Succession planning can be difficult at the best of times without dealing with the added pressures farmers need to face including droughts, fires and floods.
And that’s why it is even more important to plan early and get it right when you are on the land. You are not just dealing with a business, but invariably also with a home.
Some 99 per cent of the 135,000 farms in Australia are family owned with the average age of farmers being 52.i It is believed that farmers are five times more likely than other Australians to be working beyond the age of 65. There are a variety of reasons for this, from a reluctance to relinquish control, to a lack of family willing to take over the reins and financial necessity.
Given the physicality of farming, it would seem to make a lot more sense to start thinking about succession planning well before that stage.
Start talking
The first thing you need to do is open the doors of communication. Arrange a time to talk with your family to discuss:
Who wants to inherit and work on the farm and who wants to leave the property
Whether they agree each child should be treated equally or accept that the one inheriting the farm should receive preferential treatment
How everybody feels about splitting the property between siblings, or
The way forward if none of your children wants to stay on the land.
These are all considerations that need to be addressed and revisited over time to ensure they meet with everybody’s wishes.
If just one of the children wants to remain on the property, will they need to find the finance to pay out the other siblings? If so, then the next decision is how that finance will be found.
Perhaps the answer is to transfer the property before you die. If that is the case, then where will you live in retirement and what will be your source of income once you retire? Again, you need to examine the options. Perhaps you may receive an ongoing income from the property, or maybe find income from other investments. Importantly, you also need to revisit these options over time to ensure they still work for you.
One danger of not having a succession plan and working well beyond your best years, is that you can run the farm into the ground and make it a far less attractive property to sell.
Structure your plans
There are so many questions to ask and what is right for one family, may not be right for another.
But once you determine how you want to move forward, you then need to examine the best structures to put in place to make the process as efficient as possible. Some of the key advice you may need is on tax, trusts and land ownership and the intersection of all three.
Tax is particularly important as you want to avoid or at least minimise capital gains tax (CGT).
If you are 55 years of age or more and retiring and have owned your property for at least 15 years, then you may qualify for the small business 15-year CGT exemption on your entire capital gains. Other concessions may apply if you don’t qualify the 15-year exemption.
For couples where the family farm is held in their own name, perhaps you might want to consider a joint tenancy agreement as it leads to automatic transfer of ownership if one dies.
Or you might consider putting the farm into a family trust or perhaps holding it as an asset in your self-managed super fund. There are so many what-ifs to consider when it comes to rural properties. If you want to discuss how to move forward on your estate and succession planning and what will work best for you, then give us a call.
The ATO is cracking down hard on GST frauds after finding a significant number of taxpayers falsely claiming GST refunds.
The Serious Financial Crime Taskforce and Australian Federal Police (AFP) have executed numerous warrants against suspects, with a GST fraudster recently jailed for three years.
The ATO has warned it has zero tolerance for these types of fraud and has put in place a strategy to identify and pursue individuals suspected of inventing fake businesses to claim false refunds.
Falsely claiming a GST refund
GST refund fraud involves claiming a tax refund or other benefit by providing false information to the tax office.
In the recent spate of GST frauds, individuals have invented fake businesses and lodged a fraudulent Australian Business Number (ABN) application. They then submit fictitious business activity statements (BAS) in an attempt to gain a false GST refund.
Detailed information about how to undertake these types of frauds has been circulating as online advertising and content, particularly on social media.
Rules for claiming GST credits
It’s important to understand the rules in this area. Registering for an ABN and applying for GST refunds when you do not own or operate a business – or are ineligible – is fraud.
You can only claim GST credits on the business portion of a purchase and cannot claim GST on private expenses (such as food or entertainment). Discounted prices must be used when claiming GST credits, even if the discount does not appear on an invoice.
GST credits can be claimed upfront for purchases under hire purchase agreements entered into after 1 July 2012 only if your business accounts for GST on a cash basis.
