Leenane Templeton – Newcastle Business Accountants, Business Advisors & Financial Planners

Author: Harlan Marriott

  • How do interest rates affect stock markets?

    How do interest rates affect stock markets?

    Interest rates are at all time lows around the world, however with recent discussions of interest rate rises we will look at how interest rates affect stock markets and what may happen in an interest rate rise.

    Ask yourself this – how much would someone have to give you in a year’s time for you to hand over $100 today?

    Assuming it is guaranteed they will pay you back, is it $105? $107? $110?

    The amount that would make you ambivalent about whether you had the cash today or received it in the future is known as the ‘time value’ of money.

    The percentage difference between the two numbers, meanwhile, is known as the ‘discount rate’.

    The discount rate vs interest rate

    There is an extremely strong link between the discount rate and the interest rate and this is because, if you had $100 today, you could put it in a bank account and earn interest over the coming year.

    The more you can earn in interest, therefore, the greater the amount you need to receive in the future to compensate you for not receiving that interest.

    If, for example, interest rates were currently 10%, you would not accept less than $110 in a year’s time as, obviously enough, you would otherwise be better off taking your $100 as it is now and stashing it away in a bank account.

    When interest rates are 0%, however – as they effectively are today – the future amount you would accept for your $100 now is likely to be lower. In this scenario, perhaps $102 would suffice.

    We can also turn this question around

    If we know we want to receive $110 in three years’ time, say, how much would we need to set aside now?

    The answer to that question would again depend on where interest rates stood. If interest rates were high, you might only need to set aside $100. If they were low, however, the amount might be closer to $108.

    Why interest rates move stock prices

    This, in effect, is the sum the stock market is trying to solve – and why interest rates move share prices.

    While the value of a theoretical company in, say, 2030, may not move in itself, a reduction in discount rates triggered by a reduction in interest rates will have an effect.

    If, then, that company was seen as worth $110 in 2030, with interest rates high, the share price today may be $100.

    With interest rates low, the company may be worth $108.

    Impact around the world

    The reduction in interest rates that has been seen around the world has had precisely this impact on stock markets globally.

    It should, in other words, come as no surprise that share prices have seen a succession of all-time highs in different countries – at a time of historically low interest rates, such moves are totally understandable and justified.

    That said, investors need to remember the mantra intoned by central bankers around the world as they responded to the credit crunch by cutting rates to these levels was ‘lower for longer’ – not ‘lower for ever’.

    What we think about rate rises

    While the impact that will have on markets is impossible for anyone to predict with any certainty, we believe we can say two things with some confidence.

    1. A market that has become used to low rates is likely to have some adjustments to make.
    2. In the process of making those adjustments, the market is likely to overreact in some areas, creating opportunities for stock picking investors.

    Time to discuss your investment strategy? Contact the team at LT.

    Source: Schroders

  • Could Your Business Survive Without You?

    Could Your Business Survive Without You?

    If you want your business to thrive in your particular market on a long-term basis, you need to be certain that it can perform independently of any one individual – and that should include you.

    The most effective way you can grow your business is by removing yourself from the daily operations and focusing your time on developing strategies to elevate and move your brand forward. However, you cannot step away from running your business until you have strong systems in place, a dependable and knowledgeable team, and a stable customer base.

    To help you develop a business that can run on its own, consider the following:

    Test Out Your Business’s Independence
    The best way to test how well your business will perform without you is to go on a holiday. Ensure you are unreachable during the entire period. This way you can come back and assess what went wrong or where the business’s primary issues lie. As an example, you may find your staff are not comfortable calling the shots if they are used to being micromanaged. This is something that you can further address, either by adapting or …… (read on)

    Build Strong Systems
    Putting strong systems in place is the only way you can remove yourself from the daily operations involved in running your business. You must establish clear requirements for all business activities, including how to manage your social media and content calendar through to the processes used for handling customer complaints. By having clear guidelines in place for every aspect of your business, you will no longer need to be there to save the day.

    Become Replaceable (Don’t Worry, That’s A Good Thing!)
    When you reduce your responsibilities, you must have a reliable and qualified team who can run your business efficiently in your stead. There must be team members employed who are capable of speaking to clients or suppliers and have the relevant industry knowledge to make important decisions on behalf of your business. You need to ensure there are also effective training protocols set up so that every employee understands the business policies and procedures, and what is required in their individual roles.

    The Perks Of A Stable Customer Base
    Having a steady customer base provides a reliable and regular source of financial security to take time out to strategise your business’ future or tweak any issues in your branding image. For instance, you may want to put your time and effort into perfecting or redeveloping your service or product to attract a broader target market. Stepping away also allows you the freedom to take time away from your business altogether.

    To discuss your business strategies chat to you LT accountant today.

  • It’s our business to know your business

    It’s our business to know your business

    If you are a small business owner you would know the importance of having a good team behind you. That includes a team that can help look after your finances, talk to you about appropriate business insurance and discuss succession planning for when you decide to wind up the business, or you are forced out due to ill health or death.

    A professional Financial Adviser is ideally placed to have these discussions with you, and with any other business partners or family members, who may be impacted by the decisions you make.

    In a time when many businesses, particularly small to medium businesses, have taken a hit with the COVID lockdowns and restrictions, now is the time to get your business plans and finances in order so you can move forward with growing your business and servicing your clients.

    Contingency plans to protect you and those you love

    When you are busy running your business and things are going relatively smoothly it’s easy not to think about what would happen if you hit a rough patch. This could be a downturn in business, illness, injury or death of yourself or your business partner. There are many unexpected things that could stand between you and a successful transition of ownership once you are ready or forced into removing yourself from your business.

    A Financial Adviser can talk you through some of the unexpected events that may occur, and the plans you can put in place to deal with them.

    The importance of business insurance

    There are a few different types of business insurance policies every business owner should consider – key person insurance, buy/sell insurance, business continuance insurance, professional and public liability insurance. A Financial Adviser can discuss the type of cover you may need, the different insurers on the market and any possible tax implications that you can further discuss with your accountant so you get appropriate insurance cover in place.

    Tax implications
    Fully understanding the tax implications of a business and business insurance policies is complex and requires specialist tax advice to ensure you end up with the optimum structure for your business ownership and policy ownership. It’s critical to get professional assistance so that you understand the benefits and the tax implications now, and for future successors in your business.

    Your business is not your superannuation plan
    We live in a time of unprecedented change when businesses that were thriving yesterday find themselves in difficulty today – struggling to keep up with technology, superseded by more agile newcomers, impacted by recent business shutdown periods or they just plain run out of steam.

    If that happens to your business, or simply your business does not yield enough profit at sale to fund your retirement, you’ll need something substantial to fall back on. That’s why your business and your superannuation should be separate.

    This may be a standalone superannuation policy in your name, or a self-managed super fund. There are pros and cons with both that a Financial Adviser can discuss with you.

    With a proper superannuation policy in place for your retirement, you can rest easy that no matter what happens with your business, your hard work, the long hours, the stress and the strain on your family will all be worth it because you can retire with sufficient funds to keep living your life to the fullest.

    Life beyond work – your transition plan
    When the time comes for your succession to happen – and this may not be in your control – who’s going to take on the day-to-day running of your business, potentially at short notice, until the transition to the new owner is complete?

    Having a solid transition plan in place and ensuring all the key parties who will have a role to play are across the plan is critical to ensure the smooth transition of your business and minimal disruption to your clients. Having a third party professional, such as your Financial Adviser, to assist in these discussions and the formulation of the plan can help everyone to feel comfortable that business will continue, even if you are not around.

    Talk to us about your business
    If you do not have a solid business insurance policy, superannuation fund and transition plan then it’s time to book a meeting with a Financial Adviser and get one. We can guide you through the process – the planning and the implementation – safely and successfully.

    Call Leenane Templeton today to book your appointment

  • Estate Planning for your Business

    Estate Planning for your Business

    It’s not uncommon for business owners to take short, irregular holidays because they don’t have the support to keep their business running without them for a longer break.

    Aside from taking time off for leisure, have you considered what would happen if you were forced to take six months off work due to a serious illness or injury?

    Would the business survive and how would the bills be paid? Or if you were to die, can you be sure that your business partners would give your family a fair deal?

