AuthorMichael Scott

Welcome to our June newsletter and, as the winter sets in and the end of the financial year approaches, it’s a good chance to spend some time tidying up and reviewing your finances.

Concerns that the Reserve Bank may lift interest rates this month, along with the drama over the US debt ceiling and the worry that the US Treasury may run out of cash, have affected local markets and the Australian dollar.

The dollar is at its lowest level in six months, at just under US65 cents, while the ASX200 ended the month nearly 3% down thanks also to weaker commodity prices. Energy and mining stocks led the falls. Brent Crude was down 7.5% for the month while iron ore prices hit a six-month low.

Inflation rose 6.8% in the 12 months to April, up from 6.3% in March and the number of housing approvals nosedived in April, down 8.1% after a 1.0% fall in March.

The rising prices have continued to dent consumer confidence. The ANZ-Roy Morgan Consumer Confidence survey has now spent 13 straight weeks at its lowest mark since the 1990-1991 recession. The survey reveals that only 7% of Australians expect good times ahead for the Australian economy in the next 12 months. With less money to go around, retail trade has plateaued over the past six months.

The latest unemployment figures show a slight increase to 3.7% in April and a slight decrease in the participation rate.

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Setting yourself up for success in the new financial year

The start of a new financial year is the perfect time to get your financial affairs in order. Whether it’s tidying up your paperwork, assessing your portfolio or dealing with outstanding issues, there are plenty of practical actions you can take.

Here are some strategies for starting the new financial year on the right foot.

Tidy up your paperwork

Dealing with the paperwork is the task most of us love to hate. But taking a day to trawl through the ‘To Do’ pile and the growing mountain of filing could be a good investment in yourself. What’s more, you might identify some savings.

Set your budget

A lot can happen in a year, so it makes sense to review your budget to ensure it still works towards your goals in the new year. This will help you track your changing expenses and ensure you’re not overspending. And if you haven’t got a working budget, now’s a great time to start. There are plenty of budgeting apps and tools available online that can help you get started.

Assess your portfolio

Another important step to take as you start the new financial year is to assess your investment portfolio.

Some important questions include:

• Why did you start investing and have your circumstances changed? For example, you may have started investing to receive a better return than your term deposits but now that term deposits rates have increased and share markets are challenged, should you revisit that goal?
• What is the investment performance? Is it in line with your expectation and the benchmark?
• Should you consider diversifying into different asset classes?
• Is dividend reinvestment the best option for you or should you take the dividend income into cash?
• Is your risk appetite still the same, or should you be aggressive or more conservative?

Check your insurance

Now is a good time to examine your insurances closely and to consider whether they match your needs and risks. It is also a good reminder to take note of policy renewal dates so that you can shop around to make sure you get the best price.

Understand Federal Budget changes

Keeping up to date with the commentary about Federal Budget initiatives may be useful.

The measures aimed at easing the cost of living will provide a boost to some. They include energy bill relief for concession card holders and energy saving incentives. Meanwhile those with chronic health conditions will benefit from a number of changes announced in the budget.

The Budget also included support for families with cheaper childcare and a more flexible Paid Parental Leave scheme, and incentives for some types of new home building projects.

Review your superannuation

A review – at least annually – of your super account is vital to make sure that:

• Your investments and risk strategy are still right for you
• The fees are reasonable
• Any insurance policies held in your super account are appropriate
• Your employer contributions are being made
• Your death benefit nomination is relevant
• You don’t have multiple accounts incurring unnecessary fees

You might also consider a salary sacrifice strategy, where you ask your employer to make extra super contributions from your pre-tax salary. These additional contributions are taxed at 15 per cent within the super fund, plus an additional 15% if Division 293 tax applies to you (income over $250,000).

Meanwhile, it is not too late to top up your super balance for this financial year using either concessional contributions (from your pre-tax income) or non-concessional contributions (after-tax income). Don’t forget the caps on payments, which are $27,500 for concessional contributions and $110,000 for non-concessional.

It is a good idea to get some expert advice regarding your super contributions, we can assist with the best ways to manage your contributions.

So, set yourself up for a fresh start to the year with some simple strategies to help you achieve your financial goals.

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Tax Alert June 2023

Budget incentives and crackdowns on unpaid tax debts and rental deductions

Although this year’s Federal Budget was short on big changes when it came to tax, there still have still been some important developments in this area. Here are some of the latest developments in the world of tax.

Small business tax incentives and write-offs

The budget ushered in some valuable new tax incentives for small businesses, including halving the increase in quarterly tax instalments from 12 per cent to 6 per cent for both GST and income tax during 2023-24.

The government also introduced a bonus 20 per cent deduction for businesses with turnovers under $50 million when they spend on energy saving upgrades. Up to $100,000 of total expenditure will be eligible, with the maximum bonus tax deduction being $20,000 per business.

Although smaller than the previous year, the instant asset write-off continues in 2023-24 with up to $20,000 available for immediate deduction on eligible assets.

The planned third tranche of personal income tax cuts due to start next financial year also remained in place, while >the low and middle income tax offset was not extended.

Super changes for employers

Another significant tax change announced in the budget will affect employers. From 1 July 2026 employers will be required to pay their Super Guarantee (SG) obligations at the same time they pay employee salary and wages.

The ATO has received additional resources to help it detect unpaid super payments earlier.

Employers also need to remember the SG amount for employee super rises to 11 per cent from 1 July 2023.

Tax debt warnings sent out

The ATO is continuing to write to directors of companies with tax debts warning if the company hasn’t paid the amount owing or contacted it to make other arrangements, a director penalty notice(DPN) may be issued.

DPNs are issued to current directors and anyone who was a director at the time the company failed to pay. They make directors personally liable for failure to meet pay-as-you-go withholding (PAYGW), GST and Super Guarantee Charge obligations.

Directors receiving these letters need to arrange payment of the overdue amount or enter into a payment plan.

Data-matching adds investment properties

Residential investment property loans (RIPL) are the latest target of the ATO’s increasingly wide-ranging data-matching program.

Data will be obtained from financial institutions including all the major banks, regional banks and building societies.

The information is being collected following the ATO’s identification of a tax gap of $1 billion for individuals in the 2020-21 financial year due to incorrect reporting of rental property expenses.

Self-education expenses under spotlight

The ATO is currently developinga new draft taxation ruling covering the deductibility of self-education expenses incurred by an employee or an individual carrying on a business.

The draft ruling will reflect the current rules in this area following repeal of several sections of the Income Tax Assessment Act and some new legal decisions. The new ruling is expected to be completed in late June.

Taxpayers claiming self-education expenses recently had the existing requirement to exclude the first $250 of deductions removed.

GST fraud enforcement continues

Search warrants were executed in three states against individuals suspected of promoting the fraud. This follows previous compliance action against more than 53,000 people, with two individuals sentenced to jail time for their GST fraud activities.

Cyber safety checklist released

The ATO is again emphasising the importance of business cyber safety by releasing a new checklist for small businesses.

The tips include simple ideas for keeping business and client data safe from cybercriminals, such as turning on automatic updates and using multi-factor authentication when possible.

Resources for training staff on preventing, recognising, and reporting cyber incidents are available from the government’s Australian Cyber Security Centre.

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The importance of getting enough ZZZZ’s

Who says we can’t achieve more if we sleep less? Science, that’s who!

