia.
The government is also providing an extra $411 million to the Medical Research Fund to continue research for low-survival cancers.
And, in a strengthened mental health package, the government has committed more than $888 million over eight years to improve access to services and support.
Aged care
Providing further support for the recommendations of the Royal Commission into Aged Care Quality and Safety, the Budget allocates $2.2 million to develop a new Aged Care Act. The Act is expected to establish a new Support at Home program and improve the standard of in-home aged care.
An extra 24,100 Home Care Packages will also be made available to reduce waiting times and wait times for the My Aged Care Contact Centre will be reduced.
Meanwhile, the government has allocated funding to beef up the regulatory capabilities of the Aged Care Quality and Safety Commission.
To support fair wages for care workers, the government has committed to fund a further increase in the award wage for direct and indirect aged care workers. The government is also providing $87.2 million for initiatives to attract nurses and other workers into aged care.
Housing
With housing affordability affecting millions of Australians, the government has allocated $6.2 billion in the Budget on a range of initiatives.
There’s a further $1 billion for states and territories to deliver new housing, more student accommodation, an increase in funds for homelessness services and more concessional loans for community housing providers.
The Build to Rent market will receive a boost with a plan to allow foreign investors to purchase developments with a lower foreign investment fee.
The government is also supporting 20,000 new fee-free TAFE places for courses in the construction sector.
Infrastructure
The government aims to stimulate the economies of the states and territories with funding for a number of major infrastructure projects.
There’s $21.6 billion for Queensland over 10 years for projects including the Sunshine Coast rail line and Bruce Highway works; $20.8 billion over 10 years for NSW for various road upgrades; $19.2 million in Victoria for the North East Link and other projects.
Attracting investment
Aiming to shore up Australia’s economic fortunes, the government has created a comprehensive package of projects to lift our manufacturing industry and position us to take advantage of net zero.
The Treasurer says the world’s commitment to net zero by 2050 will demand “the biggest transformation in the global economy since the industrial revolution”.
He believes Australia’s energy, resources, regions, researchers and workers can all play a part in creating a “renewable energy superpower”.
To that end, the Budget includes $13.7 billion in production tax incentives for green hydrogen and processed critical minerals, $1.7 billion to develop new industries using green metals and low carbon fuels and $566 million to map the geological potential of the entire country to get a better picture of our critical minerals and groundwater.
There will be major work on attracting new investment by reforming investment settings and regulatory processes.
The government says it will make it simpler to invest in Australia to entice more capital both from overseas and at home. It will work with business, governments, unions, communities and other experts during 2024 to come up with the best approach.
Supporting women and families
With escalating rates of family violence and an alarming increase in the incidence of violence against women, the Budget includes funding to support a range of programs.
More than $925 million will be spent over five years to provide support for victim survivors leaving a violent intimate partner relationship and a program to strengthen accountability for systemic gender-based violence in higher education.
The government will invest more than $56 million over four years to improve access to sexual and reproductive healthcare for women including training GPs to provide better menopause care.
A newly released national gender equality strategy will drive government action on women’s safety, sharing, economic equality, health, leadership and representation.
In a move to take the pressure off parents, superannuation will be paid on government funded Paid Parental Leave (PPL) for parents of babies born or adopted on or after 1 July 2025.
Looking ahead
The stimulus provided by this Budget will bring some relief in the short term, but our economy will be relying on the big ideas, such as the Future Made in Australia project, to provide the resilience we need in an uncertain global economy.
Treasury is forecasting slow global growth and only 1.75 per cent growth in Australia this financial year and 2 per cent next year along with a significant deficit.
But the Treasurer is confident he has delivered “an inflation-fighting and future-making Budget” with “responsible relief that eases pressure on people and directly reduces inflation”.
It’s one that will “forge a new economy and a new generation of prosperity”, he says.
If you have any questions about the Budget measures announced, please don’t hesitate to contact us.
As the end of financial year gets closer, some investors are thinking about the most effective ways to boost their super balance, particularly with an increase in the caps on contributions from 1 July.
