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.
Stay up to date with what’s happened in markets and the Australian economy over the past month.
Despite some signs of a weakening economy with stalling growth and a softening labour market, persistently high inflation is acting as a roadblock to the RBA’s possible rate cuts.
Markets have now priced in a risk that the RBA could hike rates as soon as the next meeting in August.
Australian shares finished the month close to where they started, with investor sentiment influenced by news of higher inflation and fears of another interest rate hike.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
In the latest budget, the Victorian Government announced significant changes to the payment and application of Stamp Duty for Industrial and Commercial Properties as of 1 July 2024.
The Commercial and Industrial Property Tax Reform Act 2024 (Vic) (the Act) provides that commercial and industrial properties in Victoria will be subject to stamp duty for a final time when it is next sold or otherwise transacted after 1 July 2024. Ten years later from the time at which the transaction takes place, it will transition to the new annual Commercial and Industrial Property Tax (CIPT) imposed at the rate of 1% of the unimproved value of the land. The CIPT will be in addition to land tax.
Notably, properties that are not sold or transacted (a change of ownership of more than 50%) will remain outside the CIPT regime and CIPT will not be payable even after the 10 year transition period.
What properties does this apply to? Only properties and land zoned Commercial or Industrial fall within this new reform. The State Revenue Office will rely on Council Rates for assessing whether a property is Commercial or Industrial.
Mixed-use properties will be assessed on a case by case basis and the Commissioner will make a determination as to whether the property is primarily used for Commercial or Industrial. If so, CIPT will be payable. If not, CIPT will not be payable. This is an all or nothing situation.
What triggers the introduction of CIPT? A change of 50% or more ownership in a property will trigger the transition to CIPT. Minority investors may become subject to CIPT directly or indirectly if a majority interest in the property is changed (which may occur in a syndicate) on or after 1 July 2024.
Owners seeking to change ownership of their commercial or industrial property between trusts, SMSFs or corporations that transact after 1 July 2024 will also trigger the implementation of CIPT.
Do I still pay Stamp Duty? Stamp Duty will still be payable on the first transaction for that particular property that occurs on or after 1 July 2024. Stamp Duty can be paid upfront (as would usually occur) or you can apply for a Government Funded Support Loan which incurs interest (rate still be determined but looking like approximately 7%pa) and repayments are to be paid annually over 10 years. If you sell within the 10 years the Loan is to be repaid in full and it is likely that break costs will be charged. The Loan does not fall to the next purchaser.
This first transaction triggers the property to enter the CIPT scheme and 10 years from that date CIPT will be payable. If, for example, 3 years after the first transaction, the property is then sold, this next transaction does not incur Stamp Duty but CIPT will be payable in 7 years time by whoever owns the property at that time.
What is the rate of CIPT? The rate of CIPT is 1% of the unimproved value of the property (as assessed on your Council Rates Certificate). It is an annual tax and is to be paid in addition to regular land tax. For example, if the unimproved value of the property is $800,000 your CIPT will be $8,000 annually.
The owner of the property as of 31 December immediately preceding the tax year has the liability of the CIPT and this cannot be adjusted on the sale of the property.
Can I pass CIPT onto my Tenant? In most instances, no you cannot pass CIPT onto your Tenant for payment as an outgoing. The Retail Leases Act 2003 prohibits the passing on of CIPT and Land Tax to a Tenant as an outgoing. If your Lease does not fall within the confines of the Retail Leases Act 2003 then, subject to the terms of your lease, you may be able to pass on payment of CIPT to the Tenant.
What if I leave my property as it is for the next 20 years? If you do not change the ownership of your property over the next 20-30 years then you will not trigger CIPT and it will not be payable. Bear in mind that this is the case under the current legislative framework and there is no guarantee that this, or the rate of the CIPT, will not change in the future.
What should I do? If you have no intention of changing the ownership structure of your property for the foreseeable future, then you do not need to do anything. If a change is on the cards, you should transact this change (sign a Contract or Transfer of Land) prior to 1 July 2024.
If you are looking at purchasing a Commercial or Industrial property, you should sign a Contract of Sale before 1 July 2024.
In summary:
CIPT applies to changes in ownership of Commercial or Industrial properties with a Contract signed and settlement taking place after 1 July 2024;
The first transaction after 1 July 2024 will incur Stamp Duty which can be paid in full or via a government funded transition loan;
10 years after the first transaction, CIPT will be payable by the then current owner at the rate of 1% of the unimproved value.
If you’re nearing retirement age, it’s likely you’re wondering if you will have enough saved to give up work and take it easy, particularly as cost-of-living increases hit some of the basic expenses such as energy, insurance, food and health costs.
