The 2020 Federal Budget

The 2020 Federal Budget

by | Oct 7, 2020 | Financial Planning

 The 2020 Federal Budget (postponed from May), has been characterised by spending and bringing forward tax cuts to get the economy moving again. Make no mistake, the numbers are big! However, COVID has been seen as a great a threat to the global economy has faced in a very long time (many suggest since The Great Depression), and so requires equally strong and unprecedented measures.

The Treasurer, Josh Freydenberg has said that once the economy recovers and unemployment falls comfortably below 6%, he will then look to tackle the deficit. This is forecast to be in 2023-2024.

Unlike other budgets where we find major changes to superannuation requiring more strategic assessment and planning, this budget is relatively straight forward.

  • Personal tax cuts have been brought forward 2 years. This means many of you earning over $50,000 pa will have at least an additional $41 per week in your pockets. This will be back dated to 1st July 2020.
  • Further support for pensioners, low income earners and job seekers. This includes two cash payments and incentives for employers to hire unemployed workers.
  • Making it easier to choose a super fund. There will be an interactive online comparison to assist you in making a decision on where to invest your super, as well as making it easier to have your new employer contribute to your existing fund.
  • First home buyer purchase caps lifted to assist an additional 10,000 first home buyers.
  • Business tax changes for small business including immediate tax write-off, and applying tax losses from 2019 – 2022 against previously taxed profits.
  • Increased business investment with $1.3bn for initiatives in ‘modern manufacturing’ and $5.7bn for new and accelerated infrastructure projects.

 The attached article provides a comprehensive summary from Westpac Economics.

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When is the right time to refinance your loan?

When is the right time to refinance your loan?

by | Oct 5, 2020 | Financial Planning, Investments, Wealth Management

A study by the Reserve Bank of Australia (RBA) earlier this year found the average home loan that is more than four years old is paying an interest rate 0.40% higher than what is currently available for new loans. This may not seem like a lot but on a $500,000 loan it means you are paying $2,000 of extra interest each year that you could probably avoid. During the current pandemic, clients have been looking at ways to reduce their expenses and refinancing activity has reached historical highs. Is now the right time for you to refinance?

Reducing your interest repayments may not be the only reason you could look to refinance. Depending on your personal circumstances, refinancing can also help you to:

  • Renovate your property – you can borrow extra funds to build an extra room, landscape the back yard or renovate your current kitchen.
  • Consolidate your debt – if you have a credit card, personal or car loan, you may be able to fold these into your home loan saving significantly on interest.
  • Releasing equity – you can borrow against the equity you have in your home to fund the deposit on an investment property or just to have extra funds if you need them.
  • Change to loan features that better suit your circumstances – this may include switching from an investment to owner occupied loan or moving to a loan which offers an offset account and credit card.

Refinancing requires you to complete a full application for the new loan. The lender will assess whether you can afford the loan based on your current circumstances, so if you have had a recent reduction of income, or increased expenses, it may affect whether the loan application is approved. Lenders have also adjusted their credit policies in light of the current pandemic and the rules that applied when you were first approved may have changed. You must also consider what has happened to the value of your property since you purchased it. If the value has fallen, it may mean that you are unable to borrow the same amount that you had previously. Conversely, if the value has risen it may present a great time to release equity.

Another factor to consider in refinancing your home loan is the costs associated with moving to another lender. Whilst you may save on repayments, the costs of discharging your current loan and the application fees for the new one may leave you worse off. This becomes more prevalent if you have a small balance or when you are on a fixed rate.

Depending on the change in funding costs of the borrower, it can be very expensive to break a fixed loan before maturity. When they mature, fixed loans will revert to variable which are often less competitive to others in the market. This is an excellent time to assess whether you can move to not only a lower rate, but a loan with the right features for you.

Lenders have recognised that the associated costs of refinancing may hinder your ability to change loans and regularly offer ‘cash back’ incentives of up to $4,000 to overcome this barrier. Whilst it certainly helps, it is important to do the analysis on each scenario. Often those lenders without a cash back offer, but a slightly lower rate, will save you far more over the medium to long term. This is where a mortgage broker can help assess your options.

I always suggest that clients review their loan every two to three years simply to ensure they have the most appropriate product available. Often it will not be the right time to change lenders, but doing the research gives you confidence that you are not overpaying.

Downsizing? What a ‘Super’ Opportunity!

Downsizing? What a ‘Super’ Opportunity!

by | Sep 25, 2020 | Financial Planning, Investments, Wealth Management

I was recently having a chat with a prospective client who mentioned t her mother had put her house up for sale and was looking to downsize. Her thoughts were to simply add a portion of the proceeds from the sale to her existing share portfolio.

This had me thinking that many people, including advisers and accountants, were unaware of a relatively new part of legislation which allows those over 65 years old who meet certain eligibility requirements, to choose to make a ‘downsizer’ contribution into superannuation of up to $300,000 for each person from the proceeds of the sale of their home.