The concessional contributions cap, which is the maximum in before-tax contributions you can add to your super each year without paying extra tax, is increasing to $30,000 from $27,500 in the new financial year.i
The cap increases in line with average weekly ordinary earnings (AWOTE).
It’s a good idea to keep track of your concessional contributions – which include any compulsory contributions made by your employer as well as salary sacrifice contributions – so that you don’t unintentionally exceed the cap. It is particularly important for those with more than one job or super fund because all of the contributions are added together and must not exceed the cap.
You can check your current balance at ATO online services. Log into your myGov account and link to the ATO to see all your details.
It is also useful to be aware of payment and reporting timelines. For example, your employer can make super guarantee contributions up until 28 July for the final quarter of the financial year and salary sacrifice contributions up until 30 June.
Any amounts showing on the ATO website for your account are based on when your fund reports to the ATO.
Carry forward unused amounts
If you haven’t made extra contributions in past years, you may have unused concessional cap amounts.
These can be carried forward, allowing you to contribute more as long as your super balance is less than $500,000 at 30 June of the previous financial year.
You can carry forward up to five years of concessional contributions cap amounts.
Getting close to exceeding the cap?
If you’re worried about going over the cap, you may wish to stop any further voluntary contributions based on an assessment of the extra tax you will pay.
For those with two or more employers, you may opt out of receiving the super guarantee from one of the employers.
Meanwhile, if special circumstances have caused you to exceed your cap, it’s possible to apply to the ATO for some or all of the contributions to be disregarded or allocated to the next financial year.
But, if all else fails and you have exceeded the cap, the excess contributions will be included in your assessable income and taxed at your marginal rate less a 15 per cent tax offset. The good news is that you can withdraw up to 85 per cent of the excess contributions from your super fund to pay your tax bill. Any excess contributions left in the fund will be counted towards your non-concessional contributions cap.
Timing is everything The upcoming Stage 3 tax cuts, which commence on 1 July 2024, may affect the value of your concessional contributions. For some, tax benefits may be greater if contributions are made before the tax cuts begin. Please check with us about your circumstances to make sure you make the most effective move.
Non-concessional cap also increased
The non-concessional contributions cap is the maximum of after-tax contributions you can make to your super each year without paying extra tax.ii
The non-concessional cap is exactly four times the amount of the concessional cap so it increases from $110,000 to $120,000.
If you exceed the cap, you may be eligible to use the ‘bring forward rule’, which allows you to use caps from future years and possibly avoid paying extra tax. It means you can make contributions of up to two or three times the annual cap amount in the first year of the bring forward period. iii
If your total super balance is equal to or more than the general transfer balance cap ($1.9 million from 2023–24 and 2024-25) at the end of the previous financial year, your non-concessional contributions cap is zero for the current financial year.
We’d be happy to help with advice about how the changes in contribution caps might affect you and whether you are eligible for the bring forward rule.
Non-concessional contributions
Bring-forward cap first year (applying to 2023–24 and later years)
Total super balance on 30 June of previous year
Non-concessional contributions cap for the first year
Bring-forward period
Less than $1.68 million
$330,000
3 years
$1.68 million to less than $1.79 million
$220,000
2 years
$1.79 million to less than $1.9 million
$110,000
No bring-forward period, general non-concessional contributions cap applies
Investing successfully and improving your investment portfolio can be as much about minimising mistakes as trying to pick the ‘next big thing’. It’s all about taking a calm and considered approach and not blindly following trends or hot tips.
Let’s delve into some of the most prevalent investment mistakes and look at the principles that underpin a robust and successful portfolio.
Chasing hot and trending shares
Every so often there are industries or shares that are all over the media and you may begin to worry that you are missing out on something. For example, there was the ‘dot com’ bubble in the early 2000s, the social media hyped ‘AMC’ shares in 2020 or the lithium shares in 2022. Jumping on every trend is like trying to catch a wave; you might ride it for a bit, but you’re bound to wipe out sooner or later. That’s because the hot tips and ‘buy now’ rumours often don’t pass the fundamentals of investing test.
