Stay up to date with what’s happened in the Australian economy and markets over the past month.
Welcome news on the inflation front in October pointed to the Reserve Bank of Australia (RBA) holding steady on rates this month.
The latest quarterly inflation figures show inflation has slowed to its lowest level since the height of the pandemic and now sits within the RBA’s target range at 2.8%.
Global share markets softened in the final two weeks of October, reflecting economic and geopolitical uncertainly.
The S&P/ASX 200 closed slightly down over the month of October, after again reaching record highs mid-month.
With the US election on the horizon there is much speculation about what that will mean for markets and the economy, both in the US and Australia.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
Most people intend to retire between ages 65 and 66, according to the latest data and, surprisingly, despite growing superannuation balances, the Age Pension is the main source of income for many retirees.i
The intended retirement age has increased significantly in the last two decades, from just over 62 years on average in 2004.
Australian Bureau of Statistics (ABS) figures show that, in 2022-23, a government pension or allowance was still the main source of personal retirement income. This was followed by super, an annuity or private pension.
More than 60 per cent of those aged over 65 years were receiving the Pension in 2021ii
Am I eligible?
It is important to remember that, while you may not meet the eligibility requirements today, you may qualify later in life.
In 2021, only 44 per cent of people aged 65-69 received either full or part Age Pensions but this increased to 81 per cent for those aged 80 to 84 years.iii
Veterans who have served in the Australian Defence Force may be eligible for pensions or benefits from the Department of Veterans Affairs.iv
You are generally eligible for the Age Pension if you:
are over 67 years (depending on when you were born)
are an Australian resident and have lived in Australia for at least 10 years
can meet an income and assets test
What are the income and assets tests?
The Age Pension means tests considers your income and the value of any assets you own. If the value of your income and assets exceed certain limits, your payment will be reduced.
Income includes money from a job (including salary packaging), other pensions or annuities, earnings from investments and any earnings outside of Australia.v
Assets are items of value you or your partner own or have an interest in such as investment properties and artworks; caravans, cars, and boats; shares; and business assets. While your family home isn’t included in the assets test, your pension may be affected if you sell it.vi
Can I still work?
Singles can earn up to $212 per fortnight without their pension being affected. For every dollar over that amount, their pension will be reduced by 50 cents. Couples can earn up to $372 per fortnight and for every dollar over that amount, 25 cents in the dollar will be deducted from their pension payment.vii
If your income in a fortnight goes over a certain amount, you will not receive a pension payment. This cut-off amount is $2500.80 for a single person and a combined $3,833.40 for a couple. There are other higher cut-off allowances for those affected by ill-health.
The Work Bonus may help you earn more from working without reducing your pension. You don’t need to apply for it, the Bonus will be automatically applied to your eligible income – you just need to declare your income.viii
What does the Age Pension pay?
There are different rates of pension for singles and couples.
The current maximum basic rate for a single person is $1047.10 per fortnight. A couple would receive 1,578.60 per fortnight. With extra supplements, those on a full Pension could receive a fortnightly total of $1,144.40 for singles and $1,725.20 for couples.ix
Get in touch if you’d some help to work out your eligibility for the Age Pension and other government entitlements.
If you are considering disposing of a property, it’s important to understand the implications so that there are no surprises when your tax bill arrives.
As with most investment assets, when you dispose of an investment property generally you are liable for capital gains tax. Capital gains tax (CGT) is levied when you make a profit on selling and is part of your income tax, rather than a separate tax.i
When you dispose of an investment asset, your capital gains and losses must be reported in your tax return. The capital gain or loss is the difference between what it cost you to obtain and improve the property (the cost base) and the amount you receive when you dispose of it.ii
The CGT event is triggered when you enter into the sales contract, not when you settle on the property.
Capital gains must be included in your tax return for the income year the property is sold, while capital losses can be carried forward and used in future years.iii
Under the 6-year rule, you may be entitled to a part or full main residence exemption if you lived in the investment property before renting it out. This rule allows you to continue treating a property as your main residence for up to six years if you use it to produce income.iv
Other taxes to check before selling
In most situations, you are not required to add goods and services tax (GST) to the sale price when selling an investment property.
GST does, however, need to be applied to the sale of newly built and redeveloped properties. This may apply even if you are not a business.v
In some states (such as NSW), land tax is levied on investment properties over a certain value, so it’s important to ensure you pay any land tax bills prior to selling.
