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August 2023

Welcome to our August newsletter and, with winter winding up and tax returns on the way for some, there may be sunnier days ahead.

While the price of most goods and services continues to rise, the good news is the rate of increase is continuing to slow and the markets are beginning to breathe a sigh of relief. The Consumer Price Index rose 0.8% in the June quarter and 6% annually in the lowest increase since September 2021. And in some areas prices fell including domestic holiday travel, accommodation and petrol. In the US, sharemarkets ended July higher after inflation eased to its lowest level in two years.

Nonetheless, cost-of-living pressures continued to affect our spending with a sharp fall in retail turnover of 0.8% in June. Those figures, along with the better-than-expected US data bringing concerns of tighter monetary policy, kept the ASX200 in check as some banks, commodities and miners suffered. The Australian dollar was also affected, hitting its weakest levels in more than two weeks. Unemployment remains at 3.5% with the number of people employed increasing by about 33,000 and the number of jobless decreasing by 11,000.

Meanwhile tightening global oil supplies and high hopes for the outlooks of Chinese demand have seen a steady increase in Brent crude futures to around US$84 a barrel. But iron ore continues its downward trend, falling 2.6% since the beginning of 2023.

How to boost your super with a lump sum

How to boost your super with a lump sum

If you’re lucky enough to have received a windfall, perhaps an inheritance or a retrenchment payout, your first decision will be what to do with it.

Assuming you have decided against a shopping splurge, finding the best place to invest a lump sum is all about the effect on your tax bill and how soon you will need access to the funds.

For those interested in investing their lump sum for a longer term, superannuation is one approach because of its tax benefits.

But be aware that, while super can be a tax-effective investment, there are limits on how much you can pay into your super without having to pay extra tax. These are known as contribution caps.

Different types of contributions

There are two types of super contributions you can make – concessional and non-concessional – and contribution caps apply to both.

Concessional contributions are paid into super with pre-tax money, such as the compulsory contributions made by your employer. They are taxed at a rate of 15 per cent.

Non-concessional or after-tax contributions are paid into super with income that has already been taxed. These contributions are not taxed.

So, the tax you pay depends on whether:

  • the contribution was made before or after you paid tax on it

  • you exceed the contribution caps

  • you are a high income earner (If your income and concessional contributions total more than $250,000 in a financial year, you may have to pay an extra 15 per cent tax on some or all of your super contributions.)

Investing after-tax income

There are many different types of after-tax contributions that can be made to your super including contributions your spouse may make to your fund, contributions from your after-tax income, an inheritance, a redundancy payout or the proceeds of a property sale.

Based on current rules, the annual limit for non-concessional or after-tax contributions is $110,000. You can also bring-forward two financial years’ worth of non-concessional contributions and contribute $330,000 at once but then you can’t make any further non-concessional contributions for two financial years. Note that are certain limitation on these types of contributions.

It is also useful to note that, under certain conditions, there are some types of contributions that do not count towards your cap. These include: personal injury payments, downsizer contributions from the proceeds of selling your home and the re-contribution of COVID-19 early release super amounts.

The Downsizer scheme allows the contribution of up to $300,000 from the proceeds of the sale (or part sale) from your home. You will need to be above age 55 but there is no upper age limit, the home must be in Australia, have been owned by you or your spouse for at least 10 years, the disposal must be exempt or partially exempt from capital gains tax and you have not previously used a downsizer contribution.

Giving your super a boost

A review of your super balance and some quick calculations about your projected retirement income might inspire you to give your super a boost but not everyone has access to a lump sum to invest.

A strategy that uses smaller amounts could include any amount from your take-home pay. These contributions will count towards your non-concessional or after-tax cap.

Alternatively, you add to your super from your pre-tax income using, for example, salary sacrifice. These types of concessional or pre-tax contributions attract a different contribution cap: $27,500 per year, which includes all contributions made by your employer.

If your super fund balance is less than $500,000, your limit may be higher if you did not use the full amount of your cap in earlier years. You can check your cap at ATO online services in your myGov account.

The rules for super contributions can be complex so give us a call to discuss how best to maximise your benefits while avoiding any mistakes.

How iron ore plays a big part in our economy

How iron ore plays a big part in our economy

Iron ore has been the backbone of the Australian economy and many investment portfolios for much of the 21st century.

In 1921, iron ore accounted for 68 per cent of Australia’s export revenue. This was the year that iron ore prices peaked at almost $US230 a tonne.i

However, its growth as an export icon really took off with the first shipment of iron ore from the Pilbara in Western Australia in 1966.

Today there are three major companies that mine iron ore in Australia – BHP, Rio Tinto and Fortescue Minerals. Considered blue chip stocks, they are often favourites with investors and their share price performance is linked to iron ore prices.

Iron ore’s importance worldwide stems from its use in steel, a key material used in infrastructure, housing and manufacturing equipment globally.ii

China’s role

The main recipient of Australia’s iron ore is China. In 2022 China bought 1.1 million tonnes of iron ore, 65 per cent of which came from Australia.iii

While demand is still high in China, Covid put a dampener on its economic growth. Its strict measures did not start to roll back until December 2022 and investors began to worry.

While economic activity is slowly resuming, it has reduced significantly from its heady days. As a result, demand for iron ore has also fallen.

This has seen the price of iron ore drop to around the $US100 a tonne mark from its $US230 million peak in 2021.

Although China’s economy is not performing as energetically as it did a decade ago, recent moves to boost domestic demand are causing some optimism among market watchers, although there are still bears around who are more circumspect.

Global demand

The rest of the world is wrestling with recession and that too has put a dampener on the market.

Added to this slowdown in demand are moves to increase supply by Australia’s major producers and Brazil’s Vale Mining.iv

Luckily, iron ore is relatively cheap to produce in Australia at around $US30 a tonne, which shelters the miners somewhat from price fluctuations. While Rio Tinto and BHP can remain profitable with prices dropping as low as $US60, lower prices will have a flow on effect, impacting superannuation balances, investor returns and the broader economy.v

Impact on the economy

Unfortunately, lower profits mean significantly lower tax revenue and that in turn will affect the Australian economy.