The key is to keep a cool head and remember that the real winners are often the ones playing the long game.
Not knowing your ‘why’
What would you like your investment portfolio to achieve? Understanding your motivations and goals will help you to choose investments that work best for you.
If you want to build wealth for a comfortable retirement, say 20 to 30 years down the track, you can afford to invest in riskier investments to play the long-term game. If you have already retired and plan to rely on income from your portfolio, then your focus will be on investments that provide consistent dividends and less on capital growth.
Timing the market
Timing the market involves buying and selling shares based on expected price movements but at best, you can only ever make an educated guess and then get lucky. At worst, you will fail.
As the world-renowned investor Peter Lynch wrote in his book Learn to Earn: “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves”.i
Putting all the eggs in one basket
This is one of the classic concepts of investing and something that you have probably heard many times. But it’s worth repeating because, unless you are regularly reviewing your portfolio, you may be breaking the rule.
Diversifying your portfolio allows you to spread the risk when one particular share or market is performing badly.
Diversification can include different countries (such as adding international shares to your portfolio), other financial instruments (bonds, currency, real estate investment trusts, exchange traded funds), and industry sectors (ensuring a spread across various sectors such as healthcare, retail, energy, information technology).
Avoiding asset allocation
While diversification is key, how do you achieve it? The answer is by setting an asset allocation plan in place.
How much exposure do you want to diversify into defensive and growth assets? Within them, how much should be invested in the underlying asset classes such as domestic shares, international shares, property, cash, fixed interest and alternatives.
Then review your asset allocation from time to time to rebalance any over or under exposure that may occur due to market movements.
Making emotional investment decisions
The financial markets are volatile and that often leads investors to make decisions that in hindsight seem irrational. During the COVID-19 pandemic, on 23 March 2020 the ASX 200 was 35 per cent below its 20 February 2020 peak.ii By May 2021, the ASX 200 crossed the 20 February 2020 peak. Many investors may have made an emotional decision to sell out during the falling market in March 2020 but then would have missed the some of the uplift in the following months in.
Some of the other common investment mistakes include reacting to the noise in media, trading too much, over-diversification, not reviewing your portfolio regularly to ensure it still aligns with your goals, not doing enough quality research and not working with a professional.
Seeking out quality and trustworthy financial advice can help to minimise investment mistakes. Give us a call if you would like to discuss options for growing your portfolio.
The cycle of investor emotions
Behavioural finance is the study of how psychological influences can affect investing and markets. This chart shows how emotions affect an investor’s behaviour at different points in the market.
When your investments are rising, you feel optimistic and eventually reach euphoria which is at the peak of the market and it makes you feel like the smartest person in the room, tempting you to take more risk.
As the markets drop, you may deny it as a short-term blip. As it keeps falling, panic sets in eventually leading to despondency – making you question your entire investment decision.
As markets start to rise again, there is hope which ultimately leads back to optimism which is the start of the cycle all over again.
Having a financial adviser coach you through this wave of emotions can be a way to limit making irrational decisions.
It’s December – the month that always seem to race by as we approach the end of the year and all the festivities it brings. We hope you all have a lovely, happy, and safe festive season.
On the economic news front, there was some good news. Consumer prices eased by more than expected in October. The news that inflation may have been tamed means interest rate rises may be behind us, for now. The positive data also led to a jump in the Australian dollar, taking it to a new four-month high.
Retail spending slowed in October after a short-lived boost in August and September. But, in a further sign of good times ahead, business investment in the September quarter increased by 0.6% to almost $40 billion.
In mixed outcomes for sharemarket investors, there were some devastating lows this year, and a flat performance as November ended, but the ASX200 is up 4 points since the beginning of the year. The unemployment rate has increased slightly to 3.7% with an extra 27,900 people out of work in October.
Overseas, China’s plan to bolster support for infrastructure drove iron ore prices 36% higher than the low in May. Although prices slipped $4 in November from a one-year high of $138 per tonne. While oil prices have steadied with cuts to production on the table to reduce stocks. Brent crude ended the month at around $83.
