Happy New Year! As 2021 gets underway, we hope you and your families enjoy a safe, happy and prosperous year ahead. While we are not out of the woods yet, there is cause for optimism.
December was a busy month on the economic calendar. Global equity markets surged on optimism about the imminent rollout of several promising coronavirus vaccines and the prospect of another US stimulus package. And in a pre-Christmas miracle, the UK signed a last minute, post-Brexit trade agreement with the European Union.
In Australia, the government’s Mid-Year Economic and Fiscal Outlook (MYEFO) projected a $197.7 billion budget deficit this financial year, down from the $213.7 billion forecast in the October Budget, as our economy recovers quicker than expected from the COVID-19 recession. Growth rebounded 3% in the September quarter, on continued support from low interest rates and government stimulus. Unemployment fell from 7% in October to 6.8% in November, which no doubt helped push consumer sentiment to a decade high in December.
Consumer confidence was also evident in the market for new detached homes, with sales up 15.2% in November, a decade high. High demand lifted residential property values 3% on average in 2020, with Melbourne the only market with falling prices. Regional prices (up 6.9%) outshone capital cities (up 2%). We also splurged on cars, with new car sales up 12.4% in the year to November and used cars sales up almost 30% in 2020. The Aussie dollar stood at US77c on New Year’s Eve, up 10% over the year.
Retrain your staff with the tax man’s help
For many business owners, fear of incurring a Fringe Benefits Tax (FBT) bill has kept them from retraining and re-skilling their employees to perform different roles or activities within the business.
But a new exemption announced by the government as part of last year’s Federal Budget is changing all that.
If COVID-19 has meant you need to transform your business and the responsibilities of some of your employees, now could be a great time to consider reskilling your existing staff.
Training and the FBT burden
Traditionally, if you provide training to your employees that is not sufficiently connected to their current role, you could find yourself facing a hefty FBT bill at the end of the year.
Say you have someone currently performing an administrative role, but you decide you want to redeploy them into a sales position; to give them every chance of success they will need to be trained in sales techniques.
As these skills are not required in their current role, the ATO would normally deem this type of training to be a fringe benefit you provided to your employees. This means you will have to pay FBT at the 47 per cent tax rate on the total cost of their training.
Not surprisingly, this has been a major disincentive for most employers to retraining or upskilling their workforce into new roles.
All this changed in the October 2020 Budget, when the government announced it was exempting employer-provided retraining activities from FBT to encourage employers to re-skill their existing staff for new roles within the business. Or even outside the business if the pandemic meant they were to be made redundant.
With the impact of COVID-19 forcing many small businesses to continue reshaping their business to cope with a rapidly changing market, FBT-free training could be a valuable way to retain your staff within the organisation, or to help them transition to new opportunities outside.
The government believes the new incentive will encourage more Australian business owners to retrain and redeploy their existing workers into new roles within their company.
Limits on the exemption
As always, the devil is in the detail.
The new FBT exemption does not extend to retraining acquired by way of a salary packaging arrangement, or training provided through Commonwealth supported places at universities, as this already receives a benefit.
It also does not cover repayments towards Commonwealth student loans.
Where the new exemption does apply, it can be claimed for training costs incurred from 2 October 2020.
This is how it works.
Jane owns two small specialist record and DVD stores in Melbourne. Due to the pandemic and subsequent lock-down, she decided to close her physical stores and make her three sales assistants redundant.
Despite this, Jane is keen to help her employees find new employment and offers them $2,000 each in retraining assistance. During the pandemic Jane’s online sales grew substantially and she now needs three new staff for web design roles.
She has decided to take advantage of her existing employees’ specialist knowledge of her business and is providing them with training in web design so they can take up these new roles.
Previously, if it cost $2,000 each to retrain her three employees, she would have been liable for 47 per cent FBT on the $6,000 cost to her for the training. With the new exemption, she will be able to retrain her staff without incurring any FBT liability.
Personal training deductibility proposal
As part of its statement on the FBT exemption, the government also announced it was planning to consult on a potential reform for individuals who undertake training at their own expense.
The government is considering allowing individuals undertaking training that relates to their future employment to deduct the cost from their income.
This would represent a major change, as the current tax rules limit deductions for personal training to training related to your current employment – not future employment.
Consultation on this reform is yet to be carried out but, if implemented it will provide a great opportunity for employees at all levels to undertake tax-deductible training.
If you have any questions about fringe benefit tax liabilities when retraining your staff or more broadly in your business, please don’t hesitate to give us a call.
Soaring to success in 2021
The start of a new year is a great time to reassess where you are in life, your career or business – decide what you want to achieve and put some strategies in place to work towards achieving even your most ambitious goals.
The start of this new year is a little unusual as for many of us, 2020 was a challenging year. The hopes and dreams we had for 2020 may not, in many cases, have come to fruition as planned, whether they were related to your business, your career or personal in nature, were put on the back burner. So let’s look at how to ensure that 2021 is the year to get things back on track and achieve what you are aiming for.
Let’s start with the fundamentals, it’s impossible to get to where you are going, if you don’t know the destination and challenging to make the journey without a road map of how to get there.
Identify your goals
This involves some soul searching. What do you want for yourself personally and professionally? What are your priorities? Do you want to climb the corporate ladder and set your sights on that senior management position, or spend more time with loved ones? Have you got an idea for a new business or are you wanting to take your existing business to the next level?