While profits are still boosting the government’s coffers, the outlook is less bright.

Tax revenue from iron ore has made a significant contribution to our economy and has been a key reason for the recent federal budget surplus after 15 years of deficits.

Nevertheless, the domestic economy is still expected to slow as high inflation and global challenges make their mark.

Budget papers estimate that a $US10 per tonne increase in the Commonwealth’s assumed price for iron ore exports is expected to result in an increase in tax receipts of around $500 million in both 2023-24 and 2024-25.vi

But the federal government is still cautious about the economic outlook for Australia and are forecasting a return to a budget deficit and the possibility of a recession as the move to higher interest rates puts brakes on the economy.vii

Aside from economic performance, any reduction in revenue for the mining companies will also translate into lower dividends and lower price growth for investors.

But despite some bearish sentiment in the market including the growing number of institutional and individual investors steering clear of mining stocks over ethical and environmental concerns, there is no denying that iron ore is still a big money spinner.

If you would like to discuss options for investment in the current economic climate, then give us a call.

i https://minerals.org.au/resources/record-high-for-resources-export-revenue/
ii https://www.mining-technology.com/features/timeline-australian-iron-ore-at-a100bn/
iii https://edition.cnn.com/2023/05/05/economy/australia-china-exports-record-intl-hnk/
iv https://www.mining.com/iron-ore-price-expected-to-ease-over-next-5-years-on-slower-demand-growth-and-more-supply/.
v https://www.abc.net.au/news/2023-05-30/australian-iron-ore-boom-ending-after-china-rift/102408002
vi https://www.watoday.com.au/politics/western-australia/how-wa-s-resource-riches-helped-deliver-the-first-budget-surplus-in-15-years-20230509-p5d725.html
vii https://www.reuters.com/markets/australia-eyes-bigger-budget-surplus-warns-economy-still-slowing-2023-06-28/

The automotive industry sparking up with electric vehicles

The automotive industry sparking up with electric vehicles

With electric vehicles fast overtaking petrol driven cars in sales in Australia, what are the considerations for the industry, the environment, and consumers?

The popularity of electric vehicles has been a long time coming. While electric vehicles may just be giving petrol driven cars a run for their money now, the technology has been around for centuries. The first electric cars appeared on roads as early as the 19th century, however internal combustion engines, fuelled by petrol, took off shortly after this in the 1920s and quickly became the power source of choice for cars.i

Growing in popularity

While at present internal combustion engines still dominate passenger vehicle sales in most categories, that’s changing – mainly in the medium car space. In fact, three out of five new medium-sized cars sold in Australia in the first quarter of the year were powered by electric batteries, according to new figures from the Australian Automobile Association.ii

And in general, the popularity of electric vehicles is surging, with year-to-date sales totalling 32,050 – increasing in 12 months by a staggering 778.3 per cent.iii

Market share is likely to continue to grow. The main barrier to entry has to date been primarily cost but with new more cost-effective models flooding the market, electric vehicles are becoming even more accessible. One other concern for consumers was that electric vehicles were perceived as being less powerful than gas guzzlers, but new models are providing greater grunt. The latest edition to the Queensland police force’s fleet is electric and is being hailed as their most powerful car yet.iv

Easy on the hip pocket

So, what are the considerations if you are thinking of making your next car an electric vehicle? Electric vehicles are significantly cheaper to run, offering fuel savings of up to 70 per cent and maintenance savings of around 40 per cent compared to a standard petrol or diesel vehicle. For an average car travelling 13,700 km per year, this could amount to an annual fuel saving of $1000, or $1200 if the EV is able to charge overnight on an off-peak tariff.

Electric vehicles are also much cheaper to maintain, with less moving parts than a petrol or diesel car. There is relatively little servicing and no expensive exhaust systems, starter motors, fuel injection systems, radiators and many other parts that are not needed in an electric vehicle.

The benefit to the environment, health and the economy

The benefits of electric vehicles are broad-ranging and have the potential to impact our personal health, the health of our environment and the economy. Breathing in the contaminants from motor vehicles is implicated in a range of health problems and transport is a significant contributor to Australia’s greenhouse gas emissions. And the potential benefits for our economy in terms of reduced greenhouse gas emissions, less air and water pollution, and less vehicle noise are estimated to equate to almost $500 billion over the next 30 years.v

What are the considerations?

While there are a lot of benefits to electric vehicles, both at a personal level and at a more macro level, there are also some considerations you need to think about if buying an electric vehicle is on your radar.

One of the biggest issues with electric vehicles is the fact that they need charging quite regularly, generally having a charging range of around 80-100kms. This limitation may mean an electric car is great as a runabout but might not be so suitable if you are regularly travelling longer distances.

Then there are the practicalities of charging your vehicle. New electric vehicles come with a dedicated charger which is usually mounted on the garage wall. You also need to make sure you have access to charging infrastructure while you are out and about so it’s a good idea to check what is available close to you and be aware of likely charging times.

There are a few factors that you need to consider, but electric cars are certainly here to stay and becoming ever more popular so it’s worth thinking about going electric for your next vehicle purchase.

i https://discover.agl.com.au/energy/why-buy-an-electric-car/
ii
https://www.smh.com.au/politics/federal/first-past-the-post-evs-race-to-front-in-sales-of-medium-sized-cars-20230420-p5d1yj.html
iii
https://www.whichcar.com.au/news/vfacts-may-2023-best-selling-electric-cars-australia
iv
https://thewest.com.au/news/transport/most-powerful-queensland-police-car-will-be-electric-c-11045915
v
https://www.acf.org.au/electric-vehicles-are-our-zero-emissions-future

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

August 2023

Welcome to our August newsletter and, with winter winding up and tax returns on the way for some, there may be sunnier days ahead.

