Leverage refers to increasing the size of a prospective return. For growth-oriented investors, borrowing to invest or gearing is a tax-efficient way to expand the size of their investments.
Read our insights on the latest news, trends and changes related to debt, lending and gearing strategies.
I recently turned 30. It’s a strange age. Some of your friends have settled down and have children, whilst others are backpacking around southeast Asia. Some are looking to purchase an investment property, whilst others are hosting big parties in their shared house of ten. Regardless of which stage you are at, the thirties are an excellent chance to take some of that ‘grown-up medicine’ and to look to start to get our finances in order; here are some places to start.
1. Set some goals:
Money is just the vehicle towards helping you live your best life. Everyone will have different goals, so your financial plan should be different. If you’re the type of person who wants to live overseas, then buying a house because you feel like you should and others are telling you to may not be the best option. Once we have goals, it’s easier to know what we must do to achieve them. Otherwise, we can continue on a road to nowhere.
2. Review what you currently have:
Personal finances are usually left or pushed into the too-hard basket. You may not be as passionate about it as I am and, therefore, lack the motivation to think about it (completely normal). Simple things like reviewing what you currently have can pay big dividends.
Review your superannuation and make sure that your fund is appropriate. Check about how your fund has been performing compared to others. Please have a look at your investment options within your super and make sure that it’s appropriate for you. Think about whether or not you would like to be invested in an ethical and environmentally friendly manner and see if your current investments align with that.
You should also review what insurance you have. If you have young children or some debt with a partner, such as a home loan, then life cover could be critical. If you’re working and rely on your income to live, then you need income protection. Insurances aren’t sexy, and not many people like paying for them, but if something goes wrong and you don’t have them, it can create financial pain that can be hard to recover from.
3. Build an emergency fund:
Life is unpredictable, and unexpected expenses can arise at any time. Aim to build an emergency fund with three to six months’ living expenses. This financial cushion will provide peace of mind and help you avoid dipping into your savings or investments during tough times.
4. Look towards the future:
Investing is a powerful tool for building wealth over time. It can be slow to start with, but compound interest is the eighth wonder of the world; the earlier you start, the more rewards you reap. Putting some surplus cash towards investments that have growth potential can help you fund some future goals you may have as well. There are options for all different starting balances, so you don’t need to wait and put it off any longer.
5. Stop paying the lazy tax:
Only some people love to have a strict budget in place, and if that’s you, there are things we can do to get our cash flow under control. Reviewing your expenses is essential; a lot of little savings can add up, especially when everything is getting more expensive.
Have a particular look at your subscriptions, whether they be streaming services or gym memberships and make sure you’re using them and getting value out of them. If not, look at ending them or looking at alternatives.
The lazy tax can also apply to your banking. We often choose a bank early on in life and stick to it. Review your interest rate and ensure that what you are getting stacks up. This can also apply to your home loan if you have one. It can pay to do some research, as there are often no rewards for loyalty in this area.
7. Estate Planning:
It’s never too early to think about estate planning, especially if you have dependents. Setting up a will now can last until your situation changes and doesn’t need to be too difficult or costly. It will mean that your wishes will be carried out if something happens to you.
8. Reach out if you’re unsure:
For some people, discussing personal finances is like speaking another language, but seeking guidance from a good adviser can help simplify the situation. A good adviser should also be able to educate you along the way. Using your money in the best way possible is important, so don’t let it fall by the wayside just because you’re unsure where to start.
As always, we are here to help. If you have any questions, feel free to email me at zac@pekada.com.au
Talking about finances with your partner can be daunting, but it is an important conversation. As a financial advisor, I often encounter couples who struggle with managing their finances together and can often be used as a mediator in these scenarios. In this blog, I will provide some tips on how to talk to your partner about finances and hopefully help you if this is something that you need help with.
