Cash flow and Budgeting News

Your income serves as the foundation for your lifestyle and financial goals. All of your income and spending must be identified, quantified, and tracked.

Read our insights on the latest news, trends and changes related to Cash flow and budgeting.

Strategies ahead of the end of the financial year

The say that the days are long, but the years fly by. Well, as June 30 fast approaches I am inclined to agree based on how quick this financial year has gone.

Not to worry, there is still time to implement some strategies in the final weeks of the 2022 Financial Year. Below are some of the superannuation and investment strategies that could have an impact on personal finances. Get proactive to ensure you are across these.

 

Tax-loss harvesting

With market volatility spiking in recent months, it is critical to lift the hood of your investment portfolio to assess individual investments’ capital gains/loss status. While your overall portfolio may be positive, there could be opportunities to exit positions where your investment conviction has changed, and importantly, the sale will trigger a capital loss.

Being proactive ensures you do not waste a crisis and can be tax-effective whilst also recalibrating your portfolio for the current conditions. The benefit of this is that capital losses can be used to offset capital gains, either this financial year or be carried forward into future financial years.

Ideally, you would want to start this process sooner rather than later, as, from experience, tax-loss harvesting tends to peak late into the financial year. This can cause extra weakness in investment values which have suffered in the preceding 12 months. You want to get ahead of the herd.

If you move from growth assets to growth assets, your broader investment strategy may not be materially impacted. It may allow you to improve your overall portfolio mix based on new information available.

 

Concessional superannuation contributions

Many investors may have capital gains implications from solid investment returns in the first half of the financial year, and concessional superannuation contributions are a simple way to reduce this.

It is common for there to be a disparity between spouses’ super balances, which presents an opportunity to reduce tax and make progress in getting more balance between accounts. Important not to fixate on the current financial year but to think long term concerning the balance transfer cap (currently $1.7m). If it is likely, that one spouse will exceed this level and the other fall short, annual super contribution strategies for both spouses should be front of mind.

Consider utilising carry forward contributions where one member of the couple has a total superannuation balance below $500,000 as at 30 June 2021. They can carry forward any unused concessional contributions cap amounts accrued from 2018/19 to 2020/21 to increase their concessional cap in 2021/22. This may be particularly useful where a large asset has been sold, such as an investment property. If you are unsure what you have available to contribute, chat with your adviser or check your myGov account.

 

Non-concessional superannuation contributions

If concessional contributions are not appropriate for your circumstances, or you have maxed out that cap then consider non-concessional contributions (after-tax) with your surplus savings.

If your Total Superannuation Balance is below $1.48m, you may be eligible to make non-concessional contributions of up to $330,000 in a single financial year or over a 3-year period using ‘bring-forward’ provisions.

With recently passed legislation, retirees who previously could not make contributions based on their age should review their eligibility. Under current rules, you need to be less than 67 on 1st July of a financial year to be eligible to use the bring-forward rule. From 1 July 2022, you may be able to access the bring-forward rule if you’re aged less than 75 on the prior 1 July. Other eligibility rules will continue to apply, such as the total super balance limits, so make sure you understand your eligibility before making any contributions.

 

Pension Minimums to Remain Halved for the 2022/23 Financial Year

The Government has announced that the 50% reduction in pension minimums requirements will be extended for the 2022/2023 financial year. These measures have been in place since the 2019/20 financial year, and the extension provides an opportunity for individuals to preserve their tax-free pension balance. This is a big win for self-funded retirees, who may have other assets to draw upon to support their lifestyle in less tax-effective structures.

The simple approach to this opportunity is to assess whether you require any more than the reduced minimum pension requirement to support your lifestyle. If not, then it may be beneficial to retain your funds within the tax-free pension environment—allowing them to continue compounding. Important to remember that the reduced minimums are an option and not a mandatory reduction to your payments.

 

How can we help?

If you aren’t quote sure how to implement the above strategies or whether they would benefit your personal situation then please get in touch and book a chat with one of our advisers.

Read more

2022-23 Federal Budget summary

Treasurer Josh Frydenberg handed down the 2022-23 Federal Budget and as expected in an election year, delivered a big spending Budget with the focus on cost of living support and defence.