How CGT works
When it comes to CGT, you pay tax on your net capital gains, which is your total capital gains less any capital losses less any discount you are entitled to on your gains.vi
An important factor in the CGT calculation is when you purchased the investment property and how long you have held it.
If you sell within the first year of ownership, 100 per cent of your capital gain will be subject to CGT. If you sell after 12 months only 50 per cent is subject to CGT. For example, if you sell your property two months after purchase and make a capital gain of $10,000, the entire $10,000 is subject to CGT, but if it’s sold after the first year, only $5,000 is subject to CGT.
Property acquired before 20 September 1985 is exempt from CGT as this was the introduction date for CGT.
Calculating your capital gain or loss
Correctly calculating your capital gain or loss requires you to identify all the legitimate expenses contributing to your property’s cost base.
This usually includes items such as the price paid for the property, costs of transfer, stamp duty and selling costs (such as advertising, accounting and agent’s fees).
You can also include the cost of owning the CGT asset (such as rates, land taxes and insurance premiums), but you are not permitted to include amounts already claimed as a deduction (such as depreciation and capital works).
If you acquired your property before 21 September 1999, you can index its cost base for inflation to reduce your capital gain.vii
For more information about the tax implications of selling your investment property, call our office today.
On Friday the 18th of November I set out to run 100km around the local Yarragon Football oval to help raise awareness and funds for Neuroblastoma, a cancer affecting young children of which on average are just 2 years of age,
Our family has been affected by this terrible cancer with my nephew being diagnosed with stage 4 Neuroblastoma at 8 weeks old, thankfully he has been in remission for two years.
Throughout the day 20-30 people took part running lap after lap in the rain and many PB’s were achieved which made the km’s tick over much quicker,
My nephew and his brother were able to come along for the final few laps to run them with me,
Almost $3,000 was raised to add to Paddy’s tally by the end of the run.
If you are feeling a bit like the meat in the sandwich you are not alone. The ‘sandwich generation’ is a growing social phenomenon that impacts people from all walks of life, describing those at a stage of their lives where they are caring for their offspring as well as their elderly parents.
The phenomenon is gathering momentum as we are tending to live longer and have kids later. It even encompasses royalty – Prince William has been dealing with a sick father while juggling school aged kids (as well as a partner dealing with serious health issues).
A growing phenomenon
The number of people forming part of the sandwich generation has grown since the term was first coined in the 1980’s, as we tend to live longer and have kids later. It is estimated that as many as 5% of Australians are currently juggling caring responsibilities which has implications for family dynamics, incomes, retirement and even the economy.i
Like many other countries, the number of older Australians is growing both in number and as a percentage of the population. By 2026, more than 22 percent of Australians will be aged over 65 – up from 16 percent in 2020.ii It is also becoming more common for aging parents to rely on their adult children for assistance when living independently becomes challenging.
The other piece of bread in the sandwich is that as a society we are caring for kids later in life. The median age of all women giving birth increased by three years over two decades.iii
And with young people staying in the family home well into their twenties, we are certainly supporting our children for longer. Even after the kids leave the nest, it’s also common for parents to become involved in looking after grandchildren.
Taking its toll on carers
While we want to support our loved ones, when that support is required constantly and intensively for both parts of the family, it can mean that something has to give and that ‘something’ is often the carer’s well-being.
Even if you are not part of the sandwich generation but being squeezed at either end – caring for kids or parents, acting as a primary care-giver often requires you to provide physical, emotional, and financial support. It’s common to feel it take a toll on your own emotional and physical health, and sometimes your finances as you sacrifice some of your savings or paid work to help your loved ones.
Support for caregivers
It can be difficult to acknowledge you need assistance but there are a number of ways you can access help.
Deciding what to get help with
It can feel like there is not enough hours in the day and that’s overwhelming. Try to think about what you really need to do and where your time is best spent and consider if you can get assistance with tasks or duties you don’t have to do. This may mean outsourcing things like buying a healthy meal instead of cooking or getting a hand with gardening or lawn mowing.
Think about what others could assist with to lighten and share your load.
Accessing support
There are also support networks out there that exist to take off some of the pressure. Reach out to local support networks via Carers Australia for help identifying mainstream and community supports.