The first step in talking to your partner about finances is to set a time and place that works for both of you. We often talk about having a financial date night, and it’s great to discuss the following. Choose a time when you are both relaxed and not likely to be interrupted. According to a study by the Financial Planning Association of Australia, only 26% of Australians feel confident managing their finances. This underscores the importance of taking the time to have an informed discussion about your finances. Ensure you are both comfortable and in a private space where you can converse honestly without distractions.
Start the conversation by discussing your goals as a couple. For example, do you want to buy a house, go on a holiday, or plan for retirement? Understanding each other’s goals will help you make decisions together and stay on the same page. Make a list of your short-term and long-term goals, and discuss which are most important to each of you.
The goals are exciting as well. Having something exciting to work towards can create extra incentives to work together on your finances. For example, at Pekada, we do a Values & Goals session where each couple member has a chance to talk without interruption about their values and what is most important to them, and then we start to work on some joint goals together. This can be a great starting point for working on common goals together.
Being honest about your financial situation with your partner is essential. This includes your income, debts, and expenses. Be open and transparent about your finances, and encourage your partner to do the same. It may be uncomfortable to discuss your debts, but it’s essential to get everything out in the open to work together to address any financial issues. For example, one particular partner’s debts may stop you from doing things such as purchasing a home together, so it is crucial to have everything out in the open.
Creating a budget together is an excellent way to manage your finances as a couple. Start by tracking your expenses for a month or two to understand where your money is going clearly. Then, create a budget that includes your income, expenses, and savings goals. Finally, please ensure you are both on board with the budget and committed to sticking to it.
Everyone has different spending habits, and it’s essential to understand how your partner spends money. According to the Australian Securities and Investments Commission, many Australians struggle with credit card debt, with an average balance of $2,577. Discuss your spending habits and concerns about each other’s spending. It’s essential to be respectful and non-judgmental during this conversation and work together to find a compromise that works for both of you.
This is often where a ‘yours, mine and ours’ approach can work well. Each partner has a separate bank account for their discretionary spending. Free to spend those funds on whatever appeases them whilst maintaining a joint account for joint expenses and future goals you may have. This can stop a lot of arguments around what the other may be spending. Having an account where you can spend guilt-free and maintain some form of financial independence is also essential.
Emergencies can happen at any time, so it’s crucial to have a plan in place. Discuss what you would do in an emergency, such as a job loss or a medical emergency. Make sure you have an emergency fund set aside to cover unexpected expenses.
It is also a good idea, especially if you have a mortgage together to review your insurances. Discuss what would happen in the worst-case scenario if one of you were to pass away. Would you want the mortgage covered? Decisions like this are essential to ensure that no one is left with financial stress in the event of a loss.
While discussing depressing things, having a good estate plan and will in place also be essential to ensure that your wishes are carried out in the event of your passing.
In conclusion, talking to your partner about finances can be challenging, but it’s essential for a healthy relationship. Setting a time and place, discussing your goals, being honest about your financial situation and planning can alleviate many of these potential issues. If you ever have any questions or are interested in doing a Values & Goals session as a couple, please reach out!
Here are some links to content we’ve come across this month that we thought you may find interesting and useful resources.
We hope you find them helpful.
The links:
We love suggestions.
If you come across something interesting, please share with us by email at connect@pekada.com.au.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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:
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.
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
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.
After the economic turmoil of 2020, the 2021-22 Federal Budget focused on measures to promote economic growth and recovery with big spending and very few surprises.
The biggest winners aged care, women, health, and childcare. Perhaps laying the foundations for an Election announcement?
There were also some wins for superannuation, although the rate of superannuation guarantee or changes to minimum pension requirements didn’t see any proposed changes. As a result, superannuation guarantee will increase to 10%, and minimum pension drawdown requirements will revert to their standard levels from 1 July 2021.