How to give back
Australia is a giving country, but we often give in kind rather than financially.
Whenever there is a disaster here or overseas, Australians rush to donate their time, household goods and cash. However, we still lag other countries when it comes to giving money.
According to Philanthropy Australia, our total financial giving as a percentage of Gross Domestic Product is just 0.81 per cent, compared with 0.96 per cent for the UK, 1 per cent for Canada, 1.84 per cent for New Zealand and 2.1 per cent for the US.i
Currently the number of Australians making tax deductible contributions is at its lowest levels since the 1970s.ii Despite this, the Australian Tax Office reports that deductible donations claimed by individuals rose from $0.74 billion in 1999-2000 to $3.85 billion in 2019-20.iii
Considering an estimated $2.6 trillion will pass between generations over the next 20 years, the opportunities for increasing our financial giving abound. Philanthropy Australia wants to double structured giving from $2.5 billion in 2020 to $5 billion by 2030.iv
Many ways to give
There are many ways of being philanthropic such as small one-off donations, regular small amounts to say, sponsor a child, donating to a crowd funding platform or joining a giving circle.
For those with much larger sums to distribute, a structured giving plan can be one approach.
Structured giving
You can choose a number of ways to establish a structured giving plan including through a public or private ancillary fund (PAF), a private testamentary charitable trust or giving circles.
Whichever way you choose, there are attractive tax incentives to encourage the practice.
The type of vehicle will depend on:
the timeframe of your giving
the level of engagement you want
whether you want to raise donations from the public
whether you want to give in your lifetime or as a bequest
whether you want to involve your family to create a family legacy.
Private ancillary fund
A private ancillary fund is a standalone charitable trust for business, families and individuals. It requires a corporate trustee and a specific investment strategy. Once you have donated, contributions are irrevocable and cannot be returned. To be tax deductible, the cause you are supporting must be a body identified as a Deductible Gift Recipient by the Australian Tax Office.
The benefits of a PAF are that contributions are fully deductible, and the deductions can be spread over five years. The assets of the fund are exempt from income tax.
The minimum initial contribution to a PAF is at least $20,000. The costs of setting up a PAF are minimal and ongoing costs are usually about 1-2 per cent of the value of the fund.
Each year you must distribute 5 per cent of the net value of the fund to the designated charity.v
Testamentary charitable trust
An alternative to a PAF is a testamentary charitable trust, which usually comes into being after the death of the founder. The governing document is either a trust deed or the Will.
With a testamentary charitable trust, trustees control all the governance, compliance, investment and giving strategies of the trust. The assets of the trust are income tax exempt. The minimum initial contribution for such a fund is usually $500,000 to $2 million.vi
Philanthropy through structured giving still has a long way to go in Australia. The latest figures for total giving in Australia is $13.1 billion, of which $2.4 billion is structured giving. Currently the number of structured giving entities stands at just over 5400.vii
As the baby boomers pass on their wealth to their families, there is a wide opening for some of this money to find their way into charities and causes through structured giving.
If you want to know more about structured giving and what is the right vehicle for you to help the Australian community at large, then give us a call to discuss.
The lenient approach taken by the ATO during the pandemic is over, with its focus now returning to traditional debt collection. With several key areas under the spotlight, some small businesses should consider taking advantage of the current amnesty to get their reporting in order. Here’s some of the latest developments in the world of tax.
Reminder on late lodgment amnesty
If your small business is not up-to-date with its tax lodgments, it’s worth noting the government’s current Lodgment Penalty Amnesty ends on 31 December 2023.
The amnesty allows small businesses to lodge any outstanding income tax and FBT returns or business activity statements (BAS) due between 1 December 2019 and 28 February 2022 without lodgment penalties being applied (general interest charges still apply).
Businesses with an annual turnover under $10 million when the original lodgment was due are eligible for the amnesty.
