by Financial Foundations on 03/09/2019

Spring 2019

SPRING 2019

Posted on September 3, 2019

It’s September and spring is in the air. It’s time to shake off the winter cobwebs, get out into the garden or the great outdoors. It’s also a good time to plan your summer break.

August was a challenging month for investors. Global markets reacted negatively to an escalation in the US-China trade war and the looming no-deal Brexit. US economic growth slowed to an annual rate of 2 per cent in the June quarter, down from 3.1 per cent the previous quarter. China’s economy is also slowing – industrial production, retail sales and fixed asset investment all recorded lower growth in the year to July.

To stimulate the US economy, the US Federal Reserve cut rates by 25 basis points, the first cut since 2008. US short-term bond yields rose as did the US dollar, but shares fell around the globe. In the US, shares were down around 2 per cent for the month while Australian shares shed 3 per cent. The Hong Kong market fell more than 7 per cent as protests continued and UK shares fell 5 per cent on Brexit worries.

In Australia, most companies reported positive earnings for the 2019 financial year, but only a little over half managed to lift profits. One challenge is retail spending, up 0.2 per cent in the year to June, the weakest in 28 years. The NAB business confidence index rose in July, but the business conditions index fell to 2.4 points (the long-term average is 5.8 points).

On the bright side, Australia’s trade surplus hit a new record high of $49.9 billion in the year to June. The Australian dollar finished the month lower at around US67c, which should support our exporters.

PENSIONS TO RISE AS DEEMING RATES FALL

It’s been a long time coming, but up to 630,000 retirees could soon enjoy a small but welcome increase in their Age Pension payments following a cut in deeming rates used for the pension income test.ⁱ

Under the Age Pension income test, you are ‘deemed’ to earn a certain rate of interest on your savings and investments no matter how much income you actually receive.

The federal government announced in July that it will cut the lower deeming rate from 1.75 per cent to 1 per cent for financial investments worth up to $51,800 for single pensioners and $86,200 for pensioner couples where at least one person receives a pension. The upper deeming rate for savings above these thresholds will be cut from 3.25 per cent to 3 per cent.ⁱⁱ

As a result, Treasurer Josh Frydenberg said single pensioners could be better off by up to $804 a year and couples by up to just over $1,000.

Eligible pensioners will begin to receive the benefits from 20 September 2019 when pensions are next adjusted, but any extra payments will be backdated to July 1.

HOW DOES DEEMING WORK?

The deeming rules apply to income from financial assets such as superannuation (where the individual has reached age pension age), shares, savings accounts, term deposits and other fixed interest investments.

Different deeming rates apply if you are single or live with a partner.

To be eligible for the full Age or Veteran’s Affairs Pension under the income test, a single person can earn up to $174 a fortnight ($4,524 a year) before losing some of their pension. Couples can earn up to a combined $308 a fortnight ($8,008 a year).

For every $1 you earn over the threshold you lose 50c in pension income.

Once your financial assets reach a certain threshold, your pension eligibility will be determined by the assets test rather than the income test. Single homeowners can have assets of up to $263,250 before their pension is reduced ($473,750 for non-homeowners). Home-owning couples can have $394,500 combined ($605,000 for non-homeowners).

WHO IS MOST AFFECTED?

Because of the complex interplay between the Age Pension income and assets tests, your relationship status and whether you own your home, the people most affected by deeming rates are part-pensioners.

With official interest rates at a record low of 1 per cent, Age Pensioners who depend on income from cash investments face a double whammy. Not only do they receive less income from their bank deposits as interest rates fall, but they also risk losing some pension because they are deemed to earn more than they do.

Until the recent cut to deeming rates was announced, they had not moved since 2015. Since then, the Reserve Bank has cut the official cash rate five times, most recently in July, to a new historic low of 1 per cent with further cuts expected.

But there are also winners from the current level of deeming rates.

WINNERS AND LOSERS

Single pensioners with less than $51,800 in term deposits, and pensioner couples with less than $86,200, are probably earning a better rate of interest than the lower deeming rate of 1 per cent.