On a positive note it was good to see the data confirming the economy is recovering rapidly, but the Treasurer did temper the excitement on this, noting that we cannot take the gains we have made for granted. Probably a fair point, as a fair chunk of the heavy lifting has come as a result of tax receipts off the back of an iron ore spot price that is 4 times higher than forecast. The deficit is still significant, however it is hard to argue that something of this magnitude isn’t required.
NOTE: It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they’re legislated – and could change.
Expected to be 1 July 2022
The Government has announced it will allow individuals aged 67 to 74 to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.
However, individuals aged 67 to 74 years wanting to make personal deductible contributions will still have to meet the existing work test. This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government stated it expects this to occur prior to 1 July 2022.
Expected to be 1 July 2022
The Government has announced it intends to reduce the eligibility age to make a downsizer contribution from 65 to 60 years of age.
The downsizer contribution rules allow people to make a one-off after-tax contribution to super of up to $300,000 from the proceeds of selling their home they have held for at least 10 years. Under the rules, both members of a couple can make downsizer contributions for the same home and the contributions do not count towards a member’s non-concessional contribution cap.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.
Expected to be 1 July 2022
The Government has announced it will increase the maximum releasable amount for the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000.
Under the existing FHSSS rules, an eligible person can only apply to have up to $30,000 of their eligible (voluntary) contributions, plus a deemed earnings amount, released from super to purchase their first home.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1
July 2022.
Expected to be 1 July 2022
The Government has announced it intends to remove the $450 per month minimum superannuation guarantee (SG) income threshold.
Under the current rules, an employer is not required to pay superannuation guarantee contributions for an employee who earns less than $450 per month.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.
Effective first financial year following Royal Assent The Government has announced people with certain complying income stream products will be given a two-year window to commute and transfer the capital supporting their income stream (including any reserves) back into a superannuation account in the accumulation phase. The member can then decide whether to commence a new account based pension, take a lump sum benefit or retain the balance in the accumulation account.
The income streams affected by this measure include:
that were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).
Under the measure, any commuted reserves will not be counted towards an individual’s concessional contributions cap but they will be taxed as an assessable contribution of the fund. When commuted, any social security treatment the product carries such as 100% or 50% asset test exemption and/or grandfathering for income test purposes will cease.
However, the Government has confirmed there will be no re-assessment of the social security treatment the product received prior to the commutation. Therefore, the member would not be required to pay back any overpaid entitlements.
The Government has also confirmed the existing transfer balance cap rules will continue to apply. Therefore, on commutation the member will receive a debit in their transfer balance account based on the debit value method that applies.
Income streams not included in this measure include flexi-pensions offered by any provider and lifetime products offered by a large APRA-regulated defined benefit scheme (eg some older corporate funds) or public sector defined benefit scheme (eg CSS, PSS).
Expected date 1 July 2022
The Government plans to relax the residency requirements for SMSFs by extending the central management and control test from 2 to 5 years and removing the active member test.
Under current rules, SMSF trustees living overseas who intend to return to Australia at some point can be away for a period of up to two years and the fund will still meet the central management and control test. Under the proposal, the trustee will be able to be away for up to five years and still meet the test.
Further, the active member test will be abolished. Under this test, if the fund had members that were ‘active’ by making contributions or rollovers into the fund, the residency status of the fund could be jeopardised. This means that members who are overseas for a period of time often cannot make contributions to their SMSF or SAF. In contrast, a non-resident can contribute to large APRA and industry funds without putting the fund’s residency status at risk.
Abolishing the active member test simplifies the rules and ensures that members and trustees who are temporarily overseas can continue to make contributions to their SMSF or SAF without jeopardising the fund’s complying status.
If you would like to discuss how this may impact your retirement planning, then please book a chat.
Effective 1 July 2020
The Government will retain the low and middle income tax offset (LMITO) for the 2021-22 income year, providing further targeted tax relief for low- and middle-income earners. The LMITO provides a reduction in tax of up to $1,080. The table below shows the amount of offset an individual client is entitled to depending on their taxable income:
This announcement means that an individual’s effective tax-free income threshold for 2021-22 financial year remains the same compared with the current financial year. An individual who is not eligible for seniors and pensioners tax offset can effectively have taxable income of up to $23,226 without having to pay income tax.