Warning on ATO’s ‘back to business’ focus
In recent speeches, the ATO has put small business on notice that its lenient attitude during the pandemic is being replaced with a much tougher approach designed to re‑establish its traditional culture of ensuring taxpayers pay on time.
With collectable debt rising dramatically over the past four years, the ATO is returning to its normal debt collection stance and is taking firmer action with taxpayers.
Five areas the ATO is particularly focussing on are unpaid Super Guarantee Charge; debt arising from ATO audit adjustments; refund fraud; aged, high-value debts; and employers with new self-assessed debt.
Employer SG compliance under the microscope
The ATO is expanding its use of the information reported by employers through the Single Touch Payroll (STP) system in relation payment of employees’ Super Guarantee (SG).
Employers are required to make SG payments quarterly and the ATO is now using STP and Member Account Transaction Service information to check whether an employer has paid on time.
The new checks will help the ATO follow-up non-compliant employers and prepare for the introduction of the new rules requiring employers to make SG payments at the same time as wages, which commence on 1 July 2026.
Sharing economy reporting expands
Businesses connecting customers with people who provide services or hiring personal assets through a website or app are increasingly being added to the Sharing Economy Reporting Regime (SERR).
Platforms providing taxi services (including ride-sourcing) and short-term accommodation were required to start collecting seller transaction information from 1 July 2023.
From 1 July 2024, all other sharing economy platforms will be required to start collecting and reporting personal and contact details, business information and financial identifiers related to transactions twice a year to the ATO.
Tax residency test updates
A new one-stop shop tax ruling to help people self-assess their residency for tax purposes has been released by the ATO to help people going to work overseas or moving to Australia.
Taxation Ruling TR 2023/1 replaces older tax rulings with more contemporary guidance reflecting modern global work practices and recent court decisions. It also contains information on the 183-day residency test for people arriving on short-term work and holiday visas.
The tax office uses different rules to the Department of Home Affairs, meaning it is possible to be an Australian resident for tax purposes without being a citizen or permanent resident.
SMSF promoter scheme warning
The ATO is once again reminding trustees of self-managed super funds (SMSFs) to be wary of people promoting illegal schemes for early access to super.
Warning signs of an illegal scheme can include claims you can access your super and put it towards anything you want, charging high fees and commissions, and requesting your identity documents.
Anyone approached about these types of schemes should not sign any documents or provide any personal details, and should immediately report the interaction to the ATO.
Keep your ABN details updated
Ensuring your ABN details are up-to-date on the Australian Business Register is an important requirement of being in business.
Without it, you could also miss out on valuable financial assistance or government information.
Emergency services and government agencies also use ABN details to identify businesses in areas affected by emergencies, so it’s important to keep your physical business and postal address current.
Making sure your deductions don’t get personal
It can be easy to overlook your personal use of business assets when it comes to completing your business and self managed super fund tax returns but be warned, the ATO is taking an interest in this area.
The ATO’s Small Business Random Enquiry Program found around 16 per cent of small businesses were either carelessly or deliberately overclaiming expenses in their tax returns.
If business assets are used for a mix of business and private use – such as vehicles and phones – the amount claimed must reflect only the business-related portion of the expense.
Holiday home rentals are also an area where many taxpayers are failing to follow the tax rules.
Deductions for holiday home expenses can only be claimed to the extent they relate to producing rental income, so you need to apportion your expenses if the property is only genuinely available for rent part of the year.
Apportionment is also required if you use the property for private purposes during the year, only use part of it to earn rent, or if it is used by family or friends at various times during the year.
Expenses relating solely to the rental of the property (such as agent commissions and advertising costs), don’t need to be apportioned.
Avoiding mistakes
To ensure you don’t invite attention from the ATO, review your treatment of business asset expenses annually, in case your private usage has changed.
New or additional private usage of the asset means you need to recalculate the percentage of business used to determine the correct deduction claim.
Proper business records explaining all relevant transactions (including payment to and receipts from employees, shareholders and associates) need to be kept to support your claims.
Common taxpayer errors
The ATO says there are some common errors when it comes to claiming deductions.
