King & Whittle March 2024 Newsletter
After a summer of quite extreme weather in many places around Australia, we can hopefully look forward to the cooler, calmer weather that Autumn brings.
While economic bright spots can be found in Australia right now, there are also some less than stellar results.
On the positive, inflation has remained at a two-year low giving some commentators confidence of a rate cut in the coming months. CPI was steady at 3.4% in the 12 months to January. In other good news, business capital investment rose in the December quarter to be 7.9% higher than it was 12 months before and average weekly earnings rose by 4.5% or $81 per week.
It has been a mixed report for retail, with a 1.1% increase in sales for January but that wasn’t enough to make up for the 2.1% loss in December.The Australian dollar remains in the doldrums, weakening below 65.2 US cents after reaching a high of 69.48 near the end of 2023.
Australian shares were up by just over 1% for the month after a shaky start thanks to worries over US interest rates and China. US stocks edged higher during February with the S&P 500 and the Dow Jones Industrial Average reaching record highs during the month. February was dominated by news of the massive profit report by artificial intelligence chipmaker Nvidia, which had a massive effect on markets across the world.
March 8th, 2024 is International Women's Day.
At King & Whittle we cannot fathom the prejudice, bias, and discrimination that female’s have faced for so many years. We continuously standby the rights of women worldwide, and celebrate the opportunities that arise for all women and girls.
We are surrounded by many inspirational and talented women at King & Whittle. We invite you to visit our website where we have celebrated them and their unique achievements and contributions.
Here’s to strong women! May we know them. May we be them. May we raise them.
Enjoy the read!
Market movements and review video – March 2024
Stay up to date with what's happened in markets and the Australian economy over the past month.
The economic indicators for February were mixed.
Inflation has remained at a two-year low, giving confidence of a possible rate cut in coming months, and business capital investment rose in the December quarter.
However, the Australian dollar remained in the doldrums and retail figures from January remained weak, after a 2.1% loss in December.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
Tax Alert March 2024
New controls for ATO Online and tax charges non-deductible
Following the use of stolen personal data to access ATO Online accounts, the federal government has tightened the access rules to online tax accounts as part of an increased focus on the vulnerability of small and medium businesses to cyber incidents.
From 1 July 2025, taxpayers will no longer be able to claim tax deductions for ATO interest charges.i
Although not yet law, the government made the announcement in its 2023-24 Mid-Year Economic and Fiscal Outlook.
Since deductions for general interest charges (GIC) and shortfall interest charges (SIC) will not be permitted after July 2025, any GIC or SIC later remitted by the ATO need not be included in assessable income.
New fraud controls
Tighter controls for taxpayers’ ATO online accounts will make it more difficult for criminals to commit identity fraud using stolen personal information such as bank and ATO statements and tax file numbers.
The changes mean taxpayers who use their myGovID to log into the ATO will need to use myGovID for all future logins, leaving criminals unable to access the account without it.
The government is urging Australians to upgrade to myGovID when interacting with government agencies online and has released its new Cyber Security Strategy to support small and medium businesses vulnerable to cyber incidents.
Holiday home claims
The ATO is continuing its crackdown on tax deductions for holiday homes by encouraging tax professionals to check how clients are using their property and if they are correctly apportioning deductions in line with the time period the property is producing income.ii
Some holiday homeowners are not reducing deduction claims if they are reserving their property during peak periods or are placing unreasonable conditions restricting the likelihood the property will be rented.
We have been requested to check the number of days the property is blocked out for the owners, how and where the property is being advertised, whether family or friends used the property, and if any parts of the property are off-limits to tenants.
Checking R&D claims
Working in conjunction with the Department of Industry, Science and Resources, the ATO will be undertaking random reviews of companies taking advantage of the government’s R&D tax incentive.
The reviews will be assessing the eligibility of company’s R&D tax incentive activities and expenditure, with companies selected for review being contacted directly.
If common errors are identified during the review process, the ATO will share them with all program participants.
Tough times may mean a payment plan
With some small businesses facing difficult trading conditions, the ATO is reminding taxpayers in financial distress they may be eligible to set up a payment plan if they are unable to pay their tax bill in full and on time.