Make sure you are specific about what you want and don’t be afraid to aim high. Studies show that specific and challenging goals lead to higher performance than “do your best” type of goals.i
Once you’ve identified your goals – jot them down. People who write down their goals, have been found to be 33 percent more successful in achieving them.ii There is something very powerful about the written word.
An incremental approach
Once you’ve got an idea of what you want, it’s time to devise some strategies to achieve them. It’s important to dream big but sometimes big dreams can seem intimidating. The way to make a big task less intimidating is to break it into smaller tasks and approach it incrementally. What do you need to do to set yourself up for that management role? Do you need to go back to study? Start taking on more responsibilities at work?
Set up your plan with things you need to do which will act like a series of stepping stones leading to your destination.
Allocate time and resources
The next part of your strategy is to think about what you need to have in place to support each incremental step in your plan. Do you need to set aside time on a daily basis, each week or every month? Do you need financial support or a loan? How will you access that support?
You don’t have to go it alone – think about whether you can get some external assistance in the form of a mentor or just someone you can use as a sounding board. If you are running a business there may be government support packages you can access or external consultants you can engage to help you on your way.
Staying the course
It takes discipline to stay on target when there are so many distractions along the way. Make sure that your strategy has some review points at particular times or when you have completed the tasks you have set yourself so that you can celebrate your wins and recalibrate the plan if necessary.
If 2020 showed us anything, it was that the best laid plans can and will change and be subject to circumstances beyond our control, so it’s important to have some contingencies in place. Even more importantly, be agile in your approach so that you can adjust and refine the plan as needed.
Having a strategy and a methodology to implement your strategy will give you the best chance of reaching your goals in 2021 and beyond. Add in a dash of determination and self-belief and you’ll be flying high on your way to the success you’ve dreamed of.
2020 Year in Review
Just as we were recovering from the long drought and the worst bushfires on record, the global coronavirus pandemic took hold and changed everything.
Suddenly, simple things we took for granted, like going to the office or celebrating special occasions, were put on hold. While life is still not back to normal, Australia is in better shape financially than many people expected at the height of the economic shutdown.
Take superannuation. Far from being a wipeout, the average superannuation growth fund is on track to finish 2020 with a positive return of 3 per cent.i But it’s been a wild ride.
The big picture
Globally, the US presidential election and Joe Biden’s victory removed a major element of uncertainty overhanging global markets. As did the UK finally signing a post-Brexit agreement on trade with the European Union. However, trade tensions with China remain an ongoing concern.
The pandemic dragged an already sluggish global economy into recession, and we were not immune. In Australia, drought, bushfires, storms and the health crisis took their toll as we entered recession in for the first time in 28 years.
Final figures for 2020 are not in yet but an annual fall of 2.8 per cent is forecast, putting us in a better position than most developed nations.ii This is due in part to Australia’s relative success at containing COVID-19, and massive financial support from Federal and State Governments and the Reserve Bank.
Interest rates lower for longer
After starting the year at 0.75 per cent, the official cash rate finished at an historic low of 0.1 per cent. The Reserve Bank has indicated it will keep the cash rate and 3-year government bond rate at this level for three years to encourage businesses to invest and individuals to spend.iii
While low interest rates make life difficult for retirees and others who depend on income from bank deposits, they gave share and property markets a boost in 2020 as investors looked for higher returns than cash.
Shares rebound strongly
In February/March when the scale of the health and economic crisis became evident, sharemarkets plunged around 35 per cent. As borders and businesses closed and commodity prices collapsed, investors rushed for safe-haven investments such as bonds and gold.
But it soon became apparent that there were economic winners as well as losers, with global technology and health stocks the main beneficiaries.
By the end of 2020, US shares were up 16 per cent, with the tech-heavy Nasdaq index up 48 per cent.iv
Closer to home, the Australian All Ordinaries index was up 0.7 per cent, or 3.6 per cent when dividends are included.
Elsewhere, European markets were mostly lower reflecting their poor handling of the pandemic. While China and Japan performed strongly, up 14 and 16 per cent respectively.
Commodities boost the Aussie dollar
China’s economic rebound was another factor in the Australian market’s favour, with iron ore prices jumping 70 per cent. Rising iron ore prices and a weaker US dollar pushed the Aussie dollar up 10 per cent to close the year at US77c.vi
At the other end of the scale, oil was one of the biggest losers as economic activity and transport ground to a halt. Oil prices fell more than 20 per cent despite OPEC producers restricting supply.
Property surprises on the upside
Despite dire predictions of a property market collapse earlier in the year, residential property values rose 3 per cent in 2020 and 6.6 per cent when rental income is included.vii
Melbourne was the only city to record a price fall (down 1.3 per cent), with combined capital cities up 2 per cent.
The real action though was in regional areas where average prices lifted 6.9 per cent.
As 2021 gets underway, Australia is inching back to a new normal on growing optimism about the global rollout of vaccines.
Our economy is forecast to grow by 5 per cent this year, but there are bound to be bumps along the way.viii In the meantime, the government stands ready to continue stimulus measures to support jobs and the economy.
After the year that was, a return to something close to normal can’t come quick enough.
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 www.evogroup.net.au or call 02 9098 5055 for more information on our available services.