Even better off are retirees with money invested in Australian shares (either owned directly or within managed funds or superannuation) where yields have been over 4 per cent.ⁱⁱⁱ This is significantly higher than the top deeming rate of 3 per cent.

Growth investments such as shares not only provide the opportunity to grow your capital over the long term, they pay regular income in the form of dividends along the way. It’s understandable that retirees are risk averse and want to protect their capital. Bank term deposits provide the certainty of capital protection with a reliable income stream. But there is also an argument for diversifying your sources of income once you have covered your needs for ready cash.

If you would like to discuss your investment strategy in the light of changes to deeming rates and your Age Pension entitlements, give us a call.

i Treasurer Josh Frydenberg speaking on ABC TV, 14 July 2019, https://www.abc.net.au/news/2019-07-14/federal-government-announces-600-million-pension-boost/11307454
ii Dept of Human Services, https://www.humanservices.gov.au/individuals/news/changes-deeming-rates
iii ASX Market Index, All Ords average dividend yield, https://www.marketindex.com.au/statistics. CoreLogic, gross rental yields in year to June 2019 were 4.1%, https://www.corelogic.com.au/sites/default/files/2019-07/CoreLogic%20home%20value%20index%20JULY%202019%20FINAL.pdf

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Is The Tide Turning On The Property Market?

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IS THE TIDE TURNING ON THE PROPERTY MARKET?

Posted on August 2, 2019

For the first time in years, the planets seem to be aligning for homebuyers and property investors. Interest rates are falling, property prices largely appear to be stabilising and constraints on bank mortgage lending have been relaxed.

It’s welcome news for first homebuyers and anyone who has been waiting on the sidelines for a signal that the downturn in house prices could be at or near the bottom in key markets such as Melbourne and Sydney.

As is always the case though with the national housing market, the full story is more than a tale of two cities.

HOUSE PRICE SLIDE LOSING MOMENTUM

According to research group CoreLogic, in the year to July the national housing market fell 6.4 per cent. This fall was driven by the two biggest markets Sydney (down 9.0 per cent) and Melbourne (down 8.2 per cent).

Perth, still coming down from the peak of the mining boom, and Darwin suffered similar declines. Brisbane fell 2.4 per cent and Adelaide was down 0.8 per cent from a much lower peak. Hobart (up 2.8 per cent) and Canberra (up 1.1 per cent) were the only capital cities to rise in the year to July.

But in the aftermath of the May federal election and the first of the Reserve Bank’s two recent interest rate cuts, the downhill slide in prices began to lose momentum.

In July, home values recorded zero growth nationally, with signs the housing conditions are stabilising. Most tellingly, prices rose slightly for the second month in a row in both Sydney (up 0.2 per cent) and Melbourne (up 0.2 per cent). However the stabilisation in housing values is becoming more broadly based with Brisbane, Hobart and Darwin also recording rises in values.ⁱ

HOME VALUE INDEX AS AT JULY 31, 2019

Source: CoreLogic

A jump in auction clearance rates adds weight to the theory that the market is on the turn. In the first week of July the clearance rate jumped to 69 per cent across all capital cities, up from 53 per cent the previous year. Sydney had the highest clearance rate (78 per cent) while Perth had the lowest (25 per cent).ⁱⁱ

RESERVE BANK OPENS THE BIDDING

In hindsight, the Reserve Bank’s recent decision to cut interest rates for the first time since 2016 could mark the beginning of the end of the downturn in home prices.

In June, the Reserve Bank lowered the cash rate from 1.5 per cent to a new historic low 1.25 per cent and followed up in July with another cut to 1 per cent.

Mortgage interest rates are also low by historic standards although not all banks passed on the full reduction in the cash rate.

In early July, the average standard variable mortgage rates of the big four banks were all around 4.9 per cent. The best available rates from smaller lenders are now below 3 per cent.ⁱⁱⁱ

BANKING REGULATOR JOINS IN

The Australian Prudential Regulatory Authority (APRA) is also doing its bit to breathe new life into the property market.