We have been busy detailing and summarising what we feel are the key measures announced from a financial planning perspective. For our ongoing service package clients, your adviser will be in contact to provide guidance on changes which impact your strategy.

 

Superannuation

Extension of the temporary reduction in superannuation minimum drawdown rates

The Government has extended the 50 per cent reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023. The minimum drawdown requirements determine the minimum amount of a pension that a retiree has to draw from their superannuation in order to qualify for tax concessions.

Given ongoing volatility, this change will allow retirees to avoid selling assets to satisfy the minimum drawdown requirements.

 

Individuals and trusts

Cost of living tax offset

The Government will increase the low and middle income tax offset (LMITO) for the 2021-22 income year. LMITO is targeted at low- and middle-income earners that are most susceptible to cost of living pressures.

The LMITO for the 2021-22 income year will be paid from 1 July 2022 when Australians submit their tax returns for the 2021-22 income year. This proposal will increase the LMITO by $420 for the 2021-22 income year.

 

Paid parental leave

The Government is investing $346.1 million over five years, from 2021-22 to introduce Enhanced Paid Parental Leave (PPL), which is fairer and provides full flexibility for eligible working families. These changes will increase families’ choice to decide how best to manage work and care. Eligibility for the scheme is also being expanded.

 

Affordable Housing and Home Ownership

The Government will increase the number of guarantees under the Home Guarantee Scheme to 50,000 per year for 3 years from 2022-23 and then 35,000 a year ongoing to support homebuyers to purchase a home with a lower deposit. The guarantees will be allocated to provide:

  • 35,000 guarantees per year ongoing for the First Home Guarantee (formerly the First Home Loan Deposit Scheme)
  • 5,000 places per year to 30 June 2025 for the Family Home Guarantee
  • 10,000 places per year to 30 June 2025 for a new Regional Home Guarantee that will support eligible citizens and permanent residents who have not owned a home for 5 years to purchase a new home in a regional location with a minimum 5 per cent deposit.

 

Addressing Cost of Living Pressures – temporary reduction in fuel excise

Global oil prices have risen significantly since the Russian invasion of Ukraine. The Government will help reduce the burden of higher fuel prices at home by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel for 6 months. The excise and excise-equivalent customs duty rates for all other fuel and petroleum-based products, except aviation fuels, will also be reduced by 50 per cent for 6 months. The Government is responding in a temporary, targeted and responsible way to reduce cost of living pressures experienced by Australian households and small businesses.

The measure will commence from 12.01am on 30 March 2022 and will remain in place for 6 months, ending at 11.59pm on 28 September 2022. Under the measure, existing policy settings for fuel excise and excise-equivalent customs duty, including indexation in August, will continue but on the basis of the halved rates. At the conclusion of the 6 month period the excise and excise-equivalent customs duty rates will then revert to previous rates, including indexation that would have occurred on those rates during the 6 month period.

The rate of excise and excise-equivalent customs duty currently applying to petrol and diesel is 44.2 cents per litre. This measure will halve the rate on petrol and diesel to 22.1 cents per litre from 30 March 2022, with the price faced by consumers expected to be reduced by a larger magnitude given GST will be levied on the lower excise rate.

The Australian Competition and Consumer Commission will monitor the price behaviour of retailers to ensure that the lower excise rate is fully passed on to Australians.

 

Digitalising trust income reporting and processing

The Government will digitalise trust and beneficiary income reporting and processing by allowing all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes.

The measure will commence from 1 July 2024, subject to advice from software providers about their capacity to deliver.

 

Business

Small Business – skills and training boost

The Government is introducing a skills and training boost to support small businesses to train and upskill their employees. The boost will apply to eligible expenditures incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024.

Small businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of expenditure incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online and delivered by entities registered in Australia.

 

Small Business – technology investment boost

The Government is introducing a technology investment boost to support digital adoption by small businesses. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2023.

Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.

An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.