Effective 1 July following Royal Assent
The Government will replace the individual tax residency rules with a new, modernised framework. The primary test will be a simple ‘bright line’ test — a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
Effective from the income year after Royal Assent Currently, tax deductions for Category-A self-education expenses must generally be reduced by $250.
The Government has proposed removing this $250 reduction amount to effectively allow individuals to claim a tax deduction for all Category-A self-education expenses.
Category-A expenses include tuition fees, textbooks, stationary, student union fees, student services and amenities fees, public transport fares, car expenses worked out using the ‘logbook’ method (other than the decline in value of a car), running expenses for a room set aside specifically for study.
Effective 1 July 2022
The Pension Loans Scheme (PLS), a voluntary, reverse mortgage type loan available through Services Australia, currently allows a fortnightly loan of up to 150% of the maximum rate of Age Pension. From 1 July 2022, the Government will implement two changes to the scheme – a No Negative Equity Guarantee and lump sum advances.
No Negative Equity Guarantee
A No Negative Equity Guarantee will be introduced so borrowers, or their estate, will not have to repay more than the market value of their property, in the rare circumstance where their accrued PLS debt exceeds their property value.
Lump sum advances
Eligible people will be able to receive one or two lump sum advance payments totalling up to 50% of the maximum Age Pension each year. Based on current Age Pension rates, this is around $12,385 per year for singles and around $18,670 for couples combined. Note, the total amount eligible people are able to receive under the pension loans scheme, including
any lump sum advance payments, has not changed. The total amount cannot exceed 150% of the maximum Age Pension which is around $37,155 per year for singles and around $56,011 per year for couples.
Effective 1 July 2022
The Government announced it will:
The current hourly fee caps will continue to apply.
Effective 1 July 2021
To support senior Australians to remain at home, the Government is funding an additional 80,000 Home Care packages:
Additional respite care services will be provided to assist carers and enhanced support services will
be provided to assist senior Australians to navigate the aged care system
Effective over 3 phases: 2021, 2022-23, 2024-25
To improve and simplify residential aged care services, the Government is implementing a range of measures To improve residential aged care quality and safety, including a new star rating system to provide senior Australians, their families and carers with information to make comparisons on quality and safety performance of aged care providers.
Reforms to residential aged care services and sustainability, including a new Government-funded Basic Daily Fee supplement of $10 per resident per day, funding to implement the new funding model, the Australian National Aged Care Classification (AN-ACC), and implementation of a new Refundable Accommodation Deposit (RAD) Support Loan Program; and
a range of measures to grow and upskill the aged care workforce.
For our ongoing service package clients, your financial adviser will be in touch with any specific actions or impacts to your situation.
If after reading this you want to chat, get some clarification in regards to any of the above measures outlined in the 2021-22 Federal Budget, please contact us so that we can discuss your particular requirements in more detail.
This is without doubt one of the most exciting times of the year, well at least for some of us. Last night the Treasurer, Josh Frydenberg, released the Government’s highly-anticipated 2020-21 Budget, featuring the bringing forward of tax cuts, superannuation reforms, measures for Centrelink clients and additional aged care funding. After going into a record deficit of $213.7 billion to support individuals and businesses during the Coronavirus crisis, the focus of this year’s Budget is to regrow the economy by creating job opportunities and encouraging spending.
Pekada’s team have reviewed the Budget and prepared a summary of the key measures for you, and will be updating our the Federal Budget 2020 page here throughout the day.
NOTE: It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they’re legislated – and could change.