You or your loved ones may also be entitled to government support, under the National Disability Insurance Scheme (NDIS) or My Aged Care. These programs provide funding and resources to help pay for essential care; from domestic assistance with cleaning and cooking, to home modifications, to 24-hour care for those who require more support.
The importance of self-care
It’s vital to take some time out for yourself and make your own wellbeing a priority. Don’t feel that it’s selfish to take care of your own needs as that’s an essential part of being a carer. Resources like respite care and getting support when needed is an important gateway to self-care.
Managing your finances
Caregiving can put financial pressure on the whole household and has the potential to impact retirement savings. The assistance of a trusted professional can help, and we are here if you need a hand.
Raising kids as well as supporting parents to live their best lives as they age is becoming more common and can be a challenging time of life. While the act of caring is the ultimate act of kindness – the most important thing to remember is to be kind to yourself.
A catchy business name, a trustworthy brand and an engaging website or social media presence are all vital to any small business. But don’t underestimate the effect of the business structure.
Choosing whether to operate as a sole trader, company, partnership or trust depends on many factors including cost, the size of the business, whether you have dependants and family members to share income with, and the degree of financial or legal risk involved in running the business.
Sole trader
Many small operators start out as a sole trader, and some decide to continue with this structure.
On the positive side, it’s easy to set it up and, with fewer business reporting obligations, it’s cheaper to run than other business structures.
There are one or two considerations that, depending on your circumstances, could mean a sole trader structure doesn’t work for you.
One of these is the extent of your liability if things go wrong. When you’re a sole trader your liability is unlimited, meaning your assets are at risk in the case of legal action. Some businesses may consider their risk to be too low to warrant changing the business structure or they may choose to find an insurance product to provide some protection.
Tax is another consideration. Among other issues, as a sole trader, you’re liable to pay tax on all income received by the business and you can’t split profits or losses with family members.i
Partnership
Two or more people can form a business partnership and distribute business income among themselves.
Like a sole trader structure, a partnership structure can be slightly cheaper to operate because there are minimal reporting requirements.
All partners are liable for all the debts and obligations of the business although there are different types of partnerships that vary liability among the partners.
For tax purposes, each partner reports their share of the partnership income or loss in their own return and pays tax on any income. Partners cannot claim a deduction for any money they withdraw from the business. Amounts taken from a partnership are not considered wages for tax purposes.ii
Company
A company structure has a number of advantages over a sole trader or partnership structure, but it costs more to set up and operate and there are more reporting requirements.
A company is considered a separate legal entity and has its own tax and superannuation obligations, but company directors have a number of legal responsibilities.
Companies pay an annual fee to be registered with the Australian Securities and Investments Commission (ASIC) and they usually cost more to put together the necessary annual accounts and tax return.
On the plus side, you will be able to employ yourself and claim a tax deduction for your wages.
But be aware of the Personal Services Income (PSI) rules. If more than 50 per cent of the income of the business is produced by your personal exertion, it’s considered PSI and you will pay tax at your marginal rate, rather than the lower company tax rate. This rule affects taxpayers with any business structure.
Trust
A trust is the most expensive and complex business structure to operate but it might be the most appropriate for your needs.
There are some pluses and minuses so expert advice from your accountant and lawyer is crucial. You will need help to decide on the type of trust, to set up a formal trust deed and to carry out annual administrative tasks.
On the positive side, there may be tax advantages and there are some protections from financial and legal liability.
On the flip side, all income earned must be distributed to beneficiaries each year otherwise tax is paid at the highest marginal rate. Also, losses can’t be distributed to beneficiaries, it may be difficult to dissolve or change elements of a trust and it may be more difficult to borrow funds.
Ask for guidance
The importance of choosing the best business structure for your needs and understanding the regulatory requirements is crucial to the success of any small business. Check in with us for expert guidance.
Employers need to check that payroll systems reflect recent legislative changes, and the ATO is highlighting deduction opportunities available to some small businesses. Here’s your roundup of the latest tax news.
Updated employer obligations
The ATO is reminding employers to stay on top of legislative changes affecting payroll systems.
The Super Guarantee rate increased on 1 July 2024 to 11.5 per cent of ordinary times earnings, so all payments (starting with those for the July to September quarter) to super accounts for eligible workers must reflect the new rate.i
Individual income tax rate thresholds and tax tables changed also changed on 1 July 2024 so you may need to check calculations for your Pay As You Go Withholding obligations.
