ATO gets tough on annual return lodgement
The ATO has advised late lodgement of SMSF annual returns will result in a change to a fund’s status on its Super Fund Lookup (SFLU) facility until compliance with the reporting requirement is satisfied.
The SMSF regulator stated: “From 1 October 2019, if an SMSF is more than two weeks overdue on any annual return lodgement due date and hasn’t requested a lodgement deferral, we will change their status on SFLU to ‘Regulation details removed’.
“We’re taking this approach because non-lodgement combined with disengagement indicates that retirement savings may be at risk.
“This status will remain until any overdue lodgements have been brought up to date.”
The new ‘Regulation details removed’ status means member benefits from Australian Prudential Regulation Authority-regulated super funds cannot be rolled over to the SMSF and employers will be unable to make any super guarantee contribution payments for members of the SMSF, the ATO said.
The regulator also strongly recommended trustees who did not think they would meet the due date should call the ATO in advance to seek a deferral to lodge.
“While the fund’s status is ‘Regulation details removed’, members should alert their employer to make any SG (superannuation guarantee) payments into the employer’s default super fund or a fund of the member’s choice,” it said.
“Once the SFLU status of the SMSF has been updated to ‘complying’, members can request a rollover to their SMSF of any member benefits that may be held outside their SMSF.
The ATO has continually reported that late or non-lodgement of annual returns remains one of the most common and significant compliance breaches among the SMSF sector.
Last week, the ATO announced a new strategy to counteract schemes encouraging illegal access to superannuation through the establishment of SMSFs.
By Tharshini Ashokan
Making the most of falling interest rates
The Reserve Bank’s decision to cut official interest rates is good news for anyone with a mortgage or hoping to buy their first home, but presents a challenge for savers. Whatever your personal situation, the question now is how to make the most of falling rates.
On July 2, the Reserve Bank cut the official cash rate for the second month in a row by 25 basis points. This second rate cut saw rates falling from 1.25 per cent to 1 per cent, the lowest on record. Many economists predict further cuts, with some suggesting rates could fall to as little as 0.5 per cent.
Just how low rates go will depend on the broader economy. Growth in the three months to March was up just 0.4 per cent, or 1.8 per cent over the year. The Reserve Bank is also concerned about sluggish wage growth, unemployment stuck at around 5 per cent and inflation of 1.3 per cent well below its target 2-3 per cent range.
Rather than wait to see how low rates will go, there are things you can do now to take advantage of lower rates or minimise their impact, depending on your personal circumstances.
Grab a better home loan deal
Many banks moved quickly to cut home loan interest rates in the days following the Reserve Bank’s move, although not all of them passed on the full amount.
The average standard variable rate offered by the big four banks is now between 4.92 and 4.98 per cent, saving the majority of variable rate homeowners over $100 a month.i
The big four also cut their discount rates, while some smaller lenders are offering rates as low as 2.89 per cent. The lowest 1-year fixed rate is below 3 per cent.
While house prices and interest rates continue to fall, the stars could finally be aligning for Australians wanting to buy their first home.
The Australian Regulation Prudential Authority (APRA) plans to relax the minimum 7 per cent interest rate banks are required to use when assessing borrowers’ ability to service a home loan.
Also, the Morrison government proposes low deposit financing for eligible first home buyers who save a deposit of as little as 5 per cent up to 20 per cent to purchase property.
For people with existing home loans, it’s time to check whether you are getting a good deal from your lender. If not, ring them to negotiate a lower rate and be prepared to shop around if they won’t budge.
The outlook for savers
Lower interest rates can be more challenging for savers. That includes anyone with a savings account as well as retirees who depend on the income from term deposits to help with living expenses.
Term deposit rates are likely to head south of 2 per cent. The best interest rate for $10,000 invested in a 1-year term deposit is currently around 2.5 per cent.
Banks have also been cutting rates on their online savings accounts. The best rates on offer are currently around 3 per cent for the first four months, before dropping to a base rate around half that, so shop around and read the terms and conditions.