Personal tax cuts
The Government has announced that it will bring forward stage two of the previously legislated tax cuts that were due to take effect from 1 July 2022 by two years. As a result, from 1 July 2020:
What this could mean for you
Low and Middle Income Tax Offset
The Low and Middle Income Tax Offset (LMITO) was introduced in the 2018 Budget, to complement the existing Low Income Tax Offset (LITO). In 2019, the base rate for the LMITO increased from $200 to $255 and the maximum payment increased from $530 to $1,080. The Government had planned to discontinue the LMITO when the stage two cuts were to be introduced in mid-2022. However, even though the stage two cuts have been moved forward to the current financial year, the LMITO will also remain in place for the
2020–21 financial year.
What this could mean for you
Default super accounts
Currently, if you start a new job and you don’t let your employer know where you want them to pay your super contributions, they will open a super account for you. The account will be in your employer’s default super fund. This may result in you having multiple super accounts.
By 1 July 2021, your employer will be able to obtain information about your existing super account from the ATO. They will then pay your super contributions into this account, unless you instruct them to pay it to a different account.
For people who don’t yet have a super account, their employer will be able to open an account for them in their default
super fund.
What this could mean for you
Performance testing for MySuper products
MySuper products follow a strict set of government guidelines. They tend to offer their members lower fees, simple features and limited investment options.
The Government feels there are too many underperforming super funds in the market, and this is impacting members’ retirement savings. From 1 July 2021, MySuper products will be subject to an annual benchmarking test. If the fund is found to be underperforming, it will need to inform its members by
1 October 2021.
Further, if a fund is found to underperform for two consecutive years, they won’t be permitted to accept new members until their performance improves.
By 1 July 2022, all super funds will need to do the annual benchmarking test – not just MySuper products.
What this could mean for you
YourSuper online comparison tool
To help members easily compare super funds, the Government will release an interactive online comparison tool called YourSuper by 1 July 2021 which will:
What this could mean for you
Additional support payments for welfare recipients
Government support recipients will receive two separate economic support payments of $250, to be paid progressively from December 2020 and March 2021.
This follows two previous payments of $750 to eligible recipients, with the new payments estimated to cost a total of $2.6 billion.
What this could mean for you
You may be eligible for the two payments of $250 if you’re currently receiving:
Health services
Coronavirus has taken its toll on the mental health of many Australians. Therefore, the number of psychological services funded by Medicare will be doubled from 10 to 20, effective immediately.
The NDIS will also receive additional funding of almost $4 billion, to provide essential support to Australians living with a disability.
Women facing ovarian cancer will now be able to access the drug Lynparza through the PBS. Rather than costing $140,000 per course, general patients will now pay around $41 for a script while concession card holders will be charged $6.60.
What this could mean for you
New jobs in key industries
The Government is committing $1.5 billion over five years from 2020–21 to support the building of competitiveness, scale and resilience in the Australian manufacturing sector. It will focus on six key industries of strategic interest:
Rural communities will benefit from $2 billion in funding over 10 years to improve water infrastructure, while regional businesses will benefit from an expansion of the instant asset write-off scheme. Regions that rely on international tourism will benefit from their share of $51 million in funding over two years to diversify their markets.
While the Budget doesn’t offer much financial relief to female workers currently impacted by Coronavirus, the government is committing $240 million over four years towards a range of employment initiatives for women. These include increasing female workforce participation in male-dominated industries such as construction.
What this could mean for you
For our ongoing service package clients, your adviser will be in touch with any specific actions or impacts to your situation.
If you have any queries in the interim or would like further clarification in regards to any of the above measures outlined in the 2020-21 Federal Budget, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements in more detail.
To use a basketball analogy, a good financial advisor should often run point guard for your personal finances. This means that they are the main playmaker, they decide the plan of attack moving forward. A good point guard is essential in having a championship calibre team, but it’s also important that the other positions are filled with experts in their fields such as accountants, lawyers and mortgage brokers. Today we’re going to focus on the latter and discuss why I think it is important that people should see a mortgage broker.
