King & Whittle February 2024 Newsletter
As February kicks off and with the summer holidays behind us, many of us are settling back into our regular routines and it’s time to turn our focus to the year ahead.
Cooling inflation and a strong economy with relatively low unemployment has sent investors back to Australian shares, with the S&P/ASX 200 hitting an all-time high on the last day of January. It was up by more than 12% since the end of October 2023.
Annual CPI for 2023 was 4.1%, much closer to the Reserve Bank’s target of between 2% and 3%. CPI in the December quarter was the lowest since March 2021 and below market expectations. The unemployment rate remained steady at 3.9% in December.
However, prices for most goods and services are still rising and the fall in discretionary spending is taking retail sales with it. Retail turnover fell 2.7% in December after a fall of 1.6% in November.
The falling inflation figures and the expectation that the RBA would hold interest rates saw a drop in the Australian dollar, which is also coming under pressure from a strengthening US economy.
Oil prices, at the mercy of a contraction in Chinese economic activity and the crisis in the Middle East have steadied with Brent Crude at just over $80 a barrel.
While the iron ore price halted its rise in January with a rapid dip mid month, it’s since climbed back, defying expectations.
At King & Whittle, we are constantly searching for value-add offerings and contemplate ways that we can provide the best possible service to our valued clients.
One resource we discovered was Audit Shield, a tax audit insurance solution. We believe there will be a significant increase in Audit activity with Government Revenue authorities over the next few years. The service is not compulsory, and we simply suggest you take the time to read through the information and decide if it is right for you.
We have further details in this months newsletter, but please don't hesitate to contact your King & Whittle Advisor for further information or clarification.
To all our staff, clients and friends of the firm who celebrate Lunar New Year... we wish you a Happy 2024 Year of the Dragon... anticipated to bring auspicious opportunities and exciting advancements for all!!
Market movements and review video – February 2024
Stay up to date with what's happened in markets and the Australian economy over the past month.
Cooling inflation and a strong economy with relatively low unemployment has sent investors back to Australian shares towards the end of January.
The lower than anticipated inflation figures fuelled optimism at the end of the month, for the possibility of earlier cuts in domestic interest rates.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
Audit Shield
Audit Shield Insurance Service
At King & Whittle, we are constantly searching for value-add offerings and contemplate ways that we can provide the best possible service to our valued clients.
One resource we discovered was Audit Shield, a tax audit insurance solution which provides cover for professional fees that is incurred in the event of an audit, official inquiry, investigation, or review instigated by Australian Taxation Office or other relevant government revenue authorities (e.g., State Revenue Office, etc.). We believe there will be a significant increase in Audit activity with Government Revenue authorities over the next few years. Audit activity can affect all taxpayers regardless of whether you are an individual, business or have a Self Managed Superannuation Fund.
Our aim is to ensure that all our clients receive the best possible support through what can be an extremely stressful time, at minimum cost. We will be offering Audit Shield as an extension of our services and an email of invitation will arrive in the next few weeks for your consideration.
The features of Audit Shield Service are:
· Covers our accounting fees (up to prescribed limit) in responding to official inquiries, reviews, investigations, and audits relating to a tax return or a compliance obligation.
· Fees of any other external professional (e.g., lawyers) engaged or instructed by us to assist us in a response to audit activity are also covered (up to prescribed limit).
· Retrospective cover, so all previously filed returns are included (even if we did not prepare the return).
The service is not compulsory, and we simply suggest you take the time to read through the information when received and decide if it is right for you.
Please contact your King and Whittle advisor if you require any further information or clarification.
Tax changes – what it will mean to me
Prime Minister Anthony Albanese has announced proposed changes to address ongoing cost of living pressures with all 13.6 million Australian taxpayers receiving a tax cut from 1 July 2024, compared to the tax they paid in 2023-24.i
Now is the time to assess what it means to your hip pocket and what implications it may have for end of financial year planning as a result of the new rules, due from 1 July 2024.
The Federal Government has recently announced changes to the third stage of a series of tax reforms introduced by the previous Coalition government almost six years ago which were designed to deliver tax cuts to most, simplify the tax system and protect middle income earners from tax bracket creep.