Eligibility Criteria

The eligibility criteria in making a downsizer contribution are:

  • you are over 65 years old at the time you make a downsizer contribution
  • the contribution is from the proceeds of selling your home
  • your home was owned by you or your spouse for 10 years or more prior to the sale (calculated from the date of settlement of purchase to the date of settlement of sale)
  • your home is in Australia
  • the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption
  • you have provided your super fund with the Downsizer contribution into super form either before or at the time of making your downsizer
  • you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
  • you have not previously made a downsizer contribution to your super from the sale of another home

If your home that was sold was only owned by one spouse, the other spouse may also make a downsizer contribution, or have one made on their behalf, provided they meet all of the other requirements.

What about my Transfer Balance Cap of $1.6m?

The downsizer contribution can still be made even if you have a total super balance greater than $1.6 million. What’s also important to note is that this contribution will not affect your total superannuation balance until the end of the financial year. Because this is not considered a ‘non-concessional’ super contribution, if you are still eligible to make a contribution to super before the end of that financial year, you may do so.

However, it will eventually count towards your transfer balance cap (TBC), currently set at $1.6 million once the end of year accounts are completed.

You can only access the downsizer scheme once. This means you can only make downsizing contributions for the sale or disposal of one home, including the sale of a part interest in a home, and it can’t be more than the proceeds from the sale of your home.

There is no requirement for a couple to make equal downsizer contributions. For instance, one spouse could make a $250,000 contribution while the other spouse may make a $130,000 contribution.

Timing of your contribution

You must make your downsizer contribution within 90 days of receiving the proceeds of sale. You may apply for an extension if there are situations beyond your control for making the payment.

So what’s the process?

You will need to complete the Downsizer contribution into super (NAT 75073) form. You need to provide this to your super fund when making – or prior to making – your contribution.

And then within 90 days of receiving the proceeds of sale, make sure you make the contribution.

An extension of time should be requested before the 90-day period from the date of settlement has expired.

Part sales of property

Fractional property investment firm, DomaCom received binding advice from the ATO that people may sell part of their home and still qualify for the downsizer contribution.

DomaCom have a platform whereby investors can purchase a portion of a property asset from sellers. Its Seniors Equity Release Platform provides this as an option for seniors looking to access cash through the sale of part of their home.

As mentioned previously, sellers are only able to use the downsizer contribution once, so once they sell a portion of their home and utilize it, they cannot do so again.

The contributions would still be capped at $300,000 per spouse and could be made as several contributions over a period of 90 days from settlement of the property.

With many Australians having large amounts of their wealth tied up in their home, the downsizer contribution may be very effective in allowing them to boost their income in a tax effective structure, regardless of whether you are over 65 and cannot meet the work test rule.

As with all these strategies, it’s important to get the right advice as each person’s situation may be different and there may be implications which affect you.

Find out how this can work for you on 03 99757070 or at info@stewardwealth.com.au

Massive international tax scam

Massive international tax scam

by | Sep 21, 2020 | Markets and Economy, Tax

The ACCC recently told Google and Facebook they have to negotiate with Australian media sources to effectively pay them for their news. This has sparked a furious response from both companies because they are conscious governments all over the world are watching very carefully, and if they give in to Australia it could well open the proverbial floodgates – much like the fight over plain paper packaging for cigarettes.

As well as sucking a huge amount of advertising revenue out of domestic media franchises, these transnational companies are renowned for utilising every legal loophole they can to avoid paying tax, especially the tactic of attributing revenue to low tax, offshore locations like Ireland, the Netherlands or Cayman Islands.

According to Neil Chenoweth of the AFR, Google’s CY2019 Australian ‘customer receipts’ were reported as $5.2 billion, but ‘revenue’ was $1.2 billion, so $4 billion of sales made in this country were somehow attributed to offshore offices.

Google reported pre-tax earnings of $134 million and ended up paying tax of $49 million. Chenoweth writes that if its Australian division is as profitable as the rest of the company’s non-US businesses, pre-tax earnings would have been $2.2 billion, which means Australian tax should have been more like $660 million, or 13 times more than what it paid.

Facebook reported CY2019 Australian revenue of $167 million and paid tax of $14 million. Chenoweth calculates revenue was probably more like $2.2 billion. Again, using average non-US earnings rates, pre-tax profit should have been $1.1 billion, which should have resulted in tax of $330 million, or 24 times more than what it paid.

Massive international tax scam

Michael West compiles an annual list of the worst tax dodging companies, and interestingly neither Google nor Facebook make the top 40.

These are but two example of what is a farcical international tax regime. A classic example of just because it’s legal doesn’t mean it’s right.

P.S. For anyone curious about the ramifications of social media, The Social Dilemma on Netflix is an interesting take on it.