To be fair, there are many successful people who credit their success to managing or indeed thriving, on a few hours’ sleep so they can get more done. Martha Stewart, the American media personality, sleeps around four hours a night, stating: “Sleep is not the most important thing.” While Thomas Edison, the inventor of the electric light, kept the lights on – rejecting the idea of sleeping at night for napping for 15 minutes every four hours.

The science of sleep

The idea that successful people don’t sleep is an odd one, when you consider the science.

Scientists have long theorised about why we need to sleep. The most respected theories see sleep consisting of restorative processes that occur when normal brain function is partially suspended, and brain activity suggests information is being “replayed” during certain stages of sleep to consolidate memory.

A good night’s sleep

Given that sleep is as critical to our survival as food and oxygen – how much sleep is enough?

While there may be some individuals who function ok on just a few hours’ sleep, it’s thought that most adults need between 6- and 9-hour’s sleep for optimal health and wellbeing. On average, we manage less than six.ⁱ

It looks like those successful people who “humble boast” about how little sleep they get, might be in fact jeopardising their success by missing the benefits of a good night’s sleep.ⁱⁱ

The impact of sleep deprivation

Sleep deprivation has a powerful impact on your thought processes so it’s quite ironic that there are those who credit their success in part to sleeping less than the recommended amount.

Sleep duration and quality impacts more than just the obvious things like your mood and clarity of thought. Inadequate sleep can compromise decision-making processes, impact creative thought and the retention of information.

Sleep is also critically important to our physical wellbeing. Sleep deficiency is linked to many chronic health problems, including heart disease, kidney disease, high blood pressure, diabetes, stroke, and obesity.

How do I get a better night sleep?

If you are one of those ‘too busy to sleep’ people, it might be time to prioritise restful sleep. And if you are tossing and turning at night there is a lot you can do to get a better night’s sleep.

To sleep well, the most important thing you can do is set the scene to easily drift off to sleep and then stay asleep. That means making sure your sleeping environment is comfortable, quiet, and dark. Exposure to light, particularly light from screens like your phone or computer at night-time can mess up the body’s production of a hormone called melatonin that helps us to fall asleep, and sleeping in a room that is not very dark is not conducive to quality sleep – so close those blinds and turn off those devices.

Setting yourself up for a good night sleep can also involve a combination of deep breathing, relaxation, and creative visualisation techniques. This infamous sleep ‘hack’ is used by the US military to help soldiers in the field get to sleep involving these practices is considered amazingly effective, if practiced regularly.ⁱⁱⁱ

Going to bed at the same time every night can also help establish good sleep habits and not eating too late at night, and avoiding stimulants like alcohol and caffeine late in the day will also improve your sleep quality.

Getting a good night’s sleep is one way to help you on your path to success. By making some easy tweaks to your routine you’ll be sleeping like a baby and feeling more alert and productive as a result. Goodnight and sleep well!i https://pilot.com.au/co-pilot/6-hours-sleep
ii https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6281147/
iii https://www.huffingtonpost.co.uk/entry/military-sleep-method-asleep-anywhere_uk

Treasurer Jim Chalmers bills his 2023 Federal Budget as an economic strategy to help ease cost-of-living pressures.

To that end, he has delivered a modest but welcome package of cuts to healthcare, housing and energy costs as well as boosts to welfare payments for single parents and the unemployed.

Banking an unexpected bonus in increased tax revenue and rising commodity prices, the Albanese government has aimed to help the most disadvantaged while also looking ahead with new plans for renewable energy, defence and the arts.

But it has kept its spending under control to deliver a forecast $4.2 billion budget surplus – the first in 15 years.

The Treasurer sums up his second budget as “a plan for security, for prosperity, for growth”.

The big picture

While the first budget surplus in a decade and a half is to be celebrated, the joy will be short-lived. By next year’s budget, it’s expected there will be a return to small deficits for the next few years.

That’s because the global economy is slowing thanks to persistent inflation and higher interest rates. Aside from the pandemic and the 2007 Global Financial Crisis, the next two years are expected to be the weakest for global growth in more than two decades.

As a result, the government expects Australia’s economic growth to slow from 3.25 per cent in 2022-23 to just 1.5 per cent the following year, before recovering a little to 2.25 per cent.

In this environment, the treasurer continues to mark inflation as the government’s primary economic challenge. He says that is why the budget is “calibrated to alleviate inflationary pressures, not add to them”.

The good news is that the Reserve Bank says inflation is falling slightly faster than it had first forecast and has now passed its peak.ⁱ It is expected to be around 4.5 per cent by the end of the year, a long way from last year’s CPI rate of 7.8 per cent.ⁱⁱ

Easing the cost of living

The government’s $14.6 billion package of cost cuts aimed at helping some of those most affected by rising costs covers energy bills, health and medical services, and welfare payments.

There will be energy bill relief to around five million households and one million small businesses. From July 2023, eligible households will receive up to $500 and eligible small businesses up to $650.

The government will also introduce a number of energy saving programs for households including low-interest loans and funds for upgrades to social housing. And there will be access to better information on reducing energy bills.

Health and medical

Countering a major expense for many, the government is pouring in billions of dollars to ease health and medical costs and access to services.

It will spend an extra $3.5 billion to provide incentives to doctors to bulk bill Concession Card holders and children under 16. It’s expected that the increased bulk billing incentive will help around 11.6 million people.

The cost of medicines is also likely to change for many who suffer chronic health conditions. From 1 September 2023, some patients will be eligible to be prescribed two months’ worth of medicine at a time, instead of one month’s worth. It’s expected this change will cut the number of visits to GPs and pharmacies, and the government estimates at least six million people will see their bills for medicines reduced by half.

The government is also providing $2.2 billion over five years for new and amended listings to the PBS, including treatment for cystic fibrosis.

Meanwhile, to improve access to care and reduce the strain on hospitals, a further $358.5 million will be spent to open a further eight Urgent Care Clinics. The clinics will bulk bill and remain open for longer hours.

Welfare boost

Income support payments including JobSeeker, Austudy and Youth Allowance will rise by $40 a fortnight following a concerted campaign by lobby groups in the months leading up to the budget.

And, recognising the extra challenges faced by older people looking for work, those aged 55 and over and out of work for at least nine continuous months, will now receive the higher rate JobSeeker payment currently paid to those over 60. Around 52,000 people will receive the increase of $92.10 a fortnight.

There will be more support for eligible single parents from September 2023. They will receive the Parenting Payment until their youngest child turns 14 (currently up to eight years old). Those receiving the payment will also benefit from more generous earning arrangements compared to JobSeeker. Eligible single parents with one child will be able to earn an extra $569.10 per fortnight, plus an extra $24.60 per additional child, before their payment stops.

Housing assistance

While rents continue to climb sharply around the country, the government has provided only limited assistance to renters. Those receiving Commonwealth Rent Assistance will see a 15 per cent increase in their payments from 20 September 2023.

Eligibility for the Home Guarantee Scheme will be expanded beyond first home buyers to include any 2 eligible borrowers beyond married and de facto couples, and non-first home buyers who have not owned a property in Australia in the preceding 10 years.

The government’s other housing initiatives are medium to long term solutions to the housing crisis.

There are new tax incentives to encourage the construction of more build-to-rent developments. The government claims an extra 150,000 rental properties could be delivered as a result in ten years.

The government is also focusing on providing more affordable housing by supporting more lending to community housing providers for social and affordable housing projects.

Pay rise for aged care workers

Severe staff shortages in the aged care sector, largely been driven by low wages, may abate a little with the government’s commitment to fund a pay rise.

More than $11 billion has been allocated to support an interim 15 per cent increase in award wages.