The hunt for yield
If you have a longer time horizon, growth assets such as shares and property can provide regular income. If you can ride out the short-term fluctuations in share and property prices, the income they provide in the form of dividends (shares) and rent (property) tend to be more stable and reliable.
The national average rental yield on Australian residential property is sitting at around 4.1 per cent.ii Coincidentally, Australian shares currently provide an average dividend yield of 4 per cent (7 per cent after franking) but many quality companies pay more.iii
For example, the big four banks currently offer dividend yields of between 5.2 and 6.8 per cent. After franking credits are included, the yields grow to 7.5 and 9.7 per cent respectively.
Whether you plan to borrow or pump up your income, falling interest rates offer opportunities and challenges. If you would like to discuss the impact of lower rates on your investment strategy, give us a call.
i ABC, 3 July 2019, https://www.abc.net.au/news/2019-07-03/what-the-rate-cuts-mean-for-you/11273500
ii CoreLogic, 1 June 2019, https://www.corelogic.com.au/sites/default/files/2019-06/CoreLogic%20home%20value%20index%20JUNE%20FINAL.pdf
iii AFR share online market tables, 24 June 2019
Positives and Negatives of Gearing
Negatively gearing an investment property is viewed by many Australians as a tax effective way to get ahead.
According to Treasury, more than 1.9 million people earned rental income in 2012-13 and of those about 1.3 million reported a net rental loss.
So it was no surprise that many people were worried about how they would be affected if Labor had won the May 2019 federal election and negative gearing was phased out as they had proposed. With the Coalition victory, it appears negative gearing is here to stay.
While that may have brought a sigh of relief for many, negative gearing is not always the best investment strategy. Your individual circumstances will determine whether negative gearing is advisable. For many, it may pay to positively gear.
So, what is gearing?
Basically, it’s when you borrow money to make an investment. That goes for any investment, but property is where the strategy is most commonly used.
If the rental returns from an investment property are less than the amount you pay in interest and outgoings you can offset this loss against your other assessable income. This is what’s called negative gearing.
In contrast, positive gearing is when the income from your investment is greater than the outgoings and you make a profit. When this occurs, you may be liable for tax on the net income you receive but you could still end up ahead.
While negative gearing may prove tax effective, it’s dependent on the after-tax capital gain ultimately outstripping your accumulated losses.
The importance of capital gains
If your investment falls in value or doesn’t appreciate, then you will be out of pocket. Not only will you have lost money on the way through, but you won’t have made up that loss through a capital gain when you sell.
That’s the key reason why you should never buy an investment property solely for tax breaks.
But if the investment does indeed grow in value, then as long as you have owned it for more than 12 months you will only be taxed on 50 per cent of any increase in value.
When it pays to think positive
If you are retired and have most of your money in superannuation, negative gearing may not be so attractive. This is because all monies in your super are tax-free on withdrawal. And thanks to the Seniors and Pensioners Tax Offset (SAPTO), you may also earn up to $32,279 as a single or $57,948 as a couple outside super before being subject to tax.
It makes more sense to negatively gear during your working years with the aim of being in positive territory by the time you retire so you can live off the income from your investment.
While buying the right property at a time of your life when you are working and paying reasonable amounts in tax may make negative gearing a good option, sometimes positive gearing may still be a better strategy.
ASIC’s MoneySmart website compares two people each on an income of $70,000 a year. They each buy an investment property worth $400,000, paying 6 per cent interest. Additional expenses are $5000 a year while the rental income is $500 a week.
Rod negatively gears, borrowing the full purchase price; Karen is positively geared with a loan of $100,000. In terms of annual net income, Rod who negatively geared is worse off than if he had not invested in a property at all, with net income of $52,868.
Positively geared Karen ended up $10,000 ahead, with net income for the year of $64,433.
Of course, if his property grows in value over time, Rod should ultimately recoup some or all these extra payments.
If you do negatively gear, then it’s important that you claim everything that’s allowed and keep accurate records.
For investment property, this includes advertising for tenants, body corporate fees, gardening and lawn moving, pest control and insurance along with your interest payments.