 

Social security

Cost of Living Payment

The Government will provide $1.5 billion in 2021-22 to provide a $250 economic support payment to help eligible recipients with higher cost of living pressures. The payment will be made in April 2022 to eligible recipients of the following payments and to concession card holders:

  • Age Pension
  • Disability Support Pension
  • Parenting Payment
  • Carer Payment
  • Carer Allowance (if not in receipt of a primary income support payment)
  • Jobseeker Payment
  • Youth Allowance
  • Austudy and Abstudy Living Allowance
  • Double Orphan Pension
  • Special Benefit
  • Farm Household Allowance
  • Pensioner Concession Card (PCC) holders
  • Commonwealth Seniors Health Card holders
  • eligible Veterans’ Affairs payment recipients and Veteran Gold Card holders.

The payments are exempt from taxation and will not count as income support for the purposes of any income support payment. A person can only receive one economic support payment, even if they are eligible under 2 or more of the categories outlined above. The payment will only be available to Australian residents.

 

How can we help?

If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2022-23 Federal Budget, please feel free to book a chat with your adviser.

 

Until next time.

—Pete

 

Read more

Superannuation changes from 1 July 2022 that you need to know

A Bill implementing the Government’s key 2021-22 Federal Budget super changes recently passed parliament and received Royal Assent.

Outlined below is a brief explanation of some of the key changes and how you could benefit. 

Whether you’re thinking about retirement, have already retired, or even looking to purchase your first home, there is likely to be value in reviewing your circumstances and understanding how these super changes could benefit you. 

If you are unsure or want to chat about how these superannuation changes impact you, please make time to chat with your adviser.

 

Superannuation contribution key changes

Individuals aged 67-74 will have increased opportunity to contribute to super with the following changes:

  • the removal of the work test for personal (after-tax) contributions and salary sacrifice contributions, and
  • an increase to the amount of after-tax contributions that can be made within a single financial year.

 

Removal of work test

Currently, the work test requires you to undertake work for at least 40 hours in a consecutive 30 day period in the financial year a super contribution is made. Alternatively, you may be eligible to apply the work test exemption. 

This requirement is removed from 1 July 2022 for individuals aged 67-74 if making personal after-tax contributions and salary sacrifice contributions. The removal of the work test may make it easier for you to make contributions.

It is important to note that the work test (or work test exemption) still applies if you make a personal contribution and wish to claim a tax deduction.

Other eligibility requirements to make contributions continue to apply, such as total super balance limits and contribution caps. See ato.gov.au for more details.

 

Increasing limits on after-tax contributions

Caps apply to limit the total contributions that you can make to super. The current annual non-concessional contributions (NCC) cap is $110,000. NCCs include:

  • personal contributions for which you don’t claim a tax deduction
  • spouse contributions, and
  • certain amounts you may transfer from an overseas super fund.

If you meet certain requirements, you may be eligible to ‘bring-forward’ NCCs from future financial years to make even larger contributions. This is known as the ‘bring-forward rule’. If you’re eligible, you may be able to contribute up to $330,000 either in a single financial year, or over a three year period. 

Currently, you need to be less than 67 on 1 July of a financial year to be eligible to use the bring-forward rule. From 1 July 2022, you may be able to access the bring-forward rule if you’re aged less than 75 on the prior 1 July. Other eligibility rules will continue to apply, such as the total super balance limits.

The following table summaries the maximum NCCs that can be contributed in 2022/23 based on your total super balance as at 30 June 2022:

 

NOTE: Contribution caps apply to both concessional and non-concessional contributions. Care should be taken to avoid breaching your cap as additional tax and penalties may apply. For further information visit ato.gov.au or get in touch with us.

 

Downsizer contribution changes

Downsizer contributions allow eligible individuals to contribute some or all of the proceeds of the sale of their home, without impacting other contribution caps. Unlike NCCs, downsizer contributions do not have a total super balance limit, or an upper age limit. This means it could be a great, final way to boost super for those who don’t meet other eligibility rules to contribute, or where the NCC cap has been earmarked for other purposes.

 

What’s changing?

From 1 July 2022, the eligibility age is reducing from 65 to 60. The age reduction increases the number of individuals who may be eligible to make a downsizer contribution and boost their retirement savings.

 

What’s the limit?

Provided certain other conditions are met, it may be possible to contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of selling your home.

Downsizer contributions won’t count towards your concessional or non-concessional contribution caps.