Support for families

Childcare will be cheaper from July 10, when the government subsidy will increase to 90 per cent for families on a combined income of $80,000 or less.

For families earning over $80,000, the subsidy rate will taper down by 1 percentage point for every additional $5,000 of family income until the subsidy reaches 0 per cent for families earning $530,000.

A more flexible and generous Paid Parental Leave scheme will also be introduced in July. A new family income test of $350,000 per annum will see nearly 3,000 additional parents become eligible for the entitlement each year.

Superannuation

Superannuation is in the government’s sights and employers and individuals with larger balances will be affected.

The concessional tax for those with balances exceeding $3 million will increase from 1 July 2025 to 30 per cent. Earnings on balances below $3 million will continue to be taxed at the concessional rate of 15 per cent.

Meanwhile from 1 July 2026, employers will have to pay their employees’ super at the same time they pay their wages. The government says that in 2019-20, employers failed to pay $3.4 billion of super owing to their employees.

Looking ahead

The stormy global economic outlook will keep Australia on its toes for the next two years or so but the government has attempted both to support those who are particularly vulnerable now and keep an eye to the future with some bigger thinking.

Moving forward, the government wants to position Australia a “renewable energy superpower” with a new Net Zero Authority to help attract new clean energy industries and help workers in coal regions to find new jobs.ⁱⁱⁱ

The arts received a boost with almost $1 billion going to art galleries, museums, arts organisations and the film sector to help address “a decade of chronic underfunding”.^iv,v

And there is the much debated investment in defence – more than $30 billion over the next ten years. Treasurer Chalmers says that while we may have a lot “coming at us – we have a lot going for us too”.

Information in this article has been sourced from the Budget Speech 2023-24 and Federal Budget Support documents.

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

i RBA says inflation has passed its peak
ii https://www.rba.gov.au/publications/smp/2023/feb/economic-outlook.html
iii https://www.pm.gov.au/media/national-net-zero-authority
iv https://www.arts.gov.au/news/2023-24-federal-budget-revitalise-arts-sector
v https://minister.infrastructure.gov.au/burke/media-release/budget-2023-24-albanese-government-revives-australias-arts-and-culture

In the lead up to the Federal Budget, better-than-expected inflation figures were cause for optimism that the lengthy run of cash rate hikes have had an impact.

US stocks in April saw the biggest rally that has been experienced for months, as investors looked beyond gloomy economic data.

Local markets were buoyed by the Wall Street rally, as well as welcome signs of inflation easing, with the ASX200 ending the month slightly higher.

Please get in touch if you’d like assistance with your personal financial situation.

Interest rates are an important financial lever for world economies. They affect the cost of borrowing and the return on savings, and it makes them an integral part of the return on many investments. It can also affect the value of the currency, which has a further trickle-down effect on other investments.

So, when rates are low they can influence more business investment because it is cheaper to borrow. When rates are high or rising, economic activity slows. As a result, interest rate movements are also a useful tool to control inflation.

The cash rate or headline rate you hear mentioned regularly in the media is the interest rate on unsecured overnight loans between banks. The Reserve Bank of Australia (RBA) sets the rate and meets every month, except January, to consider whether it should move up, down or stay the same. This rate then usually flows through to market interest rates causing, for example, mortgage rates to rise or fall.

Rising steadily

For the past few years, interest rates have been close to zero or even in negative territory in some countries, but that all started to change in the last year or so.

Australia lagged other world economies when it came to increasing rates but since the rises began here last year, the RBA has introduced hikes on a fairly regular basis. Indeed, the base rate has risen 3.5 per cent since June last year.

Australian Cash Rate Target

Source: RBA

The key reason for the rises is the need to dampen inflation. The RBA has long aimed to keep inflation between the 2 and 3 per cent mark. Clearly, that benchmark has been sharply breached and now the consumer price index is well over the 7 per cent a year mark.

While interest rates are the key monetary policy weapon to control inflation and dampen the economy, there can be a risk of taking it too far and causing a recession. Economic growth is forecast to slow to around 1.5 per cent this year as high inflation, low consumer confidence and rising rates take their toll.ⁱ

Winners and losers

There are two sides to rising interest rates. It hurts if you are a borrower, and it is generally welcomed if you are a saver.

But not all consequences of an interest rate rise are equal for investors and sometimes the extent of its impact may be more of a reflection of your approach to investment risk. If you are a conservative investor with cash making up a significant proportion of your portfolio, then rate rises may be welcome. On the other hand, if your portfolio is focussed on growth with most investments in say, shares and property, higher rates may start to erode the total value of your holdings.

Clearly this underlines the argument for diversity across your investments and an understanding of your goals in the short, medium, and long-term.

Shares take a hit

Higher interest rates tend to have a negative impact on sharemarkets. While it may take time for the effect of higher rates to filter through to the economy, the sharemarket often reacts instantly as investors downgrade their outlook for future company growth.

In addition, shares are viewed as a higher risk investment than more conservative fixed interest options. So, if low risk fixed interest investments are delivering better returns, investors may switch to bonds.

But that does not mean stock prices fall across the board. Traditionally, value stocks such as banks, insurance companies and resources have performed better than growth stocks in this environment.ⁱⁱ Also investors prefer stocks earning money today rather than those with a promise of future earnings.

But there are a lot of jitters in the sharemarket particularly in the wake of the failure of a number of mid-tier US banks. As a result, the traditional better performers are also struggling.

Fixed interest options

Fixed interest investments include government and semi-government bonds and corporate bonds. If you are invested in long-term bonds, then the outlook is not so rosy because the recent interest rates increases mean your current investments have lost value.

At the moment, fixed interest is experiencing an inverted yield curve which means long term rates are lower than short term. Such a situation reflects investor uncertainty about potential economic growth and can be a key predictor of recession and deflation. Of course, this is not the only measure to determine the possibility of a recession and many commentators in Australia believe we may avoid this scenario.ⁱⁱⁱ

What about housing?

House prices have fallen from their peak in 2022, which is not surprising given the slackening demand as a result of higher mortgage rates.

Australian Bureau of Statistics data showed an annual 35 per cent drop in new investment loans earlier this year.^iv The consequent reduction in available rental properties has put upward pressure on rents which is good news if you have no loan, a small loan or a fixed interest loan on the property.

The changing times in Australia’s economic fortunes can lead to concern about whether you have the right investment mix. If you are unsure about your portfolio, then give us a call to discuss.

i https://www2.deloitte.com/au/en/pages/media-releases/articles/business-outlook.html
ii https://www.ig.com/au/trading-strategies/what-are-the-effects-of-interest-rates-on-the-stock-market-220705
iii https://www.macrobusiness.com.au/2023/02/inverted-yield-curve-predicts-australian-recession/e.
iv https://www.abs.gov.au/statistics/economy/finance/lending-indicators/latest-release

With Autumn underway, the changing season is a reminder to take stock and prepare for what’s ahead as the financial year heads towards its final quarter and the May Federal Budget.

The gloomy prospects for economic growth, both in Australia and overseas, are occupying the minds of investors, businesses and political leaders.

The Reserve Bank of Australia believes global growth will remain subdued for the next two years and that Australia‘s economy will slow this year because of rising interest rates, the higher cost of living and declining real wealth. The RBA forecasts the unemployment rate, currently at a low 3.5%, to rise by mid year and inflation, which was 7.8% over 2022, to drop to by around 2-3% over coming years thanks to an easing in global prices that will eventually flow through to Australian prices. Oil prices fell almost 3% in February reversing the increase of the previous month.