Claims for energy expenses
Many small business are eligible for a bonus 20 per cent tax deduction for new assets (or improvements to existing assets), that support more efficient energy usage.
The Small Business Energy Incentive applies to eligible assets first used or installed ready for use between 1 July 2023 and 30 June 2024.ii
Eligible expenditure for external training courses for employees incurred between 29 March 2022 and 30 June 2024 could also qualify for a 20 per cent bonus tax deduction from the Small Business Skills and Training Boost.iii
Pay less capital gains tax (CGT)
While a business can reduce capital gains made during a tax year by offsetting them with capital losses from the same or previous income years, not all capital losses are eligible.iv
Capital losses carried forward from previous years need to be used first, with losses from collectables (such as artwork and antiques) only permitted to be offset against capital gains from collectables.
Losses from personal use assets (such as boats or furniture), CGT exempt assets (such as cars and motorcycles), paying personal services income to yourself through an entity you set up, and leases producing income (such as commercial rental property), are ineligible as offsets.
Fuel tax credit rates change
Before claiming fuel tax credits in your next Business Activity Statement (BAS), check you are using the latest rates as they have changed twice in the new financial year.v
On 1 July 2024, the rate for heavy vehicles travelling on public roads changed due to an increase in the road user charge, with the rate altering again on 5 August 2024 due to a change in fuel excise indexation.
Different rates apply based on when you acquired fuel for your business’ use, so ensure you use the correct rate. If you are unsure, try the ATO’s online Fuel Tax Credit Calculator to work out the amount to report in your BAS.
Records essential for rental expense claims
Rental property investors without correct documentation to substantiate their expense deductions may find their claims declared invalid.vi
The ATO is warning investors they need all receipts, invoices and bank statements plus details of how deductions were calculated and apportioned for a valid claim.
Lodging a ‘nil’ BAS
While taxpayers registered for GST automatically receive a Business Activity Statement and are required to lodge and pay in full by the due date, businesses with nothing to report are still required to lodge.
If you have paused your business, you are required to lodge a ‘nil’ BAS by the due date either online or via the ATO’s automated phone service.vii
With Treasury estimating the government misses out on billions in potential tax revenue from rental property deductions and the ATO recently warning extra care is needed when lodging returns with this type of income, rental investors can consider themselves well and truly in the tax man’s sights.
In fact, the ATO’s Random Enquiry Program (REP) showed 9 out of 10 returns reporting net rental income needed adjustment, leading ATO second commissioner Jeremy Hirschhorn to note: “This is startling and clearly something we need to address”.
So, if you’re a rental property investor, it’s time to ensure you’re getting your deductions right.
Deductions under the microscope
Rental property investors can claim a wide range of deductions for expenses associated with maintaining and financing their property interests. These include interest expenses, capital works and other deductions required to maintain the property.
It’s clear from the REP, however, many rental property investors need to learn a little more about what is deductible and also when they can claim a deduction for the amount.
Common mistakes rental property investors are making include failing to include rental income for short-term arrangements and insurance payouts, overclaiming deductions, and claiming for improvements to private properties.
Rental income must be the gross amount received and must be reported in the same financial year the tenant pays.
Another common mistake is claiming an immediate deduction for initial repairs when purchasing. Existing damage must be claimed over several years as a capital works deduction and is also used to work out your capital gain or loss on selling.
Improvements such as renovating a bathroom, are a building cost and must be claimed at 2.5 per cent annually over 40 years from completion, while damaged detachable items costing more than $300 should be claimed as a depreciating asset.
Tips to get your tax return right
When completing your return, it’s essential to apportion both your rental income and deductions in line with your ownership share of the property.
If there is a mortgage over the property and the loan is also used for private purposes (such as a buying a new car or taking a holiday), your interest expenses must be apportioned. This needs to continue for the duration of the loan, even if you repay the personal expense.
Deductions also need to be split to reflect any private use. This also applies if you only use part of the property to earn rent.
Ensure your deductions are in order
Borrowing expenses (such as loan establishment fees and title searches costing over $100) must be deducted over five years. In the first year, these expenses should be apportioned for the number of days of ownership.
Purchase costs (such as conveyancing fees and stamp duty outside the ACT) cannot be claimed but form part of your capital gains tax (CGT) calculations.