Warning signs for GST fraud
The ATO has made it clear if you are not operating a business, you do not need an ABN and should not be lodging a GST return. The tax regulator has significant data matching capabilities enabling it to detect patterns in taxpayer behaviour that highlight potential tax frauds.
Backdating your business registration so you can apply for a refund is another red flag and will highlight you as a potential high risk in the tax office’s systems.
If you are caught
The ATO is urging anyone involved in a GST fraud to come forward on a voluntary basis, rather than face tougher consequences later.
If you are involved in a fake GST arrangement, the first step is to contact the ATO or your accountant so they can assist you to work through various self-help options. You may be able to correct your situation by revising your BAS, cancelling your ABN and GST registration, and setting up an arrangement to repay the GST refund.
Taxpayers caught engaging in GST fraud are liable to repay the entire fraudulently-obtained refund, regardless of whether they paid someone to lodge a BAS on their behalf. Making false declarations can also impact your eligibility for other government payments.
Fraud and compromised IDs
Selling or sharing your myGov credentials may result in other people accessing your personal information and using it for their financial gain.
If you have become involved in a GST fraud because your identity was compromised, you should contact the ATO immediately so additional controls can be placed on your tax account.
Taxpayers who have given their myGov details to a criminal should contact the ATO so it can assist them to protect their identity from being used to commit further crimes, including future tax crimes undertaken in their name.
Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).
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When markets fall, it’s natural to want to take action to prevent further losses. Doing so however can do more harm than good. Here’s why timing the market to buy low and sell high is not as easy as it sounds.
If you’re invested in the financial markets and also keeping up with the news, you’re probably wondering if you should do anything to insulate your portfolio from incurring further losses alongside rising interest rates and inflation.
In times like these, reminding investors to “maintain discipline” and “stay the course” – in other words, stay invested and here’s why:
Reacting to the here and now
Most market commentary are about the events of the day, with a focus on the here and now. However, the ‘today’ is not as significant to financial markets as they’re generally forward looking and more concerned about what will happen in the future. Thus, using daily developments to make constant adjustments to your portfolio is unlikely to help you accumulate wealth over the long term as the market will have already priced it in.
Additionally, to successfully time the market, investors need to get all five of these investment factors right including precisely timing exit and re-entry – a near impossible feat for even the most experienced of investors.
Locking in your losses
When markets fall, it’s natural to want to sell riskier assets (i.e. equities) and move to cash or safer assets like government securities. But exiting the share market now means locking in your losses permanently and not giving your portfolio the opportunity to benefit when markets recover. Research found that 80 per cent of investors who panicked and moved to cash during the 2020 sell off would have been better off if they had stayed invested1.
Investing at the peak
While we all want to “buy low and sell high” so our portfolios can outperform the market average, in reality, it is extremely hard to execute perfectly every single time. Analysis of the last 5 decades reveals that even in the worst-case scenarios – where investors bought into the market at its peak, just before a dip – as long as investors stayed invested instead of moving to cash, they still benefited from positive annual returns of almost 11%.
If the recent market volatility is keeping you up at night, take a moment to reflect on whether your emotions are short-term reactions to the current conditions, or something you really need to act on. If you feel like you cannot stomach temporary losses, consider if your asset allocation is right for your overall investment goals and risk appetite.
A well-diversified core portfolio, aligned to your risk appetite will help spread your risk and afford you a margin of safety over the long term. Get this right and you will probably sleep better at night.
Contact us if you would like to discuss this further.
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
Important: Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
Until recently, financial abuse was often kept secret, especially where it occurred within the family. Thankfully that’s changing with public awareness campaigns and help becoming more readily available.
The emotional and economic damage caused by financial abuse can be far reaching and devastating. A recent Australian report calculates that in 2020 alone, financial abuse victims lost $5.7 billion while the cost to the broader economy was $5.2 billion.i
Nearly one in 30 women and one in 50 men suffer financial abuse each year, according to the Deloitte Access Economics report The Cost of Financial Abuse in Australia, 2022. These figures are almost certainly an underestimate, the report adds.