You’ll need to make the contribution within 90 days of settlement of your sale, and you need to complete the required forms to notify your fund that you’re making a downsizer contribution, no later than the time your contribution is made. You must have reached the eligibility age at the time of contributing.

  

How can this benefit you?

Aside from super being a concessionally taxed investment, there are a number of other ways a downsizer contribution could benefit you. 

Funds in super accumulation phase are an exempt asset for social security purposes while you are under your Age Pension age. This could help increase or maintain your or your spouse’s entitlement to a pension or other benefit. Also, making a downsizer contribution together with an NCC could help you contribute even more of your home sale proceeds into the concessionally taxed super environment. 

Other eligibility rules and requirements apply. Before you contribute it is important to seek advice and if you are unsure then please get in touch with us.

 

Changes to the First Home Super Saver Scheme (FHSSS)

The First Home Super Saver Scheme (FHSSS) allows you to make voluntary contributions of up to $15,000 per year within your concessional and NCC caps and you can later withdraw an amount of those voluntary contributions plus earnings (calculated at a set rate by the ATO on the amount you withdraw. 

The maximum amount of voluntary contributions that you can withdraw increases from $30,000 to $50,000 from 1 July 2022. This boosts the amount that can be accessed from super and directed to buying your first home.

 

How can this benefit you?

As the scheme allows the withdrawal of voluntary contributions, consideration must be given to not only whether using super is the right approach for you but the type of contribution you will make. For example, salary sacrifice amounts (if an employee), personal deductible contributions or non-concessional (after-tax) contributions).

There is a range of criteria to withdraw your super under this scheme as well as ensuring the funds are used to purchase your first home which is outlined on the ATO website

 

Superannuation guarantee eligibility changes

Superannuation Guarantee (SG) requires employer to pay a minimum level of super support for eligible employees. One criteria for an employee to be eligible is based on that employee’s monthly earnings being at least $450 per month. However, this threshold is abolished from 1 July 2022. 

 allowing all eligible employees to receive SG paid into their super fund.

This measure primarily assists low-income earners to have employer contributions paid to super boosting their retirement savings. SG contributions count towards your concessional contribution cap and should be taken into consideration when determining any other contributions made.

Business owners should review their processes to ensure that SG is paid for all eligible employees. Penalties may apply if SG is unpaid or paid late. 

 

 

Read more

What are the 8 dimensions of wellbeing?

 

When you think about wellbeing, you often think about your physical health. Are you exercising enough, eating well and keeping healthy habits? But, in reality, it is so much more than that.  

Your wellbeing is a conscious and deliberate process of making choices that help us to live our best life. A life full of purpose, satisfying work and play, joyful relationships, a healthy body and mind, financial confidence and ultimately happiness. 

According to research, a person’s wellbeing can be measured against eight dimensions of wellness: physical, spiritual, social, emotional, intellectual, occupations, environmental and financial.  

Each dimension means something different to everyone. Understanding what it means to you can help you uncover what you value in life, where your strengths are and what you might need to work on. 

Physical

The Physical Wellness Dimension involves things that keep us active and healthy. Our physical wellbeing is so important to our mental health, longevity and ensuring we live our best lives. This doesn’t mean we must all be athletes. But it does mean building good physical health habits, having a healthy diet, exercising regularly, and having the appropriate health care for our needs. The more we are in tune with our bodies and what they need, the less likely we will be to become reliant on the healthcare system or even our families and loved ones. 

Intellectual

The Intellectual Wellness Dimension involves things that keep our brains active and our intellect expanding. It’s about mastering new skills, learning new things or helping to educate others. Having the time and resources to keep your mind active and supporting your loved ones can help you live a long life. 

Spiritual

The Spiritual Wellness Dimension is a broad concept that represents one’s personal beliefs and values and involves having meaning, purpose, and a sense of balance and peace. It includes being able to volunteer your time to support causes that mean something to you and help others to live a more purposeful life. 

Emotional

The Emotional Wellness Dimension involves the ability to express feelings, adjust to emotional challenges, cope with life’s stressors, and enjoy life. It includes building and nurturing relationships to strengthen our support networks and ensure we have the resources to spend time and money on those we love and the things we enjoy in life. 