There have been some economic bright spots recently such as the rebound in retail trade in January of 1.9% after a 4% plummet in sales figures in December. And, Australia‘s current account surplus increased $13.3 billion to $14.1 billion in the December quarter 2022 supported by sustained high commodity prices including $400 billion worth of mining commodity exports during 2022.

That positive news was enough to lift the Australian dollar slightly to just over US67c, halting a slow decline during February.

Australian shares were down by almost 3% during February, while US stocks were down by just over 2% for the month and more than 7% for the past year.

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Flexing your retirement plans

The concept of retirement is changing, with fewer people working towards a final retirement date and then clocking off for good.

Instead, those who have the flexibility to choose are often transitioning out of the workforce over several years, or even returning after a break.

Whether you simply want to wind back your working hours to explore other interests, or don’t want to cut your ties with work completely, to make it work you need to plan.

Choosing your retirement date

There is no set retirement age in Australia, but most people will not be eligible to receive an Age Pension until they reach age 67.ⁱ This means you need enough savings to provide another income source if you retire earlier.

Although most of us have super, you are not permitted to access it until you reach your preservation age, which can vary.

Withdrawing your super also requires you to meet a condition of release. There are various conditions, but the most common one is reaching age 60 and permanently retiring from the workforce. Once you turn 65, you can access your super whether you are working or not.ⁱⁱ

Keep in mind, tax also affects your super, with different rates applying depending on your age. Most people can access their super tax-free once they reach 60.

Paying for your retirement

Unfortunately, there is no simple answer to how much income you will need in retirement. It depends on your current lifestyle and planned retirement activities, but a good place to start is the ASFA Retirement Standard.

For around 62% of the population aged 65 and over, the main source of retirement income is the Age Pension and government payments.ⁱⁱⁱ

Eligibility for an Age Pension is assessed using your age, residency status and personal income and assets. These determine whether you receive the full fortnightly payment rate, which is currently $1,547.60 a fortnight for a couple.^iv

As part of your planning, check for other potential sources of income from investment assets, contract work, or rent from investment or Airbnb properties.

Using your super savings

While you may dream of retiring early, many of today’s retirees can expect to live well into their 80s, so your super may need to provide income for more than 20 years. If you are unsure whether your super is on track, we can help you check your progress and put strategies in place to achieve your retirement goals.

Most super funds provide online calculators to give a rough estimate of your likely retirement balance and how much income it will provide.

ASIC’s MoneySmart Retirement Planner is another resource for working out your retirement income and potential Age Pension payments.

Transition-to-retirement (TTR) pensions

If you would like to ease into retirement, it can be worth investigating a TTR pension. These allow you to cut back working hours while using your super to supplement your income without compromising your lifestyle.

If you are aged under 60 you will pay some tax on pension payments, but they are tax-free once you reach age 60.^v

TTR pensions also allow you to continue topping up your super through a salary sacrifice arrangement with your employer. You only pay 15% tax on these contributions, which may be lower than your marginal tax rate.^v

Giving super a late boost

If you have income to spare as you move towards retirement, perhaps from an inheritance or downsizing your home, there are now additional opportunities to continue adding to your super.

You can make personal after-tax contributions of up to $110,000 a year until you reach age 75, even if you are not working. You may even be eligible to use a bring-forward arrangement and add up to $330,000 in a single year.  

Once you hit 60, if are planning to sell your current home you can also make a downsizer contribution of up to $300,000 ($600,000 for a couple) into your super account.

Retiree concessions

When you are doing your retirement sums, don’t forget some of the concessions on offer to older Australians. If you are aged 60 and over and working less than 20 hours per week, your state’s Seniors Card can provide discounts on public transport and some goods and services.

You may also be eligible for the Commonwealth Seniors Health Card for cheaper prescriptions and medical appointments, or a Pensioners Concession Card for discounted public transport.  

If you would like to discuss your retirement options and how to fund them, give us a call.

i https://www.servicesaustralia.gov.au/who-can-get-age-pension?context=22526
ii https://www.ato.gov.au/Individuals/Super/
iii https://www.aihw.gov.au/reports/australias-welfare/age-pension
iv https://www.servicesaustralia.gov.au/how-much-age-pension-you-can-get?context=22526
v https://moneysmart.gov.au/retirement-income/transition-to-retirement

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Tax Alert March 2023

Family trust rules and new guidance on contractors

The Australian Taxation Office (ATO) has confirmed its position on family trust distributions, while also providing employers with new information to simplify completion of Single Touch Payroll (STP) activity statements. Here are some of the latest developments in the world of tax.

Prefilling of PAYGW

Completion of PAYG withholding via STP will become easier for employers when the ATO begins prefilling some of the required activity statement data.

From the July 2023 statement, PAYG withholding labels W1 and W2 will be prefilled for all monthly PAYG employers. Quarterly withholders will find the information on their September 2023 statement.

The ATO is also piloting an employer reminder system for businesses with a late activity statement and STP-reported PAYG withholding. If you fail to lodge by the reminder date, the ATO will consider there are no corrections to report and the recorded amounts will be added to your client account.

Final rules on family trusts

Taxpayers with family trusts should check the implications of the ATO’s final guidance on the taxation of family trust payments, as the new rules may reduce the attractiveness of these tax structures.

Under the ATO’s new approach, common tax planning strategies relying on the section 100A exemption covering trust distributions to companies and family members may no longer be available in some situations.

Taxpayers with a discretionary trust should discuss the implications with us, particularly where there are parent controllers of the trust and adult-aged child beneficiaries. The ATO website provides a number of case studies outlining common situations.

Employees vs. independent contractors

The ATO is consulting on its new draft guidance covering both classification of employees and independent contractors, and its proposed compliance approach in this area.

The draft guidance outlines the regulator’s priority areas, which include situations where particular risk factors are present and where an unpaid superannuation query has been received from a worker.

The guidance also indicates employers must have specific advice from an appropriately qualified third-party confirming their classification of a worker as a contractor is correct.

Recordkeeping for self-education expenses eased

Taxpayers claiming self-education expenses will find things a little easier this tax time, as new legislation has removed the requirement to exclude the first $250 of deductions for education courses.

The new rules can be used when completing your 2022-23 tax return, while for employers, the change applies to the Fringe Benefits Tax year starting 1 April 2023.

Sharing economy reporting extended

Providers of ride-sourcing and short-term accommodation services will find themselves swept into the compulsory Taxable Payments Reporting System (TPRS) from 1 July 2023.

Electronic platform operators for these services (such as Uber and Airbnb) are required to report all transactions involving Australian purchasers under new legislation passed in December 2022.

Annual TPRS reporting is already compulsory in industries such as building and construction, cleaning, courier and security services.

Plug-in hybrid electric vehicles to face FBT

Under rules applying from 1 April 2025, plug-in hybrid electric vehicles will no longer be considered zero or low emissions vehicles and will not be eligible for the fringe benefits tax exemption applying to these vehicles.

You can apply for the exemption if the hybrid vehicle was exempt before 1 April 2025 and there is a financially binding commitment to continue providing private use of the vehicle after this date.

No business activity could mean no ABN

The ATO is again reminding small businesses their Australian Business Number (ABN) may be flagged for cancellation if there is no reported business activity in their tax return, or no signs of business activity in other lodgements or third-party information.

If an ABN is identified as inactive, the ATO will contact the holder by email, SMS or mail to check if the ABN is still required and explain the action required to keep it. Where the business is no longer operating, the ABN will be cancelled.

