Written by Hudson Adviser Phillip McGann
Economists are increasingly becoming concerned of what the short term outcome for the economy will be as we come to the end of the government assistance later this year - indeed within the next 100 days .
The Federal Government, State governments and many large corporations (including the banks) have been very proactive in providing the economy with a "crutch" to keep things going through the enforced lockdown of large swathes of the economy.
- The Federal Government has provided colossal support via its three stimulus packages since March covering apprenticeships, tax relief, social security increases via JobSeeker payment and the big one of supporting over 3 million workers with JobKeeper.
- State governments have come up with sector specific grants ,payroll tax waivers and deferments as well as outright loans.
- The banking sector has provided wholesale loan repayment holidays (not actually cancelling the interest owed just capitalizing it) until better times return.
These are all welcome and targeted and have had a large impact to stem the job losses and allow us to "only" record an unemployment rate in May of 7.1% when the real figure without Jobkeeper may well have been 14% or even more.
However what happens when these programs run out?
What happens when they all run out together at the end of September?
- The JobKeeper program has an end date of the 30th September.
- The JobSeeker increase in payments (effectively doubling the payment ) is due to expire about he same time.
- Likewise the banks have set there repayment holidays to run out at the end of September.
All of these by themselves are major changes but if they all happen at once (with no other changes brought in) will we potentially see a spike in unemployment as the lockdowns are still in force.
Many industries that rely solely on close human interaction (hospitality, tourism, sport, education etc) may well be devastated as business owners are no longer able to keep staff on board without the Jobseeker lifeline.
This leads to potential business closures and the myriad after effects of loan defaults and forced property sales etc.
Is this outcome avoidable? Of course it is.
The Federal (and to a lesser extent the State Governments through border lockdowns etc) has created this environment by closing whole industries down.
For legitimate health reasons we are in the midst of a government induced recession.
And it is up to governments to step up and step in and compensate the population as best it can in a collective sense to enable the economy to get back on its feet. This is a combination of unwinding the lock downs as well as maintaining fiscal assistance.
If this necessitates massive debt - as it has so far and as it will going forward - then so be it.
As Australians we all collectively own that debt and to use it to keep the economy afloat whilst we get through the pandemic is simply what we will have to bare.
The debt will accrue and we will have to service it and eventually pay it off (or write it off) via future income from taxes and inflation.
This is what happened in previous episodes of war and this current pandemic is akin to a "war on a virus" with all the restrictions previous war conditions entailed.
So yes, the government can and likely will extend the assistance past September to massage the economy's recovery from the pandemic. The alternative is a more severe and longer lasting recession or even depression and no government wants that on its watch.
Likewise the last thing banks want to do is foreclose on loans if any alternative is available. If the banks went "in hard" demanding repayment of debts come October they would be shooting themselves in the foot as they would be trying to sell property in a depressed market created by multiple sales of foreclosed properties from themselves and other institutions.
Banks are in the market place to lend money not foreclose on collateral unless absolutely necessary. So expect further assistance for the banks going forward particularly form home owners.Read in full + comments 0 Comments
Written by Hudson Adviser Ivan Fletcher
Below is a timely reminder on tax matters for preparation and inclusion in your 2020 tax return.
1. Check your Super Contribution Classifications - are correctly classified by your super fund for the last financial year. This is especially important if you made personal contributions this year (See below).
2. Did you make any Personal Contributions to Super for the Year? - If Yes – then you have the scope to decide whether you want that contribution to be classified as concessional or non-concessional. Please note that although 30 June 2020 has passed you still have the flexibility to change the classification (as long as it is done before you lodge your tax return or 30/6/21 in 12 months time (Which ever comes first).
The Case for non-concessional
If your income is between $38,564 and $53,564 then you may qualify for the government co-contribution up to $500 (if below the lower threshold). To achieve the maximum entitlement (assuming you are under $38,564 income) you need to have $1,000 as non-concessional contributions.
A $500 return on a $1,000 investment is a 50% return and still the best tax break for those who qualify.
Caution – if you claim a deduction on all your personal contributions, then you will not qualify for the government co-contribution payment. To maximise the government co-contribution you should keep $1,000 as non-concessional.
The Case for Spouse Contribution) (non-concessional)
If the lower income earning spouse has income under $37,000, then allocating $3,000 of personal contributions as “Spouse” contributions will allow the higher earning spouse up to $540 (18% of $3,000) in tax offsets. Spouse contributions are included in the non concessional annual Limit of $100,000 and are not subject to the Super Contributions tax of 15%. For thesake of clarity the spouse contribution needs to be made to the super fund of the lower income earning spouse (including nil income scenarios).
The Case for Concessional
relatively new Legislation as of 1 July 2017 personal contributions (funded
from personal accounts) may also be classified as concessional allowing for a
tax deduction in the personal tax return, regardless of whether you are self
employed, a wage earner or retired under age 65.
If you have income in a higher tax bracket with taxable income in excess of $37,000 (eg 34.5% tax rate inclusive of Medicare levy) a personal tax deduction reduces your tax payable at your marginal tax rate. A 15% contributions tax will however apply to your super fund. In this case the net return (tax benefit) is still 19.5% (34.5% - 15%).
Caution 1 - There is a maximum of $25,000 p.a. (unless you have qualified to carry forward unused Contributions from 2018/19 year) allowable as concessional contributions.
Concessional contributions is inclusive of employers superannuation guarantee, and salary sacrifice contributions and in some cases insurance premiums as well as your personal contributions (in the event you claim the deduction).