There are no typical victims of financial abuse: those affected are of all ages and means. Sadly, the abuser is often a friend, carer, partner or family member.
What is financial abuse?
Financial abuse is when someone uses your money without your permission, prevents you from getting access to money or takes charge of your financial decisions.
These days, financial abuse is considered a form of domestic and family violence, taking away your independence and leaving you feeling vulnerable and anxious. Victims may also suffer physical violence and emotional abuse.
The most common type of financial abuse is withholding income or controlling how it is spent, according to the Deloitte report. But there are other forms of abuse that can be equally harmful such as making a partner liable for a joint debt, preventing someone from working, refusing to contribute to household expenses and refusing to contribute to the costs of raising a child.
Many victims also suffer flow-on effects of the abuse such as financial hardship and stress, leading to mental health issues. Some may also lose their home.
In some cases of family violence, one partner takes control of the couple’s finances, preventing the victim from leaving the relationship. In others, where the victim does manage to leave, the abuser may continue their abuse using tactics such as expensive legal action or disrupting the victim’s work or business.
Recognising the signs
Victims of financial abuse may not be aware of the abuse for some time, allowing perpetrators to empty bank accounts, deplete investments and incur large debts in the victim’s name.
The federal government agency, Services Australia says the warning signs include:
taking or using your money without your permission
not being allowed to work
having to account for how you spend your money
withholding financial information from you
spending any government payments you receive without your consent.ii
Incurring debts in your name is another form of financial abuse. Your partner may spend more than you agree on your credit card, pressure you into co-signing a loan with them, or take out a loan in your name, according to Australian Family Lawyers.iii They may also limit your educational opportunities by, for example, preventing you from enrolling in studies that could advance your career.
Older people and those living with disability can be particularly vulnerable to financial abuse if they rely on others for help and advice. Financial abusers may take money from their bank accounts or wallets, ask an older person to change their Will, take jewellery or other valuable items from their home, or take control of their decisions using a Power of Attorney when they are still capable of making their own decisions.
Where to go for help
If you or someone you know is suffering financial abuse, a number of free and confidential resources are available.
The MoneySmart website provides information about free legal advice at community legal centres or legal aid centres, and a number of suggestions if you need urgent help with money.
You can also find free and confidential counselling for family violence, abuse and sexual assault at: 1800RESPECT (24 hours a day, seven days a week) 1800 737 732
For crisis support, contact Lifeline (24 hours a day, seven days a week) 13 11 14
We understand that it can be difficult reaching out for support if you feel you or someone you love is being taken advantage of financially, especially if a family member is involved. Please call us if you would like a confidential discussion about safeguarding your finances.
Deciding on your retirement funding options in retirement comes down to what makes the most sense for you.
If you’re close to retirement, chances are you’ve already spent time thinking about how to tap into your superannuation when you retire.
Broadly speaking, you have a few options when you retire, as long as you’ve reached the minimum ‘preservation age’ when you’re allowed to access your super.
That’s a little bit complicated, because there’s currently a staggered range of preservation ages depending on when you were born. If you were born after 1 July 1964, your super access age is 60.
Deciding on your retirement funding options comes down to what makes the most sense for you.
Leaving your super alone
There’s actually no legislation that says you must start drawing out your super savings when you retire.
In fact, if you don’t need your super to fund your living expenses, you can simply leave it where it is.
You can keep investing your super, and even add money into your account if you pick up some work income, and make concessional contributions up to $27,500 per year (which are taxed at 15 per cent), or personal non-concessional contributions up to $110,000 per year using after-tax money.
You can contribute to your super at any time generally up until the age of 74 (excluding a home downsizer contribution), and by not starting a pension you’re not forced by the government to start withdrawing regular payments.
The government also allows people aged 60 and over to add up to $300,000 into their super account if they sell their principal place of residence, subject to a range of conditions. Legislation to lower the eligibility age to age 55 was passed in the Senate on 28 November.