If you want to know whether negative gearing is the right strategy for you, then call us to discuss.
Tax Alert September 2019
The landscape of Australia’s personal income tax system has changed significantly following the passage of the Morrison Government’s tax legislation through the Parliament.
Here’s a roundup of some of the other recent developments in the world of tax.
Tax reform legislation passes
Many Aussies are receiving a larger tax refund following passage of The Treasury Laws Amendment Act 2019, which made law the three-stage income tax cuts announced in the 2019–20 Federal Budget.
The new legislation increases the base and maximum amounts of the Low and Middle Income Tax Offset (LMITO) for the period 2018-19 to 2021-22.
It also lifts the top threshold of the 19 per cent income tax bracket from $41,000 to $45,000 from 2022-23 and reduces the 32.5 per cent tax rate to 30 per cent from the 2024-25 financial year.
Guidance on FBT exemption for taxis
Employers need to take note of new guidance released by the ATO clarifying that the existing FBT exemption for employee taxi travel does not extend to ride-sourcing services such as Uber. Unlike its previous view, the ATO has now stated the FBT Assessment Act limits the definition of ‘taxi’ to a vehicle licensed to operate as a taxi by the relevant state or territory. This definition of taxi travel is different to the one used for GST purposes.
Employee travel is still eligible for FBT relief if it involves a traditional taxi service used for a single trip beginning or ending at the employee’s place of work, or if the travel is due to employee sickness or injury.
Tip-offs likely to grow with new hotline
After a record 70,000 tip-offs were received by the ATO during 2018-19, the introduction of its new Black Economy Hotline and Tax Integrity Centre (TIC) is likely to see this number rise further.
From 1 July 2019, Australians can report known or suspected tax evasion, black economy and phoenix activities via an ATO website tip-off form, the ATO app, or the new Black Economy Hotline (1800 060 062).
Behaviours such as demanding or paying for work cash-in-hand to avoid tax, not reporting or under-reporting income, underpayment of wages, ID fraud, sham contracting arrangements, GST fraud and money laundering can all be reported.
No deductions for unreported employee payments
The tax man is reminding employers that unreported cash-in-hand payments made to workers after 1 July 2019 are no longer eligible for tax deductions. In addition to the loss of a tax deduction, employers not complying with their PAYG withholding obligations may be penalised.
The new rules cover payments to employees not complying with PAYG withholding obligations as well as payments to contractors who do not provide an ABN where tax is not withheld. The change affects payments made during 2019-20 and all subsequent financial years.
As an employer, if you fail to withhold or report your PAYG obligations and voluntarily disclose this before any compliance action is taken, you won’t lose your deduction. You may also be entitled to reduced penalties.
New luxury car tax thresholds
The luxury car tax (LCT) thresholds for cars imported, acquired or sold during 2019-20 have been announced by the ATO. If you buy a car with a GST inclusive value over the LCT threshold, the purchase attracts the 33 per cent tax.
For the 2019-20 financial year, the new threshold for fuel-efficient vehicles is $75,526, which is the same as in 2018-19. The LCT threshold for other cars is $67,525, up from the 2018-19 limit of $66,331.
Escape Australia, not your student debt
Expats are being contacted by the tax man to remind them that heading offshore doesn’t mean leaving their student loans behind.
Under new rules, student debtors with an income contingent loan travelling overseas need to notify the ATO of their new address and lodge an overseas travel notification. They are also required to report their worldwide income if they earn $11,470.
Credit card companies want to ‘catch you and keep you’
I still remember how my cheeks burned as I stood in line at the Commonwealth Bank branch in my home town of Horsham in country Victoria.
“No darling, we’re not giving you a credit card,” the woman at the teller told me in a sing song voice that carried across the breadth of the busy lunchtime queue.
“Your application was knocked back.”
At least half a dozen people standing nearby shifted their weight awkwardly and looked away.
Back then, I was ashamed. Two decades on, I’m relieved. Some dumb luck saw me dodge a financial bullet that could have lodged itself for a decade or more.
Today, 1.9 million Australians are struggling with credit card debts.