Taxpayers are not permitted to claim any deductions against business income for expenses relating to an asset entirely used for private purposes.
An example is an asset (such as a boat or plane) purchased and used for private purposes.
Deductions can only be claimed for the relevant percentage of business use. For example, if the private use component represents 60 per cent, only 40 per cent of the expense amount can be claimed in your return.
FBT and deemed dividends
Another common mistake is claiming a deduction for an asset giving rise to a deemed dividend. This arises when an asset is purchased through a company and used for private purposes by a company shareholder or their associates.
Under the tax rules, both the company and the dividend recipient must record such dividends in their income tax returns, as the asset is being used for their personal benefit.
Some small businesses also misunderstand the implications of purchasing an asset (such as a motor vehicle), that is used by an employee or the associate of an employee for personal purposes.
When this occurs, the benefit must be reported in the business’s fringe benefit tax (FBT) return and the resulting FBT liability paid.
Fixing lodgement mistakes
To avoid finding your business in the ATO’s spotlight, check you have correctly apportioned all expense claims before lodging your business or SMSF return.
You also need to consider whether the rules for private company benefits and FBT apply to any of your business assets. If you make a mistake with a deduction claim, you will need to amend or lodge an income tax or FBT return to correct your tax position. There are time limits on both business and super amendments.
We can help you to correct any mistakes and to deal with the ATO to ensure your tax reporting is smooth and worry-free.
September is upon us, and spring is in the air. It’s time to shake off the winter cobwebs, get out into the garden or the great outdoors. Meanwhile, AFL and NRL fans will be hoping the sun shines on their team this finals season.
After endless gloomy forecasts, there was a glimmer of hope last month that the cost of living might be easing. Inflation fell in July to 4.9% from 5.4% in June, despite predictions by economists of a rise.
While housing prices are still rising, up by 7.3 per cent for the 12 months, and total dwelling approvals recorded a sharp decline in July, the next Reserve Bank Governor Michele Bullock believes prices in some areas will fall by five per cent or more by 2050 because of climate change.
Consumer confidence is continuing to slowly improve. The ANZ-Roy Morgan Consumer Confidence has now increased for a record 26 weeks in a row. Unemployment was up slightly by 0.2% to 3.7%, meaning an extra 36,000 people are now looking for jobs.
China looms large as a threat to Australia’s economy. As our largest two-way trading partner, China’s worsening economic conditions are concerning for Australian investors although stronger demand from steel producers led to a small increase in iron ore prices. The ASX200 ended the month down, gains in financial stocks were offset by losses in mining and energy shares because of their dependency on China. The Australian dollar rebounded slightly based on improved confidence in the US.
How the Aussie dollar moves your investments
It has been a wild ride for the Australian dollar since the Covid-19 pandemic struck and that could mean good news or bad news for your investment portfolio.
In March 2020 the Aussie dipped below US58 cents for the first time in a decade. Since then, a high of just over US77 cents in 2021 has been followed by a rollercoaster ride, mostly downhill.
In October 2022 the dollar plummeted to US61.9 cents, bounced its way back up to US71.3 cents in February this year but by mid-August it had slipped to a nine-month low at under US64 cents.i
Many analysts agree that further falls are on the cards with some even predicting the dollar could fall to as low as US40 cents within five years.ii
What’s driving the dollar?
Given any currency’s susceptibility to changing economic conditions both at home and overseas, the Aussie has had quite a bit to deal with lately.
Rising interest rates can boost the Australian dollar by making us more attractive for foreign investors, providing our rates are rising ahead of the US and others.
If foreign investors buy more Australian assets because they can get a bigger return on their investment, more money flows into Australia which increases demand for Australian dollars. And if investors hold more Australian assets than overseas ones, less money leaves the country, decreasing supply. So, increased demand and decreased supply see the Australian dollar rise.
While the Reserve Bank of Australia (RBA) has increased rates by 4 per cent in Australia since May last year as it battles to get inflation under control, rates have also been rising in the US.
