December and summer are finally here, along with a renewed sense of optimism that strict lockdown measures will ease by Christmas. It’s been a tough year, but once again Australians have proved extremely resilient. We wish all our clients and their families a relaxed and happy Christmas.

November was an extraordinarily action-packed month for the global and local economy. Joe Biden’s US election victory released a pressure valve on global markets, with US shares reaching new historic highs and Australian shares up more than 9% over the month.

Markets also responded positively to the potential early release of effective coronavirus vaccines despite a rise in global cases. Oil prices were quick to respond to the prospect of borders reopening, with Brent Crude up almost 22% over the month.

In Australia, the Reserve Bank (RBA) cut its target cash rate and 3-year government bond yields from 0.25% to 0.1%, or one tenth of one percent. The RBA is not expecting to increase rates for at least three years. Early indications are that swift action by the government and the RBA have limited the impact of the COVID recession. Economic growth is now forecast to contract 4% in 2020, before rebounding 6% in the year to June 2021. Unemployment, which rose slightly to 7% in October, is forecast to peak at 8% this year but to remain at a relatively high 6% in December 2022. This is reflected in the fall in annual wages growth from 1.8% to 1.4% in the year to September. The Aussie dollar rose 5% on US dollar weakness in November, to close at US74c. The US currency is falling as a spike in coronavirus infections and delays in government stimulus raise the prospect of more money printing.

Tax-effective ways to boost your super

After a year when the average superannuation balance fell slightly or, at best, moved sideways, the summer holidays could be a good opportunity to think about ways to rebuild your savings while being mindful of tax.

With the Reserve Bank reducing interest rates to record lows and not anticipating a rise until 2024, it’s more important than ever to ensure your retirement savings are working as hard as possible.

One way to do that is by taking advantage of super, which offers valuable opportunities to tax-effectively rebuild your retirement savings.

Reducing your tax bill

If you make super contributions by setting up a salary sacrifice arrangement with your employer, for example, you can potentially reduce your tax bill while also boosting your super.

By diverting some of your pre-tax salary into super rather than taking it as take home pay, your money will be taxed at 15 per cent, rather than your marginal tax rate.

Investments made through super also enjoy a concessional tax rate of only 15 per cent on any investment earnings. This compares with tax at your marginal rate, which could be as high as 47 per cent (including the Medicare Levy), on investment earnings outside super.

Claim a tax deduction

You are also able to make personal super contributions on which you claim a tax deduction.

Previously only available to the self-employed, this strategy is now available to everyone. It allows you to claim a tax deduction in your annual tax return for eligible voluntary contributions into your super account made during the financial year from your after-tax earnings.

Providing you stay under the annual concessional contribution limit (currently $25,000 a year), this can be a useful way to cut the amount of income you pay tax on.

Play catch-up with your contributions

If you have less than $500,000 in your super account, you may consider making carry-forward concessional contributions.
If you haven’t fully used your annual concessional contributions caps since 1 July 2018, you may have some unused cap amounts that you could use to make a larger contribution this financial year.

Unused concessional cap amounts can now be carried forward for up to five years.

Consider non-concessional contributions

If you have more funds available and are closer to retirement, you might also consider making a non-concessional (after tax) contribution into your super account to boost the amount you have in the run-up to retirement.

Generally, you can contribute up to $100,000 a year in after-tax money. Not only is the tax on investment earnings on these contributions only 15 per cent, but they boost the income you can enjoy tax-free in retirement.

If you have a larger amount available, from an inheritance or selling an asset for example, you could even consider making a bring-forward contribution of up to $300,000 in a single year if you are under age 65.

Get the government to contribute

Another opportunity for eligible low to middle income earners is to make a personal after tax contribution of up to $1,000 and potentially receive a co contribution of up to $500 from the government. The co-contribution amount will vary depending on your income and the amount of contributions you make, but it can be an easy way to increase your super balance.

Another tax strategy to consider if your spouse or de facto partner earns less than $40,000 is to make an after-tax contribution into their super account. You could be eligible for the maximum tax offset of up to $540 if you make a contribution of at least $3,000 into your spouse’s super account, provided they earn $37,000 or less. The tax offset tapers off as your spouse’s income increases before cutting out at $40,000.

Strategic review of asset allocation

As super is a structure for investing, not an investment in its own right, it might also be a good time to take a closer look at the mix of assets in your super.

After COVID-induced market volatility, and with historically low interest rates, your allocation may have drifted away from your strategic plan.

With the right advice, tax-effective super strategies offer an easy way to rebuild your retirement savings and achieve your overall wealth creation goals.

If you would like to discuss your super or investment strategy, call us today.

Tax Alert December 2020

Although individuals and small business owners are now enjoying welcome tax relief in the wake of some valuable tax changes, there is more on the horizon as the government seeks to reboot the Australian economy.

Here’s a quick roundup of significant developments in the world of tax.

Temporary carry-back of tax losses

Previously profitable companies struggling with tough COVID-induced business conditions may find the government’s new tax loss carry-back provisions a useful tool to help keep their operation running.

Businesses with a turnover of up to $5 billion can now generate a tax refund by offsetting tax losses against previous profits.

Under the new measures, eligible companies can elect to carry-back tax losses incurred in 2019-20, 2020-21 and 2021-22 against profits made in 2018-19 or later years to gain a refund.

Full expensing of capital purchases

Another valuable initiative is the introduction of a temporary tax incentive allowing the full cost of eligible capital assets to be written off in the year they are first used or installed ready for use.