    For these reasons, it’s important for all business owners to put in place a properly prepared succession plan. It’s just like a Will for the business, but there is often a wider range of scenarios and considerations involved.

    As with a personal Will, what should be included in a good business succession plan can vary from one situation to the next. Here are some key areas that should always be considered:

    • Business structure – in the event of death or retirement, the ownership and control of the business may need to be transferred to the owner’s family or to the surviving business partners. How easily this would occur will often depend on how the business operates, such as through a trust, or a company, or without a separate entity at all.
    • Succession agreements – if something happened to one of the business partners, would that partner’s spouse or children be capable of taking over the control of that share of the business? If the answer is no, then a succession agreement can assist the remaining business partners to carry on operating the business whilst allowing for adequate compensation for the former partner’s family.
    • Managing risk – just like personal insurance, business insurance can provide a variety of types of protection such as temporarily meeting the normal costs of running the business (business expenses cover) or paying for a short-term replacement manager (eg. trauma or disability cover). A life insurance policy linked to the succession agreement that provides the deceased partner’s family with suitable compensation for the transfer of business ownership to the surviving partners can also be a good idea.
    • Powers of Attorney – many small businesses can’t do much without the authority of the key decision-maker, so a Power of Attorney is integral to the succession planning process. It helps the business to physically operate if the owner is incapacitated through illness or injury.

    There is a range of professionals who may need to be involved in setting up a succession plan, including your financial adviser, lawyer and accountant. Even if you already have a plan in place, make sure you regularly review the agreements and your insurance policies to keep them up to date and reflecting the current value of the business.

    Like a Will, don’t leave this to when it’s too late.  

    To find out more about estate planning for you and your business speak with one of the Leenane Templeton Accountants and advisors or contact us here.

  • Action Required by Directors

    Action Required by Directors

    From November 2021 it is a requirement for all directors of a company in Australia to apply for a director identification number (DIN) in order to meet their obligations under the Corporations Act 2001 (Cth) and the Treasury Law Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth). 

    The purpose of introducing DINs is to prevent the use of fictitious director identities, assist regulators trace directors’ relationships with companies and better identify directors involved in unlawful activity, such as illegal ‘phoenix’ activity. Each director will have their own unique DIN that they will keep for the remainder of their life. A director can only have one DIN that they must use for all companies.

    Naturally, the requirement to obtain a DIN will also apply to SMSF members who are directors or are to be appointed as directors of a corporate trustee. Alternate directors are also required to apply for a DIN.

    The DIN is one part of the Federal Government’s Modernising Business Registers (MBR) program that will combine more than 30 business registers into one place that will be referred to as the Australian Business Registry Services (ABRS).

    Key dates to be aware of:

    – From 1 November 2021 to the end of 4 April 2022 there is a transitional period where all new directors have 28 days to apply for a DIN after being appointed as a director.


    – From 5 April 2022, when the transitional period ceases, all directors will be required to apply for a DIN prior to being appointed as a director.


    – For all existing directors appointed prior to 31 October 2021, they will have a deadline of 30 November 2022 to apply for a DIN.


    – From 1 November 2021, the DIN application process will be available at ABRS and the director applying will require a myGov ID to access the ABRS.


    Furthermore, directors will need to provide proof of identity documentation to verify their identity. A director can choose to provide their tax file number when applying for a DIN which should expedite the application.
    Directors will need to apply for a DIN themselves and their advisers will not be able to apply on their behalf. LT Accountants and advisers can however assist by advising clients of the steps and timelines involved.

    All directors should apply for their DIN before the relevant deadline. Prior to applying for a DIN, directors should ensure they have an up to date myGov account which is needed to apply for a DIN. Failure to comply with the new DIN requirements may result in both civil and criminal penalties. This includes failure to obtain a DIN and providing false or misleading information.

    Contact your LT accountant to discuss further

  • Elements of a Business Plan

    Elements of a Business Plan

    A business plan establishes the goals and objectives of a business and outlines how they will be achieved. It is vital, especially for small businesses, to review progress and update processes to achieve targets.

    Business plans should include:

    • Executive summary:

    Identify what your business mission statement is, outline your company operations, your ‘why’, your management style, and even your company culture.

    • Products and services:

    Review products and services your business offers and determine whether pricing and manufacturing needs to be altered. Don’t forget about obtaining new licenses or renewing old ones!

    • Market analysis:

    Recognise who your target market is, who your competitors are and what your strengths and weaknesses as a business are in response to the market. Conducting an analysis will guide your marketing and advertising.

    • Marketing strategy:

    Establish how you will be presenting your product to the customer and how you intend not just the products but also the brand to be seen by customers. This will help create an outline for advertising and media campaigns for different channels.

    • Financial planning:

    Having a financial plan that sets out the financial statements of the business thus far, future predictions and potential new financial targets and how they can be met.

    • Budget:

    Plan a budget that includes all business expenses. It may be beneficial to also create estimates of the revenue
    to understand whether the budgeting needs to be reassessed. However, ensure that expenses identified in the budget are practical, and not simply complying with revenue.

    A business plan will give you an overarching understanding of the business and provide you with a reference point down the line. Spend time on constructing a thorough business plan which incorporates the elements which have been discussed and any other ones that are specific to your business.

    For more business advice speak with our team of accountants and advisors or make an enquiry here.

  • 10 common financial mistakes before retirement

    10 common financial mistakes before retirement

    Many of us would like to think that ‘older’ means ‘wiser’, but when it comes to money that isn’t always the case. The complexity of Australia’s superannuation and pension systems doesn’t help. The upshot is that there are a number of common mistakes that retiring and retired Australians make.

    What are those mistakes and how might you avoid them?

    1. Underestimating how much you need

    The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard calculates that a “comfortable” retirement for a couple costs $63,352 per year. For singles the figure is $44,818 per year (see the AFSA Comfortable Standard for up to date figures). To fund these levels of income, the ASFA calculates that a couple will need a nest egg of $640,000, and a single $545,000 at retirement[1]. Less than that and retirees become increasingly reliant on the age pension.

    In 2015-2016, the average total superannuation balance for households headed by someone aged 60-64 was around $337,100 – well short of enough to fund a “comfortable” retirement.

    2. Retiring too early.

    Australians retiring today can expect to live until their mid-80s. For retirees in their mid-50s, that means finding a way to pay for a further 30 years of life.

    The obvious solution to retiring too soon is to work longer. This provides a double benefit: it extends the savings period allowing a greater sum to be saved, and delays the point where withdrawals start to eat into accumulated funds.

    Many people may also overlook the social benefits of work. They end up bored, and then could face the challenges of trying to re-enter the workforce as an older worker, or taking an extra risk by starting a business.

    3. Not topping up super.

    Making additional contributions into the tax-favoured superannuation environment can really boost super savings. Strategies involving salary sacrifice, spouse contributions and government co-contributions should all be in play well before retirement. Within the allowable limits of course.

    4. Investing too conservatively.

    A common view is that retirees should dial back on their investment risk by allocating more of their savings to cash and fixed interest, and less to shares and property. However, even 10 years is a long-term investment horizon, let alone 20 or 30. Cutting too far back on growth assets early in retirement may see savings dwindle too quickly.

    5. Withdrawing super as a lump sum.

    Superannuation can be withdrawn as a lump sum after retirement, and if you are over 60 it’s all tax-free.

    But what then?

    Common choices are to take that big trip or renovate the home.

    Of course you’ll want to celebrate your retirement, but if you’re thinking of dipping into your savings in a big way, make sure you understand the potential implications for your future lifestyle.

    Another option is to invest outside of super. This may be entirely appropriate. However, don’t forget that if you are over 60 and your super is in the pension phase, earnings and capital growth will be tax-free. Investing outside of super may see you paying more tax than you need to.

    6. Expecting too much age pension.

    Just because you’ve decided to retire doesn’t mean the government is ready to give you an age pension. To begin with you need to reach pension age, which is between 65 and 67 depending on your date of birth. If you haven’t yet reached your pension age, you’ll need to fund your lifestyle until you do.