The US Federal Reserve has undertaken its most aggressive rate-rising cycle in 40 years with rates now at a 22-year high and signs of further increases likely. This has put pressure on the Australian dollar, narrowing the difference between the US and Australian rates, meaning foreign investors will look for better returns elsewhere.
Changing economic conditions
The value of the Australian dollar is also affected by changes in economic conditions as well as rises and falls in other financial markets. For example, in August news that the unemployment rate had increased slightly and an easing in wage price growth led to speculation that the RBA would put a hold on rates, putting a dampener on the Aussie.
Also affecting the dollar was a decline in US share markets in August, confirming the typical pattern of the Australian dollar falling when prices in equity markets drop.
Meanwhile, the performance of China’s economy plays a significant part in Australian dollar movements. China is currently battling soaring unemployment, particularly among young people, falling land prices and a housing crisis, among other ills.
As Australia’s largest trading partner, both in terms of imports and exports, any slowdown in China means lower sales of our commodities and other goods and services and less investment in property and business.iii
How the dollar affects us
There are advantages and disadvantages of a falling Australian dollar. On the plus side, our exports will be more competitive because our customers will pay less for our goods and services compared with those produced overseas. Conversely, imported goods will be relatively more expensive.
There could also be an increase in tourism – the cost of travel in Australia will be cheaper for those coming from overseas. Unfortunately, those planning an overseas trip will need to find a significantly greater pile of Australian dollars to pay for airfares, accommodation and shopping.
For investors, it is a useful exercise to review the currency’s effect on your portfolio.
For example, if you’re invested in Australian companies that rely on overseas earnings, look at how they handle their exposure to the currency risk. A lower dollar is good news for those with overseas operations and those that export goods. On the other hand, those that need to buy in components or products from overseas may suffer.
In any case, have a chat to us to look at the best way forward in these uncertain times.
Lodgement amnesty and new landlord data matching program
While the government is boosting the tax deductions available for small business spending on staff training, other taxpayers such as landlords are facing closer scrutiny from the Australian Taxation Office. Here are some of the latest developments in the world of tax.
Amnesty for small business late lodgements
If your small business is not up-to-date with its tax lodgements, it could be a smart idea to take advantage of the government’s current Lodgement Penalty Amnesty.
The program is designed to encourage small businesses to re-engage with the tax system and fix any outstanding income tax, FBT returns and business activity statements due between 1 December 2019 and 28 February 2022.
Taxpayers have until 31 December 2023 to lodge their overdue forms without lodgement penalties being applied (general interest charges still apply).
Businesses with an annual turnover under $10 million when the original lodgement was due are eligible for the amnesty.
Insurance focus for latest data-matching
As part of its ongoing data-matching program, the ATO has announced it will require both income protection (IP) and landlord insurers to provide information on their customers for the period 2021-22 to 2025-26.
Insurers must provide detailed information on the policy and policy owner to help the ATO “identify and educate” taxpayers failing to meet their lodgement obligations.
The landlord data is expected to net records relating to around 1.6 million landlords, while the IP data will cover 800,000 individuals.
New skills and training boost starts
Small business owners keen to upskill their employees can now take advantage of the government’s new skills and training boost if they spend money on these activities before 30 June 2024.
If you have an aggregated annual turnover of less than $50 million, you can claim a bonus deduction equal to 20 per cent of qualifying expenditure on external training courses provided by eligible registered training providers.
You can also claim an additional 20 per cent bonus for expenditure on digitising your business operations and relevant assets such as portable payment devices, cyber security systems and subscriptions for cloud-based services.
Tax penalties increase again
The unit amount used by the ATO to calculate penalties it imposes has increased again, rising to $313 from 1 July 2023.
The government had already increased the penalty amount for the 1 January to 30 June 2023 period, making this the second increase this calendar year.
If the ATO decides to impose a penalty, the unit amount is used to calculate your actual fine. Activities such as giving false or misleading statements, or behaving with intentional disregard for example, result in a 60 penalty unit fine.