The proposed changes
The new rules will see the current lowest tax rate reduced from 19 per cent to 16 per cent and the 32.5 per cent marginal tax rate reduced to 30 per cent for individuals earning between $45,001 and $135,000.
The current 37 per cent marginal tax rate will be retained for those earning between $135,001 and $190,000, while the existing 45 per cent rate will now apply to income earners with taxable incomes exceeding $190,000.
In addition, the low-income threshold for Medicare levy purposes will be increased for the current financial year (2023-24).
A single taxpayer with a taxable income of $190,000 paid $59,967 tax in 2023-24. Under the revised rules, they will now pay $55,438 tax, a tax cut of $4,529. While still a reduction in tax paid, this compares with the $7,575 tax cut received if the original Stage 3 tax cuts had proceeded.
On the other hand, low-income earners will receive a bigger tax cut under the revised rules.
A single taxpayer with a taxable income of $40,000 who paid $4,367 in tax in 2023‑24, would have received no benefit from the original Stage 3 tax plan, but will now receive a tax cut of $654 under the revised rules.
Implications for investment strategies
For high-income earners, the key take-away from the government’s new changes to the tax rules is you will now receive a lower amount of after-tax income than you may have been expecting from 1 July 2024.
This reduction makes it sensible to revisit any investment strategies you had planned to take advantage from your larger tax cut to ensure they still stack up.
For example, the smaller tax cut for some may impact the effectiveness of property investment.
Investment strategies such as negative gearing into property or shares, however, may become more attractive. Particularly for investors close to the new tax thresholds and looking for opportunities to avoid moving onto a higher tax rate.
Timing expenditure and contributions
Investors considering repairs or maintenance for an existing investment property should revisit when these activities are undertaken. Depending on your circumstances, this expenditure may be more suitable in the current financial year given the difference in tax rates starting 1 July 2024.
Selling an asset liable for CGT also needs to be reviewed to determine the most appropriate financial year for the best tax outcome.
Other investment strategies that may need to be revisited include those involving making contributions into your super account.
If you are considering bringing forward tax-deductible personal super contributions, making carry-forward concessional contributions, or salary sacrificing additional amounts before 30 June, you should seek advice to ensure the timing of your strategy still makes sense.
If you would like help with reviewing your investment strategies or superannuation contributions in light of the new rules, contact us today.
i https://treasury.gov.au/sites/default/files/2024-01/tax-cuts-government-fact-sheet.pdf
Securing your passwords online
We spend a lot of time online and don’t often think about the risks involved. Yet if we are not careful, we can make ourselves vulnerable to criminal activity such as hacking, phishing, and identity theft.
The annual Cyber Threat Report announced in 2023 a 23% year-on-year increase in cybercrimes in Australia, amounting to a cybercrime reported every six minutes.i And according to the recent Cybercrime in Australia report also published in 2023, 47% of survey respondents experienced at least one cybercrime that year, with half of all victims experiencing more than one instance.ii
One of the simplest ways to protect yourself online is to ensure you have secure login credentials and to update your passwords regularly. So, if you haven’t updated your passwords for some time, below are some tips to ensuring stay secure online.
Stronger password security
Vary your passwords
The most common vulnerability is passwords. We have passwords for many things we do online, protecting our bank accounts, inboxes, and social media accounts to name just a few.
With the need for so many passwords, it’s easy to see why we often become complacent and choose the same one for multiple accounts. A 2019 Google/Harris Poll study found that 52% of respondents use the same password for multiple accounts and 13% reuse the same password for all their accounts.iii Not only does this put your accounts at risk of being compromised, using the same password can lead to hackers utilising your credentials as a way of identifying as you.
Get creative
It’s no surprise that the most common passwords are 123456 and admin– they are easy to remember, however they are also easy for anyone to guess.iv
Choose a password that’s at least 12 characters long with a mix of uppercase and lowercase letters, numbers, and symbols. Some sites will need you to do this when you sign up, and it is good practice even when not required. Avoid using easily guessed information like birthdays, names, or common words (such as user or password).