While the price of most goods and services continues to rise, the good news is the rate of increase is continuing to slow and the markets are beginning to breathe a sigh of relief. The Consumer Price Index rose 0.8% in the June quarter and 6% annually in the lowest increase since September 2021. And in some areas prices fell including domestic holiday travel, accommodation and petrol. In the US, sharemarkets ended July higher after inflation eased to its lowest level in two years.

Nonetheless, cost-of-living pressures continued to affect our spending with a sharp fall in retail turnover of 0.8% in June. Those figures, along with the better-than-expected US data bringing concerns of tighter monetary policy, kept the ASX200 in check as some banks, commodities and miners suffered. The Australian dollar was also affected, hitting its weakest levels in more than two weeks. Unemployment remains at 3.5% with the number of people employed increasing by about 33,000 and the number of jobless decreasing by 11,000.

Meanwhile tightening global oil supplies and high hopes for the outlooks of Chinese demand have seen a steady increase in Brent crude futures to around US$84 a barrel. But iron ore continues its downward trend, falling 2.6% since the beginning of 2023.

August 2023

Welcome to our August newsletter and, with winter winding up and tax returns on the way for some, there may be sunnier days ahead.

While the price of most goods and services continues to rise, the good news is the rate of increase is continuing to slow and the markets are beginning to breathe a sigh of relief. The Consumer Price Index rose 0.8% in the June quarter and 6% annually in the lowest increase since September 2021. And in some areas prices fell including domestic holiday travel, accommodation and petrol. In the US, sharemarkets ended July higher after inflation eased to its lowest level in two years.

Nonetheless, cost-of-living pressures continued to affect our spending with a sharp fall in retail turnover of 0.8% in June. Those figures, along with the better-than-expected US data bringing concerns of tighter monetary policy, kept the ASX200 in check as some banks, commodities and miners suffered. The Australian dollar was also affected, hitting its weakest levels in more than two weeks. Unemployment remains at 3.5% with the number of people employed increasing by about 33,000 and the number of jobless decreasing by 11,000.

Meanwhile tightening global oil supplies and high hopes for the outlooks of Chinese demand have seen a steady increase in Brent crude futures to around US$84 a barrel. But iron ore continues its downward trend, falling 2.6% since the beginning of 2023.

July 2023 Newsletter

Welcome to our July newsletter and, with a new financial year underway, it might be a good opportunity to review some of the recent changes to business and investment rules to make sure you’re on the right track.

As the inflation rate begins to ease, with consumer inflation slowing to a 13 month low in May, many commentators expressed hope that further interest rate rises may be kept in check. That led to a slight improvement in investor outlook for stocks at the end of June The S&P/ASX 200 closed the month at about the same level as in May but, over the financial year, it’s risen more than 10%.

The CPI was up by 5.6% last month in the lowest increase since April 2022. Meanwhile the unemployment rate fell slightly to 3.6%, continuing the downward trend seen over the past 12 months. That’s led to an improvement in consumer sentiment and a 0.7% jump in retail sales in May, supported by a rise in spending on food and eating out as well as a boost in spending on discretionary goods.

The Australian dollar lost gains made during the month to close at just over US66 cents as traders speculated at the end of the month that the Reserve Bank may put a hold on interest rate rises and the US economy boomed.

Managing the costs of raising children

Managing the costs of raising children

It is a special feeling to welcome a new child or grandchild into the world and watch them grow. Sharing their joy as they reach new milestones is priceless.

Of course, there is a real cost – raising a child is expensive, particularly now as the cost-of-living spirals higher. Estimates vary widely from the few studies completed but it is fair to say that over a child’s lifetime families can spend hundreds of thousands of dollars on living, medical and schooling expenses for their children.

So, having a financial strategy in place to cover the costs and taking advantage of government support where available can make a big difference.

Taking care of the basics

The first step is to update your Will to nominate guardians for your children in case the worst happens. You may also consider life insurance and income protection to ensure your family is protected.

Next, a savings and investment plan will help you navigate the years ahead with more certainty. Adding small amounts of money regularly to an account for education and other expenses can help to ease financial stress. The MoneySmart savings goals calculator shows what can be achieved. You could consider fee-free high interest savings accounts or your mortgage offset account as a way to save cash for short-term needs.

Meanwhile, some longer-term investments such as shares, exchange traded funds or listed investment companies may provide financial support for later expenses. They can offer the possibility of capital growth and diversification for a relatively low cost.

Super splitting

Keeping an eye on the future also means thinking about your superannuation. If one partner is staying at home to care for the children, the other partner can split their super contributions with them. You will need to check if your fund allows it, whether they charge a fee and complete some paperwork.

There are also some tax considerations, so it is important to make sure you understand the implications for you.

Government support

Take the time to discover the government payments and supports available for families. For example, the Paid Parental Leave Scheme provides support for mothers for up to three months before the birth.

A recent change to Parental Leave Pay and Dad and Partner Pay sees these two payments combine into one payment that is available to both parents for up to two years after the child’s birth.

You will need to meet income and work tests and claim within certain timelines.

Even if you are not eligible for parental leave pay, you may still be able to apply for both the Newborn Upfront Payment and the Newborn Supplement.

Then there is the Family Tax Benefit, a two-part payment to help with the cost of raising children. To receive the benefit, you must have a dependent child or a full-time secondary student aged 16 to 19 who is not receiving any other payment or benefit such as a youth allowance, care for the child at least 35 per cent of the time and meet an income test.

Grandparent gifting

Grandparents who are keen to help out their families financially can gift money to their children or grandchildren. Be aware that Centrelink has gifting rules for those receiving an age pension. You can give $10,000 in one year or up to $30,000 over five years without your pension being affected. If you give more, the amount will be treated as though you had retained it in your own accounts.

However, gifts and inheritances are generally not considered as income for tax purposes. The ATO says neither the donor nor the receiver will pay tax on a gift if:

  • it is a transfer of money or property.

  • the transfer is made voluntarily.

