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WHAT’S NEW IN SUPER AND TAX THIS FINANCIAL YEAR?
The 2019/2020 financial year introduces some new opportunities to allow you to save for your retirement through super. In this article we cover these and also provide an overview of the ‘protecting your super’ legislation and personal income tax changes.
Claiming a deduction on personal super contributions
Since 1 July 2017, employees as well as the self-employed, can claim a tax deduction on personal super contributions.
If you are aged between 65 and 74 you can make a contribution to super but you need to meet a work test. To pass the work test, you need to have been ‘gainfully employed’1 for at least 40 hours over 30 consecutive days during the financial year in which you plan to make the contribution. That’s a little over one week’s worth of full-time work in a single month.
Also, if you’re aged between 65 and 74 and have a ‘total super balance’2 under $300,000, you can make personal contributions to super in the first financial year in which you no longer meet the work test. This is likely to be the first year following your retirement.
Unfortunately, if you are 75 or over you are not eligible to make a personal contribution to super.
Generally, the cap on concessional contributions is $25,000 each financial year.
What if you didn’t contribute last financial year – do you miss out?
For the first time this financial year, if you have a total super balance of under $500,000, you can contribute the unused portion of your concessional contributions cap, or ‘carry-forward’ amount, from last financial year. That is, if you didn’t contribute in the 2018/19 financial year, you may be able to carry forward $25,000 to this financial year and contribute up to $50,000.
Currently, only the unused concessional contribution cap amounts in the 2018/19 financial year can be carried forward. Then, for future financial years, the unused concessional contribution cap amounts can be carried forward, on a rolling basis, for five years.
So, if you’ve accrued a carry-forward concessional contribution amount, you may want to start, or increase your salary sacrifice contributions, or make a personal concessional contribution to super. This can be particularly beneficial for your tax bill if you’ve significantly increased your income, for example, if you’ve sold an asset with a large capital gain.
Protecting your super legislation.
The ‘protecting you super’ legislation came into effect on 1 July 2019 and is designed to protect people’s super balances. The three main changes are:
Insurance in super – if you have an inactive super account, defined as an account where you have made no contributions in the last 16 months, your insurance will be cancelled unless you take action. You can retain your insurance by contacting your super fund and ‘opting-in’ to retain your insurance or having a contribution made into your account every 16 months.
Low super balances – if your super account balance is under $6,000 there is a cap placed on fees, limiting them to no more than 3% per year. Also, if you have an ‘inactive low balance’ account, the Australian Taxation Office (ATO) is now responsible, where possible, for consolidating this money with your active super account. An inactive low balance account is broadly defined as an account with a balance of under $6,000 where no activity has occurred in the last 16 months. This includes where no contributions have been made to the account in the last 16 months and where there is no active insurance on the account. Other new definitions apply.
Exit fees – when you exit a super fund you will no longer be charged an exit fee.
Low super balances – If your super account balance is under $6,000 there is a cap placed on fees, limiting them to no more than 3% per year. Also, if you have an‘inactive low balance’ account, the Australian Taxation Office (ATO) is now responsible, where possible, for consolidating this money with your active super account. An inactive low balance account is broadly defined as an account with a balance of under $6,000 where no activity has occurred in the last 16 months. This includes where no contributions have been made to the account in the last 16 months and where there is no active insurance on the account. Other new definitions apply.
Personal income taxes
Australians can continue to enjoy the first round of personal income tax changes that started in July 2018.
From 1 July 2022, the Government will increase the 32.5% tax threshold from $90,000 to $120,000. This means there will be less people in the 37% tax bracket and more in the 32.5% tax bracket. On 1 July 2024, the 37% tax bracket will eventually disappear and the 32.5% tax bracket will reduce to 30%. It’s estimated that 94% of personal taxpayers will have a marginal tax rate of 30% or less in the 2024/25 financial year.
In addition to the changes to income tax, the Government has introduced a temporary tax offset called the low and middle income tax offset (LMITO), of up to a maximum of $1,080 per person and phases out for those earning over $126,000 per annum.
This is in addition to the low income tax offset (LITO) for those earning under $66,666 per annum.
The LMITO offsets will end after the 2021/22 financial year. However, from 1 July 2022, the Government will increase the (LITO), from $445 to $700to continue to support low income earners.
You don’t need to do anything to receive the tax offsets, the ATO will assess your eligibility when you complete your personal tax return.
Future changes to tax rates and thresholds
THRESHOLD FROM 1 JULY 2022
THRESHOLD FROM 1 JULY 2024
0 – $18,200
0 – $18,200
0 – $18,200
$18,201 – $37,000
$18,201 – $45,000
$18,201 – $45,000
32.5% (current and from 1 July 2022) 30% from 1 July 2024
$37,001 – $90,000
$45,001 – $120,000
$45,001 – $200,000
$90,001 – $180,000
$120,001 – $180,000
If you have any questions on how to make the most of your super and optimise your tax position, please contact Shadforth Financial Group.