Fortunately, someone has already worked out what you might need.
The Association of Superannuation Funds in Australia (ASFA) updates its Retirement Standard every year, which provides a breakdown of expenses for two types of lifestyles: modest and comfortable.i
Based on our average life expectancy – for women it is just over 85 years and men 81 – if you are about to retire at say age 67, you will have between 14 and 18 years in retirement, on average and depending on your gender.ii
ASFA finds that a couple needs $46,944 a year to live a modest lifestyle and $72,148 to live a comfortable lifestyle. That’s equal to $902 a week and $1387 respectively. The figure is of course lower for a single person – $32,666 for a modest lifestyle ($628 a week) or $51,278 ($986) for a comfortable lifestyle.iii
What does that add up to? ASFA estimates that, for a modest lifestyle, a single person or a couple would need savings of $100,000 at retirement age, while for a modest lifestyle, a couple would need at least $690,000.iv
A modest lifestyle means being able to afford everyday expenses such as basic health insurance, communication, clothing and household goods but not going overboard. The difference between a modest and a comfortable lifestyle can be significant. For example, there is no room in a modest budget to update a kitchen or a bathroom; similarly overseas holidays are not an option.
The rule of thumb for a comfortable retirement is an estimated 70 per cent of your current annual income.v (The reason you need less is that you no longer need to commute to work and you don’t need to buy work clothes.)
Building your nest egg
So how can you build up a sufficient nest egg to provide for a good life in retirement? There are three main sources: superannuation, pension and investments/savings. Superannuation has the key advantage that the money in your pension is tax free in retirement.
Your superannuation pension can be augmented with the government’s Aged Pension either from the moment you retire or later when your original nest egg diminishes.
Your income and assets will be taken into account if you apply for the Age Pension but even if you receive a pension from your super fund, you may still be eligible for a part Age Pension. You may also be eligible for rent assistance and a Health Care Card, which provides concessions on medicines.vi
Money keeps growing
It’s also important to remember that the amount you accumulate up to retirement will still be generating an income, whether its rentals from investment properties or merely the growth in the value of your share investments and the accumulation of money from any dividends paid.
You can also continue to add to your superannuation by, for instance, selling your family home and downsizing, as long as you have lived in the home for more than 10 years.
If you are single, $300,000 can go into your super when you downsize and $600,000 if you are a couple. This figure is independent of any other superannuation caps.vii
Planning for a good life in retirement often require just that – planning. If you would like to discuss how retirement will work for you, then give us a call.
The much-debated tax on superannuation balances over $3 million is inching closer and those who may be affected should ensure they have considered the implications.
Although it is not yet law, the Division 296 tax should be taken into account when it comes to investment strategy and planning, particularly in relation to any end-of-financial-year contributions into super.
Tax for higher account balances
The new tax follows a Federal Government announcement it intended to reduce the tax concessions provided to super fund members with account balances exceeding $3 million.
Once the legislation passes through Parliament and receives Royal Assent, Division 296 will take effect from 1 July 2025. Division 296 legislation imposes an additional 15 per cent tax (on top of the existing 15 per cent) on investment earnings of a super account where your total super balance exceeds $3 million at the end of the financial year.i
The extra 15 per cent is only applied to the amount that exceeds $3 million.
Given the complexity of the new rules, it is important to seek professional advice so you can make informed decisions.
How the new rules work
A crucial part of the new legislation is the Adjusted Total Super Balance (ATSB), which determines whether you sit above or below the $3 million threshold.
When assessing your ATSB, the ATO will consider the market value of assets regardless of whether or not this value has been realised, creating a significant impact if your super fund holds property or speculative assets. The legislation also introduces a new formula for calculating your ATSB for Division 296 purposes.
The legislation outlines how deemed earnings will be apportioned and taxed, based on the amount of your account balance over the $3 million threshold.
Negative earnings in a year where your balance is greater than $3 million may be carried forward to a future financial year to reduce Division 296 liabilities. If you are liable for Division 296 tax, you can choose to pay the liability personally or request payment from your super fund.
Strategic rethink may be needed
For many fund members, superannuation remains an attractive investment strategy due to its favourable tax treatment.ii
But those with higher account balances need to understand the potential effect of the Division 296 tax. For example, given the new rules, you may need to consider whether high-growth assets should automatically be held inside super.
Holding long-term investments that may be more difficult to liquidate, such as property, within super may be less attractive in some cases, because the new rules create the potential to be taxed on a gain that is never realised. This could occur where the value of an asset increases during a financial year but drops in value by the time it is actually sold.
For some, holding commercial property assets (such as your business premises) within your SMSF may be less attractive.