Financial

The Financial Wellness Dimensions addresses your financial wellbeing. It covers your income, debt, savings and investments as well as your financial literacy. It also means having the resources to support and protect those you love. To live your best life, you need to be confident in your current financial situation or your future financial prospects.  

Occupational

The Occupational Wellness Dimension involves aligning your work to what you value in life. Ensuring that you pursue work that has meaning and purpose and reflects your values, interests and beliefs. Living your best life means work shouldn’t feel like work. 

Social

The Social Wellness Dimension involves having healthy relationships with friends, family and the community. Living your best life means living a life where you participate with others you care about and have the time to do so. 

Environmental

The Environmental Wellness Dimension involves living in an environment that promotes positive wellbeing. Such as preserving areas where we can live, learn and work, providing pleasant, stimulating environments that support our wellbeing and offer the natural places and spaces to promote learning, contemplation and relaxation. We need to create the right environments to help us live our best lives now and into the future, for both ourselves and our loved ones.  

Our financial advice process will help you to uncover which areas of wellbeing are most important to you and how close you are to living a life aligned with those areas of wellbeing.  

Our advisers will then work with you to set goals and shape strategies to make sure you are on the right path to living your best life. A life full of purpose, satisfying work and play, joyful relationships, a healthy body and mind, financial confidence and ultimately happiness. 

Read more

Why values matter

We all have values that we live by. They are the motivational drivers that help us determine what’s important in life. They give meaning to the things we do. They are individual to us, guide our behaviour, and allow us to feel fulfilment in life. 

But we’re not always consciously aware of what our values are. In fact, many of us rarely spend time stopping, thinking, and considering our values. 

Not knowing what we truly value in life can lead us to make bad decisions, inconsistent with what we want to achieve in life. It can cause us to escape into bad habits or look for quick wins to uplift ourselves. 

It’s easy to dismiss values too. We focus on what our society, culture or community values instead and try to meet these expectations. We don’t spend the time to articulate what our top five values are. And, it takes a lot of effort to know and accept what you value. This will often lead to decisions being made that don’t lead us to live our best life. We hit key turning points in our lives and do what society or others expect us to do. Not what we want to do for ourselves or those we love.  

For example, many of us from a young age are encouraged to save for our retirement. We spend the majority of our lives working hard so that we can do all the things we want when we retire. In fact, this is drilled into us so much that we are saving more than we need for retirement, with many people leaving their retirement savings untouched or spend down only a little.  

There’s a school of thought that suggests saving makes us feel happy and fulfilled. However, this is just a mask for what behavioural economics calls loss aversion, the observation that human beings experience losses asymmetrically more severely than equivalent gains. This overwhelming fear of loss leads us to make bad decisions, behave irrationally and, ultimately, give lawyers the job of bequeathing our assets to those we love. 

Understanding our values can help us make better decisions. In the above example, it can help us reduce our fear of loss and turn it into a positive gain, by giving our money meaning and spending it on something that is truly important to us. Our values help us define what success looks like for ourselves. And when we begin to live a life that meets our success criteria, we feel more fulfilled and happy – even if it means spending the savings we’ve spent years to create.

 

Values matter 

So, values matter to all of us. They are our guiding principles or guardrails that can keep us on track to living our best life. And, when we achieve our goals we feel a sense of meaning and purpose. We feel good about ourselves and driven to continue to live a life full of purpose. 

But defining what you value is hard. There are so many words to choose from. You’re often too busy to stop and wonder what really matters. This is where we come in. 

Using a framework based on the eight dimensions of wellbeing, we can help you to uncover what you value in life. We work with you to determine a set of household values then set goals and tasks to help you live a life more aligned with your values. We also keep you accountable, helping you to make decisions that take you closer to achieving your goals. And, we measure how you’re going and help you see the successes and failures, so that we can continue to make the best choices for both now and in the future. 

 

 

Read more

Is this a scam?

New data released

Naturally, people aspire to get the most out of their investments, especially if a great opportunity is presented by a ‘trusted’ organisation. Unfortunately, however, investment scams occur more often than you may think, highlighting the risk both self-directed investors and SMSF trustees may potentially face when seeking new investment opportunities. 

