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February 2021 Newsletter

It’s February, the kids are back at school and the nation is getting back to business. It’s still not business as usual, but with the vaccine rollout about to begin there is a growing sense of optimism.

There was a sense of relief on the global economic front in January as Joe Biden was sworn in as US President. Financial markets rallied on expectations of more US government financial stimulus and a stronger focus on containing the COVID-19 health crisis. There were also positive economic signs from our other major trading partner, China where a V-shaped recovery is underway. China’s economy grew by 2.3% in 2020, the best performance of any major economy even though it was China’s slowest growth since 1976.

In Australia, there also signs of a cautious economic recovery. Consumer confidence hit a 14-month high in January, due to our success in dealing with the pandemic and supporting jobs. The ANZ-Roy Morgan consumer confidence rating hit 111.2 points, just below its long-term average of 112.6. Unemployment fell from 6.8% to 6.6% in December, a time when businesses typically hire casual staff for the Christmas-summer holiday rush. Retail trade fell 4.2% in December but was still up 9.4% over the year. Inflation remains weak, with the consumer price index (CPI) up 0.9% in the December quarter and also up 0.9% in 2020 overall. The exception is house prices, up 3% in 2020. This was reflected in the value of new home loans which rose 5.6% in November due to record low interest rates and government policy initiatives. The Aussie dollar finished the month slightly lower at US76c.

Unleashing your creativity

Unleashing your creativity

When you think of creativity, does an easel and pot of paints spring to mind, or perhaps a musical composition or dance choreography? You don’t need to be artistic to be creative. Creativity can benefit all of us, in all aspects of our lives.

In fact some of the biggest success stories come from people who have managed to think outside the box and find a new way of doing things – people who innovate and revolutionise, such as Steve Jobs, Elon Musk, Marie Curie and Alexander Graham Bell.

How did they manage to see the world differently? For many entrepreneurs and innovators, it’s their ability to think creatively. Creative thinking not only spurs innovation, but can assist you to create efficiencies, improve problem solving and work through uncertainty. While creativity isn’t a trait that comes naturally to all of us, fortunately this trait can be developed and fostered with some simple habits.

Expand your horizons

To be able to come up with fresh ideas and consider new perspectives, often we have to remove ourselves from what is familiar.
This can be as easy as holding a meeting in a new location (such as having a walking meeting in a park, instead of sitting down in the same meeting room), or perhaps a trip is on the cards – the reason work conferences are often held in different locations to the office is that this change in scenery can stir up new ideas.

If you can’t physically go anywhere different, you can still expand your inner world. Make time for reading so that you’ll be exposed to diverse perspectives. The act of reading in itself can have a relaxing effect, which can then leave you more receptive to ideas, a topic which is explored in the book Rest: Why You Get More Done When You Work Less.i

A space for creativity

You don’t necessarily need a room of one’s own to be creative. What is needed however is the space to let your thoughts be. Of course this is easier said than done in the busy world we live in, but there are still pockets of time you can utilise.
Rather than reaching for your phone while waiting in a queue, let your mind wander. Try to take regular breaks away from your desk, and opt for a change of scenery when you’re taking a phone call.

It might also be possible to change your working hours to best make use of your time and energy. If you have the flexibility to do so, structure your day so that you fit in enough time to go for a walk or exercise. We don’t often equate going to the gym or participating in sport as a creative activity, yet research shows that being active can enhance creativity.ii

Follow your passions

Our hobbies bring about creativity, often without us even realising it. If you’ve spent hours building a model, tending to your garden, watching the ripples on the water while fishing or listening to bird noises during a bushwalk, you’ve likely entered a state of ‘flow’, when time passes by without your awareness.

Again this allows space for new ideas to come into your mind, which may or may not be related to what you are doing – as goes the legend of the apple falling on Isaac Newton’s head, which led to his discovery of the law of gravity.

By following your passions, you’re not only giving yourself the space to relax and focus on something other than work, but you may find it results in inspiration. If you’re struggling to come up with a solution to a problem or are finding it difficult to string a sentence together, take a break to do something you enjoy – you might find the answer will come to you this way.

Whether you already think of yourself as being creative or not, creativity is an important tool we can utilise in all aspects of our lives. By simply having fun and changing up your routine, your creativity will grow and you can harness its power.



Turning redundancy into opportunity

Turning redundancy into opportunity

As the economy starts to recover from COVID-19 shutdowns, some sectors may take longer than others to return to their normal operating capacity and some companies may never fully recover. That means there is still the chance that some employees could be made redundant.

If you are offered redundancy, how can you turn a potentially bad situation into a new opportunity?

In the first instance, make sure that you negotiate a good redundancy settlement. By law you are entitled to a certain amount depending on your years of service with the company.i You may or may not come under an award, but the Fair Work ombudsman has a calculator so you can work out your entitlement.

You may even be able to negotiate an increased payment (a golden handshake) in order to keep confidential any specialist knowledge that you may have.

Your redundancy payment may include long service leave, holiday pay and sick leave, so it can be a sizeable amount and that creates opportunity.

How is it taxed?