In July, the banking regulator scrapped a rule that required banks to assess new mortgage customers on their ability to manage repayments with 7.25 per cent interest rates no matter what their actual rate might be. This rule was introduced in 2014 to improve lending standards, but since then mortgage rates have tumbled.

Instead, APRA will now require banks to test if borrowers can manage repayments at least 2.5 percentage points above a loan’s current rate. With many mortgage rates for new customers currently around 3.5 per cent, this would mean banks would have to test whether customers could afford repayments of 6 per cent instead of 7.25 per cent.^iv

As a result, comparison website RateCity estimates someone earning the average wage ($83,455) could see their borrowing power increase by $66,000 to $544,000. ^v

PROPERTY INVESTING BEYOND HOUSES

Australians’ love affair with bricks and mortar is legendary, but there is more than one way to profit from property.

If you’re thinking of buying as an investment, rather than as a place to call home, there may be opportunities to invest directly in commercial property or via a managed fund.

Listed property trusts, property ETFs (exchange traded funds) and traditional unlisted managed funds offer a way to invest in a diversified portfolio of properties in Australia and overseas. As well as residential property they can invest in retail, office and industrial property.

Unlike the housing market, recent returns from listed property have been strong. In the year to June 30, the ASX300 A-REIT (Australian Real Estate Investment Trusts) Index posted a total return of 19.4 per cent. Total returns include capital gains and income from rents distributed to shareholders. Over five years the average annual total return was 13.8 per cent.^vi

That’s no guarantee of future returns, but it demonstrates the benefits of diversification. By comparison, the total return from Australian residential property was -3.3 per cent.^vii

If you would like to discuss your property investment strategy in light of recent developments, give us a call.

i All house price data from Core Logic, 1 August 2019, https://www.corelogic.com.au/sites/default/files/2019-08/CoreLogic%20home%20value%20index%20AUGUST%20FINAL.pdf
ii CoreLogic, 8 July 2019, https://www.corelogic.com.au/news/first-week-july-sees-combined-capital-city-clearance-rate-above-60-cent-4th-consecutive-week
iii The Sun Herald, 7 July 2019, https://www.smh.com.au/money/borrowing/how-to-get-the-most-out-of-lower-mortgage-rates-20190704-p5245f.html
iv APRA, 5 July 2019, https://www.apra.gov.au/media-centre/media-releases/apra-finalises-amendments-guidance-residential-mortgage-lending
v RateCity, 5 July 2019, https://www.ratecity.com.au/home-loans/mortgage-news/apra-changes-average-aussie-family-can-now-borrow-60k
vi Vanguard,https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=8206/assetCode=equity/?overview
vii Core Logic, 1 July 2019, https://www.corelogic.com.au/sites/default/files/2019-07/CoreLogic%20home%20value%20index%20JULY%202019%20FINAL.pdf

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by Financial Foundations on 02/07/2019

Making The Most Of Falling Interest Rates

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HOW SUPER IS YOUR LIFE INSURANCE?

Posted on September 10, 2019

The Reserve Bank’s decision to cut official interest rates is good news for anyone with a mortgage or hoping to buy their first home, but presents a challenge for savers. Whatever your personal situation, the question now is how to make the most of falling rates.

In case you missed it, on June 4 the Reserve Bank cut the official cash rate by 25 basis points from 1.5 per cent to 1.25 per cent, the lowest on record. Many economists predict further cuts, with some suggesting rates could fall to as little as 0.5 per cent this year or next.

Just how low rates go will depend on the broader economy. Growth in the three months to March was up just 0.4 per cent, or 1.8 per cent over the year. The Reserve Bank is also concerned about sluggish wage growth, unemployment stuck at around 5 per cent and inflation of 1.3 per cent well below its target 2-3 per cent range.

But rather than wait to see how low rates will go, there are things you can do now to take advantage of lower rates or minimise their impact, depending on your personal circumstances.