Password management
Remembering your passwords, especially those which are a unique combination of letters and numbers, can be tricky. Use a centralised password management system to record passwords. There are many to choose from so look out for ones that are encrypted with a strong algorithm to prevent hacking.
Use 2-step verification
Another way to strengthen online security is to use 2-step verification. This adds additional security by asking you for further details, such as a number sent to you as a text message or email, or using an authenticator application to verify your identity when you log-in.
More ways to keep safe online
Using anti-virus software is wise as it’s designed to provide protection against the latest viruses and other types of malware. It updates automatically so you don’t need to worry as much about having to be on top of the latest cyber threats. It’s also worthwhile backing up any important data.
Not all our interactions online are protected, so be sure to use secure networks and be careful about public Wi-Fi, such as the one you might use in a café, airport, or library. Public Wi-Fi is convenient, however if you are using websites that aren’t encrypted, this information is at risk. Look out for the lock symbol near your browser’s location field and check that the site address starts with ‘https’ rather than ‘http’ to be on the safe side.
Lastly, it’s the simplest solution but one that bears mentioning – keep your personal information private. Don’t share your log-in information unless absolutely necessary and don’t display your passwords somewhere that’s easy to find (such as a label on your phone or laptop).
These preventative measures can help you stay safe online and away from the risks of cybercrime.
Common passwords in Australia
1. Banned — 2 minutes to crack
2. 123456 — less than a second to crack
3. Admin — less than a second to crack
4. password — less than a second to crack
5. qwerty123 — less than a second to crack
6. 12qwasZX — less than a second to crack
7. Starwars29 — 3 seconds to crack
8. welcome11 — 2 seconds to crack
i https://www.minister.defence.gov.au/media-releases/2023-11-15/release-annual-cyber-threat-report-2022-23
ii https://www.aic.gov.au/publications/sr/sr43
iii https://services.google.com/fh/files/blogs/google_security_infographic.pdf
iv https://nordpass.com/most-common-passwords-list/
SMSFs: What happens if you exceed your super caps
The rules around making some types of super contributions have been relaxed in recent years, so it’s worth exploring the different opportunities available to you before making a large contribution.i
What are contribution caps?
Given the tax-effective environment of Australia’s super system, there are annual limits on how much you can contribute each financial year.
The two main types of contributions are concessional (before-tax) and non-concessional (after-tax) contributions.
Concessional contributions include employer Super Guarantee contributions, salary sacrifice and personal tax-deductible contributions, with the general contributions cap for 2023-24 being $27,500. In some situations, you may be permitted to contribute more if you have unused cap amounts from previous financial years.
If you’re a SMSF member, you may be able to make a concessional contribution in one financial year and have it count towards your concessional cap in the following financial year.
Non-concessional contributions cap
If you use after-tax money to make a super contribution, this is classes as a non-concessional contribution and there is no tax payable when the contribution is paid into your super account.
The general non-concessional contributions cap in 2023-24 is $110,000 provided you meet all the eligibility criteria, such as your Total Super Balance being below your personal limit. Your personal cap may be different.
If you’re age 55 or older, the once-only downsizer contribution cap is $300,000 per person ($600,000 for a couple). These contributions from the sale of your main residence don’t count towards your annual non-concessional cap.
Exceeding your contribution caps
There are different rules for super contributions that exceed the annual caps, depending on the type of contribution.
If you go over the annual concessional cap, your contribution is counted as personal assessable income and taxed at your marginal tax rate, with a 15 per cent tax offset to reflect the tax already paid by your super fund. Your increased assessable income may also affect any Medicare levy, Centrelink benefits and child support obligations.
The excess contributions can be withdrawn from your super fund, but if you choose not to withdraw them, the excess is counted towards your non-concessional contributions cap.
If you don’t or can’t elect to release excess contributions, you could end up paying up to 94 per cent in tax.ii
Exceed your non-concessional cap
Contributions exceeding your annual non-concessional (after-tax) cap are taxed at 45 per cent plus the 2 per cent Medicare levy. This is in addition to the tax already paid on this money.
