Tag Archives: Cash flow

Majority of working Aussies to benefit from personal income tax cuts

By Robert Wright /December 04,2020/

Tax cuts proposed in the recent Federal Budget were passed in parliament on Friday 9 October, and you might see some of the benefits before Christmas.

The government has brought forward tax cuts originally planned for 1 July 2022 and backdated them to 1 July 2020. Plus, low and middle-income earners are still able to benefit from existing tax offsets.

Has my marginal tax rate changed?

The upper thresholds have increased for some tax brackets, as highlighted in the table below:

(*excluding 2 % Medicare Levy)

Can I benefit from the tax offsets?

If you earn up to $126,000 per year, you may be eligible for the low and middle income tax offset (LMITO). This was previously introduced as a temporary measure and scheduled to end when the 1 July 2022 tax cuts kicked off. But the good news is that despite bringing forward these tax cuts, the government has kept the LMITO for the 2020–21 financial year.

And, if you earn less than $66,667 per year, you may be eligible for an additional tax offset called the low income tax offset (LITO). As part of this package of tax cuts, this tax offset was increased from $450 to $700.

How much will I save from the tax cuts?

The below table shows indicative tax cuts, based on the legislative changes for an individual in 2020-21, to the tax rates, thresholds, and offsets that were applicable for 2020-21 (before these changes):

When will I receive the new tax savings?

Your take-home pay should reflect the new rates before Christmas. The Australian Taxation Office (ATO) has given employers until 16 November to make changes to payroll processes and systems.

As you’ll have already paid personal income tax at the original rate since 1 July this year, you’ll receive your entitlement to the reduced tax payable for the entire 2020–21 income year when you lodge your income tax return.

Source: AMP

Planning, not panic: managing retirement portfolios through the pandemic

By visual /May 13,2020/

Despite the recent wild ride for markets coping with the uncertainty of the coronavirus pandemic, many investors are well-versed in the need to “sit tight”.

They understand that moving out of positions in falling markets risks crystallising losses at the bottom and missing out on the recovery.

For retirees it’s not so simple, where portfolios are particularly vulnerable to sequencing and behavioural risks that are not so apparent for those in the accumulation phase. If investors continue to contribute to their super fund in the current environment, they are potentially buying into the market at bargain prices every time they receive their salary.

Gains might take some time to materialise and losses some time to overcome, but with a long-time horizon there is more opportunity for an investor’s portfolio to recover.

If, on the other hand, investors draw down on their portfolio they may experience the sharp end of sequencing risk. Losses affect the entire nest egg, a proportion of which will be invested in assets acquired at higher points in the market cycle. In our view, most retirees have less of an opportunity to buy back in and take advantage of the future upside to current low prices. Crucially, most also have no choice but to draw-down to fund their costs of living – meaning they have to liquidate positions in a falling market.

Watching the dollar value of their life savings fluctuating over the course of a single day can be gut-wrenching for retirees, and these emotions are compounded by the ongoing health and societal crises raging around us. The fight or flight instinct is very strong in times like these. In our view, it creates a very strong behavioural risk for retirees who may act against their own best interests by switching out of growth assets at the worst possible time to “protect” what remains of their nest egg.

Shoring up your position without selling the silverware

These two risks create a conundrum for the retiree. On one hand, there is an imperative to reduce their exposure to market falls in order to minimise sequencing risk, and on the other hand there also exists a significant behavioural risk in shifting to lower risk asset classes at this point in time. It’s a tough time to make a decision but investors should be aware of the options available to them.

Diversify into other value assets

We believe one way to manage risk and lower an investor’s exposure to falling equity markets is to diversify. The key at the moment is to look to other asset classes where discounted pricing might be available, diversifying into areas such as infrastructure, property, credit and other alternatives.

Use protection

There are a number of funds and products offering forms of protection for capital or income. Investors retain some level of exposure to market gains, but could also be insulated from more significant losses to their portfolio.

Adjust expenditure

Research shows that one of the most powerful tools retirees have to secure the stability and sustainability of retirement income is to know how much they can safely spend. This depends on many variables such as age, health, social security, wealth – to which a financial advisor can guide retirees. It also might surprise retirees that even a large fall in markets may only require a small adjustment in weekly expenditure to ensure their retirement income lasts.

Reconsider what is ‘defensive’

The traditional approach to retirement investing is to move further into traditional ‘defensive’ assets such as cash and bonds. We would like to emphasise that while these assets in the short term have the least likelihood of a negative return and therefore could be considered ‘safe’, the future returns of cash and bonds are relatively low. A large allocation to this group may reduce long term returns and jeopardise the sustainability of a retirement income strategy.

Investors stand to lose when they move a large proportion of their assets to defensive positions such as cash and bonds in the current environment, locking in lower returns for their portfolio. It may feel comfortable in the short term, but over the long run it could seriously jeopardise the longevity of their retirement income.