GRAB A BETTER HOME LOAN DEAL

Many banks moved quickly to cut home loan interest rates in the days following the Reserve Bank’s move, although not all of them passed on the full amount.

According to rate comparison site Finder, the average standard variable rate offered by the big four banks is now between 5.11 and 5.18 per cent. On the average home loan size of just under $400,000 that could save $60 a month or up to $21,000 over 30 years.ⁱ

The big four also cut their discount rates to between 3.54 and 3.78 per cent, while some smaller lenders are offering rates as low as 3.19 per cent. The lowest 1-year fixed rate is below 3 per cent.ⁱ

While house prices and interest rates continue to fall, the stars could finally be aligning for Australians wanting to buy their first home.

The Australian Regulation Prudential Authority (APRA) plans to relax the minimum 7 per cent interest rate banks are required to use when assessing borrowers’ ability to service a home loan. This could see more first home buyers qualify for a loan or potentially secure a bigger loan than they would otherwise have been able to afford.

Also, the Morrison government proposes low deposit financing for eligible first home buyers who save a deposit of as little as 5 per cent up to 20 per cent to purchase property.

For people with existing home loans, it’s time to check whether you are getting a good deal from your lender. If not, ring them to negotiate a lower rate and be prepared to shop around if they won’t budge.

If you do secure a rate cut, consider making the same monthly loan repayments to repay your mortgage faster. Or you could use the cash you free up to pay down debts with higher interest charges, such as credit cards.

THE OUTLOOK FOR SAVERS

Lower interest rates can be more challenging for savers. That includes anyone with a savings account as well as retirees who depend on the income from term deposits to help with living expenses.

Term deposit rates were already on the way down before the Reserve Bank’s rate cut and are likely to head south of 2 per cent. The average interest rate for $10,000 invested in a 1-year term deposit was 2.15 per cent in May and 1.9 per cent across all terms.ⁱⁱ

Banks have also been cutting base and/or bonus rates on their online savings accounts. The best rates are generally on accounts with an ongoing bonus rate of interest if the account is linked to an everyday transaction account.

The best online rates on offer are currently around 3 per cent for the first four months, before dropping to a base rate around half that, so shop around and read the terms and conditions. To earn a bonus rate of interest, some require a minimum monthly deposit, others no withdrawals.

THE HUNT FOR YIELD

Investors looking for income are not restricted to bank deposits. If you have a longer time horizon, growth assets such as shares and property can provide regular income. That includes pre-retirees and recent retirees who need their money to last for upwards of 20 years or more.

If you can ride out the short-term fluctuations in share and property prices, the income they provide in the form of dividends (shares) and rent (property) tend to be more stable and reliable.

The national average rental yield on Australian residential property is sitting at around 4.1 per cent.ⁱⁱⁱ Coincidentally, Australian shares currently provide an average dividend yield of 4 per cent (7 per cent after franking) but many quality companies pay more.^iv

For example, the big four banks currently offer dividend yields of between 5.2 and 6.8 per cent. After franking credits are included, the yields grow to 7.5 and 9.7 per cent respectively. As you can see, in a low rate environment it can pay more to invest in the banks than to deposit your savings with them.

Whether you plan to borrow or pump up your income, falling interest rates can offer opportunities and challenges. If you would like to discuss the impact of lower rates on your investment strategy, give us a call.

i Finder, 10 June 2019, https://www.finder.com.au/press-release-savings-loss-following-rate-cut
ii RBA May 2019, https://rba.gov.au/statistics/tables/#interest-rates
iii CoreLogic, 1 June 2019, https://www.corelogic.com.au/sites/default/files/2019-06/CoreLogic%20home%20value%20index%20JUNE%20FINAL.pdf
iv AFR share online market tables, 24 June 2019

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by Financial Foundations on 21/06/2019

Keeping Up With The Joneses

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KEEPING UP WITH THE JONESES

Posted on June 21, 2019

IS IT HOLDING YOU BACK?