Keep in mind that if you do leave your money in a super accumulation account, all investment earnings will continue to be taxed at the 15 per cent rate.
But that rate is still likely to be lower than what you would pay if you decided to withdraw your super and invest it into another asset, such as an investment property, where the rental income would be taxed at your full marginal tax rate.
Leaving all your money in super after you’ve retired means you can’t withdraw money as a regular pension income stream. To do that you generally need to roll at least some of it over into an account-based pension.
However most super funds will let you withdraw lumps sums whenever you like if you’ve met all release conditions and have the money transferred into your bank account. A minimum amount of $6,000 generally must be left in your account.
You should also be mindful that if you leave money in your super account or account-based pension and die that there may be tax consequences for non-dependant beneficiaries (see below).
Starting a pension stream
On the other hand, if you want to use all of your super to have a regular income stream once you retire, you’ll need to roll it over into a pension account.
You’ll need to contact your super fund manager to do this or, in the case of a self-managed super fund, ensure the trust deed allows for the payment of a pension income stream.
Your basic options are to either roll your super over into a pension product offered by your current super fund or to transfer it over to another pension product provider.
Most account-based pension products enable monthly, quarterly, half-yearly or annual payments, which will continue until your account balance runs out.
Be aware that once you start up a pension you’re required to withdraw a set percentage of your account balance every financial year, which increases as you age.
The minimum pension account withdrawal amounts have been temporarily reduced by 50 per cent for the 2022-23 income year. You can see them on the ATO’s website.
There are a range of advantages from setting up a pension income stream versus keeping your super money in accumulation mode.
Most importantly, if you’re aged over 60 and retired, your pension payments are tax-free and so are any investment earnings generated inside your pension account.
You can use your own pension income stream to supplement the government Age Pension if you’re eligible to receive it. And you’re also able to withdraw lump sums from your pension account at any time.
Upon your death, non-dependants who receive money left in a pension account will need to pay tax on the taxable component. The amount of tax payable may be reduced by tax offsets.
Doing both
If you’re wanting total financial flexibility in retirement, you could consider leaving part of your money in super, rolling over some of it into an account-based pension, and also withdrawing lump sums whenever you need to.
There are a range of benefits from adopting a combination of your options, although there may also be potential tax consequences for both you and your beneficiaries.
Managing the combination of a super accumulation account, an account-based pension, an Age Pension entitlement (if eligible), potential investment earnings outside of super, and irregular lump sum payments, can be highly complex.
Using the services of a licensed financial adviser is a worthwhile consideration as you weigh up all of your retirement options.
Call us today if you’d like more information about transitioning into retirement.
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
Important: Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
You may have heard it said, “No risk, no reward.” But did you know that time can actually decrease your risk while increasing your reward?
Investing: Risky business?
When some people think of investing, they focus on the potential for great rewards—the possibility of picking a winning share that will increase in value over time.
Other people focus on the risk—the possibility of losing everything in a market crash or on a bad stock pick.
Who’s right? Well, it’s true that all investing involves some risk. It’s also true that investing is one of the best ways to build your wealth over time.
In fact, there’s typically a direct relationship between the amount of risk involved in an investment and the potential amount of money it could make.
Different types of investments fall all along this risk-reward spectrum. No matter what your goal is, you can find investments that could help you reach your goal without taking on unnecessary risk.
Time is on your side
Here’s the secret ingredient that can make investments less risky: time.
But there’s a caveat.
If you invest in just a handful of investments or only within the same industry, time won’t necessarily make your portfolio any safer.
The reason it works for diversified investment portfolios that incorporate a range of asset classes (i.e. bonds), regions and markets is that over time, there tend to be more “winners” than “losers.” And the investments that gain money offset the ones that don’t do as well.
The more time you have, the more you benefit from compounding
Not only can the passage of time help lower your investment risk, it can potentially increase the rewards of investing.
Imagine you place one checker on the corner of a checker board. Then you place two checkers on the next square and continue doubling the number of checkers on each following square.