Eligible taxpayers who have a tax bill of up to $200,000, may be able to set up their own payment plan using the ATO online or self-help phone services.
Payment plan eligibility requires the business to be viable and able to make an up‑front payment with completion within the shortest possible timeframe to minimise accruing GIC (currently 11.15 per cent).
Medicare safety net thresholds increase
Thresholds for the Medicare safety nets rose from 1 January 2024, resulting in an increase taxpayers need to spend on out-of-hospital medical expenses before qualifying for a higher rebate.
The increase is in line with indexation based on inflation and rose to $560.40 on the original Medicare safety net for concessional and non-concessional individuals and families.
The extended Medicare safety net increased to $811.80 for concessional individuals and families and $2,544.30 for non-concessional.
Translated cybersecurity guides available
The government’s Australian Cyber Security Centre has released five popular cyber security guides in more than 20 languages to help business owners from non-English speaking backgrounds to improve their cyber security knowledge.
The five free guides include a small business cyber security guide, personal and top tips for cyber security, easy steps to securing devices and accounts, and a seniors guide to securely using the internet.
i https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/deny-deductions-for-ato-interest-charges
ii https://www.legacy.ato.gov.au/Tax-professionals/Newsroom/Income-tax/Do-your-clients-have-a-holiday-home-/
Understanding the new $3m super tax
The much-debated tax on superannuation balances over $3 million is inching closer and those who may be affected should ensure they have considered the implications.
Although it is not yet law, the Division 296 tax should be taken into account when it comes to investment strategy and planning, particularly in relation to any end-of-financial-year contributions into super.
Tax for higher account balances
The new tax follows a Federal Government announcement it intended to reduce the tax concessions provided to super fund members with account balances exceeding $3 million.
Once the legislation passes through Parliament and receives Royal Asset, Division 296 will take effect from 1 July 2025. Division 296 legislation imposes an additional 15 per cent tax (on top of the existing 15 per cent) on investment earnings of a super account where your total super balance exceeds $3 million at the end of the financial year.i
The extra 15 per cent is only applied to the amount that exceeds $3 million.
Given the complexity of the new rules, it is important to seek professional advice so you can make informed decisions.
How the new rules work
A crucial part of the new legislation is the Adjusted Total Super Balance (ATSB), which determines whether you sit above or below the $3 million threshold.
When assessing your ATSB, the ATO will consider the market value of assets regardless of whether or not this value has been realised, creating a significant impact if your super fund holds property or speculative assets. The legislation also introduces a new formula for calculating your ATSB for Division 296 purposes.
The legislation outlines how deemed earnings will be apportioned and taxed, based on the amount of your account balance over the $3 million threshold.
Negative earnings in a year where your balance is greater than $3 million may be carried forward to a future financial year to reduce Division 296 liabilities. If you are liable for Division 296 tax, you can choose to pay the liability personally or request payment from your super fund.
Strategic rethink may be needed
For many fund members, superannuation remains an attractive investment strategy due to its favourable tax treatment.ii
But those with higher account balances need to understand the potential effect of the Division 296 tax. For example, given the new rules, you may need to consider whether high-growth assets should automatically be held inside super.
Holding long-term investments that may be more difficult to liquidate, such as property, within super may be less attractive in some cases, because the new rules create the potential to be taxed on a gain that is never realised. This could occur where the value of an asset increases during a financial year but drops in value by the time it is actually sold.
For some, holding commercial property assets (such as your business premises) within your SMSF may be less attractive.
It will also be important to balance asset protection against tax effectiveness. For some people, the asset protection provided by the super system may outweigh the tax benefits of other investment vehicles, such as a family trust.
Division 296 will require more frequent and detailed asset valuations, so you will need to balance this administrative burden with the tax benefits of super.
Estate planning implications
Your estate planning will also need to be revisited once Division 296 is law.
The tax rules for super death benefits are complex and should be carefully reviewed to ensure you don’t leave an unnecessary tax bill for your beneficiaries.