These days, the phenomenon of keeping up with the Joneses is more pervasive than ever. The constant bombardment of images from advertisers, as well as our friends and family via social media is making Australians feel pressured to maintain a certain lifestyle, often to the detriment of their long-term financial goals. In fact, new research reveals that over a third of Australians feel burdened by the pressure to keep up appearances.ⁱ

NOTHING NEW

Wanting what your neighbour has is not a new phenomenon. The New York World was publishing a comic strip titled Keeping Up with the Joneses way back in 1913. But the expansion of mass consumerism through the twentieth century only exacerbated the problem as certain material objects were branded as status symbols. These days the issue presents a little differently, with experiences rather than things tending to be our main objects of desire. We all know how envious we can get of that certain friend, who always seems to be traveling to exotic locations and dining out at the hottest new places.

THE CONSEQUENCES

Australians are paying a hefty cost to keep up appearances. Many Australians are favouring the perception of prosperity in the present over long-term wealth accumulation. A recent report indicates we are passing up on private health insurance and delaying dental visits just to maintain our lifestyle.ⁱ 38% are even choosing to forgo home ownership meaning many Aussies are without a major asset.ⁱⁱ

SO HOW DO WE GET BACK ON TRACK?

A lot of it comes down to knowing where you’re going. Ask yourself where you want to be in a year, and what you want your life to look like in ten. This will help you get specific about your goals. Detail is key. It’s a lot easier to say no to that new gadget all your mates have when you know exactly where you’re heading.

Once you’ve decided on your goals, it’s time to review your budget. Start by comparing your monthly income with your average monthly expenses. Look at each item line and ask yourself, do I really need this? This will help you evaluate what you are willing to forgo to achieve your vision for the future. Don’t be too harsh on yourself though, we all need a few treats to get through the daily grind. It’s also handy to remember that your circumstances are likely to change as time goes on, so make sure you schedule in periodic reviews.

THE IMPORTANCE OF A COACH

Now it’s all well and good for us to tell you to clarify your goals and develop a budget, but we know the reality of good financial health is a little more complex. Just like you might hire a PT to get you in shape, it’s helpful to have a coach who can help you make the right financial decisions based on your circumstances. As a financial adviser, our job is simple: to keep you on track, assess your goals and balance your present needs with your future vision. And with tax time around the corner, there’s never been a better time for review.

It’s only human to compare yourself to others. But if you practice gratitude for what you already have and maintain a clear idea of where you’re going, saying no to those little unnecessary expenses can be that bit easier.

Remember, we’re here to help. And who knows, in twenty years, it may be the Joneses who are trying to keep up with you!

i https://www.mpamagazine.com.au/sections/features/keeping-up-appearances-may-cost-australians-their-financial-goals-262028.aspx
ii https://www.news.com.au/finance/money/costs/australians-are-trying-to-keep-up-appearances-but-its-slowing-down-their-ability-to-save-for-a-home/news-story/02814a8d9c3908906c04bde721cc5533

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by Financial Foundations on 17/06/2019

Paving The Way For A Smooth EOFY

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PAVING THE WAY FOR A SMOOTH EOFY

Posted on June 17, 2019

As the end of the financial year draws closer, thoughts turn to tax. No doubt you can think of more enjoyable ways to spend your time than preparing for your annual tax return. So how can you streamline the process while ensuring you take advantage of all the claims that are possible?

First, you need to collect all your records of both your income and your expenditure throughout the year.

This includes:

All your income whether it’s from your employer, your super or your pension
All your bank statements including interest earned and charges paid
Dividends and distributions from your investments
Records of investment sales and purchases for capital gains/loss purposes
Income from rental properties and associated expenses
Foreign income
Your private health insurance policy details.

Nowadays, there may also be income to report from your participation in the shared economy such as money earned from Uber or AirBnB.

Ideally all this documentation should be to hand. If it’s not, then seriously consider using an app to record all these transactions on a regular basis so when June comes around, you won’t spend hours hunting out all the documentation. The Australian Taxation Office, for instance, has a myDeductions app for individuals and sole traders.