  • the donor does not expect anything in return.

  • the donor does not materially benefit.

Tax may apply in some cases where property or shares are gifted.

The joys of raising a little one are many, and having a plan to manage the financial implications can let you enjoy the journey. Get in touch with us to create a plan to secure your family’s future.

Will these super changes affect you?

Will these super changes affect you?

As our superannuation balances grow larger, it makes more sense than ever to keep track of the many rules changes that have recently happened or are coming up soon.

So, check out these latest changes in case they affect you.

Super bonus for workers

For employees, the new financial year kicks off with an increase in the Superannuation Guarantee paid by employers. It is now 11 per cent of eligible wages.

This rate will increase by 0.5 per cent each year until it reaches 12 per cent in 2025.i

The Australian Tax Office will also be cracking down on employers who don’t pay on time or at all.

Minimum pension drawdown increased

A COVID-19 measure to reduce the minimum drawdown required on super pensions will end on 1 July 2023.

Investors receiving super pensions and annuities must withdraw a minimum amount each year. The federal government reduced this amount by 50 per cent over the last four financial years to help those wanting to protect their capital as the markets recovered from the chaos of the pandemic.

You can find out more by visiting the ATO’s minimum pension standards.

Transfer balance cap to be lifted

The maximum amount of capital that can be transferred to your super pension will increase to $1.9 million from 1 July 2023.ii

The transfer balance cap limits the total amount of super that can be transferred into a tax-free pension account. This is a lifetime limit.

The cap is indexed and began at $1.6 million when it was introduced in 2017. Increases in the cap are tied to CPI movements.

Extra tax for large balances

Investors with super balances of $3 million or more will lose the benefit of super tax breaks on earnings.

From 1 July 2025, taxes on future earnings will be 30 per cent instead of 15 per cent although they will continue to benefit from more generous tax breaks on earnings from the funds below the $3 million threshold.

Other recent changes

A number of changes announced in both federal budgets last year have also been slowly introduced over the past 12 months.

In one major change, the minimum age was lowered for those able to invest some of the proceeds of the sale of their homes into super, known as a ‘downsizer contribution’.

From 1 January 2023, if you are aged 55 or older, you can now contribute to your super up to $300,000 (or $600,000 for a couple) from the sale of their home.

The home must be in Australia and owned by you for at least 10 years.

Another significant reform for many has been the removal of the work test for those under 75, who can now make or receive personal super contributions and salary sacrificed contributions. (Although the ATO notes that you may still need to meet the work test to claim a personal super contribution deduction.)

Previously if you were under 75, you could only make or receive voluntary contributions to super if you worked at least 40 hours over a 30-day period.

While caps have been lifted and programs expanded, at least one scheme has not changed. The Low Income Super Tax Offset (LISTO) threshold remains at $37,000. LISTO is a government payment to super funds of up to $500 to help low-income earners save for retirement.

If you earn $37,000 or less a year you may be eligible a LISTO payment. You don’t need to do anything other than to ensure your super fund has your tax file number.

Finally, a project that may pay off down the track, the Federal Budget included continued funding for a superannuation consumer advocate to help improve investors’ outcomes.

Expert advice is important to help navigate these changes over the coming year. Call us for more information.

i https://www.ato.gov.au/Business/Small-business-newsroom/Lodging-and-paying/The-super-guarantee-rate-is-increasing/
ii
https://www.ato.gov.au/Individuals/Super/Withdrawing-and-using-your-super/Transfer-balance-cap/

Making conscious the unconscious for better decisions

Making conscious the unconscious for better decisions

When you’re faced with a decision, do you trust your feelings or do you look at the situation objectively, making a careful list of pros and cons? Emotions exert a strong influence on our decisions, so it’s important to have a bit of balance between reason and emotion – particularly when it comes to the big decisions in life.

The decisions we make have the potential to steer our lives in vastly different directions. Good decisions can profoundly improve our situation in life, while a poor decision can have unpleasant consequences. Examining how emotions influence your thoughts and actions can equip you to make well-grounded decisions, including those relating to your financial affairs.

The influence of emotion

Even if you think your decisions are based on logic and common sense, the reality is they are often steered by emotion.

A study performed by Nobel Prize-winning psychologist Daniel Kahneman showed that emotions contribute around 90% to our decisions, while logic only factors in for around 10%.i Kahneman’s position was that human reason left to its own devices is subject to emotional biases, so if we want to make better decisions in our personal lives, we need to be aware of these biases.

Awareness is key

Given that emotions and unconscious bias can cloud our judgement, some self-examination can help ensure that you are making the best decisions.

It’s been shown that people who could identify the emotions they were feeling were able to make better decisions, in part due to a greater ability to control any biases caused by those feelings.ii This is known as “making conscious the unconscious” and it involves examining your emotions and beliefs to so you can better understand their influence on you.

The goal isn’t to be emotionless – it’s important to ‘feel’. The key is to understand how your feelings are impacting your choices. A good example might be how feeling particularly confident may cause you to take on more risk associated with an investment than you would ordinarily be comfortable with.

Hit ‘pause’ on reacting

Once you’ve identified how you are feeling, it’s time to hit ‘pause’ for a moment. Decisions driven by the unconscious mind generally happen faster than those we think about. Not reacting immediately gives you a chance to observe any biases without being controlled by them, allowing for improved and more objective decision-making.

Even taking a couple of deep breaths before responding to that email that’s made you angry will help you respond in a more rational way. Just think about how scammers use people’s tendency to react to fear, without thinking too much about what they are being asked to do.

Recognise patterns

Taking time to think also allows you to reflect on past decisions and the result of those decisions. For example, reflecting on past investment choices that were unduly influenced by a fear of missing out, can help individuals better manage future decisions.

Your subconscious can cause you to cling to outdated views you hold of yourself – and these can drive poor decisions. A good example is people managing their wealth according to how they did things when they first started out, rather than adapting their behaviours to their changed financial circumstances.