• 

Time to refinance? Considerations for mortgage holders and businesses

With the cost of living continuing to rise, it can feel increasingly hard to make ends meet in terms of your personal finances, and it can also be challenging running a business in an inflationary environment. One way of combatting inflation is to reduce the escalating cost of borrowing by reviewing your current arrangements.

A new record has been set for refinancing, with more than $19.5 billion of loans changing lenders in late 2022.ⁱ If you’re feeling like it’s time you reviewed your borrowing arrangements – either from a personal or business perspective, here are a few things to consider.

Tips for mortgage holders

With rates on the rise, it makes sense to shop around for the best deal. That could mean replacing your existing home loan with another loan from either your current lender or a different financial institution.

If you are refinancing with your current lender, the process can be simpler as your lender already has all your information and it can be easier to renegotiate than switch to a different provider. You may also incur lower or fewer fees by sticking with your current lender, but this will vary according to providers and loans. External refinancing is generally a little more complex but gives you the opportunity to compare providers.

Things to consider when comparing providers and loans include:

Interest rates

Seeking out a lower interest rate is usually the first thing on people’s minds when they review loans and providers. But it’s important to weigh up other factors as well.

Timing

Fixed rate and introductory period loans can be lower to start with but generally revert to a standard variable rate after a predetermined period so it can make sense to review your situation before the fixed rate ends.

Loan term and payment frequency

Adjusting your loan term and home loan repayments could potentially save you money over the life of the loan.

Access to more loan features

Features such as an offset facility or splitting your loan may be appealing. Some lenders also offer cashback deals, although it is important to weigh up what the loan offers rather than be swayed by the promise of a cash give away.

Tips for small businesses

For businesses it also might be time to review your borrowing arrangements.

If you have a loan and your financial situation and credit score have improved over the course of your loan repayments, you might also be in a position to take advantage of a lower rate and more favourable terms than your current loan.

Some things to consider as a business include:

Consolidating existing debts

If you have multiple debts incurring high interest repayments it can also be beneficial to combine them into one loan at a lower rate.

Changing the loan amount or the term of the loan

It’s common for businesses to refinance to take advantage of the equity built up in their business and that may mean increasing their borrowings. If expenses are increasing or you are seeking greater cashflow you can refinance your loan amount to be repaid over a longer term and decrease your monthly repayments.

Removing a secured asset

If your home or another personal asset is being used as collateral for your loan and your business is now in a position to borrow without it, you may wish to consider switching from a secured to an unsecured loan.

There are also other ways of accessing finance as a business, including having an overdraft or invoice finance where money is loaned against unpaid invoices, that you may wish to explore.

It’s important to evaluate each method of borrowing or accessing finance and review your situation on a regular basis to ensure your arrangements suit your needs and that you are not paying too much in the way of fees and interest. If you are considering changing providers to seek a better deal, make sure you weigh up all the pros and cons of making the switch and the various deals on offer.i https://www.theadviser.com.au/broker/43888-all-time-high-november-housing-refinancing-hits-19-5b-abs

Retirement is a phase of life most of us look forward to. It’s a chance to pursue other interests, travel and maybe do some part-time work or volunteering.

Thanks to more than 30 years of compulsory superannuation, we are also retiring with more savings than previous generations and have higher expectations of the lifestyle we wish to enjoy. But that also brings its challenges.

According to the government’s Retirement Income Review, the average age of retirement in Australia is around the ages of 62 to 65.ⁱ At the same time, today’s 65-year-old men and women can expect to live to 85 and 88 respectively, on average, and many will live well into their 90s.

To make the most of your retirement years, it’s important to have confidence that your savings will last the distance. The best way to achieve that is to have a plan that will help you avoid some common and preventable retirement mistakes.

Mistakes people make

While it’s impossible to predict what financial challenges lie ahead, these eight common retirement mistakes remain the same:

1. Not knowing your living costs

When you are receiving a regular income, you may be tempted to focus less on keeping a track of your living costs. When the regular income stops at retirement, you can be unaware of whether your investment income and/or pension payments will support your lifestyle costs.

Knowing what your living costs are before you retire can help manage expectations accordingly.

2. Not looking at your super until just before retiring

What if your super was invested in conservative assets throughout your working life? It could mean that your super would not have grown to the level needed to fund your retirement. What if your super’s insurance premiums and fees consumed the returns?

It is vital to review your super account as early and as regularly as possible to ensure it is appropriate for each stage of your life.

3. Underestimating the impact of inflation

Australia’s rate of inflation hovered around 1 per cent to 3 per cent per year between June 2012 and early 2020. Since the onset of the global pandemic in March 2020, inflation has jumped to more than 7 per cent.ⁱⁱ This along with a disruption to the global supply chain and the Russia-Ukraine war has lifted the cost of living to levels that require you to reassess your retirement planning.

4. Not understanding your government entitlements

If you’re age 66 or older, you may be eligible for a full- or part-Age Pension. However, even if your level of wealth puts you above the pension limits, you may still be eligible for other entitlements.

 These can include the Seniors Card, Pensioner Concession Card, income tax offsets or pensioner stamp duty exemption/concession.

5. Letting the noise affect your investment decisions

Negative news grabs headlines, such as talk of billions being wiped off share markets, but you rarely read about the billions made during the rebound. There is no denying that the financial markets face volatility during periods of uncertainty. However, as history has shown, over the long run the market trends upwards.

All this noise makes it difficult to stick your long-term strategy, when in fact such events can present opportunities in the markets too.

6. Trying to time the financial markets

 “We haven’t the faintest idea what the stock market is gonna do when it opens on Monday — we never have,” said legendary share investor Warren Buffett. Say you invested $10,000 in the ASX 200 index by trying to time the market and you missed the 40 best days between October 2003 to October 2022, your investment would be worth $9,064, whereas if you remained fully invested it would be worth $46,099.ⁱⁱⁱ

Trying to time the markets is never a good idea, especially with your retirement savings.

7. Being asset rich and cash poor

You may have built up a strong balance sheet of assets, but in retirement it is income you require. For many Australians, their family home could be their biggest asset and its value is sometimes unlocked by downsizing into a smaller home, but many Australians remain living in a family home that has surged in value while they struggle to find enough income to live on.

Are your assets generating enough income to support your lifestyle? This income can include rent from an investment property, share dividends or managed fund distributions. If the income is insufficient, you may have to sell some of your assets to provide that liquidity or tap into the equity in your home by taking out a reverse mortgage-style loan.

8. Not consulting professionals

Financial advisers, accountants and other financial professionals can help set you on the right path by navigating the complexities of superannuation, investments, constant rule changes and other factors that affect your retirement. A good retirement plan, implemented correctly, can set you up for life.

Start Planning

Whether it’s due to lack of time or awareness, too many people tend to make these same mistakes when entering retirement which can lead to unwanted financial surprises.

A phase of life you have looked forward to for so long deserves careful planning. So please get in touch if you would like to review your retirement income needs.i Retirement Income Review Final Report, July 2020 page 63 Retirement Income Review Final Report (treasury.gov.au)

ii https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release

iii From 31 Oct 2003 to 04 Oct 2022, Fidelity Australia Timing the market | Fidelity Australia

The year began on an optimistic note, as we finally began to emerge from Covid restrictions. Then Russia threw a curve ball that reverberated around the world and suddenly people who had never given a thought to the Reserve Bank were waiting with bated breath for its monthly interest rate announcements.