Another way to help monitor your expenses is to establish a separate credit card or bank account for your work-related expenses so that they are easily identifiable.

WHAT CAN YOU CLAIM?

Once you have your documents to hand then you need to consider what you can claim as work-related expenses. But do make sure you only claim what you are entitled to, because the ATO has work-related expenses in its sites this year.

Basically there are three key criteria:

You must have spent the money yourself without having it reimbursed
The money must be directly related to earning income
You must have a record to prove it.

If your expenses meet these criteria, then there are a host of expenses you may be able to claim. These include vehicle and travel expenses; clothing, laundry and dry cleaning; gifts and donations; home office expenses; self-education; bank interest and account fees; and tools and equipment.

As an investment property owner, you can claim items such as land tax, rates, body corporate charges, insurance, repairs and maintenance, agent’s commission, gardening, pest control, costs associated with drawing up leases and advertising for new tenants.

If you have income protection insurance outside super, then tax time is a perfect opportunity to review your cover and maybe prepay your next 12 months of premiums. That way you can claim those premiums as a deduction in the current year and reduce your tax liability. Other types of life insurance are generally not tax deductible outside of super.

CHECK YOUR SUPER

Superannuation is another area for attention. If you have not reached your concessional contributions cap of $25,000 (which includes your employer’s contributions and salary sacrifice amounts) then consider putting the shortfall into your super. Any personal concessional contributions you make can be claimed as a tax deduction. But don’t wait until the 11th hour as your contribution may not be processed by the fund until after June 30. You will need to notify your fund of your intent to claim a deduction and there are applicable timing requirements for this notice.

Taking advantage of the government’s co-contribution can also be worthwhile for those who are eligible. If you earn less than $37,697 in 2018-19 and contribute $1,000 to your super as a personal contribution for which you don’t claim a tax deduction, the government will match it with a $500 co-contribution. That’s an effective 50 per cent return on your investment.ⁱ The co-contribution reduces progressively to nil once your income reaches $52,697. You must meet the eligibility criteria to qualify.

CHANGES FOR INACTIVE SUPER ACCOUNTS

It is also worth noting that come July 1 your super fund will cancel your life insurance policy if no contributions or rollovers have been made to your account in the last 16 months. If you want to maintain insurance cover with such a fund, you need to contact your fund or make a contribution or rollover into that fund to keep your account active. Alternatively, you could speak to us about purchasing cover outside super.ⁱⁱ

If you would like some help making tax time less taxing this year, speak to your tax agent or give us a call.

i https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-co-contribution/?anchor=Eligibilityforthesupercocontribution#Eligibilityforthesupercocontribution
ii https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/insurance-through-super

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by Financial Foundations on 07/06/2019

Winter 2019

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WINTER 2019

Posted on June 7, 2019

The end of the election uncertainty and the investor-friendly policies of the Coalition produced a relief rally on financial markets. The Australian dollar bounced back above US69c on Monday after falling to three-year lows the day before the election, while local shares surged to an 11-year high on Monday before losing some of their gains the following day.

The Australian dollar more broadly has suffered from a flight to safety as trade tensions between the US and China escalate, pushing the US dollar higher. Global bond yields and share prices have also fallen in May.

In Australia, the Reserve Bank has trimmed its economic growth forecast for 2019 from 3.0 per cent to 2.75 per cent where it is expected to stay until at least June 2021, despite rising iron ore prices. This is against the background of a lift in the unemployment rate from 5.1 per cent to 5.2 per cent in April and a slide in business sentiment. The NAB business conditions index fell from 7.2 points to 3.1 points in April while the business confidence index remains below zero. New vehicle sales, a bellwether for consumer confidence, fell to their weakest level in 9 years in April, down 8.9 per cent over the year.

Now that the federal election is out of the way, all eyes will be on the Reserve Bank and whether it decides to cut the cash rate from its current level of 1.5 per cent to stimulate the economy.