1 The ATO defines gainful employment as employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.
2 Your ‘total super balance’ is measured on 30 June of the previous financial year and is calculated by adding several items together including both accumulation and pension interests of your super.
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How Our Decisions Affect Our Investments
Looking at share market returns over time, it can be said despite volatility that is naturally experienced, investors are rewarded for their patience and discipline with growth over the long term. However, plenty of research indicates that investors are not getting the returns they are entitled to.
In order to capture returns in the share market, investment time horizon does matter. Most investors intend to invest for the long term, however, emotions come into play which often leads to irrational decision making. The Dalbar Quantitative Analysis of Investor Behaviour releases annual reports comparing the returns of the market (in this case S&P 500) and the returns of an average equity investor. Over the 30 year period to December 2016, the S&P 500 returned 10.16% per annum while the average equity investor achieved a return of 3.98% per annum. That is a staggering difference of 6.18% which is referred to as the ‘Behaviour Gap’.
The behaviour gap is the outcome of all the biases and psychological pitfalls previously discussed, which is magnified by an oversupply of information and media coverage. It can be the result of a fearful withdrawal of funds from the market following a major political event or perhaps the overconfident additional investment in the market after reports of a year of very strong returns.
Essentially it is when our emotions are interfering with our disciplined approach. Perhaps the two emotions most likely to get in our way are fear and elation, despite being at opposite ends of the spectrum.
In falling markets, it is natural to feel fear and a sense of panic. How you act on those emotions is what will determine your investing outcomes. Option 1 is to succumb to the fear and sell your investments to try to avoid further loss. As a result, you have sold low and consolidated the loss rather than waiting out the market cycle. Option 2 is to embrace the opportunity presented and make additional investments to maximise the likely subsequent recovery of markets.
In rising markets, investors experience elation and excitement as they see the strong return for their investment. Again, how you act on your emotions determines the investment experience. Option 1 is to get carried away in the thrill and invest additional funds at the top of the market cycle. While markets may continue to rise for a while, buying at this high point can then maximise the loss when the market goes through a downturn in the next phase of the cycle. Option 2 is to sell some of your assets and consolidate the gains you have achieved. The profits can then be used to invest elsewhere.
Data shows that most investors in either scenario go with option 1. Data looking at investment performance and the flow of funds into and out of the market, shows that in rising markets there is a significant net flow of funds into the investments but when there are market downturns, money is flooding out. Meaning the average investor is reacting to current market conditions, selling low and buying high. This is what results in the behaviour gap and missing out on the returns that they should be achieving.
Source: Investment Company Institute, 2017 Investment Company Fact Book. Past performance is not a guarantee of future results. Data shows industry flows into equity funds plotted as a 6-month moving average. Total return based on the MSCI All Country World Daily Total Return Index, a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed and emerging markets.
Knowing when to buy and sell is a difficult process to manage and we don’t advocate trying to time the market. Rather, the key is to remain disciplined and not reactive while investing. An adviser can keep you accountable and help you remain on track when all your instincts are pointing towards making decisions which will sabotage your financial future. Often, the value in an adviser is quantified by the decisions they help you make and the progress towards goals. While this is important, I would place equal importance on the adviser’s role in preventing you from making the wrong decisions.
To find out more, contact a Shadforth Financial Group adviser on 1300 308 440 or click HERE
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MEMBER SPOTLIGHT: CINDY TURNER, EVOLVING WOMEN
Our Insights Spotlight is on Cindy Turner, our Sunshine Coast Circle Leader. Cindy is a conscious Entrepreneur and a Master Coach with over ten years of experience. She recently relocated from Victoria to the Sunshine Coast which “was part of [a] bigger vision to create a lifestyle that [she loves], and [chasing] a warmer climate!” Cindy established the Sunshine Coast chapter of BWA earlier this year and brings a dynamic enthusiasm and great ideas coupled with warm energy and a generous spirit to the role. The response to our Sunshine Coast events has been fantastic!
Speaking about her fellow Business Women on the Sunshine Coast and across the nation – the BWA Community, Cindy says
“women bring a unique feminine nature to the way they lead and live that is very much needed in the world today… qualities such as: communication, collaboration, empathy and heart.”