If you still have many years to go before retirement and hold high-growth assets in your fund, you will need to closely monitor your super balance.
If you want to learn more about how Division 296 tax could affect your super savings, contact our office today.
i https://treasury.gov.au/sites/default/files/2023-09/c2023-443986-em.pdf
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/understanding-concessional-and-non-concessional-contributions
Australians need help on how to manage huge wealth transfer
Most Australians want to share their wealth with the next generation but are unsure how to transfer that wealth and need help to plan for an effective transfer. Financial advisers are well-placed to meet those needs, according to the findings of a new report from Fidelity International and independent research firm, MYMAVINS.
To help financial advisers develop investment approaches that meet the needs of retirees, Fidelity International has produced a report, “Rainbow’s End.” The report leverages a survey of Australian consumers undertaken for Fidelity International by MYMAVINS which investigates consumers’ attitudes towards the transfer of wealth to younger generations.
“We have heard from 1,500 Australian voices, representing Gen Y, Gen X, Baby Boomers and the Silent Generation; a cross-section of everyday Australians. We have explored their expectations and discovered that while most people aspire to leave a financial legacy, far fewer have made reliable plans to do so,” said Simon Glazier, Head of Wholesale Sales at Fidelity International.
“For many older clients, planning their legacy is a primary focus, and service offerings will need to evolve from retirement planning to estate planning to ensure their wishes are fulfilled. As it is now, a lack of financial confidence, uncertainty around retirement spending requirements and how to best organise legacy plans can become barriers to effective decision making,” Mr Glazier says.
According to modelling from the Productivity Commission, Australia is expecting to see $3.5 trillion pass from the older generations to younger generations this decade, a phenomenon known as ‘The Great Wealth Transfer’. The Rainbow’s End report reveals that while nearly 2 in 3 intending to leave a bequest have a will, less than 1 in 10 have a comprehensive estate plan to transfer their wealth and fulfil their legacy wishes.
“As many as 1 in 2 are only somewhat or not confident at all they know how to ensure their financial legacy goals are fulfilled. So while 1 in 2 Australians wants to leave a lasting financial legacy, they don't really know how to make it happen. Many people feel the superannuation system is not well designed to support their legacy wishes and this calls for expert support to navigate effectively.”
The report reveals that around 2 in 5 people prefer to share their wealth as a living legacy, compared to the 1 in 5 who prefer to just share their wealth as a bequest. Almost 3 in 5 plan to leave behind their superannuation savings to their loved ones after they pass away.
Of those with plans in place to transfer wealth to younger generations, over 3 in 4 think financial advisers should play a role in teaching the next generation in financial literacy.
“What becomes clear is that financial advisers are in the box seat to make the most of the opportunities. There is clearly a need for professional support and financial planning can play an important role here as it can help investors determine how much wealth is needed to achieve financial legacy goals and planners can also work between family members to ensure legacies are transferred fairly and as efficiently as possible,” says Mr Glazier.
“In the traditional financial planning process, estate planning plays an important but peripheral role. Legal instruments such as wills and powers of attorney are important, but the successful transfer of a lifetime’s wealth while preserving family relationships requires more careful planning than that.”
The report reveals an important role for financial planners to act as mediators between family members when wealth discussions are undertaken.
“Most people intending to leave a legacy emphasise the importance of open discussions and documented planning with their family, but this can be easier said than done. This suggests a role for financial planners to help provide structure and mediation for these sometimes difficult discussions on how wealth can be transferred, to whom and when,” says Mr Glazier.
Helping loved ones achieve greater financial security is the top goal for leaving a legacy across generations, but there are several other less tangible goals that are still top of mind, according to the report. Aside from providing greater financial security, the top goals for leaving a legacy include expressing gratitude for family, supporting family goals, personal fulfillment, sense of purpose and preserving family values and traditions.
Speak to us if you'd like to discuss what type of legacy you'd like to leave.
Source:
Reproduced with permission of Fidelity Australia. This article was originally published at https://www.fidelity.com.au/insights/investment-articles/australians-need-help-on-how-to-manage-huge-wealth-transfer/
This document has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information. You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity Australia’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise.
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