But first, how much will you end up with after tax? There is a tax-free element for redundancy payments, calculated as a base amount (currently $10,989) plus a service amount ($5,496) multiplied by the numbers of years of service. So, if you have 10 years’ service, your tax-free amount is $65,949.ii

Any redundancy payment above this amount is your Employment Termination Payment (ETP) and subject to tax. If you are below your preservation age (the age at which you can access your super) you would pay 30 per cent plus the Medicare levy on this sum or 15 per cent plus Medicare if you are older than your preservation age. In both cases this tax rate applies up to $210,000 with the balance subject to 45 per cent tax plus Medicare regardless of your age.iii

So what should you do with this money? A large sum can present many opportunities although much will depend on your present circumstances such as how close you are to retirement and what your financial commitments are.

If you are hoping to find another job, assume this could take at least six months, so make sure you have sufficient funds.

Now is the time to take stock of your household budget and look at ways to reduce your overheads to control your immediate demands. For instance, you may look at selling your second car.

But don’t rush to cancel everything. Indeed, your income protection policy, for instance, could still play an important role. Before you act, ask your insurer if they would consider waiving the premiums for a few months. Just because you have lost your job, does not mean you will not be covered if something should preclude you from working in another job. You may well find you are still covered even if you are not currently employed.

Look to the future

Depending on your circumstances, you could consider using some of your redundancy payout to improve your overall financial situation. You could reduce your mortgage and other debts, or perhaps to make an investment or fund a business opportunity.

If you are approaching retirement age, then you might consider putting some of your redundancy pay into super. While this may still be a good idea if you are younger, remember you could be unemployed for longer than six months and you wouldn’t want your money locked in super until you reach preservation age.

If you are still expecting to have a few more years in the workforce, then take the time to seek professional help on your next move and think outside the square. So, rather than just find a similar position to the one you have lost in the same industry, look at widening your horizons. A professional career advisor can help. In many cases, employers provide such assistance as part of a redundancy package.

While redundancy can be confronting, if you think of it as a catalyst for change then you may find it’s one of the best things that has happened to you.

Call us to discuss how to make the most of your redundancy payment.




Contractor or employee: Which are you?

Contractor or employee: Which are you?

With COVID-19 having a significant impact on traditional employment, many people are working as a contractor for the first time either by choice or necessity. It’s not just a lifestyle decision; from the tax and superannuation perspective, there are important differences between being an employee and a contractor.

For employers, you also need to recognise the potential for the ATO to impose significant penalties for failing to meet your obligations for tax and super payments if you incorrectly categorise an employee as a contractor.

Contractor or employee?

Deciding if you are a contractor or an employee can be complex, but a key distinction is that an employee works in the business while an independent contractor runs his or her own business.

Contractors are self-employed and engaged to undertake a specific task at an agreed price, usually over a set period. They can choose their own hours and must pay for their own insurance, sick leave, holidays and super contributions.

Although COVID-19 has seen many employees working from home and claiming tax deductions for their home office running expenses, they remain an employee.

On the other hand, if you’ve been made redundant and have begun offering services to a range of businesses from your home office, you are likely to be a contractor.

How to tell an employee from a contractor

The table below outlines six factors that, taken together, determine whether a worker is an employee or contractor for tax and super purposes.

Employee Contractor
The worker can’t delegate the work or pay someone else to do it. The worker can delegate the work or pay someone else to do the work.
The worker is paid for the time worked, at a price per item or activity, or via commission. The worker is paid for a result based on a quote, calculated using hourly rates or price per item to work out the total cost of the work.
The business provides all or most of the equipment, tools and other assets required to complete the work; or the worker provides them but the business provides an allowance or reimburses the cost. The worker provides all or most of the equipment, tools and other assets required to complete the work and doesn’t receive an allowance or reimbursement for this.
The worker takes no commercial risks; the business is legally responsible for the work and liable for the cost of rectifying any defects. The worker takes commercial risks, is legally responsible for their work and liable for the cost of rectifying any defects.
The business has the right to direct the way in which the worker does the work. The worker has freedom in the way the work is done, subject to the specific terms in any contract or agreement.
The worker is not operating independently of the business and is considered part of the business. The worker operates their business independently, performs services as specified in the agreement and is free to accept or refuse additional work.

Source: ATO website

Recognising a contracting arrangement

Even if you hold an Australian Business Number (ABN) or a registered business name, you are not automatically a contractor. Being paid after submitting an invoice makes no difference either.

The length of a project or how regular the work is are also immaterial to your employment status. Both employees and contractors can be used for casual, temporary, on-call or infrequent work.

Both employers and contractors can check whether a proposed work arrangement is legally deemed to be employment or a contract using the ATO’s Employee or contractor decision tool.

Avoiding tax and super responsibilities

Under current legislation it’s illegal to make misleading statements to an employee to try to persuade them to take on a contract arrangement. You are also not permitted to dismiss or threaten to dismiss an employee so you can re-hire them as a contractor.

Arranging for an employee to sign a formal document stating they are a contractor will not override the true employment relationship – or your tax and super obligations for them.

If you would like help understanding and complying with your tax and super obligations as either a contractor or employer, contact us today.

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

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