Get rational

Once you have acknowledged the part that your subconscious and past patterns of behaviour play in decision making, it’s time to get rational. Rational decision-making involves taking emotion and any unconscious biases out of making decisions and applying logical steps to work towards a solution. The process involves a series of steps that generally encompass: identifying a problem or opportunity then gathering the relevant information, developing options, evaluating alternatives, then finally selecting a preferred alternative on the basis of the research you’ve done.

It’s also a good idea to run important decisions by a third party who is not so emotionally involved. For your financial decisions that’s where we come in. While we respect and acknowledge how you feel in relation to your financial life, we can provide factual information and challenge any notions that no longer serve you, to help you make the best possible decisions regarding your finances.

i https://www.jstor.org/stable/1914185
ii
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2361392/

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

Winter 2023 – Super Evolution Pty Ltd

Welcome to our June newsletter and, as the winter sets in and the end of the financial year approaches, it’s a good chance to spend some time tidying up and reviewing your finances.

Concerns that the Reserve Bank may lift interest rates this month, along with the drama over the US debt ceiling and the worry that the US Treasury may run out of cash, have affected local markets and the Australian dollar.

The dollar is at its lowest level in six months, at just under US65 cents, while the ASX200 ended the month nearly 3% down thanks also to weaker commodity prices. Energy and mining stocks led the falls. Brent Crude was down 7.5% for the month while iron ore prices hit a six-month low.

Inflation rose 6.8% in the 12 months to April, up from 6.3% in March and the number of housing approvals nosedived in April, down 8.1% after a 1.0% fall in March.

The rising prices have continued to dent consumer confidence. The ANZ-Roy Morgan Consumer Confidence survey has now spent 13 straight weeks at its lowest mark since the 1990-1991 recession. The survey reveals that only 7% of Australians expect good times ahead for the Australian economy in the next 12 months. With less money to go around, retail trade has plateaued over the past six months.

The latest unemployment figures show a slight increase to 3.7% in April and a slight decrease in the participation rate.

 

Setting yourself up for success in the new financial year

Setting yourself up for success in the new financial year

The start of a new financial year is the perfect time to get your financial affairs in order. Whether it’s tidying up your paperwork, assessing your portfolio or dealing with outstanding issues, there are plenty of practical actions you can take.

Here are some strategies for starting the new financial year on the right foot.

Tidy up your paperwork

Dealing with the paperwork is the task most of us love to hate. But taking a day to trawl through the ‘To Do’ pile and the growing mountain of filing could be a good investment in yourself. What’s more, you might identify some savings.

Set your budget

A lot can happen in a year, so it makes sense to review your budget to ensure it still works towards your goals in the new year. This will help you track your changing expenses and ensure you’re not overspending. And if you haven’t got a working budget, now’s a great time to start. There are plenty of budgeting apps and tools available online that can help you get started.

Assess your portfolio

Another important step to take as you start the new financial year is to assess your investment portfolio.

Some important questions include:

  • Why did you start investing and have your circumstances changed? For example, you may have started investing to receive a better return than your term deposits but now that term deposits rates have increased and share markets are challenged, should you revisit that goal?
  • What is the investment performance? Is it in line with your expectation and the benchmark?
  • Should you consider diversifying into different asset classes?
  • Is dividend reinvestment the best option for you or should you take the dividend income into cash?
  • Is your risk appetite still the same, or should you be aggressive or more conservative?

Check your insurance

Now is a good time to examine your insurances closely and to consider whether they match your needs and risks. It is also a good reminder to take note of policy renewal dates so that you can shop around to make sure you get the best price.

Understand Federal Budget changes

Keeping up to date with the commentary about Federal Budget initiatives may be useful.

The measures aimed at easing the cost of living will provide a boost to some. They include energy bill relief for concession card holders and energy saving incentives. Meanwhile those with chronic health conditions will benefit from a number of changes announced in the budget.

The Budget also included support for families with cheaper childcare and a more flexible Paid Parental Leave scheme, and incentives for some types of new home building projects.

Review your superannuation

A review – at least annually – of your super account is vital to make sure that:

  • Your investments and risk strategy are still right for you
  • The fees are reasonable
  • Any insurance policies held in your super account are appropriate
  • Your employer contributions are being made
  • Your death benefit nomination is relevant
  • You don’t have multiple accounts incurring unnecessary fees

You might also consider a salary sacrifice strategy, where you ask your employer to make extra super contributions from your pre-tax salary. These additional contributions are taxed at 15 per cent within the super fund, plus an additional 15% if Division 293 tax applies to you (income over $250,000).

Meanwhile, it is not too late to top up your super balance for this financial year using either concessional contributions (from your pre-tax income) or non-concessional contributions (after-tax income). Don’t forget the caps on payments, which are $27,500 for concessional contributions and $110,000 for non-concessional.

It is a good idea to get some expert advice regarding your super contributions, we can assist with the best ways to manage your contributions.

So, set yourself up for a fresh start to the year with some simple strategies to help you achieve your financial goals.

Who needs a testamentary trust?

Who needs a testamentary trust?

The rising cost of living is grabbing all the attention right now as people struggle to pay the increasing prices. But in the meantime, our collective wealth has been growing steadily and is being transferred to the next generation at increasing rates.

In fact, the value of inheritances as well as gifts to family and friends has doubled over the past two decades.i

A 2021 Productivity Commission report found that $120 billion was passed on in 2018 and that amount is expected to grow fourfold between now and 2050. In 2018, the value of the average inheritance was $125,000 while gifts averaged $8000 each.

So, there is a lot at stake and it means that estate planning – a strategy for dealing with your assets after you die – is vital to help fulfil your wishes and protect the interests of the people you care about.

One powerful tool in planning your estate is a testamentary trust, which only comes into effect after your death. It operates in a similar way to a discretionary family trust and your Will acts as the trust deed, providing instructions for the trust.