“It’s been the number one problem for as long as I’ve been involved in financial counselling, which is 30 years,” Fiona Guthrie said.
We’re hooked on credit and it hurts
Last year, the Australian Securities and Investments Commission (ASIC) released its review of more than 21.4 million credit cards accounts open between July 2012 and June 2017.
The news wasn’t good.
Australians are winding up with credit cards we can’t manage. We’re also being sucked into high interest rate products, when a lower-rate product would save us money.
So, how much are high interest rates actually costing us?
The average Australian credit card balance is $3,258, according to comparison website Finder. Of that amount, about two thirds — $1,986 — is the average amount accruing interest.
And the total amount we owed as of June 2017 was nearly $45 billion, according to the financial regulator’s report.
The report also said consumers would have saved about $621 million in interest in the 2016/17 financial year alone if their balance was on a card with a lower rate.
We’re haemorrhaging extra money on fees too.
ASIC found consumers were charged about $1.5 billion in fees in that same financial year — that includes annual fees, late payment fees and other amounts for credit card use.
None of this would matter if it wasn’t causing so much financial harm.
Ms Guthrie said people often only made the minimum card repayments, which meant debts dragged on for years — even decades.
“Credit cards have been too easy to get, credit card limit increases have been too easy to get, [and] interest rates are really high,” she said.
Over time, banks will build up a customer profile on you. It can take into account things like spending patterns.
If you miss credit card repayments, it could impact your profile or even your credit rating.
That, in turn, can impact whether you qualify for other kinds of loans, including a mortgage.
Banks also look at your credit card limit. Even if you haven’t maxed out a $10,000 limit, it can count against you when you want to borrow again.
I didn’t know anything about all of this when I stood in the Commonwealth Bank years ago, but if I’d been given the money, I probably would have spent it.
Ms Guthrie said some regulatory reforms had improved the situation.
“That has been that banks now have to assess whether you can repay a credit card over a period of three years,” Ms Guthrie said.
That change is significant because previously banks only looked at whether someone applying for a credit card could meet the minimum repayments — which is usually between 2 and 3 per cent of the balance.
“For some people, it could take 50 or 60 years to pay back the credit card at that rate,” Ms Guthrie said.
That might be good news for people still applying for credit cards, but if you’ve already got one — and a sizeable balance — it could be time to reassess the card altogether.
“For the group of people who are paying really high interest rates, they might be better off putting that debt into a cheaper loan and paying it off at a greater rate and trying to clear their debts than just being stuck with the credit card,” Ms Guthrie said.
How to get out of a credit card debt trap
Plenty of people will tell you they love credit cards and can pay their bills at the end of every month.
That’s great for them, but a lot of people are stuck and experts say it’s no surprise because banks are trying to “catch you and keep you”.
Two of the main paths out of credit card debt are balance transfers or a consolidation loan.
Balance transfers are one way of breaking the cycle. That’s finding another credit card with a lower interest rate, then transferring your debt to pay it off.
To do this well requires discipline and there’s no guarantee it’ll actually help.
When ASIC looked at how people went with balance transfers, it found about a third of people actually increased their debt by 10 per cent or more.
Erin Turner from consumer group Choice said balance transfers came with a lot of traps.
“For example it might be a zero per cent transfer rate. But six months, a year, or a certain way down the track, you can pay some of the highest rates on the credit card market,” she said.
“Also watch out for any fees, charges, anything that happens for expenses you put on a card after you transfer it over.
“What credit card companies are trying to do is catch you and keep you. If you’re struggling, you’re better off getting a personal loan with a lower interest rate or talking to your bank about hardship options.”
Perhaps most importantly, Ms Guthrie said you needed to make sure to cancel your old card if you were transferring a balance.
“You’ve got to make sure you set yourself up to succeed, not set yourself up to fail,” she said.
“So if you’ve found a cheaper product, then transfer it but get rid of the other card, and then pay off as much as you possibly can, within reason.
“Get rid of it, get it out of your life.”
Is getting a peer-to-peer loan a good idea?