If you’ve heard this brainteaser before, you know that by the time you get to the last square on the board—the 64th—your board will hold a total of 18,446,744,073,709,551,615 checkers.
While there’s no guarantee you can double your money every year, the principle behind this – known as “compounding” – is important to understand that when your starting amount is higher, your increases are higher too. And over time, it can add up to be a material increase.
For example, if you earn 6% on a $10,000 investment, you’ll make $600 in the first year. But then you start the second year with $10,600—during which your 6% returns will net you $636. This is a hypothetical example that does not take into consideration investment costs or taxes.
In the 20th year of this example, you’ll earn more than $1,800—and your balance will have increased more than 200%.
A caveat: reinvesting is key
If you take your earnings out of your account and spend them every year, your balance will never get any bigger—and neither will your annual earnings. So instead of making more than $20,000 over 20 years in the hypothetical example above, you’d only collect your $600 every year for a total of $12,000.
If you instead leave your money alone, your “earnings on earnings” will eventually grow to be larger than the earnings on your original investment – and that’s the power of compounding!
Understanding long-term investing can be confusing, that is why we are here to help. Contact us today to find out more.
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
Important: Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
Small businesses across the country will be looking for ways to reduce costs amid cost of living and rising price pressures.
Economic challenges are expected to continue into the 2024 financial year, from inflation and supply chain lags to higher interest rates and reduced consumer spending.
Businesses will need to keep a close eye on their income and expenses to maintain positive cashflow, Small Business Loans Australia founder, Alon Rajic says.
“As Australian businesses continue to face the repercussions of the last two years, a significant proportion will have challenges, particularly without a savings buffer or strategy to help meet their expenses,” said Rajic.
Small Business Loans Australia research set out to find out if fast-rising interest rates and inflation would impact small business’ ability and motivation to invest in themselves. Specifically, more than a quarter (29 percent) of respondents had not planned to invest in their business at all this financial year.
Three quarters of respondents (76 percent) admit their cashflow will be impacted by interest rate rises and inflation over the next year, it also found.
Specifically, 30 percent believe their cashflow will be impacted because it will be harder to collect customer payments, while 26 percent say it will be harder to attract sales. A further 20 percent say both issues will impact cashflow.
But before you take any extreme actions like reducing staff hours or letting workers go, here are 11 straightforward tips to begin minimising business costs today.
Take a systematic approach The best starting place is to consider your key cost centres, such as purchasing, sales, finance, and administration, for example.
Go over your profit and loss statement for the past 12 months and rank your expenses from highest to lowest and comb through each one in search of cost saving potential.
Make sure you go back and look over your budgets and forecasts and see how you’re tracking.
Also, benchmark your business against industry standards. For example, your waste levels could be higher than the industry average, or others in your industry could be introducing sustainable business measures, which could be bringing them savings.
Uncover hidden costs Costs aren’t always easy to spot in business, but they can add up quickly.
Hidden costs could be the rising cost of insurance policies, unused subscriptions, permits and industry memberships you pay each month even though you never enjoy any of the perks they offer.
Sit down and go through your bank account and track the expenses to see where you can make savings or do without.
Also, be sure to double check supplier invoices for any overcharging, double billing or discounts that haven’t been applied.
Sell off unwanted equipment If you’re no longer using tools and equipment, don’t let them sit in the garage or stockroom gathering dust. Conduct an audit and convert what you can back into cash wherever appropriate.
Selling used or unwanted items brings in some extra cash, you’ll be able to put that money back into keeping the business running.
Negotiate with suppliers Taking half a day out to shop around for lower prices could end up making you more money than you realise.
Call your bank and see if they will offer you a better deal on your business loans, and shop around energy providers to see how you might reduce your utilities overheads.
Start with your biggest expenses and work your way down the list.
Separate personal and business expenses Put simply: don’t make personal purchases from the business credit card. Separating out your expenses will mean you can account for them easily and it’s a great way to make sure you don’t miss out on tax deductions.