Before the ATO applies this tax, you are given the opportunity to withdraw the excess non-concessional contributions, plus a notional amount to reflect the investment earnings.
You pay tax on the notional earnings just like personal income, less a 15 per cent offset.
Withdrawing excess contributions
Like most things to do with tax and super, the process for withdrawing excess contributions is fiddly.
If you have an excess concessional contribution, the ATO sends you a determination letter with details of what you need to do, plus an income tax notice of assessment.
You have 60 days to decide whether to have the excess concessional contribution refunded by the super fund and tax deducted by the ATO, or to pay the tax personally and leave the contribution in your account.
Refunding excess non-concessional contributions
For excess non-concessional contributions, the ATO assumes you wish to have your excess contributions and notional earnings refunded in order to avoid paying 47 per cent on them.
The default process is the ATO automatically issues a release authority to your fund and directs it to deduct the additional tax owing and return the leftover amount to you.
If you wish to nominate a specific fund from which the refund should be paid, or leave the excess in your account and pay the tax personally, you must make an election within 60 days of the initial notice.
Call us today to assess how the super contribution caps may affect you.
i https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/restrictions-on-voluntary-contributions
ii https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/concessional-contributions-cap
How to get your business ready to sell
Whether you are selling your business because you have to, or because you are planning a well-earned retirement, it pays to step through the process carefully.
In particular, if the sale isn’t handled correctly, you could find yourself receiving a hefty tax bill, as selling a business triggers capital gains tax (CGT).
Don’t rush it!
It’s important not to take some time because there is lots of preparation to do.
You will need to be clear about exactly what is being sold; whether assistance will be provided after the sale; how customers, employees and suppliers are to be notified; and whether existing leases and hire purchase arrangements will be transferred.
Decide whether you want a clean outright sale, or are prepared to accept an earnout arrangement or buy-sell agreement. Most potential buyers will want to an independent valuation, so you need to have your business documents organised and updated.
If you operate your business as a franchise, check your franchise agreement for any special clauses relating to a sale.
Tax considerations
Although tax is often the last thing on your mind when selling, it shouldn’t be. It can have a big impact on how much of the sales price you get to keep.
Capital gains tax (CGT) is the biggest tax issue to consider when selling, as your capital gain is calculated on the sale price of the asset minus its cost base.
CGT applies to company shares and goodwill, but does not apply to trading stock and depreciating assets used solely for taxable purposes, like business equipment.
While CGT can be expensive, small business owners are able to access several valuable concessions. These are in addition to the normal 50 per cent CGT discount applying when an asset is owned for more than 12 months.
Applying the four small business CGT concessions can eliminate or substantially reduce the CGT payable on a business sale if the annual turnover is under $2 million.
However, your business must meet basic eligibility conditions for CGT concessions. As the rules are complex, speak to us for more information before deciding to take advantage of these concessions.
Increasing the saleability
Part of your pre-sale planning process should also focus on ways to improve your business’s appeal to potential buyers.
Establishing a detailed succession plan can make the process much smoother. The Department of Industry offers an online template you can use to develop your plan.i
Working through this process can help ensure your business isn’t dependent on your profile or name to be viable in the long-term, making it more attractive to buyers.
Spring cleaning your business
Other important tasks include updating your business’s accounts and business records and generally tidying up the operation so it presents well to potential buyers.
Most potential buyers will require three to five years of financial statements and other business records so they can value your business. They will also want to review the business’s income tax returns and details of physical and other assets (such as goodwill and intellectual property).
Information about your customers, competitors, sales information, debtors and creditors, insurance, inventory and marketing activities also needs to be available.
As part of your preparations, you should also review your obligations in terms of employee and contractor entitlements such as tax, superannuation contributions and long-service.
Get good advice
Key to ensuring a successful exit from your business is getting professional advice early in the process.
And don’t forget that you will need to keep all records relating to sales and purchases, employee payments and payments to other businesses for five years after the sale.
If you need help preparing your business for a future sale or want to know more about the implications of disposing of business assets, call our office today.