    Then there is an assets test and an income test. Too many assets (not including the family home) or too much income and the amount of pension you can receive will start to fall, eventually to nothing. It’s important to remember that these tests apply to the combined assets and income of a couple. If your partner is still working you may receive little or no pension.

    7. Forgetting to plan your estate.

    If you don’t have a current Will, haven’t granted someone you trust an enduring power of attorney, or made a binding death benefit nomination for your superannuation, you’re likely to leave a big headache for whoever will manage your affairs if you become incapacitated or die. The solution? Talk to a lawyer who specialises in estate planning matters sooner rather than later.

    8. Overlooking preservation age and conditions of release.

    You can retire any time you like. You may even be able to access some of your super if you have an unrestricted, non-preserved component. Otherwise you need to meet a condition of release. This usually requires reaching preservation age, which is between 55 and 60, again depending on date of birth. If you’re under the age of 60 it also means ceasing gainful employment with no intention to being gainfully employed again. Between 60 and 65 it is sufficient just to cease an employment arrangement. All funds can be accessed from age 65, regardless of employment status.

    One way to access super after reaching preservation age but without retiring is to start a Transition to Retirement pension. However, this must be paid as an income stream. Lump sum withdrawals are not allowed.

    9. Carrying debt into retirement.

    It can be hard enough keeping up mortgage, car finance or credit card interest payments even when you’re working. It can become a real burden in retirement.

    Where possible, do your best to pay down debt. It may help to consolidate debts and pay off one loan at the lowest possible interest rate. Downsizing your home may also allow you to start retirement debt-free.

    10. Paying for unnecessary insurance.

    Free of debt and without financial dependants, you may not need to maintain the same level of life and disability insurance you once required. Also, premiums can become expensive as you get older. The run up to retirement is an ideal time to review your insurances, a task best done under the guidance of your financial adviser.

    Invaluable advice.

    While the expectation may be that life should get less complicated as you get older, this short list reveals that’s not always the case. Many of these mistakes come with a high price tag but can be avoided by seeking professional advice.

    Your Leenane Templeton financial planner will be able to assess your specific circumstances and help you develop a plan for your retirement. But don’t wait until you actually retire. As you can see, it’s never too early to start planning.

    To speak with one of the Leenane Templeton financial advisors contact us today.

    Sources:

    The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard https://www.superannuation.asn.au/resources/retirement-standard

    www.superguru.com.au How much super will I need?

    MoneySmart – Retirement Planner

    [1] As at June quarter 2020.

  • Economic Outlook

    Economic Outlook

    Quarterly economic review – 30 June 2021

    Global economy
    The COVID-19 pandemic remains a major feature on the global stage, although global economic recovery continues, with the JP Morgan Markit Global Composite PMI remaining positive.

    Inflation news has been mixed. If we focus on the US, businesses were still affected by restrictions on movement with stronger demand for goods following last year’s lockdowns driving prices higher. However, the effect of more permanent triggers on inflation such as rising wages are not yet clear. For example, the Atlanta Fed median wage growth tracker has drifted lower in recent months (suggesting worker bargaining power is limited) while the participation rate for workers remains well below pre-pandemic levels (suggesting there are still many workers on the sidelines).

    Australia
    The Australian economy continued to improve for most of the June quarter. Business and consumer confidence remained strong with the NAB Business Survey highlighting business conditions at record highs and confidence above long-term average levels. Also, the unemployment rate continued to fall, down to 5.1% in May and pleasingly we saw the labour force participation rate recover above prepandemic levels as workers re-joined the workforce (a sign of improved confidence in job prospects). We also saw household savings rates continue to fall from a record high of 22% in June 2020 to 11.6% in March this year with retail sales, for instance, beating expectations in April and May.

    Our caution about further COVID-19 outbreaks last quarter unfortunately bore fruit in June. The Delta strain of COVID-19 triggered lockdowns across the country with the most severe example in Sydney. The speed of the outbreak’s spread is a concern for both public health and the economy, prompting increasing restrictions over a short period of time. There have been some limited attempts at government support, but these pale in comparison to the initiatives in 2020 such as rental relief and JobKeeper. The fallout from these lockdowns poses a downside risk to the economy. The severity will depend on how much longer they are extended and the extent that new stimulus mitigates the damage.

    Fixed income and currencies
    Global central banks such as the US Federal Reserve maintained a commitment to keeping interest rates low in the near term. However, the signs of this commitment weakened when the US Federal Reserve flagged a possible 0.5% increase in 2023.

    The Reserve Bank of Australia (RBA) restated its view that it will take until 2024 before the economy is sufficiently strong enough to increase interest rates from their record low level of 0.1%. The RBA also ended its Term Funding Facility (an emergency support program for Australian banks) which saw fixed mortgage rates rise across most major banks as they lost a cheaper source of funding. In addition, the RBA announced plans to gradually decrease its activity in the bond market.

    Concerns of ‘peak’ economic growth being reached on the back of declining stimulus saw bond yields fall with both global (up 0.9%) and Australian bonds (up 1.5%) recovering from their weak performance in the March quarter. Even the prospect of higher US rates was insufficient to weaken the demand for bonds amongst investors.

    It was a more uneven story for the Australian Dollar (AUD). In line with the improving economic outlook it was rallying for most of the quarter until the change in US interest rate expectations in June. This reduced the relative attractiveness of the AUD given the lower relative interest rate. The COVID-19 lockdowns also dampened sentiment. Accordingly, the AUD fell 1.3% against the US dollar and 1.9% against a broad basket of international currencies.

    Shares
    The Australian market continued to rise from its March 2020 lows, finishing the June quarter up 8.3%. However, it was a very different story at a sector level. Despite rising oil prices, Energy stocks fell while Utilities struggled amidst weak wholesale electric prices with industry giant AGL falling 15% for the quarter. Buy-now-pay-later businesses such as AfterPay enjoyed strong performance, rising 16.4% on the back of ongoing success in the US market.
    Global share markets also performed strongly with the successful vaccine rollout in the US and Europe key drivers. Cyclical stocks (companies benefitting from stronger economic growth) struggled with the tech-heavy Nasdaq Index in the US (dominated by names such as Apple and Microsoft) outperforming the broader US share market. Much of this relative outperformance arose late in the quarter amidst peak economic growth concerns and the belief that higher rates in the US would slow the economic recovery.

    Need to speak with an advisor? Contact Us

    Disclaimer: The information contained in this document is based on information believed to be accurate and reliable at the time of publication. Any illustrations of past performance do not imply similar performance in the future. To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting,on the basis of information contained in this newsletter. This information is of a general nature only. It is not intended as personal advice or as an investment recommendation, and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should read the product disclosure statement of any financial product referred to in this newsletter and speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives, financial situation and needs. Source: IOOF

  • Retirees’ fears and expectations

    Retirees’ fears and expectations

    For many, the word ‘retirement’ is associated with the idea of extended holidays to far-flung locations or spending quality time with grandchildren. However, there are a range of financial, emotional and psychological fears that are often linked to retirement – and for good reason.

    Australians spend most of their working lives saving so that when the time comes to retire, they can lead a comfortable
    life. However, many are uncertain about what to expect. There are also the emotional and psychological impacts of
    transitioning to retirement to be considered.

    Research from CoreData found that around 50 per cent of Australians retire early due to unexpected circumstances and within timeframes they did not choose. This can result in retirees feeling out of control and impacted not only financially, but emotionally as well.

    Retirement planning is not a ‘one size fits all’ approach. But no matter what an individual’s needs are, solid financial
    planning allows for a smoother transition and helps alleviate uncertainty.

    Common fears and expectations associated with retirement

    Despite healthy superannuation balances, CoreData’s research shows that close to two-thirds of pre-retirees are worried about being able to fund their retirement, with only a small percentage feeling very optimistic that they will have adequate financial resources to do everything they want in retirement.

    In fact, more than half of those with retirement balances of between $750,000-$1 million say they worry about funding their retirement. These concerns only recede once an individual has accumulated more than $1 million in savings.

    Encouragingly though, 43.9 per cent of pre-retirees expect to live a reasonable retirement life, understanding that not all of their desires will be fulfilled. Only four in 10 retirees say that their actual retirement lifestyle is aligned with what they expected, and three in 10 say their retirement lifestyle exceeds their expectations.