It can also make sure you aren’t mistakenly claiming for personal expenses, which will be frowned upon by the Australian Taxation Office.
Reduce spending After all, a penny saved is a penny earned.
And that means it’s much easier to hold onto the cash you already have.
Set a budget, and follow it, and analyse where your money is being spent and where you can cut costs.
Even simple things like packing your lunch and purchasing a coffee machine for the office can add up over time — that five dollars a day for takeaway coffee will wind up being around $1,300 over the course of a whole year.
Conduct a tech audit Technology costs can add up, but if you’ve implemented tech a year ago that you’re no longer using, it can be a huge waste.
Go through your licenses and subscriptions that you don’t need or use to see what you can be culled.
It may be that you’re also haemorrhaging money due to inefficiencies in your systems — for example, if you’re wasting time and resources on manual data transfers between multiple software solutions.
A business management platform should include a broad variety of built-in features, allowing you and your staff to accomplish all your core business processes, such as accounting, payroll, inventory management and more.
Improve staff productivity Employees not pulling their weight in the business can reduce efficiency and become a costly liability.
Assessing and improving staff performance can be a great way to reduce costs before resorting to reducing staff hours.
Set ambitious but achievable goals your staff can get behind and consider what business management tools you might need to help track productivity and performance.
Realign marketing budgets with performance The sole purpose of marketing is to drive interest in your business’ products and services.
When times are tough, taking a close look at your marketing performance should be a regular occurrence to determine whether you’re getting value for money.
For instance, doubling down on your customer service may drive word of mouth outcomes that effectively boost the effectiveness of other marketing activities, or a targeted letter could deliver a new favourite customer.
Whether your analysis results in less spend or more, auditing your marketing budgets will help you gain a better understanding of where and when sales are coming in, and where your money is spent.
Reduce your space Do you really need that shopfront or office space anymore?
We all learnt the virtues of running a virtual business over the past few years, so if you’re still leasing an office space, now could be the time to consider whether there are more cost-effective alternatives.
Seek out an expert If you’re finding it challenging to cut costs, consider hiring an expert to suggest other cost reduction strategies.
The right advisor can help you audit your existing systems and processes, business and sales strategies, and make suggestions on how to sustain and grow your operations.
Don’t leave the hard decisions until too late. If you’re facing challenges as a result of the current high-cost environment, now’s the time to get active.
Source: MYOB November 2022
Reproduced with the permission of MYOB. This article by Nina Hendy was originally published at myob.com
Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
Billed as a Budget for families with a focus on relieving short-term cost of living pressures, Treasurer Josh Frydenberg’s fourth Budget also has one eye firmly on the federal election in May.
At the same time, the government is relying on rising commodity prices and a forecast lift in wages as unemployment heads towards a 50-year low to underpin Australia’s post-pandemic recovery.
While budget deficits and government debt will remain high for the foreseeable future, the Treasurer is confident that economic growth will more than cover the cost of servicing our debt.
The big picture
The Australian economy continues to grow faster and stronger than anticipated, but the fog of war in Ukraine is adding uncertainty to the global economic outlook. After growing by 4.2 per cent in the year to December, Australia’s economic growth is expected to slow to 3.4 per cent in 2022-23.i
Unemployment, currently at 4 per cent, is expected to fall to 3.75 per cent in the September quarter. The government is banking on a tighter labour market pushing up wages which are forecast to grow at a rate of 3.25 per cent in 2023 and 2024. Wage growth has improved over the past year but at 2.3 per cent, it still lags well behind inflation of 3.5 per cent.ii
The Treasurer forecast a budget deficit of $78 billion in 2022-23 (3.4 per cent of GDP), lower than the $88.9 billion estimate as recently as last December, before falling to $43 billion (1.6 per cent of GDP) by the end of the forward estimates in 2025-26.
Net debt is tipped to hit an eye-watering $715 billion (31 per cent of GDP) in 2022-23 before peaking at 33 per cent of GDP in June 2026. This is lower than forecast but unthinkable before the pandemic sent a wrecking ball through the global economy.