2022 was the year of rising interest rates to combat surging inflation, war in Ukraine and recession fears. These factors combined to create cost-of-living pressures for households and a downturn in share and bond markets.

Super funds also suffered their first calendar year loss since 2011. Ratings group Chant West estimates the median growth fund fell about 4 per cent last year.ⁱ While this is bad news for members, it’s worth remembering that super is a long-term investment, and that the median growth fund is still 11 per cent above its pre-Covid high of January 2020.ⁱⁱ

Australia key indices December	Share markets (% change) Year to December
	2021	2022		2021	2022
Economic growth	4.6%	*5.9%	Australia All Ordinaries	13.6%	-7.2%
RBA cash rate	0.1%	3.1%	US S&P 500	27.0%	-19.3%
Inflation (annual rate)	3.5%	^7.3%	Euro Stoxx 50	20.9%	-11.7%
Unemployment	4.2%	#3.45%	Shanghai Composite	4.8%	-15.1%
Consumer confidence	104.3	82.5	Japan Nikkei 225	4.9%	-10.9%

*Year to September, ^September quarter # November
Sources: RBA, ABS, Westpac Melbourne Institute, Trading Economics

The big picture

Even though investors have come to expect unpredictable markets, nobody could have predicted what unfolded in 2022.

Russia’s invasion of Ukraine in February triggered a series of unfortunate events for the global economy and investment markets. It disrupted energy and food supplies, pushing up prices and inflation.

Inflation sits around 7 to 11 per cent in most advanced countries, with Australia and the US at the low end of that range and the Euro area at the higher end.ⁱⁱⁱ

As a result, central banks began aggressively lifting interest rates to dampen demand and prevent a price and wages spiral.

Rising inflation and interest rates

The Reserve Bank of Australia (RBA) lifted rates eight times, taking the target cash rate from 0.1 per cent in May to 3.1 per cent in December.^iv This quickly flowed through to mortgage interest rates, putting a dampener on consumer sentiment.

Australia remains in a better position than most, with unemployment below 3.5 per cent and wages growth of 3.1 per cent running well behind inflation.^v

Despite the geopolitical challenges, Australia’s economic growth increased to 5.9% in the September quarter^vi before contracting to an estimated 3 per cent by year’s end, in line with most of our trading partners.^vii

Volatile share markets

Share investors endured a nail-biting year, as markets wrestled with rising interest rates, inflation, and the war in Ukraine.

Global shares plunged in October on interest rate and recession anxiety only to snap back late in the year on hopes that interest rates may be near their peak. The US market led the way down, finishing 19 per cent lower, due to its exposure to high-tech stocks and the Federal Reserve’s aggressive interest rate hikes. Chinese shares (down 15 per cent) also had a tough time as strict Covid lockdowns shut down much of its economy.

Australian shares performed well by comparison, down just 7 per cent, thanks to strong commodity prices and the Reserve Bank’s relatively moderate interest rate hikes.

Energy and utilities stocks were strong due to the impact of the war in Ukraine on oil and gas prices. On the flip side, the worst performers were information technology, real estate and consumer discretionary stocks as consumers reacted to cost-of-living pressures.

Property slowdown

After peaking in May, national home values fell sharply as the Reserve Bank began ratcheting up interest rates. The CoreLogic home value index fell 5.3% in 2022, the first calendar year decline since the global financial crisis of 2008.

As always though, price movements were not uniform. Sydney (-12 per cent), Melbourne (-8 per cent) and prestige capital city properties generally led the downturn. Bucking the trend, prices continued to edge higher in Adelaide (up 10 per cent), Perth (3.6 per cent), Darwin (4.3 per cent) and many regional areas.

Rental returns outpaced home prices, as high interest rates, demographic shifts and low vacancy rates pushed rents up 10.2 per cent in 2022. Gross yields recovered to pre-Covid levels, rising to 3.78 per cent in December on a combination of strong rental growth and falling housing values. However, it’s likely net yields fell as mortgage repayments increased.

Despite the downturn, CoreLogic reports housing values generally remain above pre-COVID levels. At the end of December, capital cities combined were still 11.7 per cent above their March 2020 levels, while regional markets were a massive 32.2 per cent higher.

Looking ahead

While the outlook for 2023 remains challenging, there are signs that inflation may have peaked and that central banks are nearing the end of their rate hikes.  

Even so, the risk of recession is still high although less so in Australia where the RBA has been less aggressive in applying the interest rate brakes.

Issues for investors to watch out for in the year ahead are:

• A protracted conflict in Ukraine
• A new COVID wave in China which could further disrupt supply chains across the Australian economy, and
• Steeper than expected falls in Australian housing prices which could lead to forced sales and dampen consumer spending.

If you would like to discuss your investment strategy in the light of prevailing economic conditions, don’t hesitate to get in touch.
Note: all share market figures are live prices as at 31 December 2022 sourced from: https://tradingeconomics.com/stocks.
All property figures are sourced from: https://www.corelogic.com.au/news-research/news/2022/corelogic-home-value-index-australian-housing-values-down-5.3-over-2022

i https://www.chantwest.com.au/resources/another-strong-month-for-super-funds-as-recovery-continues/

ii As above

iii https://tradingeconomics.com/country-list/inflation-rate

iv https://www.rba.gov.au/statistics/cash-rate/

v https://www.rba.gov.au/snapshots/economy-indicators-snapshot/

vi https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release

vii https://www.rba.gov.au/publications/smp/2022/nov/economic-outlook.html

Welcome to our Spring newsletter. September means it’s football finals season and hopefully the beginning of warmer weather despite the recent late winter chill.

In August, the focus was on US Federal Reserve chair Jerome Powell’s speech at the annual Jackson Hole business gathering on August 26, and he was blunt. To hose down talk of interest rate cuts in 2023, he said the Fed was focused on bringing US inflation down to 2% (from 8.5% now), even at the risk of recession. He said this will “take some time”, will likely require a “sustained period of below trend economic growth”, and households should expect “some pain” in the months ahead. The S&P500 share index promptly fell 3.4% and bond yields rose. Economists expect the US central bank will continue lifting rates each month for the remainder of 2022.

In Australia, economic conditions are less gloomy. Australia’s trade surplus was a record $136.4 billion in 2022-23. Unemployment fell to 3.4% in July while wages growth rose to an annual rate of 2.6% in the year to June, the strongest in 8 years but well below inflation. The ANZ-Roy Morgan consumer confidence index rose slightly in September to a still depressed 85.0 points while the NAB business confidence index jumped to +6.9 points in July, well above the long-term average of +5.4 points. Half-way through the June half-year reporting season, CommSec reports ASX200 company profits increased 56% in aggregate while dividends are 6% lower on a year earlier.

The Aussie dollar fell more than one cent over the month to close around US68.5c. Aussie shares bucked the global trend, finishing steady over the month.

How much super do I need to retire?

Working out how much you need to save for retirement is a question that keeps many pre-retirees awake at night. Recent market volatility and fluctuating superannuation balances have only added to the uncertainty.

So it’s timely that new research shows you may need less than you fear. For most people, it will certainly be less than the figure of $1 million or more that is often bandied around.

For most people, the amount you need to save will depend on how much you wish to spend in retirement to maintain your current standard of living. When Super Consumers Australia (SCA) recently set about designing retirement savings targets they started by looking at what pre-retirees aged 55 to 59 actually spend now.

Retirement savings targets

SCA estimated retirement savings targets for three levels of spending – low, medium and high – for recently retired singles and couples aged 65 to 69.