It will also be important to balance asset protection against tax effectiveness. For some people, the asset protection provided by the super system may outweigh the tax benefits of other investment vehicles, such as a family trust.
Division 296 will require more frequent and detailed asset valuations, so you will need to balance this administrative burden with the tax benefits of super.
Estate planning implications
Your estate planning will also need to be revisited once Division 296 is law.
The tax rules for super death benefits are complex and should be carefully reviewed to ensure you don’t leave an unnecessary tax bill for your beneficiaries.
If you still have many years to go before retirement and hold high-growth assets in your fund, you will need to closely monitor your super balance.
If you want to learn more about how Division 296 tax could affect your super savings, contact our office today.
The rules around making some types of super contributions have been relaxed in recent years, so it’s worth exploring the different opportunities available to you before making a large contribution.i
What are contribution caps?
Given the tax-effective environment of Australia’s super system, there are annual limits on how much you can contribute each financial year.
Concessional contributions include employer Super Guarantee contributions, salary sacrifice and personal tax-deductible contributions, with the general contributions cap for 2023-24 being $27,500. In some situations, you may be permitted to contribute more if you have unused cap amounts from previous financial years.
If you’re a SMSF member, you may be able to make a concessional contribution in one financial year and have it count towards your concessional cap in the following financial year.
Non-concessional contributions cap
If you use after-tax money to make a super contribution, this is classes as a non-concessional contribution and there is no tax payable when the contribution is paid into your super account.
The general non-concessional contributions cap in 2023-24 is $110,000 provided you meet all the eligibility criteria, such as your Total Super Balance being below your personal limit. Your personal cap may be different.
If you’re age 55 or older, the once-only downsizer contribution cap is $300,000 per person ($600,000 for a couple). These contributions from the sale of your main residence don’t count towards your annual non-concessional cap.
Exceeding your contribution caps
There are different rules for super contributions that exceed the annual caps, depending on the type of contribution.
If you go over the annual concessional cap, your contribution is counted as personal assessable income and taxed at your marginal tax rate, with a 15 per cent tax offset to reflect the tax already paid by your super fund. Your increased assessable income may also affect any Medicare levy, Centrelink benefits and child support obligations.
The excess contributions can be withdrawn from your super fund, but if you choose not to withdraw them, the excess is counted towards your non-concessional contributions cap.
If you don’t or can’t elect to release excess contributions, you could end up paying up to 94 per cent in tax.ii
Exceed your non-concessional cap
Contributions exceeding your annual non-concessional (after-tax) cap are taxed at 45 per cent plus the 2 per cent Medicare levy. This is in addition to the tax already paid on this money.
Before the ATO applies this tax, you are given the opportunity to withdraw the excess non-concessional contributions, plus a notional amount to reflect the investment earnings.
You pay tax on the notional earnings just like personal income, less a 15 per cent offset.
Withdrawing excess contributions
Like most things to do with tax and super, the process for withdrawing excess contributions is fiddly.
If you have an excess concessional contribution, the ATO sends you a determination letter with details of what you need to do, plus an income tax notice of assessment.
You have 60 days to decide whether to have the excess concessional contribution refunded by the super fund and tax deducted by the ATO, or to pay the tax personally and leave the contribution in your account.
Refunding excess non-concessional contributions
For excess non-concessional contributions, the ATO assumes you wish to have your excess contributions and notional earnings refunded in order to avoid paying 47 per cent on them.
The default process is the ATO automatically issues a release authority to your fund and directs it to deduct the additional tax owing and return the leftover amount to you.
If you wish to nominate a specific fund from which the refund should be paid, or leave the excess in your account and pay the tax personally, you must make an election within 60 days of the initial notice.
Call us today to assess how the super contribution caps may affect you.
The festive season is a time of joy and celebration but, for some, it can also lead to a financial hangover in the New Year.
Overspending on gifts, parties, and decorations can quickly add-up, leaving us with unwanted debt in the New Year.
In 2022, Australians spent more than $66.7 billion during the pre-Christmas sales in preparation for the festive season. The rising cost of goods and services mean that even though many are trying to curb their spending, it is expected that we will spend a little extra this year.
5 ways to rein in Christmas spending
Create a Christmas budget – A budget is an effective way of controlling spending. It may not sound like fun, but it helps you to understand what you would like to spend and how much debt you are prepared to live with. List all of the costs you can think of (gifts, decorations, food, travel and entertainment), then set limits for each category and stick to them diligently. Consider using budgeting apps or spreadsheets to track your expenses and ensure you stay on track.