Well, that depends on the interest rate these new types of lenders will offer you — and that depends on your credit score.
When traditional lenders (banks) were exposed during last year’s Banking and Financial Services Royal Commission, an alternative started gain popularity.
Peer-to-peer lending has a few names — P2P and “marketplace lending”.
It’s not a bank, but instead a platform that connects borrowers who need money with investors who are looking for a place to put theirs.
Stuart Stoyan is the chair of Fintech Australia and a member of the Government’s Fintech Advisory Group.
He’s also the founder and chief of MoneyPlace, a rapidly growing marketplace lender.
Mr Stoyan said there was a bump in business after last year’s royal commission.
“Some of that is definitely driven by the fact consumers are more aware they’re getting a bad deal from the banks,” he said.
He said a large part of MoneyPlace’s customer base was trying to eliminate credit card debt with a better interest rate.
“About one in two of our loans is for debt consolidation, and the majority of that is for credit cards,” he said.
“We go from 7.65 per cent through to about 26 per cent, and 85 per cent of our borrowers are on an interest rate of 15 per cent or below.”
Marketplace lenders typically personalise loans and interest rates.
They’re big on technology, so assessing someone’s capacity to repay a loan can happen pretty fast.
It also means someone with a strong credit score could be offered a lower interest rate than someone with a poor rating.
Marketplace lenders must have an Australian financial services (AFS) licence and an Australian credit licence if they’re dealing in consumer loans.
Ms Guthrie said she was concerned lower-income borrowers may end up being targeted by the industry.
“I expect what will happen is the riskier borrowers will end up with peer-to-peer loans, because the banks will be moving to risk-based pricing as well over the next couple of years,” she said.
Ms Turner said the best thing to do was to get independent advice.
Amy Bainbridge, ABC
Regional cities to have strongest housing price growth over next year
Launceston’s housing market has been called the “strongest in the country” with new research showing the Tasmanian city’s property values have grown by 20 per cent over the past 18 months.
The city outperformed the major capitals across the country, some of which posted double-figure price falls over the same time.
The outlook for Sydney and Melbourne was predicted to be a prolonged period of very little capital growth and low rental yields.
The analysis, from buyer’s agents Propertyology, included Australia’s 500-plus municipalities and took into account major indicators, such as the average time to sell a dwelling, the volume of dwellings sold, vacancy rates, and several employment metrics.
Head of research with Propertyology Simon Pressley said the analysis revealed regional cities were likely to have the strongest growth over the next 12 months, mainly because affordability made them attractive to buyers.
But it was only a part of the equation for their success.
“The rebound in commodity prices that commenced a few years ago, as well as more recently in jobs growth, [is] now showing through in other property metrics,” he said.
“One such example is the New South Wales university city of Armidale in the New England region.
“It has already seen a significant reduction in real estate selling times, tightening vacancy rates, and has an admirable list of major projects, which is fuelling job growth and community confidence.
“The median house price in Armidale has increased by an impressive annual average of 6.2 per cent over the past 20 years and still sits at an affordable $350,000.”
Mr Pressley said regional property markets in gold and copper mining towns are strengthening including Mount Isa and Charters Towers [In Queensland], Orange and Cobar [in NSW], Swan Hill and Bendigo [in Victoria] and Kalgoorlie [in Western Australia] and Roxby Downs [in South Australia].
While regional areas were proving to have stronger markets than the capitals, investors may take a bit more convincing to buy there, he said.
“Investing in the regions is not default behaviour for many people. But if they have an acute interest in the property market, then their attitude would have changed in the past few years,” Mr Pressley said.
“The average person with no interest in the property market will assume the big city means better investment.”
The property market across Australia has been bolstered in 2019 by the federal election outcome, cuts to interest rates, banks relaxing lending rules and improving sentiment from buyers.
“The analysis found that the fundamentals of Hobart and Canberra continue to be the best of all capital cities with recent positive macro changes for their property sectors likely to see their price growth rates accelerate,” Mr Pressley said.
“Perth, Brisbane and Adelaide are all at the right stage of the property cycle with balanced supply and housing affordability.