    Successful retirement factors

    A successful retirement involves more than just money. Other important factors in a successful retirement include, mental and physical health, having realistic expectations and owning a home.

    Retirement satisfaction occurs when a retirement lifestyle matches the retiree’s expectations. Not every retiree has expectations of a luxurious retirement lifestyle, but all of them expect basic needs to be addressed.

    While pre-retirees are concerned about whether they will be able to fund their retirement, once a person is retired, the concern turns to whether they will run out of savings later in life.

    Around one in eight say their greatest worry is they will outlive their savings, and close to 10 per cent are worried
    about affording the costs of high-quality aged care facilities. While the welfare system allows for a basic level of income, budgeting for discretionary expenditure can cause stress.

    There are two core factors that determine the amount of savings a retiree needs – life expectancy and projected
    expenses. Individuals need to consider these, along with other factors including marital status, health and home ownership, when determining how much saving a retiree needs in order to enjoy their desired lifestyle.

    Staying healthy

    28 per cent of Australians retire early (and unexpectedly) due to health-related issues. Almost half of all retirees consider their health as their greatest worry in retirement.

    Research from the Australian Centre for Financial Studies found those who retire early due to health issues are likely to have lower incomes and lower superannuation balances. By default, they are also most likely to incur additional health related expenses in retirement.

    Owning a home

    Unsurprisingly, owning a mortgage-free home provides a greater sense of security and retirement satisfaction. Research from the Australian Housing and Urban Research Institute found older people with secure long-term accommodation tend to have better physical and mental health too.

    Home ownership is also intrinsically linked to retirement readiness and satisfaction. Those who own more than one property with no mortgage typically experience retirement success. Single property owners also enjoy a high level of retirement satisfaction. In contrast, individuals who own no property score the lowest.

    Retirement is one of the single largest changes in an individual’s life and it comes with a host of financial, emotional and psychological fears. A sound financial plan can help manage associated fears and expectations and most importantly, ensure the transition into retirement is as seamless as possible.

    Speak with your Financial Advisor at Leenane Templeton to discuss your retirement planning. Contact us Today.

    Source: Fidelity Australia

    IMPORTANT INFORMATION
    This article above is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International. Prior to making an investment decision, retail investors should seek advice from their financial adviser. This document is intended as general information only. Please remember past performance is not a guide to the future. Investors should also obtain and consider the Product Disclosure Statements (“PDS”) for any Fidelity Australia funds before making any decision about whether to acquire the product. The PDS is available on www.fidelity.com.au or can be obtained by contacting Fidelity Australia on 1800 119 270. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this document. This document may include general commentary on market activity, industry or sector trends or other broad-based economic or political conditions which should not be construed as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. This material may contain statements that are “forward-looking statements”, which are based on certain assumptions of future events. Actual events may differ from those assumed. There can be no assurance that forward-looking statements, including any projected returns, will materialise or that actual market conditions and/or performance results will not be materially different or worse than those presented. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. The issuer of Fidelity’s funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Details of Fidelity Australia’s provision of financial services to retail clients are set out in our Financial Services Guide, a copy of which can be downloaded from our website. © 2021 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

  • Employee or Contractor – There is a difference.

    Employee or Contractor – There is a difference.

    We can understand during difficult economic times that business owners search for ways to reduce their costs and outgoings, but when those decisions affect others detrimentally, that’s when there’s more to consider.

    Recently I had a phone call from a client who had been retrenched six months ago. Although this man is very skilled and talented, he has been struggling to find full-time work in his chosen profession. He and his wife had savings put aside for such a time but living on one wage for six months was not only testing the savings balance but also their relationship. So he decided to try a different career role.

    Before Tim had been retrenched he had worked his way up in the construction industry to a senior managerial position. He’d started driving trucks 25 years ago and actually preferred driving them to driving a desk, so the thought of returning to it wasn’t entirely unappealing. Tim decided to apply for a truck licence and was successful. That was the easy part. Not wanting to drive long-haul he applied for a job driving buses on city and school runs and the occasional tourist charter. The pay rate was not mentioned in the job advertisement but he knew what the basic wage was for this type of work and figured it would help to cover some living costs.

    He attended the interview and everything was going well until the HR Manager asked Tim if he had an ABN. He was a bit surprised and responded that he didn’t personally but his wife ran a bookkeeping business and she had one. When he asked why an ABN was needed, Tim was told that the job would be on a contract basis. The surprise transformed into shock when he was then told that the pay was $27.50 per hour and as he would be engaged as a contractor the bus company would not be paying his superannuation guarantee. Tim would be responsible for his super and paying his tax.

    Having worked at managerial level, and with his wife’s experience guiding him, Tim decided to ask a couple of his own questions. Firstly, could he work his own hours or would he have to follow the bus company’s schedules? (No, he would have to drive to their timetables.) And would he have to supply the bus? (No, of course not, the HR Manager responded with a laugh.)

    Tim decided not to show his hand at that point, allowing the interview to continue to what seemed a very positive conclusion. The HR Manager told Tim she was very happy with his background and skills and she offered him the job. Shaking hands, he tried to appear pleased as he left the meeting.

    You can imagine the HR Manager’s surprise when Tim, armed with the information that he had gotten firstly from his wife, then the ATO website and lastly confirmed by me, informed her the next day that he would like to be hired as an employee and not a contractor and stated the reasons why. The phone call was swiftly ended by the HR Manager with an “I’ll get back to you on that” promise. She broke her promise because weeks passed with no return call. Tim figured he didn’t get the job after all.

    Sadly, this was not the first time one of my clients has contacted me sharing a similar experience and asking my advice on what to do. If you or someone you know is put in this position – or is working as a contractor when they should be an employee – please visit this page on the ATO website. There is a very short decision tool here https://www.ato.gov.au/calculators-and-tools/employee-or-contractor/. Even if you do have an ABN for a company, partnership or trust, there are other tests to determine the correct working arrangement.

    If you’re still not sure, give LT a call and we will be happy to chat to you to work out how you should be engaged.

    Oh and if you’re an employer who is unsure, answer the questions in the decision tool. If you’ve made a mistake and have employees wrongly engaged as contractors, do the right thing and fix it. Otherwise the Fair Work Ombudsman might be asking you some very difficult questions.  

    Sources:

    Australian Tax Office www.ato.gov.au Employee/contractor decision tool

    Fair Work Ombudsmen http://www.fairwork.gov.au  Help for independent contractors

  • NSW COVID-19 SUPPORT PACKAGE – Announced 13 July 2021

    NSW COVID-19 SUPPORT PACKAGE – Announced 13 July 2021

    The Morrison and Berejiklian Governments announced yesterday a combined economic support package worth up to $5.1 billion aimed at saving jobs and protecting businesses through the current COVID-19 lockdown. 

    The key components of the 2021 COVID-19 package are outlined below.  

    Expanded Business Grants

    Eligible businesses with annual wages up to $10 million can apply for a grant of up to $15,000 from 19 July 2021 to cover the first three weeks of restrictions.  The grant can be used for business expenses such as rent, utilities and wages, for which no other government support is available.

    Three different grant amounts will be available depending on the decline in turnover experienced during the restrictions:

    • $7,500 for a decline of 30% or more
    • $10,500 for a decline of 50% or more
    • $15,000 for a decline of 70% or more

    Smaller micro businesses with turnover between $30,000 and $75,000 which experience a decline in turnover of 30% will be eligible to apply for a grant of up to $1,500 per fortnight from late July 2021.

    New Business Support Payments

    A new business support payment will be available to entities with an annual turnover between $75,000 and $50 million who can demonstrate a 30% decline in turnover compared with an equivalent two-week period in July 2019.

    To receive the payment, eligible entities will be required to maintain their full time, part time and long-term casual staffing level as of 13 July 2021.

    Eligible entities, which includes not-for-profits, will receive payments of between $1,500 and $10,000 per week based on the level of their payroll.

    For non-employing businesses, such as sole traders, the payment will be set at $1,000 per week.

    The payments will be administered by Service NSW, with registrations of interest to open today, 14 July.

    NSW small business grants, including the new small business payments, will be tax exempt.