New data released from Scamwatch Australia has reinforced the sophistication and the rapidly growing number of scams each year in Australia – which has caused a loss of over $851 million* in total in 2020 – $328 million of which related to investment scams. Therefore, it is extremely important for you to remain vigilant and reach out to me, your trusted SMSF professional, before investing your retirement savings in a new product or service.  

 

What does the data reported to Scamwatch Australia tell us? 

  • During 2020, the average monetary value lost to scams has increased by 23%. Scammers have become more sophisticated in their approach, claiming to be from well-known investment organisations or government bodies, with the aim of extracting personal information from an individual.
  • Investment scams have caused the most financial harm to the Australian population throughout 2020, resulting in $328 million lost. Advancements in both technology and software design allow scammers to recreate websites to look identical to an actual organisation’s site, meaning it is becoming increasingly difficult to identify what is a scam and what isn’t.
  • Older Australians (65+) are often more at risk of being approached by scammers as they perceive this particular age group to have more accumulated wealth. 
  • The top contact methods used by scammers include phone (47.7%), email (22%), text message (15%), internet (6.3%) and social networking (4.5%)*. Scammers will often inject a sense of urgency into their messaging, propose threats (particularly with tax scams), and request personal and banking information. 

 

What should you do if you suspect a scam?

If someone attempts to scam you, there are several things you can do: 

  • Report the scam to Scamwatch Australia – www.scamwatch.gov.au/report-a-scam or ReportCyber – Report | Cyber.gov.au immediately.
  • Do not provide any personal information that will allow a scammer to impersonate and retrieve your funds. 
  • Do not click on links you have received via text or email that have a substantial number of letters and numbers. 
  • If you have lost money to a scam, contact your financial institution immediately. 
  • If you have provided personal information and you are concerned your identity may be compromised, you can contact IDCARE for free support on 1800 595 160.
  • Consider contacting the organisation the suspected scammer claims to work for – the organisation may be able to confirm your suspicions.

If you have been scammed or believe you have been scammed, you shouldn’t feel embarrassed or ashamed. Financial scams are now crimes that are regularly occurring – many scams are very sophisticated and professional, and very experienced investors have lost money to scams. It is becoming increasingly important to discuss the risk of scams with family, friends, and peers.

 

How can we help?

If you need assistance with identifying whether you are being approached by a scammer, please feel free to give us a call to discuss in more detail. We are here to support you, and it’s essential that we start the conversation as scamming is a continuous risk in our technologically advanced world.

 

 

Read more

First Home Saver Scheme – Are you (or your kids) maximising?

The first home saver scheme (FHSS) has now been accessible for 3 years, but still is an under-utilised tool in assisting you to save for your – or your kids – first home. Below is a recap on this scheme, and why it may want to be considered as part of either your own savings plan, or if you are a parent looking to assist your children with their first home purchase.

How does the FHSS work?

If you’re aged 18 or over and are an eligible first home buyer, you can withdraw voluntary super contributions made since 1 July 2017 to put towards the purchase of your first home. Under the current rules, these voluntary contributions are up to $15k per financial year, with a total maximum of $30,000. This applies to each individual buying the home, so if buying with a spouse, friend or sibling, you have access to your own FHSS, meaning you could access up to $60,000.

The legislation has now passed to increase the total maximum from $30,000 to $50,000 from 1 July 2022.

Although you need to be 18 to withdraw the funds, contributions can happen prior to this age.

 

What counts as a voluntary super contribution?

Super contributions that can be withdrawn are salary sacrifice contributions and personal contributions (concessional or non-concessional). Your compulsory super contributions and spouse contributions cannot be withdrawn as part of the FHSS.

 

How is this beneficial?

As superannuation is usually a more favourable tax environment compared to an individual tax payers own marginal tax rate, the intention is that a first home buyer will be able to grow a deposit quicker and also reduce the tax they pay (and therefore save the difference).

Investment earnings are deemed using a formula from the ATO, which is the 90 day bank bill rate plus 3%. This is generally more than you can earning from the average bank account interest.

When money is withdrawn from the FHSS, amounts that were contributed as tax deductible contributions are taxed at your marginal rate less a 30% tax offset, as will associated earnings. After tax contributions will attract no tax.