It allows you to control the distribution of your assets and provides a way of managing any tax implications for your beneficiaries. Testamentary trusts are often used to protect assets from unforeseen circumstances such as lawsuits, creditors and divorces and they can help to preserve a family’s wealth.

A testamentary trust can be useful for those with blended family relationships and children with complex needs. For example, a child with a disability who is unable to manage their own investments can be supported by the use of a trust. Testamentary trusts may also help to provide some certainty for parents that their young children will be provided for. They are also often used by philanthropists as a way of providing a legacy for a cause they support.

Choosing a trustee

If you are setting up a testamentary trust, you will need to appoint one or more trustees who will manage administration and distributions.

The trustee could be a family member (who may also be a beneficiary) or the role could be handed to an independent person or organisation.

Trustees should understand the tax situation of each of the beneficiaries to ensure that the timing and amount of distributions don’t inadvertently cause difficulties for them. Trustees must also lodge a tax return every year and maintain trust accounts and records.

As the ATO points out, for the trust to operate effectively, a high level of co-operation between family members may be important so that tax, financial and other information is shared.

The pros and cons

Whether or not you should set up a testamentary trust in your will depends on your own circumstances.

The positives include:

  • The ability to control the distribution of income
  • The possibility of some tax advantages for your beneficiaries
  • A level of protection for your assets from lawsuits, family breakdowns and business difficulties
  • A way of keep a family’s wealth intact into the future
  • Support for vulnerable beneficiaries such as those with special needs or lacking financial experience and minors
  • Can be used by anyone with assets to distribute, whatever the size of their estate

On the other hand, there are a number of considerations to be aware of such as:

  • The complex paperwork and reporting required
  • The cost to establish the trust and keep it running
  • The possibility of disputes among beneficiaries or with the trustee over the future of the trust, distributions, and its administration

Testamentary trusts are a valuable strategy to help ensure your wishes are followed. They can shape your legacy, provide fairly for your loved ones and protect assets.

Call us if you would like to know more about establishing a testamentary trust and to see whether it is suitable for you.

i https://apo.org.au/node/315436

Sowing the seeds for a happy retirement

Sowing the seeds for a happy retirement

The thought of retirement is an enticing one for many of us. Imagine throwing off the shackles of the workforce and being able to do whatever you want, whenever you want. But why wait until you are retired to do the things you love? 

Retirement is a time where we finally have the space to do what we want to do with our lives, whether that’s travel, developing and learning new skills, taking up hobbies or just enjoying the company of those we care about.

The problem with waiting until we are retired is we are postponing engaging in things that could be making us happy right now. Exploring what gives us joy now and developing those skills will make for a much easier transition as you wave goodbye to your working years.

Something to retire to

Retirement represents a big shift in the way we live our lives and it’s not uncommon for that adjustment to be a little challenging. For many, our jobs give us a profound sense of identity and define how we perceive ourselves, so our sense of self can suffer when we leave the workforce. There is also often a gap in our lives where work used to be.

That’s why rather than looking forward to retiring from something, ‘have something to retire to’ is a common piece of advice to encourage people to think about what they want their life to look like when they leave the workforce.

Think about what defines you now and satisfies you outside of work, and putting in place a plan of how that may play out in retirement can be a good idea.

Start today to do the things you love

While it can be hard to carve out time while you are still in the workforce, it’s possible to take small steps and set aside dedicated time each week or commit to activities that won’t take a lot of your time.

If you are keen to travel when you retire, consider signing up for a short course in the language of the country you are keen on visiting to get prepared for the trip of your dreams.

Or if you want to finally write that novel you’ve been mulling over for years, set aside a little time now to draft a framework and get a head start. Who knows by the time you retire you may be on your second novel!

Keen to do more exercise? Join a gym now and get into a routine – even if you only manage to get there a couple of times a week it’s a good start.

It takes a while to develop new habits and skills so starting to pick up the things you want to explore in retirement now sets you up for a smoother transition when you have more time to devote to these activities. Starting now also gives you a chance to try things out and see if they are something you want to commit time and energy to.

Fostering connections with those you care about

While spending time doing things you love makes for a happy and satisfying retirement, another important factor is being around people you enjoy being with.

Think about the people you enjoy spending time with and foster those friendships right now. Not only will it make for an easier transition when you retire, it will also bring you joy and the benefits of those relationships right now. There is always room in your life for making new friends too!

The best laid plans can change

It’s important to be open minded in your plan of how you see your retirement unfolding. Remember that not everyone retires on their own terms. Some need to retire sooner than expected or in a different manner than expected due to ill health, caring for a family member or because of a decision or situation in the workplace.

On that basis it’s important to live well now – enjoy your present life and embrace the things that make you happy as you’ll also be setting yourself up to enjoy retirement – whether it’s just around the corner or still a way off.

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

May 2023

Federal Budget 2023-24 Analysis

Federal Budget 2023-24 Analysis

A surplus for now but stormy seas ahead

Treasurer Jim Chalmers bills his 2023 Federal Budget as an economic strategy to help ease cost-of-living pressures.

To that end, he has delivered a modest but welcome package of cuts to healthcare, housing and energy costs as well as boosts to welfare payments for single parents and the unemployed.

Banking an unexpected bonus in increased tax revenue and rising commodity prices, the Albanese government has aimed to help the most disadvantaged while also looking ahead with new plans for renewable energy, defence and the arts.

But it has kept its spending under control to deliver a forecast $4.2 billion budget surplus – the first in 15 years.

The Treasurer sums up his second budget as “a plan for security, for prosperity, for growth”.

The big picture

While the first budget surplus in a decade and a half is to be celebrated, the joy will be short-lived. By next year’s budget, it’s expected there will be a return to small deficits for the next few years.

That’s because the global economy is slowing thanks to persistent inflation and higher interest rates. Aside from the pandemic and the 2007 Global Financial Crisis, the next two years are expected to be the weakest for global growth in more than two decades.

As a result, the government expects Australia’s economic growth to slow from 3.25 per cent in 2022-23 to just 1.5 per cent the following year, before recovering a little to 2.25 per cent.