    Payroll Tax Waivers

    Businesses with Australian wages of between $1.2 million and $10 million that have experienced a 30% decline in turnover will receive a 25% payroll tax waiver, as well as payroll tax deferrals and interest free repayment plans.

    Eligibility Criteria

    We note that the business support measures outlined above are not limited to businesses located in Commonwealth-declared hotspots in NSW and are available based on decline in turnover. 

    Full eligibility criteria for the business support measures are currently being developed and we will provide updates as information becomes available.

    Protection for Tenants

    There will be a short-term eviction moratorium for rental arrears where a residential tenant suffers loss of income of 25% due to COVID-19 and meets a range of criteria.

    Commercial and retail landlords will need to attempt mediation before recovering a security bond or locking out or evicting a tenant impacted by the Public Health Order. 

    Land Tax Relief

    Land tax relief equal to the value of rent reductions provided by commercial, retail and residential landlords to financially distressed tenants, up to 100% of the 2021 land tax year liability, will be available.

    A capped grant of up to $1,500 will be available for residential landlords who are not liable to pay land tax who reduce rent for tenants.

    Other Tax Relief

    There will be a deferral of gaming tax assessments for clubs until 21 December 2021 and hotels until 21 January 2021.

    Administrative Relief

    Administrative relief will be provided to NSW taxpayers facing hardship, including reduced payment plans, no interest charged on late payments and varying instalments on request.

    Disaster Payment for Individuals

    From 18 July, the COVID-19 Disaster Payment will increase to $600 each week (from $500) if a person has lost 20 or more hours of work a week; or $325 to $375 each week if a person has lost between 8 and less than 20 hours of work.

    The payment will be available to those outside Commonwealth-declared hotspots in NSW that meet the criteria for the payment.

    The payment will be a recurring payment for approved recipients for as long as the Commonwealth-declared hotspot and lockdown restrictions remain in place.  This will remove the need for recipients to re-claim for each seven-day period of a lockdown.

    Other Measures

    Other support measures include:

    • a $17.35 million mental health support package for NSW.
    • a $75 million support package for the performing arts sector to be administered by Create NSW;
    • a support package for the accommodation sector worth $26 million; and
    • $12 million in additional funding for temporary accommodation for those at risk of or experiencing homelessness.

    Speak with your LT Accountant to see how we can help. Contact us today

  • Investing With Confidence

    Investing With Confidence

    When it comes to investing for a comfortable retirement, could you be your own worst enemy?
    Here’s how your unconscious fears and biases could impact your financial decision-making – and what you can do to keep them in control.

    When you’re thinking about the financial risks you may face in retirement, what do you take into account? If you’re like most people, you might consider market volatility, inflation and the risk of outliving your savings.

    But have you also considered the risks that can arise from your own behavioural biases?

    Being aware of unconscious bias

    There are several unconscious biases that could impact the financial decisions you make when preparing for retirement. One of the most important is hyper-loss aversion.

    Hyper-loss aversion stems from the pain of a financial loss being felt more keenly than the joy that is felt from financial gain. It can result in investors making rash and ill-considered decisions to avoid the pain of losing money – such as consolidating losses by selling shares and moving money into cash.

    This type of behaviour is more common during challenging economic periods, like the Global Financial Crisis and COVID-19. In fact, during the first quarter of 2020, investors pulled money from every asset class in their portfolio, except for cash.

    The irony is that investing solely in cash may in fact cause the scenario feared most by retirees: running out of money during their lifetime. Research has shown that 61% of retirees fear running out of money more than death itself.

    With cash-only investments failing to keep up with inflation, retirees are forced to draw on and potentially deplete all their retirement income.

    So why the fear?

    No two retirees are the same, but we all share the common goal of wanting enough money to live comfortably in our golden years. But research shows that around 60% of Australians aged between 50 and 70 are concerned that their savings won’t last the distance.

    One of the reasons behind this concern is that on average, Australians are living longer than ever before. For example, in 1960 the average life expectancy of a 65-year-old man was 77.5, and for an Australian woman it was 81. Fast forward to now and that life expectancy has increased to 85 for men and almost 88 for women . This means that if you’ve just turned 65 and are about to retire, you’ll need your retirement savings to last at least 20 years – potentially more.

    Another concern among retirees is that a share market downturn will impact savings close to or during retirement – when there’s less time for investments to recover before they start drawing down on their value.

    Because any fall in the returns generated by a market crash increase the amount of capital they may need to eat into, it can reduce the growth potential of the entire portfolio, reducing its ability to last for the long term.

    The downside of backing a sure thing

    Despite this, many retirees make the move to cash in times of trouble – choosing short-term certainty over long-term gain. When it comes to money, many people would simply rather take the safer, more familiar route. This can lead to missed opportunities for potential financial gain, and ultimately a retirement portfolio that may be exhausted far too early.

    What you can do

    When fears arise, it can be helpful to have an expert by your side. Your financial adviser can provide an objective view of the situation – and help you understand the pros and cons of decisions you make.

    Your adviser can also provide you with access to protective strategies and can suggest tools or products that are specifically designed for retirees or near-retirees. This can give you peace of mind about what your future looks like so you can look forward to retirement with confidence.

    Speak with your LT Advisor to discuss your investment strategies and retirement planning. Contact Us.

    Source: Allianz

    This material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559 (Allianz Retire+). Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited. This information is current as at April 2021 unless otherwise specified and is for general information purposes only. It is not comprehensive or intended to give financial product advice. Any advice provided in this material does not take into account your objectives, financial situation or needs. Before acting on anything contained in this material, you should speak to your financial adviser and consider the appropriateness of the information received, having regard to your objectives, financial situation and needs. No person should rely on the content of this material or act on the basis of anything stated in this material. Allianz Retire+ and its related entities, agents or employees do not accept any liability for any loss arising whether directly or indirectly from any use of this material. Past performance is not a reliable indicator of future performance.

    PIMCO provides investment management and other support services to Allianz Retire+ but is not responsible for the performance of any Allianz Retire+ product, or any other product or service promoted or supplied by Allianz. Use of the POWERED BY PIMCO trade mark, or any other use of the PIMCO name, is not a recommendation of any particular security, strategy or investment product.

    Source: Allianz Retire+

    (1) Allianz Retire+, Investfit projections, March 2020.
    (2) Allianz Life, Reclaiming The Future Study, 2010.
    (3) National Seniors Australia, Feeling financially comfortable, 2019
    (4) Australian Institute of Health and Welfare, Deaths in Australia: Life Expectancy, 2020

  • Sacrifice your mortgage to build wealth?

    Sacrifice your mortgage to build wealth?

    Back in the days of “normal” interest rates the simple answer to the question “what do I do with any surplus savings?” was “pay off debt”. That’s still a sound strategy for anyone paying high rates of interest on credit cards or personal loans.

    But if your only debt is your mortgage, and if mortgage interest rates are at the lowest they’ve ever been, does paying it off more quickly provide a good bang for your buck? And if not, what are the alternatives?

    Taking down the mortgage

    Trish is a 55-year-old senior manager and following a pay rise she estimates that she will be able to commit $1,000 per month of her pre-tax income to building her wealth. She has a mortgage on her home that has 15 years to run. With an outstanding balance of $220,000, an interest rate of 2.25% p.a. and monthly payments of $1,441, Trish examines the outcome of following the traditional advice of adding her new savings capacity to her monthly home loan repayments.

    But how much can she really save? Her marginal tax rate is 39%, including Medicare levy, so after the tax office takes its bit Trish is left with just $610 per month to add to her current mortgage repayments. Even so that’s enough to see her home loan paid off in 10 years, allowing her to retire debt-free at her preferred retirement age of 65. Knocking five years off her loan will save her a lot of  interest, but is there a better alternative?

    A super idea

    Trish examines the option of letting the home loan take care of itself for a while and to exploit some of the wealth creation opportunities offered by superannuation.

    Under a salary sacrifice arrangement Trish could contribute $1,000 of her pre-tax income to her super fund. The tax office will still take its cut, but at just 15% Trish will be left with $850 per month to actually invest. That’s a handy boost right there.

