July 2021 Newsletter
Happy FY22! Well, It’s July, there’s a nip in the air and winter has well and truly set in (and Australia deals with COVID-19 outbreaks across several states). But July also marks the start of the new financial year, a good time to reflect on how far we have come since this time last year and to make plans for the year ahead.
As the financial year ended, there was plenty to celebrate on the economic front despite the continuing impact of COVID-19. Australia rebounded out of recession, with economic growth up 1.8% in March, the third consecutive quarterly rise. Interest rates remain at an historic low of 0.1% and inflation sits at just 1.1%, well below the Reserve Bank’s 2-3% target. Despite fears that global economic recovery will lead to higher inflation and interest rates, the Reserve has indicated rates will not rise until 2024 or annual wage growth reaches 3% (currently 1.5%).
In other positive news, unemployment continues to fall - from 5.5% to 5.1% in May. Retail trade rose 0.1% in May, up 7.4% up on the year, as consumer confidence grows. The ANZ-Roy Morgan consumer confidence index lifted by almost a point in June to 112.2 points. m
Australia’s trade surplus increased from $5.8 billion in March to $8 billion in April, the 40th consecutive monthly rise, on the back of strong Chinese demand for our iron ore and other commodities. Iron ore prices rose 6.7% in June and almost 36% in 2021 to date. Oil prices have also surged, with Bent Crude up 8.4% in June and 45% this year. That’s good for producers and energy stocks, but not so good for businesses reliant on fuel and consumers at the petrol bowser. The Aussie dollar finished the year around US75c, up from US69c a year ago but down on its 3-year high of just under US80c in February due to US dollar strength.
On the King & Whittle front we have been busy assisting clients with tax planning, budgeting and cashflow forecasting to allow better decisions in this year ahead. If you have not had a chance to complete a budgeting and forecasting session with your King & Whittle advisor be sure to reach out soon. As they say preparation is key!
Until next month,
Your King & Whittle Team
To lease or buy a business asset? That’s the question
With business conditions picking up in Australia, many business owners are thinking about the equipment they will need to evolve in the years ahead.
Whether it’s a new delivery van or a high-end digital printer, up-to-date equipment and tools are essential for business success. In the May 2021 Federal Budget, the government announced full write-off of eligible business assets will be available for another year, so the opportunity to tool up is even more attractive
Issues to consider
Unfortunately, deciding the best way to acquire business assets is not always straightforward as you weigh up whether to buy outright or lease.
With leasing, you are able to use the plant or equipment under the terms of a contract and return it when your lease expires. Whereas buying means you purchase and own the equipment outright. If you have insufficient cash to buy an asset, you can also finance your purchase and repay the lender over time.
For both buying and leasing it’s not just the immediate costs and tax benefits you should bear in mind. You need to calculate the total costs, including ongoing maintenance, usage conditions, termination fees and equipment return.
You also need to review whether your business’s cash flow is steady and reliable, and allows you to commit to regular lease payments, or is subject to seasonal fluctuations.
New Financial Year rings in some super changes
As the new financial year gets underway, there are some big changes to superannuation that could add up to a welcome lift in your retirement savings.
Some, like the rise in the Superannuation Guarantee (SG), will happen automatically so you won’t need to lift a finger. Others, like higher contribution caps, may require some planning to get the full benefit.
Here’s a summary of the changes starting from 1 July 2021.
Increase in the Super Guarantee
If you are an employee, the amount your employer contributes to your super fund has just increased to 10 per cent of your pre-tax ordinary time earnings, up from 9.5 per cent. For higher income earners, employers are not required to pay the SG on amounts you earn above $58,920 per quarter (up from $57,090 in 2020-21).
Say you earn $100,000 a year before tax. In the 2021-22 financial year your employer is required to contribute $10,000 into your super account, up from $9,500 last financial year. For younger members especially, that could add up to a substantial increase in your retirement savings once time and compound earnings weave their magic.
The SG rate is scheduled to rise again to 10.5 per cent on 1 July 2022 and gradually increase until it reaches 12% on 1 July 2025.