Caution 2 - If you are already below the zero tax threshold than tax deductions have no value and will in fact cost you 15% Contributions tax unnecessarily. As a rule of thumb if your taxable income is lower than $25,000 you may not need the deductions. At this level of income you will qualify for some tax rebates which may offset any taxes you would be due to pay at this level.
Being Tax Smart – If you are unsure of how much you should claim, you can get your tax return DRAFTED (But not lodged) and then consult with your tax agent as to whether there is any benefit in claiming all or part of your personal contributions as a tax deduction.
The Process to Claiming the Deduction
All personal contributions are classified as non-concessional in the first instance so to claim a tax deduction you need to lodge a “Notice of Intent” with your super fund.
If you lodge a “notice of Intent” to Claim a tax deduction with your super fund the classification is then changed to concessional and the 15% contributions tax will be charged to your super fund. You will receive a confirmation from your super fund as evidence to include the deduction in your tax return. Without this confirmation you cannot claim the tax deduction.
The Timing/Deadline - for Lodging a 'Notice of Intent'
With most super funds this is a decision you can make well after 30 June. The Notice of Intent form must be lodged before you lode your tax return or before the next 30 June (ie 12 months) – whichever comes first.
3 . Depreciation on Investment property - Make sure you have a depreciation(s) schedule for your accountant including Building Write-Down as well as fixtures and fittings (white goods, heating/cooling systems, carpets, etc). If your investment property is under 40 years old (or had a major renovations in the last 40 years), there will be deductions available. Seek advice from your accountant if you are uncertain. If you have recently purchased a property, you may need to engage the services of a Quantity Surveyor to prepare the appropriate schedules for your investment property.
4. Investment loan deductions - Mortgage broker and loan establishment fees, stamp duty charged on the mortgage, title search fees charged by the lender, valuation fees for loan approval, costs for preparing and filing documents on the loan, and lender's mortgage insurance – are all tax deductible items. If your total borrowing expenses are more than $100, the deduction may be spread over five years or the term of the loan, whichever is less. These expenses are often overlooked when doing tax returns.
5. Income Protection Insurance Premiums - where the policy is held outside of Superannuation, premiums are tax deductible. If your policy is held within super or funded by your superannuation, it is NOT deductible in your personal tax return.
6. Distribution and Dividend Income - This is easy to miss. In the case of managed funds you will receive tax statements for using in your tax return. You may have 2 tax statements (with the second one covering Capital Gains/Losses).
7. Capital Gain / Loss - If you have disposed of any investments, (shares, managed funds, real estate, art) then you will need to prepare capital gain/loss calculation for inclusion in your tax return. For property, this calculation has many components including the add back for items such as stamp duty and sales costs as well as adjustments for construction write down. It is highly recommended you consult with a tax agent for these calculations.Read in full + comments 0 Comments
Written by Hudson Adviser Kris Wrenn
In an effort to provide further stimulus to the economy the Government has announced a couple of new initiatives designed to try and increase activity in the residential construction industry. It’s early days but here is what they're proposing.
THE HOMEBUILDER PROGRAM
Homebuilder provides a grant of $25,000 for those eligible that are building a new home or renovating an existing property. Those that believe they are eligible can apply once their State or Territory signs the National Partnership Agreement with the Commonwealth Government and it's noteworthy that some states are still in negotiation. Hence, early days.
If things do proceed the finer details currently look as follows:
- The applicants must be over age 18 and Australian residents .
- The applicants income must be below $125k (singles) and $200k (couples) for the 2019 financial year.
- The application must relate to an owner-occupied property.
- A building or renovation contract must be signed between 4th June 2020 and 31st December 2020.
- The work must begin within 3 months of the contract date.
- New builds must cost no more than $750,000.
- Renovations must cost between $150,000 and $750,000.
The grey areas
Each application will be considered "case by case" and a very important aspect of the scheme is that a renovation must be to "improve the accessibility or safety or liveability of the dwelling". As such it cannot just be putting in a swimming pool or a tennis court or any other such luxury.
The scheme will complement all the other various First home owner grant programs which differ depending on the State or Territory. This includes Stamp duty concessions for example. It also includes the other recent Commonwealth schemes, which are:
The First Home Loan Deposit Scheme
This is whereby the Government will support first home buyers by working with the bank providing the loan and ensuring the buyer doesn't pay Lenders Mortgage Insurance, even if they have less than a 20% deposit and instead they can potentially use as little as 5%. This scheme was limited to the first 10,000 applicants, however as of 1st July 2020 another 10,000 places will be released.
The First Home Super Saver Scheme
This has existed for 3 years now and allows potential first home buyers to make pre-tax contributions into their Super, but then ultimately pull these funds back out again for use as a deposit for a first home. This includes the associated earnings.
All in all the above schemes are a great opportunity for first home buyers to leverage into the market. Maybe it's time to encourage your children to book their first appointment with a Hudson financial planner for a complimentary financial health check and to see if they can benefit from any of the above.Read in full + comments 0 Comments
The All Ordinaries closed on 30th June at 6001 and this really says it all for the month of June. It's been as though the sight of the market in the 5,000s has drawn investors in but the sight of the 6,000s has made them wary. The market closed at 5938 on 1st June and in the 4 weeks that followed it dropped above and below the 6000 mark a total of 7 times! Overall the All Ords rose 2.2% across the month of June.
In the US things were a little more volatile, with a slightly larger rise and fall but finished with a similar result to Australia rising 1.7% for the month of June.
The $AUS has been very flat all month, with rises and falls of 1c but ultimately starting and finishing the month at 69c to the $US.Read in full + comments 0 Comments
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