Ask the previous owner for details of any capital works deductions claimed so you can correctly calculate your own deductions. Alternatively, hire a qualified professional to estimate previous construction costs.
Although payments to a body corporate administration fund are fully deductible in the year incurred, payments to a special purpose fund for capital improvements or repairs are not immediately deductible.
Don’t forget CGT
It sounds obvious, but it’s essential to have evidence of all your rental income and expenses when lodging a claim. This needs to be retained while you own the property and for five years after selling.
Another tip is to ensure you calculate your capital gain (or loss) correctly when selling.
You are not permitted to include amounts already claimed as a deduction, including depreciation and capital works.
Capital gains must be included in your tax return for the income year the property is sold, while capital losses can be carried forward.
Please don’t hesitate to call if you have any questions regarding the preparation of documentation for your next tax return.
What happens to a self managed super fund (SMSF) when a trustee dies or becomes mentally impaired? While these are circumstances that many of us would rather not think about, some time spent planning now could make a big difference to you and your family later.
Australia’s 620,000 SMSFs hold an estimated $933 billion in assets, so there is a lot at stake.i
But it’s not just about money – control of the SMSF may also be crucial.
The best way to ensure that your wishes are carried out is with a properly documented succession plan and an up-to-date trust deed.
An SMSF succession plan sets out what will happen if you or another trustee dies or loses mental capacity. It makes sure that there’s a smooth transition and is quite separate to your Will.
It’s important to be aware that instructions in a Will are not binding on SMSF trustees, so it’s essential to have a valid (preferably non-lapsing) binding death benefit nomination in place so the new trustees are required to pay your death benefit to your nominated beneficiary.
Your Will cannot determine who takes control of your SMSF or who receives your super death benefit as the fund’s trust deed and super law take precedence.ii
Succession plans also reduce the potential for the fund to become non-compliant due to overlooked reporting or compliance obligations. They can even provide opportunities for death benefits to be paid tax effectively.iii
Selecting successor trustees
Super law requires SMSFs with an individual trustee structure to have a minimum of two trustees, so it’s important to consider what will happen after the death or mental incapacity of one of the trustees.
An alternative to appointing a successor trustee can be introducing a sole purpose corporate trustee structure for your SMSF, as death or incapacity is then not an issue. This structure makes it easy to keep the SMSF functioning and fully compliant when a trustee transition is required.iv
Appoint a power of attorney
Good SMSF succession planning also means ensuring your Will is updated to reflect your current family or personal circumstances.
It requires having a valid Enduring Power of Attorney (EPOA) in place to help keep the SMSF operating smoothly if you lose mental capacity. Your EPOA can step in as fund trustee and take over administration of the fund or make necessary decisions about the fund’s investment assets.
Checking compliance
When developing a succession plan, ensure your wishes comply with all the requirements of the SIS Act and will not inadvertently compromise your SMSF’s compliance status.
Your planning process should include a regular review of both the fund’s trust deed and any changes in both the SMSF’s circumstances and membership, and the super legislation and regulations.
Tax is an important consideration when it comes to estate and succession planning as the super and tax laws use different definitions for who is and isn’t considered a dependant.
Your SMSF is able to pay super death benefits to both your dependants and non-‑dependants, but the subsequent tax bills vary based on the beneficiary’s dependency status under tax law.
The problems that can occur, due to the differences between super and tax law dependency definitions, were highlighted in recent private advice (1052187560814) provided by the ATO. It found that even if a beneficiary was receiving “a reasonable degree of financial support” from a deceased person just before they died, they would not necessarily be considered a death benefit dependant under tax law.
There is also the potential for capital gains tax to be payable if fund assets need to be sold because your super pension ceases when you die. Nominating a reversionary beneficiary for your pension ensures payments continue automatically without requiring any asset sales.v
If you would like to discuss or require assistance with drawing up your SMSF succession plan, give our office a call today.
Stay up to date with what’s happened in markets and the Australian economy over the past month.
While the anxiously awaited release of the latest inflation data at the end of July, showed an increase, it was in line with economists’ predictions.
Given the RBA wants inflation back within a 2-3% target range by the end of 2025, there were concerns about the inflation figures and the implications for the cash rate.
The ASX finished the month strongly with an increase of around 4%, riding out a mid-month plunge and surging to a record high for the ninth time this year.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