The measure applies from 6 October 2020 to 30 June 2022 and applies to new depreciable assets and improvements to existing assets.

Small businesses with an annual turnover under $10 million can also use it for second-hand assets.

Depreciation pool changes

From 6 October 2020, small businesses with a turnover under $10 million are allowed to deduct the balance of their simplified depreciation pool. This applies while full expensing is in place.

The current provisions preventing small businesses from re-entering the simplified depreciation regime for five years also remain suspended.

Early start to personal tax cuts

Individual taxpayers are now enjoying the next stage of the government’s tax plan, after the start date was brought forward to 1 July 2020.

Under the Stage 2 changes, the low income tax offset increased from $445 to $700; the upper limit for the 19 per cent tax bracket moved from $37,000 to $45,000; and the upper limit for the 32.5 per cent bracket rose from $90,000 to $120,000.

During 2020-21, there is also a one-year extension to the low and middle income tax offset, which is worth up to $1,080 for individuals and $2,160 for dual income couples.

Shortcut for home expenses extended again

Employees using the shortcut method to calculate their working from home expenses can continue using it following the ATO’s decision to extend its end date again – this time until 31 December 2020.

The ATO has updated its guidance on the shortcut measure and stated consideration will be given to a further extension.

The shortcut method allows employees and businessowners working from home between 1 March 2020 and 31 December 2020 to claim 80 cents per work hour for their running expenses.

Additional small business tax concessions

Small businesses should also check out their eligibility for several tax concessions now the annual turnover threshold for them has been increased from $10 million to $50 million.

From 1 April 2021, eligible businesses will be exempt from the 47% FBT on car parking and work-related portable devices (such as phones and laptops) provided to employees.

Eligible business will also be able to access simplified trading stock rules, remit their PAYG instalments based on GDP adjusted notional tax and have a two-year amendment period for income tax assessments from 1 July 2021.

Granny flats to be CGT exempt

Families considering building a granny flat on their property will benefit from the announcement of a new capital gains tax (CGT) exemption for granny flat arrangements. Although the exemption is yet to be legislated, the planned start date is 1 July 2021.

The exemption will clarify that CGT does not apply to the creation, variation or termination of a formal written granny flat arrangement within families. CGT still applies to commercial rental arrangements.

Refresh your ABN details

The ATO is reminding business taxpayers to keep their Australian Business Number (ABN) details updated so government agencies can identify business in affected areas during natural disasters.

Incorrect details could see you miss out on valuable assistance or potential grants during and after a disaster.

Maybe just maybe, Christmas is a little more in 2020

What if Christmas, doesn’t come from a store. What if Christmas…perhaps…means a little bit more!”

― Dr. Seuss

This year has looked different to other years, as the COVID-19 pandemic impacted our lives in many ways. As we look towards the festive season after what has been quite a challenging year for many, we need to consider how this celebration too might change.

It’s not all doom and gloom. Gratitude has been a real focus to the year, and as a result many people are shifting away from the silly season’s materialism and excess to reassess what Christmas means to them.

Our “new normal” festive season , can be one that is memorable and joy-filled, whether you celebrate this holiday or just enjoy unwinding at the end to the year.

Expressing gratitude

Being thankful for what we have is important; especially so in a year in which bad news may have overpowered the good. While perhaps you will be unable to travel to your annual holiday destination or see as many people as you ordinarily would, it’s helpful to focus on what you still have instead of what is missing.

Rather than merely being a buzzword, gratitude has been shown to reduce depression, anxiety and stress.ⁱ Whether it’s around the table at Christmas or in the lead up to the holidays, tell your loved ones what you’re thankful for, as this can inspire them to also reflect on this. It can also help reframe the year from being one of hardship to also having contained moments of happiness and opportunities.

Creating memories

As many of us have been separated from loved ones due to restrictions, the holidays provide an opportunity to reconnect in person. Even if you’re unable to continue certain traditions, such as a family road trip or a big indoor gathering, what truly matters is the time you spend with those you care for.

Perhaps even new traditions can be formed as you create memories together. Depending on what the restrictions will be come late December, you might be able to spend time with family and friends trying something different – if there has always been one designated Christmas host, perhaps this year you have a family picnic where everyone brings a dish to share.

Supporting others

Christmas time is synonymous with extending goodwill to all – and this year there are more people who are doing it tough as a result of the pandemic, as well as the bushfires earlier in 2020.

Give a helping hand to those who have fallen on hard times by volunteering some of your time to a worthy cause (such as a free meal service to those in need) or donating money if you’re able to. These gestures can also reaffirm your understanding of what you have to be thankful for.

Reducing overspending

Whether or not you were financially impacted by the pandemic this year, there is expected to be a trend of reduced spending over the Christmas period. A recent survey by Finder reported that 37% of Aussies plan to spend less on average this Christmas.ⁱⁱ

To reduce your spending, set and then stick to a budget. Don’t leave gift buying to the last minute when you’re more likely to miss bargains or to panic buy. Also watch your usage of your credit card, or buy-now-pay-later schemes so you don’t have a debt hangover in the new year to worry about.

As this year wraps up, we would like to express thanks for your support during 2020 and wish each and every one of you a safe and happy holiday season.

i https://www.tandfonline.com/doi/abs/10.1080/17439760.2016.1221127

ii https://www.finder.com/christmas-spending-statistics