Cindy herself is passionate about women in leadership, having been inspired by the likes of Oprah Winfrey, Brene Brown, and Jacinda Arden, women that are “leading the way in demonstrating a different way to lead.” Having worked with corporate women for over ten years, Cindy has been inspired by the strength, compassion, and achievements of these women. However, she found many corporate women, especially high achieving women, to be “self-critical, minimising and restrictive.” Seeing these incredible women not performing at their best left Cindy frustrated at “continually seeing women hold themselves back and play too small.”
Evolving Women, an online meeting place of brilliant women creating new paradigms that support the advancement of women in leadership and life globally, was born out of this frustration. Often times these women simply needed the right tools and resources in order to achieve their full potential. As such, Evolving Women will “specifically bring together women of influence who are experts in their field and have a desire to give back, [offering] a vast array of transformational programs and tools that are easily accessible and affordable for women globally.” Although the website is not yet up and running, the team here at BWA could not be more excited!
Subscribe to BWA eNews here and get in touch with Cindy to be kept up to date with all the BWA events on the Sunshine Coast and to be updated about Evolving Women opportunities.
As an entrepreneur, and Master Coach, Cindy often works independently which can be a tough gig. We asked Cindy to share her tips and tricks on how she stays motivated and energised.
“I am very clear on my bigger purpose or ‘why’ I do what I do and the impact I want to make. When I feel unmotivated, I refer back to my purpose. I have created a visual representation of my purpose on my laptop screensaver so it is never far from mind.”
Visual representation is so important particularly for executing goal achievement. Cindy’s goals include taking Evolving Women globally, as well as interviewing Oprah, an achievement that Cindy sees as her “pinnacle.”
Cindy views joining the BWA collective as “being part of an amazing community of female leaders… [which was] the right decision for [her.]” The team here at BWA couldn’t agree more!
Book your tickets for our upcoming Sunshine Coast event HERE.
New Year, New You!
Six months ago the gym was full of January-joiners and we were all taking stock of what we achieved last year and what we could do better in 2019.
If you embarked on a physical fitness overhaul this January, chances are you measured your baseline (a brave undertaking!) before you began. You may have also set some goals.
Understanding your starting point is paramount to tracking progress. You can’t know what goal to set if you don’t know where you are now.
Another new year
The start of the new calendar year is a great time to make lifestyle resolutions. Why not think of the start of the new financial year as the time to make some financial resolutions?
Most of us know how much lands in our bank accounts every month, but we don’t always know where it all goes. Too often people find they’ve got ‘too much month at the end of the money.’
Where to start
Just like beginning a new fitness routine, start simple. Rather than making a complex budget that traces every single dollar, start with a few small steps.
Know your expenses
If you have a mortgage, determine your current interest rate and monthly payments. If you haven’t reviewed this in the last two years or so, it may be time to do a comparison to see if there’s a better arrangement out there for you. Lenders may even offer you a better rate for switching.
Most of us also have home, contents and car insurance. What do they each cost? Check a bank statement to find out.
37% of Australians1 don’t review these expenses because of the perceived effort involved – so to kickstart your financial new year and get you on the right track, we can review these items for you and check the ‘healthiness’ of your current arrangements.
You could also include some other expenses such as property rates, energy bills and phone accounts. These are often on contracts and easy to determine.
Then, check your bank statement to calculate your average grocery spend and you’re starting to understand where all those dollars are heading each month.
Get a personal trainer
Let us do the heavy lifting. You just have to provide the details of your current arrangements (simply, a statement for your mortgage and/or a renewal notice for your insurances).
Getting financially fit starts with understanding your cash flow – what comes in the door and what goes out again – and determining what to do with the surplus (and if there isn’t a surplus, working out how long you can sustain your lifestyle with a deficit).
Just like a personal trainer will get you on track with your diet and exercise plan, a financial adviser can help you get on top of your cash flow, and get you some results you can really see.
To get to know more about your cash flow and what a difference making the most of those annual surplus amounts can make, contact a Shadforth adviser on 1300 308 440. In the meantime, start tracking your spending now with our handy Budget Spreadsheet.
To find out more, contact a Shadforth adviser on 1300 308 440 or click HERE
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MEMBER SPOTLIGHT: GEMMA WHEELER-CARVER, HHG LEGAL
Gemma Wheeler-Carver is a Solicitor in the Dispute Resolution and Commercial Litigation team at HHG Legal Group, and a new member of the BWA community. Gemma has been practising Law for 8 years, and has an extensive profile that crosses negotiating, drafting and managing exploration, and mining and land access agreements. Whilst also extending to employment and consultancy agreements and preparing funding submissions and corporate policies.
Gemma has also spent significant time providing assistance to various Aboriginal corporations under the CATSI and Corporations Act, including preparation of Rule Books and corporate compliance. Before joining HHG Legal Group, Gemma practised as a native title lawyer for five years working primarily on claims litigation and mediation in the Federal Court of Australia and the National Native Title Tribunal, both with the Central Desert Native Title Services. While living in Canada, Gemma also provided these services to the Yilka Aboriginal Corporation.