In this environment, the treasurer continues to mark inflation as the government’s primary economic challenge. He says that is why the budget is “calibrated to alleviate inflationary pressures, not add to them”.

The good news is that the Reserve Bank says inflation is falling slightly faster than it had first forecast and has now passed its peak. It is expected to be around 4.5 per cent by the end of the year, a long way from last year’s CPI rate of 7.8 per cent.

Easing the cost of living

The government’s $14.6 billion package of cost cuts aimed at helping some of those most affected by rising costs covers energy bills, health and medical services, and welfare payments.

There will be energy bill relief to around five million households and one million small businesses. From July 2023, eligible households will receive up to $500 and eligible small businesses up to $650.

The government will also introduce a number of energy saving programs for households including low-interest loans and funds for upgrades to social housing. And there will be access to better information on reducing energy bills.

Health and medical

Countering a major expense for many, the government is pouring in billions of dollars to ease health and medical costs and access to services.

It will spend an extra $3.5 billion to provide incentives to doctors to bulk bill Concession Card holders and children under 16. It’s expected that the increased bulk billing incentive will help around 11.6 million people.

The cost of medicines is also likely to change for many who suffer chronic health conditions. From 1 September 2023, some patients will be eligible to be prescribed two months’ worth of medicine at a time, instead of one month’s worth. It’s expected this change will cut the number of visits to GPs and pharmacies, and the government estimates at least six million people will see their bills for medicines reduced by half.

The government is also providing $2.2 billion over five years for new and amended listings to the PBS, including treatment for cystic fibrosis.

Meanwhile, to improve access to care and reduce the strain on hospitals, a further $358.5 million will be spent to open a further eight Urgent Care Clinics. The clinics will bulk bill and remain open for longer hours.

Welfare boost

Income support payments including JobSeeker, Austudy and Youth Allowance will rise by $40 a fortnight following a concerted campaign by lobby groups in the months leading up to the budget.

And, recognising the extra challenges faced by older people looking for work, those aged 55 and over and out of work for at least nine continuous months, will now receive the higher rate JobSeeker payment currently paid to those over 60. Around 52,000 people will receive the increase of $92.10 a fortnight.

There will be more support for eligible single parents from September 2023. They will receive the Parenting Payment until their youngest child turns 14 (currently up to eight years old). Those receiving the payment will also benefit from more generous earning arrangements compared to JobSeeker. Eligible single parents with one child will be able to earn an extra $569.10 per fortnight, plus an extra $24.60 per additional child, before their payment stops.

Housing assistance

While rents continue to climb sharply around the country, the government has provided only limited assistance to renters. Those receiving Commonwealth Rent Assistance will see a 15 per cent increase in their payments from 20 September 2023.

Eligibility for the Home Guarantee Scheme will be expanded beyond first home buyers to include any 2 eligible borrowers beyond married and de facto couples, and non-first home buyers who have not owned a property in Australia in the preceding 10 years.

The government’s other housing initiatives are medium to long term solutions to the housing crisis.

There are new tax incentives to encourage the construction of more build-to-rent developments. The government claims an extra 150,000 rental properties could be delivered as a result in ten years.

The government is also focusing on providing more affordable housing by supporting more lending to community housing providers for social and affordable housing projects.

Pay rise for aged care workers

Severe staff shortages in the aged care sector, largely been driven by low wages, may abate a little with the government’s commitment to fund a pay rise.

More than $11 billion has been allocated to support an interim 15 per cent increase in award wages.

Support for families

Childcare will be cheaper from July 10, when the government subsidy will increase to 90 per cent for families on a combined income of $80,000 or less.

For families earning over $80,000, the subsidy rate will taper down by 1 percentage point for every additional $5,000 of family income until the subsidy reaches 0 per cent for families earning $530,000.

A more flexible and generous Paid Parental Leave scheme will also be introduced in July. A new family income test of $350,000 per annum will see nearly 3,000 additional parents become eligible for the entitlement each year.

Superannuation

Superannuation is in the government’s sights and employers and individuals with larger balances will be affected.

The concessional tax for those with balances exceeding $3 million will increase from 1 July 2025 to 30 per cent. Earnings on balances below $3 million will continue to be taxed at the concessional rate of 15 per cent.

Meanwhile from 1 July 2026, employers will have to pay their employees’ super at the same time they pay their wages. The government says that in 2019-20, employers failed to pay $3.4 billion of super owing to their employees.

Looking ahead

The stormy global economic outlook will keep Australia on its toes for the next two years or so but the government has attempted both to support those who are particularly vulnerable now and keep an eye to the future with some bigger thinking.

Moving forward, the government wants to position Australia a “renewable energy superpower” with a new Net Zero Authority to help attract new clean energy industries and help workers in coal regions to find new jobs.

The arts received a boost with almost $1 billion going to art galleries, museums, arts organisations and the film sector to help address “a decade of chronic underfunding”.

And there is the much debated investment in defence – more than $30 billion over the next ten years. Treasurer Chalmers says that while we may have a lot “coming at us – we have a lot going for us too”.

Information in this article has been sourced from the Budget Speech 2023-24 and Federal Budget Support documents.

It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.

i RBA says inflation has passed its peak
ii https://www.rba.gov.au/publications/smp/2023/feb/economic-outlook.html
iii https://www.pm.gov.au/media/national-net-zero-authority
iv https://www.arts.gov.au/news/2023-24-federal-budget-revitalise-arts-sector
v https://minister.infrastructure.gov.au/burke/media-release/budget-2023-24-albanese-government-revives-australias-arts-and-culture

Federal Budget 2023-24: Focus on tax

Federal Budget 2023-24: Focus on tax

Tax measures were less central to this year’s Federal Budget than they have been in recent years.

While there were some new tax measures, the Budget this year was more about the first surplus in 15 years and various spending measures.

After highlighting the gloomy outlook for the global economy, Treasurer Jim Chalmers emphasised Australia’s future as an “energy superpower”, with small business to be a key beneficiary.