GST food and beverage list updated
If you supply or sell food and beverage products, it’s time to recheck the ATO’s detailed food list showing the GST status of major food and beverage product lines, as the tax regulator recently made around 30 updates to the list.
Although some changes corrected existing entries, new food and beverage lines have been added and some current entries deleted.
The ATO encourages businesses to review this list regularly to ensure they are meeting their GST obligations accurately.
Reminders about tax offsetting rules
The ATO is currently writing to businesses with a debt on hold of more than $10 to explain its tax offsetting process.
Under the offsetting rules, any tax refund and credit entitlements are automatically used to pay off an existing tax debt.
If you have an outstanding tax debt, you can choose to pay all or part of it at any time, including through a payment plan.
New-look ATO Charter
Taxpayers could find their interactions with the ATO improving following the release of its revised Taxpayers’ Charter, now called the ATO Charter.
The Charter explains what you can expect when interacting with the ATO, the regulator’s commitments to taxpayers, and the steps you can take if you’re not satisfied.
The 1% rule – tiny changes add up to a BIG difference
Personal transformation can be challenging. We all have habits we’d like to break and behaviours we’d like to do more of. But when we do some self-examination and think about what is involved in navigating change, it can seem overwhelming to get to where we need to be, whether that is personally or professionally.
That’s where small incremental change can be a powerful tool.
The power of one per cent
Just a tiny shift of something like one per cent, does add up. A compelling example of the power of one per cent incremental change is the story about Sir David Brailsford and the British Cycling Team. The team hadn’t produced a rider able to win the Tour De France in its entire history. Brailsford felt that by improving in achievable one per cent increments in a lot of areas, the team could produce a cyclist who could win the Tour de France in five years.
They made one per cent improvements in obvious areas such as nutrition, bike aerodynamics, weight, and seat comfort as well as in areas others didn’t think about. They located a pillow that provided slightly better sleep and travelled with it and another gain was made through adjustments to sleeping posture. Then, someone found a massage gel that worked marginally more effectively, and so on. These minuscule one per cent gains added up to a win in two and a half years instead of the predicted five years, and the team went on to win six races since 2012.
Why incremental change works
While you may not be gearing up to win the Tour De France, you can apply this powerful method of incremental improvement to your own life, to improve your health, relationships, finances, career, or business.
Too often we convince ourselves that impressive results demand massive action and fail miserably as we have bitten off a lot more than we can chew. However, making tiny adjustments to your life are much easier to manage and much more likely to be sustained than a huge shift.
It’s also common to think of a big win or achievement as a single event but the reality is that it’s generally the result of a series of tiny moments that each propel us one step further toward our goal.
The one per cent rule is so effective, as it can be scaled. The method works because you are making many small tweaks and building on those tweaks as they become habits.
Applying incremental change to transform your life
The starting point is to think of an area of your life you want to improve. Then think of small ways you can tweak your life to achieve that objective. The tweaks obviously don’t have to literally be as tiny as one per cent, but the objective is a series of minor changes, which built upon on a regular basis, really add up.
For example, if you are wanting to improve your health you don’t have to overhaul your lifestyle to reach your health goals, go for small, achievable changes. Try drinking an additional glass of water when you wake up, take some fruit to work to snack on, take the stairs instead of the lift at work, or get off the train one stop early to walk a little further home.
Or if you are wanting to further your career, try spending 10 minutes per day on expanding your network, incorporate some small productivity tweaks into your daily routine like not checking your emails constantly, and commit to self-growth by asking a single question every day to improve your knowledge. Building upon little, easy tasks like these can help you on your path to success.
Reaping the benefits
It is important to build though. One small tweak alone will not make an enormous difference. The challenge is to continue to make one per cent changes, without dropping the changes you’ve already made.
The key to this method, is to be consistent; it takes around 60 days to establish a habit so make sure you hang in there. You might have to even put a pause on adding any more changes to your routine as you adjust at various points along the way but just make sure you persevere to establish the changes you’ve already made.
There is no better time than the present to get started, so make the first micro change to your life today and watch each one per cent improvement add up to success.