“While Propertyology believes they will all produce some growth over the next 12 months, it’s unlikely to be anything spectacular until there is tangible proof of a meaningful lift of private-sector job growth.”
The research showed Sydney’s dwelling values had now fallen to June 2015 levels while Melbourne’s were sitting at October 2016 levels.
“While recent auction clearance rates have been strong, the volume of transactions is too small a sample size to be basing bold predictions on,” Mr Pressley said.
In June, Domain’s Property Price Forecast predicted house and unit prices in capital cities would enjoy some modest growth in 2020.
Domain economist Trent Wiltshire said at the time that the impact of lower interest rates was likely to be smaller than in the past, with affordability still a problem, wages growth sluggish and households cautious about taking on more debt.
Sydney house prices were expected to have the strongest results, with an anticipated 3 to 5 per cent increase in prices next year.
In Melbourne, medians were predicted to lift by 1 per cent by the end of the year, with an expected 1 to 3 per cent rise for houses and up to 2 per cent for units next year.
Meanwhile, Brisbane’s prices were expected to pick up by as much as 5 per cent in 2020, while Canberra’s would grow by between 4 to 6 per cent.
Volatile markets and your Superannuation
You might have noticed a fall in your super balance in recent weeks and are wondering what the cause of this is.
Share markets around the world have been volatile in recent weeks, so if your super is invested in the Australian and/or international share markets, it’s likely you would have been affected by this.
How much of your super is invested in shares is also important. For example, if you’re invested in a high growth strategy, or are in a life-stage fund and are not looking to retire any time soon, it’s likely you’ll have more of your super invested in shares.
If you’re invested in a life-stage fund and are closer to retiring, or may have selected defensive strategies, your exposure to the share market and any risks associated with it may be lower.
What this means for you
The best thing you can do in volatile markets is stay calm.
Super is a long-term investment, so while investment markets can be unpredictable over the shorter term, over the longer term they typically recover.
If you’re approaching, or are in, retirement it’s still important to stay focused on your long-term investment strategy and consider all your options before making any significant changes.
You should consider keeping the following things in mind when looking at your super and what’s happening in global markets:
1. Stay calm
Over time, the value of your super investment will go up and down, depending on market conditions. Reacting to short term market conditions may mean you’re missing out on subsequent market improvements.
Most members in super funds are invested in a variety of asset classes, not just the share market. Different asset classes perform differently over time which helps to even out the highs and lows of market volatility in a particular asset class.
3. Long term investing
Super is a long term investment so many investment objectives focus on a 10 year period. It is expected that there will be periods of volatility but over the longer term markets typically recover from short term movements.
4. Stick to your plan
It makes sense to understand how much risk you’re comfortable with taking when it comes to how your super is invested and build this into your financial plan. You may want to consider regularly reviewing your financial plan to make sure it still reflects your current needs. For instance, if you’re moving towards retirement and have your super invested in a high growth investment strategy, your level of risk may be too high.
5. Seek advice
If you need assistance with determining the level of risk you’re comfortable with taking on, or to determine if your financial plan is still meeting your needs, seek the advice of a financial planner. With a well formulated plan you are better placed to withstand periods of volatility.
Record losses expected as scammers target Australians
Australians are set to lose a record amount to scams in 2019, with projections from losses reported to Scamwatch and other government agencies so far expected to exceed $532 million by the end of the year, surpassing half a billion dollars for the first time.
This year’s National Scams Awareness Week at Scam-watch (12-16 August) theme was ‘too smart to be scammed?’ and the ACCC, along with over 100 campaign partners from government and industry, is urging consumers to test their scams knowledge and refresh their scam protection and detection skills.
“Many people are confident they would never fall for a scam but often it’s this sense of confidence that scammers target,” ACCC Deputy Chair Delia Rickard said.
“People need to update their idea of what a scam is so that we are less vulnerable. Scammers are professional businesses dedicated to ripping us off. They have call centres with convincing scripts, staff training programs, and corporate performance indicators their ‘employees’ need to meet.”