Embrace the spirit of giving – Instead of buying individual gifts for every family member or friend, organise a Kris Kringle or Secret Santa gift exchange. This not only reduces the financial burden for everyone, but it adds an element of surprise and excitement to the holiday festivities.
Take advantage of sales and discounts – Begin your Christmas shopping early to take advantage of sales and discounts. Stockpiling non-perishable food items and other essentials before prices rise closer to Christmas can deliver big savings.
Online shopping – You can often find better prices by shopping around online and various third-party websites offer cash back or rewards not available in store.
DIY and personalised gifts – Tap into your creativity by making your own gifts. Handmade gifts can be a welcome and thoughtful way of giving. Consider creating homemade cards, photo albums, or baking treats for loved ones.
Tackle any debt now
With many household budgets feeling the pinch due to rising housing, power, petrol and other costs, debts may already be increasing. But if you are feeling burdened with debt, don’t decide to leave it until after Christmas. The time to tackle it is now before it gets out of hand.
One option to consider, is to consolidate your high interest debts into a single more manageable loan. This approach can simplify repayments and potentially reduce interest rates, making it easier to eliminate debt over time. But it is important to do your calculations carefully to make sure it is worthwhile for you and then to be vigilant about watching spending.
Another option is to take a cold, hard look at your expenses. Is there something that can be cut back, and that money diverted to repaying debt? Any reduction of your debt load will help, no matter how small. Some people like to implement the snowball method in tackling their debts: while continuing to make the minimum repayments on all your debts you pay a little extra on the smallest debt to pay it off faster. Getting rid of debts can help to inspire you to continue.
Taking control of Christmas spending and debt is crucial for starting the New Year on a positive financial note. So, start planning early, know what you can afford to spend and prioritise your financial wellbeing for a debt-free and stress-free holiday season.
If you are struggling with post-Christmas debt or need assistance to manage your finances, we are here to help. Contact our team of financial experts today to discuss strategies to regain control of your financial future. Make this Christmas season a time of joy and financial empowerment.
Withdrawing part of your superannuation fund balance then paying it back into the account, known as a recontribution strategy, may sound a little strange but it could deliver a number of benefits including reducing tax and helping to manage super balances between you and your spouse.
Your super is made up of tax-free and taxable components. The tax-free part generally consists of contributions on which you have already paid tax, such as your non-concessional contributions.
When this component is withdrawn or paid to an eligible beneficiary, there is no tax payable.
The taxable component generally consists of your concessional contributions, such as any salary sacrifice contributions or the Super Guarantee contributions your employers have made on your behalf.
You may need to pay tax on your taxable contributions depending on your age when you withdraw it, or if you leave it to a beneficiary who the tax laws consider is a non-tax dependant.
How recontribution strategies work
The main reason for implementing a recontribution strategy is to reduce the taxable component of your super and increase the tax-free component.
To do this, you withdraw a lump sum from your super account and pay any required tax on the withdrawal.
You then recontribute the money back into your account as a non-concessional contribution. If you withdraw this money from your account at a later date, you don’t pay any tax on it as your contribution was made from after-tax money.
The recontribution doesn’t necessarily have to be into your own super account. It can be contributed into your spouse’s super account, provided they meet the contribution rules.
To use a recontribution strategy you must be eligible to both withdraw a lump sum and recontribute the money into your account. In most cases this means you must be aged 59 to 74 and retired or have met a condition of release under the super rules.
Recontributing your money into your super account may have valuable benefits when your super death benefit is paid to your beneficiaries.
A recontribution strategy is particularly important if the beneficiaries you have nominated to receive your death benefit are considered non-dependants for tax purposes. (The definition of a dependant is different for super and tax purposes.)
Recontribution strategies can be very helpful for estate planning, particularly if you intend to leave part of your super death benefit to someone who the tax law considers a non-tax dependant, such as an adult child.
Otherwise, when the taxable component is paid to them, they will pay a significant amount of the death benefit in tax. (Your spouse or any dependants aged under 18 are not required to pay tax on the payment.)
Some non-tax dependants face a tax rate of 32 per cent (including the Medicare levy) on a super death benefit, so a strategy to reduce the amount liable for this tax rate can be worthwhile.
By implementing a recontribution strategy to reduce the taxable component of your super benefit, you may be able to decrease – or even eliminate – the tax your non-tax dependant beneficiaries are required to pay.
Watch the contribution and withdrawal rules
Our retirement system has lots of complex tax and super rules governing how much you can put into super and when and how much you can withdraw.
Before you start a recontribution strategy, you need to check you will meet the eligibility rules both to withdraw the money and contribute it back into your super account.
If you would like more information about how a recontribution strategy could help your non-dependants save tax, give our office a call today.