A good mortgage broker will be able to offer you advice far greater than just finding you the best rate. Getting a loan can be confusing, especially if it’s your first time. Offset accounts, fixed vs variable, redraws… the list can go on in terms of different terminology. A good broker will be able to help you navigate through these different features and find out what is important for you. Often, I feel that getting the structure and features of your loan right can be more important than the rate alone.
They have access to a range of different lenders and rates, they may even have access to rates that you are unable to get due to the size of their business. You as a consumer have access to these lenders as well but you likely don’t have the software to go and compare these as quickly as a mortgage broker does and it will often leave you spending a lot of time comparing different lenders when you could have a broker do it for you far more efficiently.
A majority of the time the mortgage brokers are actually paid by the lender for finding them business and do not charge an extra fee on top to you. Commissions are often a dirty word for people, especially following on from the royal commission but now most lenders pay a very similar commission and no decent mortgage broker would or should ever focus on the commission alone, rather looking at what loan and solution is best for you.
Similarly to a financial plan, you should be reviewing your loans on a consistent basis. Situations change, interest rates change, and products change so you need to be making sure you are reviewing these to ensure you have the best solution possible for you. Having a good mortgage broker should mean that they are proactively reaching out to you. It also means you will have an expert to call if you ever have any questions rather than having to sit on hold to a bank or other lender to get an answer.
If you would like to get in contact with a mortgage broker, please shoot me a message and I would be happy to do an introduction to one of our trusted business partners.
The Pension Loans Scheme (PLS) has been around for about 30 years, however it wasn’t until some big changes made on the 1st of July last year (2019) that expanded the eligibility criteria and withdrawal amounts were introduced that people started to take more notice of it. Under these changes, many more people of Age Pension age will be able to apply to use this reverse mortgage style scheme to gain access to extra income by borrowing against the equity they have in their home.
It can be a great way for Australians who are in the retirement planning stage of their life and of Age Pension age to be able increase their cashflow, especially as some Australian’s may find that they are asset rich (with the family home) but cash poor. This scheme allows them to access some of their asset in the family home to fund their lifestyle in retirement.
The PLS essentially works in a similar way to a reverse mortgage except that the loan is offered by the federal government, allowing borrowers of Age Pension age to receive a fortnightly income to supplement their retirement income by taking out a loan against the equity in their home. It is flexible in the way that the payments can be made for a short period of time or may be for an indefinite period, however you choose to use it.
This loan can be repaid in full or part at any time, the full amount of the loan plus interest owed at the time of the death of the person will be recovered from the person’s estate.
To be eligible for a loan under the PLS, you must meet all of the following. You:
Under the PLS you can receive fortnightly payments which top up your current pension amount (whether you receive some pension or nil pension) to 150% of the maximum rate of pension which applies to your circumstances. If you don’t want the full 150% you can nominate a lower amount.
This means that full Age Pensioners can borrow up to 50% of the maximum rate of the fortnightly Age Pension (including supplements) and part Age Pensioners can withdraw fortnightly payments up to a maximum of 150% of the full Age Pension less the amount of their current fortnightly payments.
One of the main differences is that there are no lump sums with the PLS as it is an ongoing income stream instead. Therefore, it may not be suitable for people who are looking to gain access to a larger sum of funds quickly.
Another point of difference is that the loans are from the government rather than a financial institution. This can be seen as a good thing for a lot of people who feel more comfortable dealing with the government.
Interest rates are generally lower than comparable reverse mortgages. The current rate for the PLS is at 4.5% pa. There are also no establishment or monthly fees with the PLS. This differs to most other mortgages. Centrelink may, however, charge costs (including legal fees). The Centrelink costs are determined after the loan application is made and can be paid immediately or added to the outstanding loan balance.
As always, if you have any questions feel free to email me at zac@pekada.com.au.
Find more details on the Pension Loans Scheme here.