Investment scams are one of the most sophisticated and convincing scams and continue to have the highest losses. Nearly half of all investment scams reported this year resulted in a financial loss.
These scams are prominent on social media, with ‘Facebook lottery’ scams, the ‘Loom’ pyramid scheme, and cryptocurrency scams particularly common.
Cryptocurrency investment scams have seen record losses, with reports to the ACCC alone of $14.76 million between January and July 2019. Many use social media platforms, fake celebrity endorsements or fake online trading platforms that are made to look legitimate.
“Our advice is to be wary of ads you see on the internet. Don’t be persuaded by celebrity endorsements or ‘not to be missed’ opportunities. You never know for certain who you’re dealing with or whether they’re credible,” Ms Rickard said.
“If you think you’re speaking to a friend on social media, call them, or find another way to contact them before acting on any advice that might result in you giving away your personal details or money.”
Scam-watch also suggests that people check ASIC’s list of companies you should not deal with. If the company that contacted you is on the list — do not deal with them, and even if they are not listed, continue researching and speak to a financial advisor before investing.
Be vigilant on social media, when shopping online and when answering the phone, and never give anyone who has contacted you out of the blue your personal details, banking details or remote access to your computer, no matter who they say they are. It’s best to assume scammers are everywhere, waiting for you to let your guard down.
“Remember, anyone could fall victim and no one is ‘too smart to be scammed’. Always ask yourself, ‘could this be a scam?’ and if you’re ever in doubt, decline the contact or hang up the phone — it’s often the safest option,” Ms Rickard said.
Where should you put your money now?
If like many Australians you’re looking for ways to put some cash away for a rainy day, a holiday or to earn extra income, the job has just become a bit harder. It’s also become more urgent if you are expecting a handy tax return.
In early July, the Reserve Bank cut rates to 1 per cent. Soon after, the Morrison Government got its tax package passed. As a result, those on incomes from $25,000-$120,000 got an immediate tax cut of up to $1080.
So, whether you are looking to make the most of your tax cut or other savings, here are some suggestions.
1. Throw it on the mortgage
For those who have a mortgage, tipping in a bit extra, especially in the early years, can save you substantial amounts. It can also shave years off the life of the loan, meaning you’ll enjoy the priceless peace of mind that comes with paying off your home sooner.
Banks charge more for the money you’ve borrowed from them than the interest they pay on money you deposit with them. So, it may not make much sense to put money in a savings account paying 1.5 per cent interest when you’re paying 3.5 per cent interest on your home loan.
Say you have a $400,000 loan at 4 per cent with 20 years to run. Using ASIC’s MoneySmart mortgage calculator, by increasing your monthly payments by just $50, you could save $6,146 in interest and shave 7 months off the term of the loan.
2. Up your super contributions
It’s hard to go past super as a tax-effective investment option if you are happy to lock your money away until you retire.
Over the last seven years, while interest rates and inflation have been low, growth funds (where most Australians have their savings) achieved returns of 9.3 per cent a year after tax and fees, on average.
You can make tax-deductible contributions of up to $25,000 a year into super, this includes your employer’s payments, salary sacrifice and any voluntary contributions you make. Once your money is in super it’s taxed at concessional rates. New rules also allow you to “carry forward” unused concessional contributions from previous years. Conditions apply so call us to see if you are eligible.
Most Australians pay little attention to super until they are approaching retirement. That means they fail to harness the power of compounding interest to the extent they could have. If you’re a decade or two away from leaving the workforce with cash to spare, it’s difficult to find a better pay-off than the one you’ll (eventually) receive from channelling savings into super.
3. Invest in shares
For longer-term savings, it’s tough to beat the returns generated by a share portfolio. Over 30 years to 2018, which included many ups and downs including the GFC, the average annual return from Australian shares was 9.8 per cent. Last financial year the total return from capital gains and dividends was 11 per cent.
Whether you are just starting out or wanting to expand an existing portfolio, we can help you align your investments with your goals.
If you would like to direct some extra cash into shares, there are now even ‘micro-investment’ apps such as Raiz and Spaceship Voyager, which you can access via your mobile phone.