    Then there’s the investment return. Paying down her mortgage provides Trish with an effective investment return on her after-tax savings of 2.25% p.a. With ten years to go until her preferred retirement date it’s appropriate for Trish to invest her super in a balanced or balanced-growth portfolio with good expectations of significantly higher returns. So let’s see how things turn out if Trish’s super fund achieves a net return of 6% p.a. after fees and tax.

    First, the mortgage:  after ticking along with minimum payments of principal and interest for ten years it still has an outstanding balance of $81,712 – hardly the debt-free status that Trish was aiming for. But what about the super savings strategy? Due to the combination of tax advantages, higher returns and the power of compounding interest, Trish’s super fund is worth $139,297 more than it would have been if she had opted for the pay down debt strategy. After withdrawing $81,712 tax free from the fund and paying out her mortgage, Trish is $57,585 better off under the super strategy.

    Balancing risk

    While delivering lower returns during times of low interest rates, paying down debt does provide an effectively risk free return equivalent to the interest rate. Trish’s super strategy comes with a higher level of pure investment risk, and it is important that she is comfortable with the ups and downs that balanced and growth funds are likely to experience.

    It’s also important to recognise that our situations are all unique. The same strategy won’t suit everyone, so talk to your financial planner about designing a savings strategy that’s right for you.

    Talk with your LT Financial Advisor to see what strategies are available to you. 

    Contact Us Today

  • Calculating Income Tax Deductions

    Calculating Income Tax Deductions

    The calculation of income tax for businesses becomes more complex as business activities and income streams grow.

    There are two primary considerations that arise when calculating income tax: assessable income and deductions.

    Assessable income
    This includes all aspects of income from all your business activities and any other business income:

    • Cash income
    • Cryptocurrencies
    • Commissions, investment earnings, gratuities and compensation payments
    • Income not part of everyday business activities
    • Income from online activities
    • Income from the sharing economy
    • Income from crowdfunding
    • Personal services income
    • Foreign income

    It is essential that when completing the tax returns for a business, all of the above types of income are included. Each type of income has its own specific considerations which need to be met, some more complex than others.

    Deductions
    More often than not, business expenses will be tax deductible. However, they need to be directly concerned with business operations as opposed to personal use and must have records to verify them.

    Deductions can be applied to the following expenses:

    • Motor vehicle expenses
    • Home-based business
    • Business travel expenses
    • Workers’ salaries, wages and super contributions
    • Repairs, maintenance and replacement expenses
    • Other operating expenses
    • Depreciating assets and other capital expenses
    • Carbon sink forest expenses

    For each of these deductions to apply, appropriate records which follow the ATO’s guidelines should be kept.

    Talk with your LT accountants to review your assessable income and tax deductions. Contact LT Today.

  • Tax Deduction Opportunities with Super in 2021

    Tax Deduction Opportunities with Super in 2021

    When you retire, your superannuation is likely to become an important source of your income. That’s why it’s a good idea to top it up while you are working. 

    But did you know, there are also some excellent tax benefits you can take advantage of right now – just by making your own voluntary superannuation contributions? Generally, money invested in super is taxed at a lower rate than your personal income tax rate.  

    In the lead-up to 30 June 2021, we want you to be aware of opportunities to save tax with super contributions.  

    This email is tax planning advice, not financial advice, so if you are interested in this strategy, please contact our office to speak with one of our licensed financial advisors before you do anything.

    TAX BENEFITS FROM SUPERANNUATION CONTRIBUTIONS 

    There are several ways you can get tax benefits from super contributions: 

    How “Concessional” Super Contributions are Taxed 

    Concessional (before tax) super contributions include employer super contributions made on your behalf, any salary sacrifice contributions you make, or any personal contributions that you claim a tax deduction on in your tax return.

    These contributions are taxed at 15% when they are received by your super fund (up to a limit of $25,000 per year), provided you earn less than $250,000 annually. Personal super contributions are especially useful for people who are on higher marginal tax rates or if their employer refuses to set up a salary sacrifice arrangement. 

    The people who would benefit the most are those who earn above $45,000 per year, as this is where the marginal tax rate plus Medicare Levy rises to 34.5%. Claiming a tax deduction on super contributions effectively makes your tax rate only 15%. That’s a big tax saving!

    Catch Up Super Contributions  

    From 1 July 2018, people can make “carry-forward” concessional super contributions if they have a total superannuation balance of less than $500,000. People can access their unused concessional contributions caps on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire. 

    HOW LOW-INCOME EARNERS ARE TAXED 

    If you’re a low-income earner (earning up to $37,000 per year), the low-income superannuation tax offset ensures that you don’t pay a higher rate of tax on your super contributions than your income tax rate. The offset will be paid directly to your super account and the payment will be equal to 15% of your concessional contributions for the year, capped at a maximum of $500. 

    Individuals who earn between $39,837 and $54,837 during the 2021 financial year may also be eligible for super co-contributions from the government of 50 cents for each dollar, up to a maximum of $1,000 in non-concessional (after tax) contributions. 

    HOW HIGH-INCOME EARNERS ARE TAXED 

    If you earn more than $250,000 a year (including super), your concessional contributions are taxed at an additional 15%, bringing the total tax on these contributions to 30%. However, this is still less than your marginal income tax rate of 47%. This extra 15% is known as Division 293 tax. Only the concessional contributions which make your total income exceed $250,000 are subject to the additional tax. 

    If your concessional contributions exceed the concessional contributions cap of $25,000 per year, the excess is included in your tax return and taxed at your marginal tax rate (less an allowance for the 15% already withheld by your super fund). You can choose to withdraw some of the excess contributions to pay the additional tax. 

    NEXT STEPS 

    Please contact us ASAP if you would like to discuss saving tax with super contributions. There are many things we need to check for you to ensure you don’t exceed your super caps, you may need to seek the advice of a licenced financial advisor, you have to get the paperwork right plus the timing of your contributions is crucial to get right to entitle you to a tax deduction for them in the 2021 year. 

    Contact us today! The sooner we get started, the sooner we can help you save tax – well before 30 June 2021 for enough time to implement tax saving strategies.

  • Finalist for Australian Accounting Awards 2021

    Finalist for Australian Accounting Awards 2021

    Leenane Templeton has been shortlisted for the Australian Accounting Awards 2021.

    The firm has been named as a finalist in the Australian Accounting Awards for Boutique Firm of the Year 2021.

    The Australian Accounting Awards recognises and acknowledges the achievements of individuals and firms whether they are in the profession’s most senior ranks or if they’re a rising star within the industry and rewards them with a prestigious and highly sought-after accolade and national exposure for their contributions.

    The 2021 awards will be like no other, shining a light on the professionals and firms who lead the charge  in the industry during a time of unprecedented change through the past year of constant obstacles and challenges.

    The finalist list, which was announced on 11 May 2021, features over 300 high-achieving accounting professionals across 36 submission-based categories.

    “Accounting professionals have been at the forefront of the economic crisis since the start of the pandemic and each of you have risen to the challenge to support your clients and the broader community,” said Jotham Lian, editor at Accountants Daily.

    “To the finalists of this year’s awards, congratulations for consistently delivering the best service and outcomes for your clients over the past 12 months.

    “I thank you for the vital work that you do, and we look forward to celebrating your achievements on the night.”

    Harlan Marriott, Chief Commercial Officer at Leenane Templeton said that he was humbled that the team was to be recognised for their hard work and dedication over the past challenging year and proud that the firm is to be named as a finalist in the Australian Accounting Awards 2021.

    “Leenane Templeton’s recognition for our excellent contribution to the accounting industry reinforces the strength of our service and dedication to connecting with the community and engaging with clients,” he added.

    To find out more about LT visit. www.LT.com.au

  • The Federal Budget Tax Measures

    The Federal Budget Tax Measures

    With there being so many changes to tax as presented in the Federal Budget, this is a concise summary of those that may have the biggest impact or relevance to you.

    • The government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia.

    • The government will allow taxpayers to self-assess the tax-effective lives of eligible, intangible depreciating assets, such as patents, registered designs, copyrights and in-house software.

    • The government will remove the cessation of employment taxing point for the tax-deferred Employee Share Schemes (ESS) that are available for all companies.

    • The government will extend the power of the Administrative Appeals Tribunal (AAT) to pause or modify ATO debt recovery action, in relation to disputed debts that are being reviewed by the Small Business Taxation Division (SBTD) of the AAT.