 

How do I get my savings out of my fund?

You must request a determination from the ATO via your MyGov account prior to signing a contract to buy your first home. This will then tell you how much you can withdraw under the scheme. You can then make a withdrawal request.

Based on above, the ATO advises requesting the release as soon as you start to seriously look for a home – ie when you apply for a home loan pre-approval

The FHSS maximum release amount is the sum of your eligible contributions, taking into account the yearly and total limits, and associated earnings. This amount includes:

  • 100% of eligible non-concessional contributions
  • 85% of eligible concessional contributions
  • associated earnings calculated on these contributions using a deemed rate of return – this is based on the 90-day Bank Bill rate plus three percentage points (shortfall interest charge rate).

The FHSS maximum release amount takes into account the $15,000 limit from any one year and $30,000 total limit (The legislation has now passed to increase the total maximum from $30,000 to $50,000 from 1 July 2022) to the total contributions across all years when calculating the eligible contributions, before adding the associated earnings.

 

What other fine print is there?

You will need to purchase within 12 months of requesting the withdrawal. If you withdraw and then do not purchase a home, you must put back into super as a after tax contribution to avoid penalties.

You will need to live in the property for at least 6 months in the first 12 month period the property can be occupied.

Further information can be found directly on the ATO site.

As always, the above information is general in nature only and does not consider your personal circumstances. If you want to know how to apply this to your own personal situation, please book with one of our advisers here.

 

 

Read more

Investment decisions – Are you rational or normal?

After having many discussions this week with people in my age group about the Covid vaccine’s available to us, it got me thinking about the cognitive and behavioural biases that we all have – and how they affect our overall decision making. Whilst we may think of ourselves as rational, in the complex world of information we live in we are much more likely to rely and use mental shortcuts to make decisions.

Of particular interest to me is how these affect the financial and investment choices we make.

Having a solid self-awareness of your own biases can assist you to make better decisions – and from an investing perspective this is critical to ensuring you reach your long term financial goals. Below we will outline a few common biases and give some examples of how they play out in an investment sense.
We would also love to hear of any biases you may have identified in yourself after reading this article!

 

Confirmation Bias

Investors will more often notice and look for information and evidence that confirms their existing beliefs, at the expense of evidence that challenges or goes against those beliefs. Human beings tend to avoid the discomfort when information conflicts with current beliefs or perceptions.

This plays out in the investment world in that you may ignore information conflicts with your previously held belief – which if not ignored may present an opportunity or help you prevent losses.

 

Anchoring bias

This is the tendency to rely to heavily (or anchor to) a piece of historical information when making an investment decision. The brain then makes adjustments based on this anchor, which can adversely affect your ability to make sound decisions.

The most common example of this is anchoring to a past share price, irrespective of the companies future outlook.

 

Narrative Bias

This is the tendency to interpret information as part of a larger narrative or story, sometimes at the expense of facts.

What we have seen a lot in the last 12 months is investors abandoning fundamentals for a great story. While these stories can be very compelling, we cannot be blinded by this and need to consider the whole picture of an investment.

 

Overconfidence Bias

The Dunning-Kruger effect – when people overestimate their own abilities, believing they are smarter or more informed then they really are.

Investors with this bias tend to underestimate the risks/overestimate the returns of a particular investment. They also tend to excessively trade, thinking that they have better information than the broader market.

 

 

Read more

Pension Minimums to Remain Halved for the 2021/22 Financial Year

In somewhat surprising (but welcomed) news, a weekend media release from the Government has announced that the 50% reduction in pension minimums are to be extended for the 2021/2022 financial year.  

These measures were initially adopted for the 2019/20 & 2020/2021 financial years due to the impact of Covid. In the release it was noted that this measure “…continues to make life easier for our retirees by giving them more flexibility and choice in their retirement.” 

Is this necessary when investment markets have recovered? I’m not convinced, but happy to provide advice on the opportunities it presents to you.

Important: Remember that the reduced minimums are an option and not a mandatory reduction to your payments. You have the choice to reduce or retain pension payments, providing they meet or are above the reduced minimum.