4. Put it in the bank
Australia’s current inflation rate is 1.3 per cent. If your bank is paying you less than 1.3 per cent you are losing money.
If you have a so-called high interest savings account paying you a standard variable rate of between 1.5-2 per cent, you’re getting a near negligible return. Also be aware of high introductory rates that revert to the standard base rate once the honeymoon ends.
Term deposits are currently paying around 2-2.25 per cent which is a bit better but not much.
Despite these low rates, it’s wise to have some money parked in a savings account or in your mortgage offset or redraw account so that it’s available in case of an unforeseen expense.
If you would like to discuss your savings and investment goals and how to achieve them, give us a call.
‘Year in Review’, CommSec Economic Insights, 1 July 2019
Working together to combat burnout
If both your first and last task of the day is to check your emails, you’re not alone. Contemporary work culture, spurred on by advances in technology, has meant that we are expected to always be “on”. Gone are the days of the 9-5. Many of us work at all hours, possibly even holding down side gigs, and that’s before we take into account the labour we perform in other areas of our lives.
You may then have felt some sense of vindication, when earlier this year, the World Health Organisation listed burnout as an “occupational syndrome” on its revised International Classification of Diseases. Burnout is not a new phenomenon, but it has become increasingly pervasive in the last 20 years. A hallmark, or a symptom of modern life.
The WHO classifies burnout as “chronic workplace stress” that “should not be applied to describe experiences in other areas of life”.i This is a useful description, for burnout forms and ferments in contemporary workplaces. But as anyone who’s suffered from it can tell you, its impact can be felt in all areas of your life.
A millennial issue?
There has been much media noise about burnout being a millennial problem. Critics have derided the term as another talking point of a lazy, entitled generation, while those in the throes of it, see it as the consequence of working more unstable hours, and earning lower wages than their parents.
A battle of the generations helps no one however. Burnout can just as easily be felt by a student working two bar jobs, a single mother nursing ad-hoc agency shifts, and an older business owner, trying to sure up their nest egg. Workplace stress can affect people at any age and in any profession.
Recognising the signs
Burnout looks different in everybody. It might be that feeling of not being able to get out of bed in the morning, or the inability to complete simple tasks, a phenomenon journalist Anne Helen Petersen calls ‘errand paralysis’. Bills go unpaid, important emails unanswered – while the endless charade of busyness continues. For others it’s harder to identify. The sensation of constantly running on empty, a feeling of unshakeable fogginess or an irrational and unceasing cynicism. Burnout is at once amorphous and yet universally relatable. A catch-all for our workplace exhaustion and ennui.
Lighting the fire
As individuals, there are many tools we can use to avoid burnout and make your workplace duties more manageable. Taking a frank look at your schedule; delegating certain tasks and deleting anything that is not essential is a good place to start.
You might also need a little ‘me time’ to break up the daily grind. Give yourself permission to do the small things that help you to unwind. This might mean a walk out in nature, a catch up with friends or even a quiet day at home with the family.
The other important thing to remember is that workplace stress can be compounded when it intersects with other stressors in your life. You might usually be able to handle your busy work life but combined with additional family responsibilities or financial pressures, the finely balanced juggle can become too much to bear.
In these situations, it pays to be honest. The most radical act of self-care is admitting to a colleague or supervisor that you’re struggling. Only then can you work together to find a solution.
Compassion and community
Christina Maslach, an academic in the field, lists breakdown of community as one of the main causes of burnout. A problem we can’t combat alone. Perhaps then, one of the simplest ways to address it, is to make our own small contribution towards fostering compassionate workplaces. Everyone’s capacity is different. So, check in on your colleagues. Ask if they’re ok. Offer them a hand if they’re feeling overwhelmed and dish out praise generously when they’ve achieved a goal. People need to feel valued, and when you approach your work in this spirit, it will come back at you tenfold.
We don’t need to wear exhaustion as a badge of honour. If you’re feeling like you’re running on empty, be kind to yourself. And if you can, open up about how you’re feeling. By working together we can all help minimise the impact of burnout.