    • The government will replace the individual tax residency rules with a new, modernised framework.

    • The government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from 1 July 2020 to take account of recent movements in the CPI.

    • The government will remove the exclusion of the first $250 of deductions for prescribed courses of education.

    • The government will extend the 2020-21 Budget measure known as the JobMaker Plan, with temporary full expensing to support investment and jobs for 12 months until 30 June 2023.

    • The government will extend the 2020- 21 Budget measure titled JobMaker Plan — temporary loss carry-back to support cash flow.

    » The extension will allow eligible companies to carry back (utilise) tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year when they lodge their 2022-23 tax return.

    » Loss carry-back encourages businesses to invest, utilising the 2021-22 Budget measures, known as Temporary full expensing extension by providing eligible companies earlier access to the tax value of losses generated by full expensing deductions.

    Need tax advice speak with your LT Tax Accountant. Contact us today.

  • Federal Budget Highlights 2021/22

    Federal Budget Highlights 2021/22

    We have pleasure in enclosing a summary of the significant announcements from the Federal Government’s 2021/22 Budget.

    While there were no particular surprises in this year’s budget, just about everyone is a winner. Many of the announcements were released prior to the budget but it continues on with the COVID-19 measures which includes the extension of tax cuts, significant measure to enhance women’s economic security and a $15 billion infrastructure spend.

    There were however some interesting superannuation refinements which present quite a number of planning opportunities – see below

    Mr Josh Frydenberg, the Federal Treasurer, has handed down his third Budget. Mr Frydenberg said the tax measures are a way to ensure the momentum of Australia’s economic recovery from the onslaught of COVID-19.

    Here are the tax, superannuation, and social security highlights:

    TAXATION MEASURES

    Modernising the individual tax residency rules

    The Government will replace the individual tax residency rules with a new, modernised framework. The primary test will be a simple ‘bright line’ test — a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation. Australia’s current tax residency rules are difficult to apply in practice, creating uncertainty and resulting in high compliance costs for individuals and their employers. The new framework, based on recommendations made by the Board of Taxation in its 2019 report to Government Reforming individual tax residency rules — a model for modernisation, will be easier to understand and apply in practice, deliver greater certainty, and lower compliance costs for globally mobile individuals and their employers

    Source: Budget Paper No 2, p 21.

    Personal Income Tax — increasing the Medicare levy low-income thresholds

    The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from 1 July 2020 to take account of recent movements in the CPI so that low-income taxpayers generally continue to be exempt from paying the Medicare levy. The threshold for singles will be increased from $22,801 to $23,226. The family threshold will be increased from $38,474 to $39,167. For single seniors and pensioners, the threshold will be increased from $36,056 to $36,705. The family threshold for seniors and pensioners will be increased from $50,191 to $51,094. For each dependent child or student, the family income thresholds increase by a further $3,597 instead of the previous amount of $3,533.

    Source: Budget Paper No 2, p 24.

    Retaining the low and middle income tax offset for the 2021-22 income year Receipts

    The Government will retain the low and middle income tax offset (LMITO) for the 2021-22 income year, providing further targeted tax relief for low- and middle-income earners. The LMITO provides a reduction in tax of up to $1,080. Taxpayers with a taxable income of $37,000 or less will benefit by up to $255 in reduced tax. Between taxable incomes of $37,000 and $48,000, the value of the offset increases at a rate of 7.5 cents per dollar to the maximum offset of $1,080. Taxpayers with taxable incomes between $48,000 and $90,000 are eligible for the maximum offset of $1,080. For taxable incomes of $90,000 to $126,000, the offset phases out at a rate of 3 cents per dollar. Consistent with current arrangements, the LMITO will be received on assessment after individuals lodge their tax returns for the 2021-22 income year. Retaining the LMITO for 2021-22 provides low- and middle-income earners with a further benefit and provides additional support to help secure the economic recovery.

    Source: Budget Paper No 2, p 27.

    Reducing compliance costs for individuals claiming self-education expense deductions

    The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation. The first $250 of a prescribed course of education expense is currently not deductible. Removing the $250 exclusion for prescribed courses of education will reduce compliance costs for individuals claiming self-education expense deductions.

    Source: Budget Paper No 2, p 26.

    2021 Storms and Floods — tax treatment of qualifying grants

    The Government will provide an income tax exemption for qualifying grants made to primary producers and small businesses affected by the storms and floods in Australia. Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, where those grants relate to the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021. These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000. The grants will be made non-assessable non-exempt income for tax purposes.

    Source: Budget Paper No 2, p 12.

    Digital Economy Strategy — self-assessing the effective life of intangible depreciating assets

    The Government will allow taxpayers to self-assess the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in- house software. This measure will apply to assets acquired from 1 July 2023, after the temporary full expensing regime has concluded. The tax effective lives of such assets are currently set by statute. Allowing taxpayers to outcomes with the underlying economic benefits provided by the asset. It will also align the tax treatment of these assets with that of most tangible assets. Taxpayers will continue to have the option of applying the existing statutory effective life to depreciate these assets. This measure will allow taxpayers to adopt a more appropriate useful life and encourage investment and hiring in research and development.

    Source: Budget Paper No 2, p 14.

    Employee Share Schemes — removing cessation of employment as a taxing point and reducing red tape

    The Government will remove the cessation of employment taxing point for the tax- deferred Employee Share Schemes (ESS) that are available for all companies. This change will apply to ESS interests issued from the first income year after the date of Royal Assent of the enabling legislation. Employers use ESS to attract, retain and motivate staff by issuing interests such as shares, rights (including options) or other financial products to their employees, usually at a discount. Currently, under a tax deferred ESS, where certain criteria are met employees may defer tax until a later tax year (the deferred taxing point). The deferred taxing point is the earliest of:

    • cessation of employment
    • in the case of shares, when there is no risk of forfeiture and no restrictions on disposal
    • in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal
    • the maximum period of deferral of 15 years.

    This change will result in tax being deferred until the earliest of the remaining taxing points. The Government will also reduce red tape for ESS by:

    • removing regulatory requirements for ESS, where employers do not charge or lend to the employees to whom they offer ESS
    • where employers do charge or lend, streamlining requirements for unlisted companies making ESS offers that are valued at up to $30,000 per employee per year.

    This measure will help Australian companies to engage and retain the talent they need to compete on a global stage, which is consistent with recommendations from the Global Business and Talent Attraction Taskforce.

    Source: Budget Paper No 2, p 16.

    SUPERANNUATION MEASURES

    First Home Super Saver Scheme — increasing the maximum releasable amount to $50,000

    The Government will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000. Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released. The increase in maximum releasable amount will apply from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects will have occurred by 1 July 2022. This measure will ensure the FHSSS continues to help first home buyers in raising a deposit more quickly.

    Source: Budget Paper No 2, p 17.

    First Home Super Saver Scheme — technical changes

    The Government will make four technical changes to the legislation underpinning the First Home Super Saver Scheme (FHSSS) to improve its operation as well as the experience of first home buyers using the scheme. These four changes assist FHSSS applicants who make errors on their FHSSS release applications by:

    • increasing the discretion of the Commissioner of Taxation to amend and revoke FHSSS applications
    • allowing individuals to withdraw or amend their applications prior to them receiving a FHSSS amount, and allow those who withdraw to re-apply for FHSSS releases in the future
    • allowing the Commissioner of Taxation to return any released FHSSS money to superannuation funds, provided that the money has not yet been released to the individual
    • clarifying that the money returned by the Commissioner of Taxation to superannuation funds is treated as funds’ non-assessable non-exempt income and does not count towards the individual’s contribution caps.

    Source: Budget Paper No 2, p 17.

    Flexible Super — reducing the eligibility age for downsizer contributions

    The Government will reduce the eligibility age to make downsizer contributions into superannuation from 65 to 60 years of age. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022. The downsizer contribution allows people to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute in respect of the same home, and contributions do not count towards non-concessional contribution caps. This measure will allow more older Australians to consider downsizing to a home that better suits their needs, thereby freeing up the stock of larger homes for younger families.

    Source: Budget Paper No 2, p 18.