We believe an investor could improve their retirement strategy over time by considering the steps above and always on the basis of sound financial advice.

Source: AMP

Downsizer contributions: what are the rules?

By visual /May 13,2020/

In the first year since older Australians have been allowed to make downsizer contributions, 4,246 people have contributed a total of $1 billion in downsizer contributions to their super funds (1 July 2018 – 1 July 2019).

This not only allows retired people to have access to more money to fund their retirement, it’s also likely to have freed up new property for sale for first home buyers and young investors.

Although this is good news for people who have benefited from this scheme, some people have reportedly missed out because they didn’t understand the eligibility criteria.

Here’s a summary of the rules around making downsizer contributions:

  • You need to be 65 or over at the time of making the contribution.
  • You or your spouse need to have owned your home for more than 10 years prior to the sale.
  • You don’t need to be working.
  • Both you and your spouse can make a concessional downsizer contribution of $300,000 each if you both lived in the property at some point in time and the proceeds of the sale are exempt or partially exempt from capital gains tax (CGT) under the main residence exemption or because you bought the property before 20 September 1985. If only you lived in the property at some point in time then only you, not your spouse, can make a downsizer contribution (as long as you meet all other conditions).An investment property that you haven’t lived in is not eligible.
  • Houseboats, caravans or mobile homes are not eligible.
  • The total super balance test of $1.6 million and the $100,000 non-concessional contributions cap restrictions don’t apply.
  • You need to make all downsizer contributions within 90 days of receiving the proceeds of sale, usually the date of settlement.
  • You can only downsize once.
  • You don’t need to buy another property to use the scheme.

If you sell your home and put some of the proceeds into super, you need to consider how this will affect your Centrelink benefits. Your super balance is counted towards the means test so you could potentially lose some, or all, of your Centrelink benefit if your super balance goes up.

Source: IOOF

5 ways to help your grown-up children manage their finances better

By Robert Wright /July 24,2019/

We all love our children. So it can be tough to admit they may not be great with money. But be honest, do any of these ring a bell?

  • They keep running out of money before their pay cheque comes in.
  • They keep ‘borrowing’ money from you and others, and failing to pay it back.
  • They have maxed out a bunch of credit cards.
  • They have a bad credit history as a result of not paying back loans.
  • They keep getting involved with ‘get rich quick’ schemes that end up losing them money.

If any of these seem familiar, is there anything you can do to help your children develop healthier financial habits?

How to turn off the money tap

It’s only natural to want to help your kids with big ticket items to give them a good start in life—particularly in an era when tuition fees and house prices make higher education and owning a home less affordable than in previous generations.

But it can be difficult to know when to start turning off the tap. If you have an adult child who isn’t very good with money, then giving them funds with no strings attached might not be the best approach. You might end up enabling their behaviour rather than encouraging better money habits.

Regardless of whether your adult kids still live at home, have moved out or are boomeranging back and forth, it’s never too late to start encouraging positive money habits that will help them save, spend and invest more wisely.

Here are some things you could consider to change the money dynamic in your family.

1. Start with the difficult conversation

If you’re determined to change the dynamic, it’s important to make this clear from the get-go. Sit down in a neutral venue and have an honest discussion. Explain what you’re going to do differently and why. It might not be an easy conversation. But in the long run it could help to clear the air and encourage a fresh approach. If your children are still living at home you’ve got the opportunity to set new ground rules like agreeing on a set amount out of their pay cheque every week for bed and board.

2. Ditch the gifts

If you’ve found in the past that gifting money doesn’t solve their problems long term, then you could try another approach. One option could be loaning them money in instalments, with future amounts dependent on achieving specific goals like saving for their first home, perhaps through the First Home Super Saver Scheme. Another approach could be matching their savings when they reach a pre-determined amount.

3. Focus on goals (short and long-term)

Talk to your children about their life goals. What do they want to do…travel the world? Buy a new car? Save up for a new home? Be open about money and talk about ways to save and invest. Short-term, an everyday bank account can help them set aside money to help them reach their goals.

You can also get your kids thinking long term about how their savings could be working better for them. These days if you want to invest, you don’t necessarily need a hefty starting figure or to fill in tedious reams of paperwork. From exchange traded funds to micro-investing platforms, there are plenty of online, digital ways to start small but think big.

4. Focus on the basics like debt

Like many of us in Australia, your kids may not have received a great education about finance. So when they think about borrowing money, they may not have much of a grasp of the difference between ‘good debt’ and ‘bad debt’. It could be worth explaining the difference between borrowing money for a car and for a house—once you’ve paid it back, what are you left with? A car that may have shed 75% of its value or a house that’s probably improved its value and most importantly provided a home to retire in?

5. Walk the walk

Your approach to your own finances can make a difference. If your kids see you splurging money without a real budget then they may feel it’s OK to do the same.

Source: AMP, 07 May 2019