Energy incentives for small business

The new Small Business Energy Incentive will provide businesses with annual turnovers under $50 million with a bonus 20 per cent deduction on expenditure supporting electrification and more efficient energy use.

Up to $100,000 of total expenditure will be eligible, with the maximum bonus tax deduction being $20,000 per business.

The assets or upgrades must be first used or installed ready for use between 1 July 2023 and 30 June 2024.

Tax support continues for business

Over 2 million eligible small businesses will also enjoy welcome cashflow relief, with the government halving the increase in quarterly tax instalments for GST and income tax in 2023-24. Instalments will only increase by 6 per cent, instead of the expected 12 per cent.

While businesses may enjoy the extra cashflow, the government is also increasing efforts to reduce tax avoidance and minimisation. There will be greater scrutiny of GST returns as the ATO will receive extra resources over the next four years to promote GST compliance.

The ever-popular instant asset write-off received another year of life, with small businesses permitted to immediately deduct eligible assets costing up to $20,000 from 1 July 2023 to 30 June 2024.

Super payments crackdown

The days of businesses having access to employee super payments for a quarter are over, with employers required to pay their employees’ super at the same time they pay their wages from 1 July 2026.

The ATO picked up an additional $27 million in 2023-24 to improve its data matching capabilities and $13.2 million for a new compliance system to identify in near-real time instances of under or unpaid super. There will also be new unpaid super recovery targets set for the ATO in 2023-24.

The Budget also confirmed legislation for the new tax on earnings from super balances exceeding $3 million will be introduced to Parliament. From 1 July 2025, these earnings will attract an increased concessional tax rate of 30 per cent.

New tax incentives for housing

Businesses in the residential housing sector are now eligible for some attractive incentives, with the Budget providing two new perks.

The capital works deduction (depreciation) rate will be increased from 2.5 per cent to 4 per cent a year for eligible new build-to-rent projects, while the withholding tax rate for eligible fund payments for build-to-rent developments will be reduced from 30 per cent to 15 per cent.

Support measures for smaller business

The Budget unveiled several support measures, including timely relief for businesses’ electricity bills. From July 2023, an estimated one million eligible small businesses will receive up to $650 in assistance.

Over $23 million will also be invested to help small businesses train in-house cyber wardens to deal with cyber security attacks.

A further $392 million Industry Growth Program will be available help support small to medium sized businesses and start-ups develop new products and services.

Other tax measures

The Budget also included changes to the Petroleum Resources Rent Tax (PRRT). These will collect an additional $2.4 billion over four years by limiting to 90 per cent the proportion of PPRT assessable income that can be offset by deductions.

Tobacco excise taxes will also increase, rising by 5 per cent each year for three years from 1 September 2023.

The government is also getting behind the OECD’s push for a minimum 15 per cent tax rate for multinationals.

Despite strong lobbying, the planned third tranche of tax cuts legislated to come into effect next year survived the Budget process and as expected, the low and middle income tax offset was not extended beyond 2021-22.

Information from this article has been sourced from: https://budget.gov.au/

Why an emergency fund delivers peace of mind

Why an emergency fund delivers peace of mind

When life tosses up an unexpected event – such as retrenchment, a medical emergency or even just a big bill to fix the car – it can be nerve-wracking worrying about how to deal with the crisis. And, if funds are short, that just adds to the stress.

But imagine that you have a secret cash stash – an emergency fund – that will cover the costs, giving you the mental space to deal with the problem.

In fact, an emergency fund is the basis for a strong financial strategy and provides a crucial safety net. It makes sense regardless of your age or income because the unexpected can happen to anyone.

Without a cash reserve, you may have to rely on credit cards or loans, which can put a further strain on your financial situation and your mental health.

An emergency fund gives you the peace of mind to be able to weather the storms that come your way without racking up unwanted debt and interest payments.

How much is enough?

Of course, it can be tough to save when inflation is eating away at your income. Rising interest rates, rents and the cost of groceries is putting a big strain on households. The Australian Bureau of Statistics reports that household savings have been declining for more than a year as people contend with increased mortgage payments among the other rising costs.i

Nonetheless, by putting aside even a small but regular payment into a separate fund you will slowly accumulate enough to cover emergencies.

The size of your emergency fund depends on your own circumstances but an often quoted target is enough to cover between three and six months of living expenses.

It may differ if say, you are planning on starting a family and need funds in reserve to cover the difference between parental leave payments and a salary; you have children in school and want to be able to cover school fees for a year or more, no matter what happens; you need to take time off work to care for a family member; or you need to make an unplanned trip.

On the other hand, if you have retired, it can be helpful to have a buffer against market volatility. If there is a downturn in the markets and your superannuation is not providing your desired level of income, a year’s worth of living expenses in an emergency fund can make all the difference to your lifestyle.

The main thing to remember is that if you need to raid your emergency fund, start work on rebuilding it as quickly as possible.

Building your fund

Putting together a budget can help you to analyse how much you can afford to put away every week, fortnight or month. Then, consistently saving until you reach your goal is the key, no matter how small the amount.

It is best to keep your emergency fund separate from your everyday transaction account to reduce the chance of you using your saved funds for regular expenses. One option is to pay yourself first by setting up a direct debit, so your emergency fund grows automatically with no extra action needed from you, and to avoid the temptation to withdraw your savings.

The type of account you choose for your emergency fund is important. It should be readily available so, while shares and term deposits may offer higher returns, they are not quickly accessible when required. Shop around for a bank account that offers the highest interest to get the most out of your hard-earned income.

Building an emergency fund is an essential component of a strong financial plan, providing a safety net should something unexpected arise. If you are unsure of the best way to set up an emergency fund, we encourage you to reach out to us. We can provide guidance on the best options for your unique financial situation and help you take steps towards

i https://www.abs.gov.au/media-centre/media-releases/economic-activity-increased-05-cent-december-quarter

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