Significantly, only so-called high spending couples who want to spend at least $75,000 a year would need to save more than $1 million. A couple hoping to spend a medium-level $56,000 a year would need to save $352,000. High spending singles would need $743,000 to cover spending of $51,000 a year, and $258,000 for medium annual spending of $38,000.ⁱ

While these savings targets are based on what people actually spend, there is a buffer built in to provide confidence that your savings can weather periods of market volatility and won’t run out before you reach age 90.

They assume you own your home outright and will be eligible for the Age Pension, which is reflected in the relatively low savings targets for all but wealthier retirees.^*

Retirement planning rules of thumb

The SCA research is the latest attempt at a retirement planning ‘rule of thumb’. Rules of thumb are popular shortcuts that give a best estimate of what tends to work for most people, based on practical experience and population averages.

These tend to fall into two camps:

• A target replacement rate for retirement income. This approach assumes most people want to continue the standard of living they are used to, so it takes pre-retirement income as a starting point. A target replacement range of 65-75 per cent of pre-retirement income is generally deemed appropriate for most Australians.ⁱⁱ
• Budget standards. This approach estimates the cost of a basket of goods and services likely to provide a given standard of living in retirement. The best-known example in Australia is the Association of Superannuation Funds of Australia (ASFA) Retirement Standard which provides ‘modest’ and ‘comfortable’ budget estimates.ⁱⁱⁱ

SCA sits somewhere between the two, offering three levels of spending to ASFA’s two, based on pre-retirement spending rather than a basket of goods. Interestingly, the results are similar with ASFAs ‘comfortable’ budget falling between SCA’s medium and high targets.

ASFA estimates a single retiree will need to save $545,000 to live comfortably on annual income of $46,494 a year, while retired couples will need $640,000 to generate annual income of $65,445. This also assumes you are a homeowner and will be eligible for the Age Pension.

Limitations of shortcuts

The big unknown is how long you will live. If you’re healthy and have good genes, you might expect to live well into your 90s which may require a bigger nest egg. Luckily, it’s never too late to give your super a boost. You could:

• Salary sacrifice some of your pre-tax income or make a personal super contribution and claim a tax deduction but stay within the annual concessional contributions cap of $27,500.
• Make an after-tax super contribution of up to the annual limit of $110,000, or up to $330,000 using the bring-forward rule.
• Downsize your home and put up to $300,000 of the proceeds into your super fund. Thanks to new rules that came into force on July 1, you may be able to add to your super up to age 75 even if you’re no longer working.

While retirement planning rules of thumb are a useful starting point, they are no substitute for a personal plan. If you would like to discuss your retirement income strategy, give us a call.
*Assumptions also include average annual inflation of 2.5% in future, which is the average rate over the past 20 years, and average annual returns net of fees and taxes of 5.6% in retirement phase and 5% in accumulation phase.

i CONSULTATIVE REPORT: Retirement Spending Levels and Savings Targets, Super Consumers Australia,
ii 2020 Retirement Income Review, The Treasury
iii Association of Superannuation Funds of Australia (ASFA) Retirement Standard

• 

Tax Alert September 2022

With the tax regulator taking a more aggressive approach to tax debts and reviewing work from home deduction rules, tax issues could become a higher priority in 2022-23.

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

Consultation on working from home deductions

Taxpayers could face the prospect of new rules when it comes to claiming working from home deductions after the ATO announced it was undertaking a targeted consultation.
Now the temporary shortcut method for working from home deductions has ended (available 1 March 2020 to 30 June 2022), the ATO is currently refreshing its approach to the traditional fixed rate method of calculating work from home deductions.
The regulator is consulting tax practitioner representatives and expects discussions to be completed in October 2022, with any new rules for the current financial year to be announced after this.

Offsetting of tax debts resumes

After taking a lenient approach during the pandemic, the tax man has begun chasing outstanding tax debts by sending taxpayers letters reminding them about existing debts placed on hold.
During the 2022-23 financial year, the ATO will recommence offsetting tax refunds or credits to pay off a taxpayer’s existing tax debts.
In some cases, tax credits will also be used to pay off debts owed to other government agencies such as Centrelink.

JobMaker Hiring Credit open

The seventh claim period for JobMaker Hiring Credit payments is now open and will end on 31 October 2022.
The scheme allows businesses to claim the credit for up to a year for each eligible employee hired between 7 October 2020 and 6 October 2021.
Eligible employers can nominate additional eligible employees through their STP-enabled software and claim using ATO Online Services or their accountant.

ATO app for sole traders

The ATO is encouraging sole traders to download and use the ATO app for a more personalised experience when viewing their tax lodgements and payment due dates.
The app also allows sole traders to check the progress of their tax return, view their income tax and activity statement accounts, access transactions and payment plan details and make payments in ATO online.
Useful tools and calculators such as my Deductions and the Tax Withheld Calculator are also available, together with a Business Performance Check Tool allowing you to compare your business performance with others in your industry.

Thresholds for 2022-23 car claims

The maximum value for calculating depreciation on the business use of a car first used or leased during 2022–23 has increased to $64,741.
The car limit is indexed annually in line with CPI movements and represents the threshold limit on the cost you can use to work out depreciation on a passenger vehicle.
If you purchase a vehicle priced over the car limit, your maximum claimable GST credit is $5,885 in 2022-23.
From 1 July 2022, the luxury car tax (LCT) threshold has also increased. The new threshold for fuel efficient vehicles is $84,916 (up from $79,659) and for all other vehicles it increases to $71,849 (up from $69,152).

Crypto not taxed as foreign currency

The government has announced crypto currencies will continue to be excluded from foreign currency arrangements for tax purposes. Capital gains tax (CGT) will continue to apply to crypto assets held as investments.

The announcement will be backdated to 1 July 2021 to ensure a consistent tax requirement for crypto asset holders.

New rate for claiming car expenses

Taxpayers electing to use the cents per kilometre method when calculating work related car expenses in their income tax deductions have a new kilometre rate to use.
From 1 July 2022, a 78 cents per kilometre rate applies. This rate will remain in place in subsequent income years until varied by legislation.

Director ID reminder

The deadline is approaching for directors to apply for their director ID – a unique 15-digit identifier.
From 1 November 2021 directors of all businesses, including directors of self-managed super fund (SMSF) corporate trustees, need a director ID. Anyone who was a director before that date has until 30 November 2022 to apply.
Directors appointed between 1 November 2021 and 4 April 2022 had to apply within 28 days of their appointment. From 5 April 2022, intending directors must apply before they are appointed.

Go on… take a break!

One of the things many of us have been missing over the past few years is holidays, but now that the world is opening up again for travel and destinations that have been pretty quiet are now eagerly welcoming back tourists, taking a break has never been more appealing.

Holidays are not just a lovely way to spend time, they are fantastic for us on so many levels. Having a break from the daily grind gets us out of our usual routine, opens us up to new experiences and is good for us mentally and physically.
However, the stats tell us that for many Australians it’s been a long time between breaks. In fact, around 8 million Australians have accrued nearly 175 million days of leave over the past 12 months, up from 151 the previous year.ⁱ That’s a lot of missed holidays!
Whether you are one of those who hasn’t had much of a break lately or even if you’ve just got back from a trip and are planning your next one – there are a host of good reasons to take a holiday.