    Flexible Super — repealing the work test for voluntary superannuation contributions

    The Government will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps. Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022. Currently, individuals aged 67 to 74 years can only make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse, if they are working at least 40 hours over a 30 day period in the relevant financial year. Removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.

    Source: Budget Paper No 2, p 19.

    Removing the $450 per month threshold for superannuation guarantee eligibility

    The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022. This measure will improve equity in the superannuation system by expanding the superannuation guarantee coverage for cohorts with lower incomes. The Retirement Income Review estimated that around 300,000 individuals would receive additional superannuation guarantee payments each month, 63 per cent of whom are women,

    Source: Budget Paper No 2, p 26.

    Self-managed Superannuation Funds — legacy retirement product conversions

    The Government will allow individuals to exit a specified range of legacy retirement products, together with any associated reserves, for a two-year period. The measure will have effect from the first financial year after the date of Royal Assent of the enabling legislation. The measure will include market-linked, life-expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.

    Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution caps. This measure will permit full access to all of the product’s underlying capital, including any reserves, and allow individuals to potentially shift to more contemporary retirement products. Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds and the commuted reserves will be taxed as an assessable contribution. Self-managed Superannuation Funds — relaxing residency requirements

    Source: Budget Paper No 2, p 27.

    Self-managed Superannuation Funds — relaxing residency requirements

    The Government will relax residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) by extending the central control and management test safe harbour from two to five years for SMSFs, and removing the active member test for both fund types. The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022. This measure will allow SMSF and SAF members to continue to contribute to their superannuation fund whilst temporarily overseas, ensuring parity with members of large APRA-regulated funds. This will provide SMSF and SAF members the flexibility to keep and continue to contribute to their preferred fund while undertaking overseas work and education opportunities

    Source: Budget Paper No 2, p 28.

    SMALL BUSINESS MEASURES

    Increased powers for the Administrative Appeals Tribunal in relation to small business taxation decisions

    The Government will extend the power of the Administrative Appeals Tribunal (AAT) to pause or modify ATO debt recovery action in relation to disputed debts that are being reviewed by the Small Business Taxation Division (SBTD) of the AAT. This measure will take effect from the date of Royal Assent of the enabling legislation

    Small business entities that file an application in relation to tax matters before the SBTD of the AAT on or after the commencement date will be able to apply for a pause or modification of the Commissioner’s debt recovery actions, until the underlying dispute has been decided by the AAT. When considering applications, the AAT will be required to consider the potential effect on the integrity of the tax system and ensure that applications are in relation to genuine disputes. This measure will provide an avenue for small businesses to ensure they are not required to start paying a disputed debt until the matter has been determined by the AAT.

    Source: Budget Paper No 2, p 19.

    Temporary full expensing extension

    The Government will extend the 2020-21 Budget measure titled JobMaker Plan — temporary full expensing to support investment and jobs for 12 months until 30 June 2023 to further support business investment and the creation of more jobs. Temporary full expensing will be extended to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023. The 12-month extension will provide eligible businesses with additional time to access the incentive. This will encourage businesses to make further investments, including in projects requiring longer planning times, and continue to support economic recovery in 2022-23. All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses. From 1 July 2023, normal depreciation arrangements will apply. This measure is estimated to decrease receipts by $17.9 billion over the forward estimates period and $3.4 billion over the medium term. The impact on receipts is reduced over the medium term as the measure brings forward deductions that would have been made in future years.

    Source: Budget Paper No 2, p 29.

    Temporary loss carry-back extension

    The Government will further support Australia’s economic recovery and business investment by extending the 2020-21 Budget measure titled JobMaker Plan — temporary loss carry-back to support cash flow. The extension will allow eligible companies to carry back (utilise) tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year when they lodge their 2022-23 tax return. Loss carry-back encourages businesses to invest, utilising the 2021-22 Budget measure titled Temporary full expensing extension by providing eligible companies earlier access to the tax value of losses generated by full expensing deductions. Companies with aggregated turnover of less than $5 billion are eligible for temporary loss carry-back. The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry-back does not generate a franking account deficit. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

    Source: Budget Paper No 2, p 30.

  • JobKeeper is over – Where to from here?

    JobKeeper is over – Where to from here?

    Many businesses have been kept afloat by the government over the past twelve months, buoyed by the many benefits and concessions from schemes they have deployed. The two largest schemes have been JobKeeper and Cash Flow Boost. Cash Flow Boost ended with the September BAS (in 2020) and JobKeeper officially ended at midnight on March 28, 2021.

    The unions have warned that the end of JobKeeper will lead to higher unemployment, and as a general statement, it makes sense to believe this will occur. It is likely that not everyone has been able to keep their job, with even the government admitting to expecting up to 150,000 jobs to be lost due to JobKeeper ending. This had to end at some stage – it had already cost taxpayers around $90 billion to provide these benefits over the past year.

    The government is still providing some benefits to businesses in the form of tax advantages or business grants. For example, you will receive significant tax deductions for the purchase of new items and equipment, regardless of how much you spent. If you make a loss this year, it is possible to get a refund on tax you paid last year or the year before if you made a profit and paid tax in those years.

    The government has also provided Australians with the new JobMaker Scheme (see article in our May 2021 Business Matters Newsletter) State governments are providing grants and loans to affected businesses. Each state has different loans and grants, more information about what is available for each state can be found at www.business.gov.au Speak with us to find out more about what you might be eligible for.

    New rules around bankruptcy and liquidation have been put into place to help support struggling businesses. Two important changes came in on 1 January, the day after the prior temporary relief measures ended. These new measures are not necessarily designed to help businesses get back on their feet, but they are there to make life a lot easier if they need to go into insolvency.

    Firstly, these rules have provided for a more simplified liquidation process that should allow companies that are “too broke to go into liquidation” to engage a liquidator by making liquidations cheaper.

    Secondly, there is business restructuring available whereby existing debts can be restructured over time while normal business operations continue.

    Talk with your LT accountant to discover more.

  • Why do I need tax and compliance planning for my business?

    Why do I need tax and compliance planning for my business?

    This time of year many clients take the opportunity to have a proactive tax and compliance planning strategy before the end of the financial year in order to maximise tax opportunities and minimise risk.

    The LT team help clients through this period and ensure that they maximise the tax opportunities whilst keeping compliant. Taxation planning is a difficult process and time and expertise is needed to review the current situation and look at ways to reduce tax exposure and minimise risk.

    Example of areas within tax and compliance planning includes:

    1 – FINANCIAL STATEMENTS AND BUSINESS REVIEW
    • Review year to date results, and profit projections to 30 June
    • Review other family member income
    • Any capital gains / losses or investment income?

    2 – CONSIDERATION OF TAX PLANNING STRATEGIES
    Review key super and tax changes before and after 30 June
    • Superannuation – $25,000 for everyone – surplus cash for “top up” before 30 June
    • Bring forward deductions?
    • Defer income? Is cash available prior to 30 June for these strategies?
    • Temporary Full Expensing for Asset Purchases – entities with turnover under $50m can deduct the total business portion of asset purchases (both new and second hand) and have these purchased and installed ready to use by 30 June 2021.
    • Set up a “corporate beneficiaries” to cap tax at 30% or 26% depending on your circumstances.

    TAX COMPLIANCE ISSUES FOR 2021
    • Discretionary and Unit Trusts – Trust Distribution Resolutions need to be signed by 30 June 2021 to avoid penalty tax and review the most appropriate beneficiaries to receive the income.
    • Dividend Planning – Resolving to pay dividends and executing Dividend Resolutions to ensuring they are effectively paid under tax and corporations law.
    • Division 7A – To ensure compliance with loans out of companies and ensuring appropriate loan agreements are in place. Review also any Unpaid Present Entitlements (UPE) and considering whether they need to be made Division 7A compliant.

    3 – RECORD KEEPING
    • Computer data files – reconciled properly? Is bookkeeping working properly?
    • Motor Vehicle Log Books – Have these been kept? Essential in case of a tax audit

    HOW WE CAN HELP YOU

    Our tax team will work together with you to take care of issues that can have an impact on your future finances. We are highly experienced in tax planning and compliance and can provide a wide range of tax advice for your needs.

    Contact our team today.