ELECTION 2019: A VOTE FOR CONTINUITY IN AN UNCERTAIN WORLD

The Liberal/National Party Coalition has been returned to government, as Australians chose continuity over change and cautious economic management over Labor’s ambitious reform agenda.

The Coalition is promising sweeping tax cuts for individuals and continuity for investors with no big changes to existing investment or superannuation policies.

One of the first items of business for Prime Minister Scott Morrison will be to reconvene Parliament to pass legislation on a low and middle-income tax offset.

INDIVIDUALS TO PAY LESS TAX

Providing the legislation is passed quickly, from 1 July Australians earning less than $37,000 will receive a tax offset of up to $255 (effectively a cash rebate) with their tax returns. If you earn between $48,000 and $90,000 you will get the maximum amount of $1080. The offset then scales down to zero for those earning $126,000 or more.i

Further planned tax cuts could depend on the Coalition winning the next federal election.

From July 2022, the Coalition plans to raise the top threshold of the 19 per cent income tax bracket to $45,000. Then from July 2024, it plans to reduce the 32.5 per cent tax bracket to 30 per cent and do away with the 37 per cent rate entirely.

If adopted, these proposals will result in a flat 30 per cent tax rate for anyone earning between $45,000 and $200,000.

SUPPORT FOR FIRST HOME BUYERS

In a proposal that could also help stimulate the flagging residential property market, the Coalition has promised help for first home buyers trying to get a foot on the property ladder.

From January 2020, the proposed first Home Loan Deposit Scheme would allow eligible first home buyers with income of up to $125,000 (or $200,000 for a couple) to buy a home with a deposit as low as five per cent without incurring lenders mortgage insurance.ii

HELP FOR SMALL BUSINESS

Small business has not been forgotten. As announced in the recent Budget, the popular instant asset write-off will be increased and extended to businesses with turnover of up to $50 million (previously $10 million).

Eligible businesses will be able to write off assets up to the value of $30,000 (previously $25,000) against their taxable income.

INVESTMENT TAX CONCESSIONS TO STAY

Investors can breathe easy now that controversial changes to dividend franking credits and negative gearing proposed by Labor will not go ahead.

Individuals, including those with a self-managed super fund, will continue to be entitled to a cash refund of franking credits attached to their share dividends if the franking credits exceed their tax liability.

Property investors have also earned a reprieve, with no changes to negative gearing rules.

SUPER CHANGES AT THE MARGINS

Australians hoping to boost their super in the run up to retirement will continue to enjoy existing tax concessions.

You will still be able to make catch-up concessional (pre-tax) contributions if you meet certain conditions. From the 2019-20 financial year, individuals who have not used their full $25,000 annual concessional contributions cap will be able to carry forward the shortfall for up to five years and claim a personal tax deduction. To be eligible, your total super balance must be below $500,000 on June 30 the previous financial year.iii

The non-concessional (after tax) contributions cap will remain at $100,000 a year for people with a total super balance below $1.6 million. Those under 65 can still bring forward up to three years’ contributions (or up to $300,000) with a proposal to increase the age limit to 67 from 1 July 2020.iv

The Coalition also plans to allow older Australians to make voluntary contributions until age 67 without meeting the work test. Subject to legislation, this measure would also begin on 1 July 2020.

LOOKING AHEAD

With the election out of the way, Australians can get back to the business of planning their finances with more certainty.

The initial response from financial markets was positive, with the Aussie dollar and local shares both up on the first day of trading after the election. However, the jury is still out on whether the Government’s tax cuts and spending promises will be enough to boost economic momentum.

If you would like to discuss your overall financial plan in the light of the election result, please give us a call.

i https://budget.gov.au/2019-20/content/tax.htm
ii https://www.liberal.org.au/latest-news/2019/05/12/helping-australians-buy-their-first-home
iii https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-contributions—too-much-can-mean-extra-tax/?page=2#Concessional_contributions
iv https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-contributions—too-much-can-mean-extra-tax/?page=3#Non_concessional_contributions