Holiday to keep the doctor away

Holidays have been proven to lower stress which has a myriad of benefits including addressing the risk of cardiovascular issues like stroke and heart attack. A study following more than 12,000 middle-aged men at high risk for heart disease, found those who took yearly breaks were less likely to die from any cause, including heart attacks and other cardiovascular issues.ⁱⁱ

It’s not just physical health that benefits, taking a break is unsurprisingly pretty good for mental health with even a short break of a few days having a powerful mood enhancing effect.ⁱⁱⁱ

Travel to broaden the mind

Lifelong learning is not only good for our careers but also important for our personal growth. And travel is a learning experience like no other, whether you are heading to a new country or a different part of your city or state you’ll meet new people and experience a different way of life.

Travel is also the ultimate experience in mindfulness – you are living in the moment when you are on holiday. A break in routine takes us off autopilot and puts us in charge.

Having a break makes you more productive

If you are worried about the impact a break can have on your career – don’t be! Research by Boston Consulting Group found that professionals who took planned time off were significantly more productive than those who spent more time working.^iv Holidays offer time for introspection, goal setting and a chance to recharge your batteries for a new lease on life.

Planning for a wonderful time

Not all vacations are created equal. Just taking any quickly thrown-together escape may not provide all the health and productivity benefits associated with taking a vacation. A poorly planned break can be a source of tension and stress, rather than the opposite.

So how do you get the best out of a break?

Be flexible – While it’s important to plan before you leave, have enough flexibility for discovery – be open to new experiences and willing to change the schedule to accommodate those spontaneous magical moments.

Don’t sweat the small stuff – Things can and do go awry once you are away but don’t let silly little things spoil the break.

Switch off – Don’t be tempted to check your emails or socials every few minutes – stay in the moment. A decent break from work will also reinforce that the office doesn’t need you 24/7 and that life comes first.

Watch the budget but have some allowances to splurge – Focus on experiences and the memories you’ll take home with you rather than what’s on sale at the gift shop or duty free.

And finally, don’t feel that a holiday must be a luxurious destination or for a long period of time to count. A change of scenery can be as good as a holiday – even taking a mini break and heading off for a weekend away to a lovely destination can provide all the benefits of a holiday. So, what are you waiting for? Start planning that next trip. The wide, wonderful world awaits!
i http://www.roymorgan.com/findings/8696-annual-leave-holidays-march-2021-202105170711
ii https://pubmed.ncbi.nlm.nih.gov/11020089/
iii https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5800229/
iv https://hbr.org/2009/10/making-time-off-predictable-and-required

New rules coming into force on July 1 will create opportunities for older Australians to boost their retirement savings and younger Australians to build a home deposit, all within the tax-efficient superannuation system.

Using the existing First Home Super Saver Scheme, people can now release up to $50,000 from their super account for a first home deposit, up from $30,000 previously.

Another change that will help low-income earners and people who work in the gig economy is the scrapping of the Super Guarantee (SG) threshold. Previously, employees only began receiving compulsory SG payments from their employer once they earned $450 a month.

But the biggest potential benefits from the recent changes will flow to Australians aged 55 and older. Here’s a rundown of the key changes and potential strategies.

Work test changes

From July 1, anyone under the age of 75 can make and receive personal or salary sacrifice super contributions without having to satisfy a work test. Annual contribution limits still apply and personal contributions for which you claim a tax deduction are still not allowed.

Previously, people aged 67 to 74 were required to work for at least 40 hours in a consecutive 30-day period in a financial year or be eligible for the work test exemption.

This means you can potentially top up your super account until you turn 75 (or no later than 28 days after the end of the month you turn 75). It also opens potential new strategies for a making big last-minute contribution using the bring-forward rule.

Extension of the bring-forward rule

The bring-forward rule allows eligible people to ‘’bring forward” up to two years’ worth of non-concessional (after tax) super contributions. The current annual non-concessional contributions cap is $110,000, which means you can potentially contribute up to $330,000.

When combined with the removal of the work test for people aged 67-75, this opens a 10-year window of opportunity for older Australians to boost their super even as they draw down retirement income.

Some potential strategies you might consider are:

• Transferring wealth you hold outside super – such as shares, investment property or an inheritance – into super to take advantage of the tax-free environment of super in retirement phase
• Withdrawing a lump sum from your super and recontributing it to your spouse’s super, to make the most of your combined super under the existing limits
• Using the bring-forward rule in conjunction with downsizer contributions when you sell your family home.

Downsizer contributions age lowered to 60

From July 1, you can make a downsizer contribution into super from age 60, down from 65 previously. (In the May 2022 election campaign, the previous Morrison government proposed lowering the eligibility age further to 55, a promise matched by Labor. This is yet to be legislated.)

The downsizer rules allow eligible individuals to contribute up to $300,000 from the sale of their home into super. Couples can contribute up to this amount each, up to a combined $600,000. You must have owned the home for at least 10 years.

Downsizer contributions don’t count towards your concessional or non-concessional caps. And as there is no work test or age limit, downsizer contributions provide a lot of flexibility for older Australians to manage their financial resources in retirement.

For instance, you could sell your home and make a downsizer contribution of up to $300,000 combined with bringing forward non-concessional contributions of up to $330,000. This would allow an individual to potentially boost their super by up to $630,000, while couples could contribute up to a combined $1,260,000.

Rules relaxed, not removed

The latest rule changes will make it easier for many Australians to build and manage their retirement savings within the concessional tax environment of super. But those generous tax concessions still have their limits.

Currently, there’s a $1.7 million limit on the amount you can transfer into the pension phase of super, called your transfer balance cap. Just to confuse matters, there’s also a cap on the total amount you can have in super (your total super balance) to be eligible for a range of non-concessional contributions.

As you can see, it’s complicated. So if you would like to discuss how the new super rules might benefit you, please get in touch.

Combining downsizer and bring-forward contributions

Australians aged between 60 and 74 now have greater flexibility to downsize from a large family home and put more of the sale proceeds into super, using a combination of the new downsizer and bring-forward contribution rules.

Take the example of Tony (62) and Lena (60). Tony has a super balance of $450,000 while Lena has a balance of $200,000. They plan to retire within the next 12 months, sell their large family home and buy a townhouse closer to their grandchildren. After doing this, they estimate they will have net sale proceeds of $1 million.

Under the new rules from 1 July 2022:

• They can contribute $600,000 of the sale proceeds into their super accounts as downsizer contributions ($300,000 each)
• The remaining $400,000 can also be contributed into super using the bring-forward rule, with each of them contributing $200,000.

By using a combination of the downsizer and bring-forward rules, Tony and Lena can contribute the full $1 million into super. Not only will this give their retirement savings a real boost, but they will be able to withdraw the income from their super pension accounts tax-free once they retire.

Source: ATO

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.

As you can see in the table below, 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, turning this year’s 11% rise in our terms of trade to a 21 per cent fall in 2022-23.

Table: Australian economy (% change on previous year)

	Actual %	Forecasts %
	2020-21	2021-22	2022-23	2023-24
Gross domestic product (GDP)	1.5	4.25	3.5	2.5
Consumer prices index (CPI)	3.8	4.25	3.0	2.75
Wage price index	1.7	2.75	3.25	3.25
Unemployment	5.1	4.0	3.75	3.75
Terms of trade*	10.4	11	-21.25	-8.75

^*Key commodity prices assumed to decline from current high levels by end of September quarter 2022
Source: TreasuryCommodity 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.

So, what does all this mean for shares?

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.

However, while Budget spending is a market driver in the short to medium term 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. However, the yield on some US shorter-term bonds temporarily rose above 2.7 per cent recently. Historically, this so-called “inverse yield curve” has indicated recession at worst, or an economic slowdown.^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