Rising commodity prices
The big improvement in the deficit has been underpinned by the stronger than expected economic recovery and soaring commodity prices for some of our major exports.
Iron ore prices have jumped about 75 per cent since last November on strong demand from China, while wheat prices have soared 68 per cent over the year and almost 5 per cent in March alone after the war in Ukraine cut global supply.iii,iv
Offsetting those exports, Australia is a net importer of oil. The price of Brent Crude oil prices have surged 73 per cent over the year, with supply shortages exacerbated by the war in Ukraine.v Australian households are paying over $2 a litre to fill their car with petrol, adding to cost of living pressures and pressure on the government to act.
With the rising cost of fuel and other essentials, this is one of the areas targeted by the Budget. The following rundown summarises the measures most likely to impact Australian households.
Cost of living relief
As expected, the Treasurer announced a temporary halving of the fuel excise for the next six months which will save motorists 22c a litre on petrol. The Treasurer estimates a family with two cars who fill up once a week could save about $30 a week, or $700 in total over six months.
Less expected was the temporary $420 one-off increase in the low-to-middle-income tax offset (LMITO). It had been speculated that LMITO would be extended for another year, but it is now set to end on June 30 as planned.
The extra $420 will boost the offset for people earning less than $126,000 from up to $1,080 previously to $1,500 this year. Couples will receive up to $3,000. The additional offset, which the government says will ease inflationary pressures for 10 million Australians, will be available when people lodge their tax returns from 1 July.
The government will also make one-off cash payments of $250 in April to six million people receiving JobSeeker, age and disability support pensions, parenting payment, youth allowance and those with a seniors’ health card.
Temporarily extending the minimum pension drawdown relief
Self-funded retirees haven’t been forgotten. The temporary halving of the minimum income drawdown requirement for superannuation pensions will be further extended, until 30 June 2023.
This will allow retirees to minimise the need to sell down assets given ongoing market volatility. It applies to account-based, transition to retirement and term allocated superannuation pensions.
More support for home buyers
A further 50,000 places a year will be made available under various government schemes to help more Australians buy a home.
This includes an additional 35,000 places for the First Home Guarantee where the government underwrites loans to first-home buyers with a deposit as low as 5 per cent. And a further 5,000 places for the Family Home Guarantee which helps single parents buy a home with as little as 2 per cent deposit.
There is also a new Regional Home Guarantee, which will provide 10,000 guarantees to allow people who have not owned a home for five years to buy a new property outside a major city with a deposit of as little as 5 per cent.
Support for parents
The government is expanding the paid parental leave scheme to give couples more flexibility to choose how they balance work and childcare.
Dad and partner pay will be rolled into Paid Parental Leave Pay to create a single scheme that gives the 180,000 new parents who access it each year, increased flexibility to choose how they will share it.
In addition, single parents will be able to take up to 20 weeks of leave, the same as couples.
Health and aged care
One of the Budget surprises in the wake of the Aged Care Royal Commission findings, was the absence of spending on additional aged care workers and wages.
Instead, $468 million will be spent on the sector with most of that ($340 million) earmarked to provide on-site pharmacy services.
The Pharmaceutical Benefits Scheme (PBS) is also set for a $2.4 billion shot in the arm over five years, adding new medicines to the list. PBS safety net thresholds will also be reduced, so patients with high demand for prescription medicines won’t have to get as many scripts.
A $547 million mental health and suicide prevention support package includes a $52 million funding boost for Lifeline.
And as winter approaches, the government will spend a further $6 billion on its COVID health response.
Jobs, skills development and small business support
As the economy and demand for skilled workers grow, the government is providing more funding for skills development with a focus on small business. It will provide a funding boost of $3.7 billion to states and territories with the potential to provide 800,000 training places.
In addition, eligible apprentices and trainees in “priority industries” will be able to access $5,000 in retention payments over two years, while their employers will also receive wage subsidies.