For our clients on an ongoing service package, we will be in touch to discuss your options in the new financial year. If you want to have a chat sooner to understand your options then please get in touch, or book a chat with your adviser at our online booking page.

NOTES: 

  • This media release occurred over the weekend and didn’t provide a lot of detail. We expect more information to follow, and we will continue to provide relevant updates as they come to hand.
  • Also, a lot can happen in a month and we will have to wait until 1 July 2021 to assess exactly what this means for you and your minimum pension payments for the 2021/22 Financial Year. However a reasonable estimate will be possible from 1 July 2021. This estimate will become actual when your super funds 2021 accounts have been completed.

 

 

How do you work out your reduced minimum annual payment?
Use the percentage factors in the table below to calculate your minimum annual payment amount, using your age at 1 July of the financial year (or at the date your income account commenced, if later).

 

 

 

Read the Government media release here.

 

 

Read more

5 Financial habits that will pay dividends in 2021 and beyond

After a tough 2020, we’ve been reflecting on what that means for you, your families and your goals. All things considered, I feel we have been lucky here in Australia, but given the continued unpredictability of COVID-19, it’s perhaps wise to remember the lessons we’ve learned that will be worth holding onto through 2021 and beyond.

 

1. Markets are all about probabilities and risk management.

Or let me say this more bluntly—markets cannot (unfortunately) be timed with precision—by you, me, or any other expert. Let’s say, hypothetically, we had anticipated there was going to be a global pandemic, avoiding the sharp declines in the global stock markets, as you decided to withdraw your investment(s). Even with this knowledge (without a crystal ball), it would have been extremely difficult to predict the timing and strength of the rebound in the market. In this case, the severe downturn has (in many instances) corrected itself within six months. Ultimately, you would likely still be sitting on the sidelines, waiting for a better entry point to get back in.

 

2. Reconnect with your goals.

The best financial advice is personalised and tailored with strategies to help you reach your goals. If you start feeling anxious about your finances or the state of markets, take a break from day-to-day market monitoring and check in on your financial goals. I’d love to be involved in this process. By reacquainting yourself with your goals, we can adapt and improve—including why you set them in the first place and how your current financial strategy can help you reach them. “Staying the course” is never easy amid volatility or market nerves, but goal setting can help slow down a racing mind, take a breath, and redefine what you really want in life.

 

3. Be your own devil’s advocate.

If you’re starting to lean toward a change in your financial circumstances (for example, selling an underperforming investment or chasing the latest popular investment trend), ask yourself why someone else might buy/sell that same investment. Our minds have an easier time remembering and noticing facts and ideas that support our opinions but forcing ourselves to take a different perspective before acting can reveal every angle of a decision. This technique can also help you when you’re sifting through information online. If you keep coming across evidence that supports your opinion, challenge yourself to find a site that convincingly shows the opposite. Or even better—come to me, and we can explore it together.

 

4. Get to know your biases and turn down the noise.

Reading or hearing about unexpected asset value changes can put any financially-minded person on edge. You’ve hired us to help manage this for you, so one useful tactic is to set a schedule for how often you check your portfolio to turn the volume down on that noise. The schedule should focus on the appropriateness of your investments in relation to your goals.

In relation to this, research shows that understanding our behavioural biases can help us spot them in our decisions. There is a saying that the best financial advisers are just as aware of psychology as they are financial analysis. Taking some time to read about the psychology behind our decisions and emotions is an advancement toward financial independence.

 

5. “The intelligent investor is a realist who sells to optimists and buys from pessimists.”

This saying is an old favourite that comes from Benjamin Graham, one of the founding fathers of value investing. We’ve seen the full spectrum of fear and greed in the past year—but it pays to be a humble realist. Humans have overcome incredible challenges throughout the centuries, and we are on our way to overcoming the latest challenge. But don’t be fooled into thinking the recovery will be smooth or doomed. It will have speed bumps, with each change in sentiment creating potential opportunities for the intelligent investor.

 

The Pekada team are well placed as your go-to resource to help you thrive financially, identifying opportunities, navigating future challenges and working towards whatever it is that is important to you. If you want to chat about the above or your personal situation then please get in touch with us.

 

Read more