For business owners and employers who utilise casual employees, Gemma recommends that casual employees should be employed under an employment contracts that sets out that the employee is a “casual” employee. She also suggests that the contact clearly states the amount being paid to the employee that is intended to, and does, compensate for the employee not having one or more relevant NES entitlements.
Gemma explains why this is important. In December of 2018, the government introduced a new regulation into the Fair Work Regulations 2009 (Cth) in the wake of the Federal
Court’s Skene decision in Workpac v Skene.
Despite the fact that Skene was described as a casual in his contract and benefitting from casual loading – Skene was deemed a permanent employee and therefore entitled to annual leave in line with the National Employment Standards (NES).
This was because the loading had not been clearly expressed as an amount or percentage of his wages in Skene’s contract or elsewhere, and because there was no other actual evidence which indicated that Mr Skene was a casual. The Federal Court did observe that, where a casual loading is clearly expressed, the employee would not be entitled to ‘double dip’ and an employer may be able to set off any casual loading amounts against any claim for NES entitlements.
Gemma stresses that as far as possible, all casual employees should be employed under a clear employment contract that sets out that they are a “casual” employee AND their contracted payment amount is intended to, and does, compensate for the employee not having one or more relevant NES entitlements. If you hire casual employees and you’d like advice specific to your situation don’t hesitate to contact Gemma.
This is not legal advice and should not be relied upon.
Please contact HHG Legal
Group on 1800 609 945 or click here for legal advice specific to you
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Why do we make poor financial decisions?
When it comes to financial decision making, it’s fair to say that humans are rarely rational in the choices we make. Our behaviours and emotions are capable of leading us astray and quite often they do! Sometimes these decisions can have an outcome that negatively impacts our financial future.
Behavioural economics is a rapidly growing academic field. It studies the effects of psychological, cognitive, emotional, cultural and social factors on our economic decisions. Behavioural economics can help us understand why we make the financial decisions we do, particularly when under stress.
We’ve all heard of the ‘fight or flight’ instinct. Through times of market volatility, decisions are made from this innate fight or flight response rather than reasoning and logic. At times of perceived ‘crisis’ for example falling markets, all our instincts are telling us to take action. The action taken is often to sell to remove ourselves from high stress situations, but that is often the worst thing to do. Selling when the market is low leads to consolidated loss, whereas patience can be rewarded.
Over the long term you are rewarded for keeping your investments, or even increasing your exposure to different markets, take advantage of the eventual market rebound.
There are several common biases or pitfalls to be wary of when making financial decisions.
Recency Bias is the tendency to focus on recent events and put more emphasis on new information than older data. For example, investors often think the share market will remain consistent and make decisions based on that. When the market is going up they buy and when it goes down they sell.
Confirmation Bias is where you have an existing idea or belief and seek confirmation by listening only to information that confirms those pre-conceptions. We tend to interpret and recall information in a way that confirms our beliefs, while ignoring information that disproves our theory. In the contemporary world we live in, we have access to infinite amounts of information that can support nearly any hypothesis we put forward in our minds. On the same day one news outlet might be predicting markets will fall, while another is stating that markets are on the rise. We filter only the information that supports our thinking and act accordingly. Confirmation bias interacts with recency bias.
Humans generally don’t like change and this is referred to as the Status Quo Bias. It is the preference for things to remain the same and a tendency to not change behaviour unless the incentive to do so is compelling. This minimises the risk associated with change but also means forgoing any potential benefits that may outweigh the risk. This often plays out with decisions around changing a provider such as health insurance or even an electricity company. Being familiar with the current provider, the costs and the benefits may lead you to stay as is rather than take a risk on an unfamiliar but potentially better option.
Studies show that we feel a loss twice as intensely as a gain. Loss Aversion is a preference to avoid a loss almost at any cost. Investors will often hold onto a stock that has dropped significantly in value with the hope it will eventually come good. In the natural cycle of market movements, this can be a good thing as often the stock will recover. However, where there is no hope for recovery we need to know when to admit defeat, sell to minimise the loss and invest elsewhere. Loss aversion could also be called FOMO (fear of missing out) and is at play when there is a perception of scarcity. This is why when something is advertised as only having two left, you feel compelled to purchase.
You may have picked up that some of these biases support one another while others contradict. A financial adviser can help you navigate these bias’, determine your short and long-term goals and, importantly, help you make smart and rational decisions to achieve these goals over time.
To find out more, contact a Shadforth adviser on 1300 308 440 or click HERE
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