Small businesses with annual turnover of less than $50 million will be able to deduct 20 per cent of the cost of training their employees, so for every $100 they spend, they receive a $120 tax deduction.
Similarly, for every $100 these businesses spend to digitalise their businesses, up to an outlay of $100,000, they will receive a $120 tax deduction. This includes things such as portable payment devices, cyber security systems and subscriptions to cloud-based services.
Looking ahead
With an election less than two months away, the government will be hoping it has done enough to quell voter concerns about the rising cost of living, while safeguarding Australia’s ongoing economic recovery.
The local economy faces strong headwinds from the war in Ukraine, the cost of widespread flooding along much of the east coast and the ongoing pandemic.
Much depends on the hopes for the rise in employment and wages to offset rising inflation, and the timing and extent of interest rate rises by the Reserve Bank.
If you have any questions about any of the Budget measures, don’t hesitate to call uson 03 5120 1400.
Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).
Liability limited by a scheme approved under Professional Standards Legislation.
Christmas is a time when we come together to celebrate with our family and friends. And, for those who haven’t been able to see friends and family due to border closures, it will be an even more joyous occasion this year.
Gift-giving is typically a big part of celebrating Christmas and provides a great opportunity to reach out to support those who have done it tough this year.
Charity is not just about money
There are so many ways you can give back to the community. It’s not always about making a monetary contribution – giving your time is just as valuable. Volunteering at the local soup kitchen on Christmas Day or helping at your local Foodbank or food rescue service like OzHarvest can be just as valuable. Donating clothes, blankets or any other household items that will help those less fortunate or vulnerable is always welcome, especially at shelters for both men and women.
In recent years, gift bags or hampers are becoming increasingly popular too. It’s as simple as buying non-perishable food items or toiletries from the supermarket and creating a food hamper or gift bag.
Every Christmas, Kmart has the Wishing Tree Appeal whereby you can purchase a gift for a child and leave it under the tree in the store.
If you’re unable to donate cash or volunteer your time, a blood donation at the Australian Red Cross is another option. They are always in desperate need of donors. And when you donate, you’ll not only get to enjoy a little snack afterward, but you’ll receive a text message a few days later telling you exactly where your donation went.
Donating regularly
During the pandemic, there was a significant decrease in the number of donations made to charities across the country, and unfortunately, the amount of money we donated declined as well. People were unsure about job security, whilst others had chosen to donate specifically to the Bushfire Appeal early in 2020.i
Now we are coming out the other side of the pandemic economically, reports show donations are rebounding and are on the rise again. Those who donate, do so regularly and they usually have specific charities that they donate to. This may be due to personal circumstances or to support something they are passionate about.
If you’re considering donating to a charity this Christmas, you may want to do a little research first to find out exactly how your money is being distributed. How much goes directly to those in need and how much is being spent on admin and running costs. This is an important factor for many and may impact your decision in terms of which charity you choose to support.
The positive effects of donating or volunteering
Donating – whether it’s our time or money – will always make us feel good, but it shouldn’t be the key driver. Think about the impact your donation or time will have on those who are on the receiving end.
Donating will not only have a positive effect on the recipient, but it can also be beneficial to your children. You can teach them from a young age that giving back to the community can be very rewarding for many reasons.
Maximising your donation
There are so many charities to choose from in Australia, but it’s also worth considering international organisations as well. You may prefer to donate locally, but if you decide to choose an international charity, your dollar will more than likely go a lot further. Especially in developing countries, where they may need clean water, medical supplies, or even infrastructure to build schools for young children.
Remember, if you donate $2 or more, you may also be able to make a claim on your donation at tax time.
So, whether you’re volunteering at a homeless shelter or soup kitchen or giving a monetary donation – helping others who are less fortunate could be the best gift of all this Christmas.
To find out more about volunteering or donating in your local city go to – Christmas In Australia
i JBWere and NAB Charitable Giving Index
Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).
Liability limited by a scheme approved under Professional Standards Legislation.
