Bottrell Financial Planning Newsletter – July 2023
Welcome to our July newsletter and, with a new financial year underway, it might be a good opportunity to review some of the recent changes to business and investment rules to make sure you’re on the right track.
As the inflation rate begins to ease, with consumer inflation slowing to a 13 month low in May, many commentators expressed hope that further interest rate rises may be kept in check. That led to a slight improvement in investor outlook for stocks at the end of June The S&P/ASX 200 closed the month at about the same level as in May but, over the financial year, it’s risen more than 10%.
The CPI was up by 5.6% last month in the lowest increase since April 2022. Meanwhile the unemployment rate fell slightly to 3.6%, continuing the downward trend seen over the past 12 months. That’s led to an improvement in consumer sentiment and a 0.7% jump in retail sales in May, supported by a rise in spending on food and eating out as well as a boost in spending on discretionary goods.
The Australian dollar lost gains made during the month to close at just over US66 cents as traders speculated at the end of the month that the Reserve Bank may put a hold on interest rate rises and the US economy boomed.
Keeping Cashflow Positive
Managing a healthy cash flow is often tough for small businesses and it is particularly the case right now in the challenging economic conditions.
In this climate, recent changes to rules and regulations may both help and hinder cash flow. Here are some to keep an eye on.
Minimum wage rise
The Fair Work Commission’s recent increase to the national minimum wage will add costs for some employers.
The 5.75 per cent increase must be paid to employees who are not covered by an award or registered agreement. The new minimum wage of $882.80 per week or $23.23 per hour must be paid from 1 July 2023.
Changes to employee super
The Superannuation Guarantee – the amount that employers must pay to their workers’ super funds – has increased again from 1 July 2023.
You now need to pay 11 per cent of an employee’s ordinary time earnings. This amount will increase by 0.5 per cent in 2024 and a further 0.5 in 2025 bringing it to 12 per cent.
Payment of the superannuation guarantee payments to your employees should be made at least four times a year. The payments must be made in full by the quarterly due dates, which are 28 days after the end of each financial quarter.
However, some employers – often those with cashflow issues – have been dragging the chain on payments. As a result, billions of dollars in super are owing. The Australian Taxation Office says that, in 2019-2020, $3.4 billion in employees’ super went unpaid.
The solution will potentially have a big effect on small business cashflow.
From 1 July 2026, employees’ super must be paid at the same time they receive their wages.
The federal government is calling it ‘payday super’ and Treasurer Jim Chalmers says more frequent super payments will make payroll management smoother and employers will have fewer liabilities building up.
And to strengthen the system, the ATO will receive extra funds to help it detect unpaid super payments earlier.
New PAYG and GST instalment rates
The Federal Budget delivered a potentially positive boost for small business cashflow with a change to the quarterly Pay As
You Go (PAYG) and goods and services tax (GST) instalment payments.iv
These payments are available to small businesses with an annual turnover of up $10 million for GST instalments and an annual turnover of up to $50 million for PAYG instalments.
The ATO adjusts the amount each year depending on increases or decreases in Australia’s gross domestic product (GDP) in the previous year. That would have meant a 12 per cent increase to instalment payments because GDP has
performed strongly in the last 12 months.
But the government has decided to cut the increase to 6 per cent for this financial year.
In another bonus for cashflow management, the new rule for instant asset write off is good news if you are considering any big purchases this financial year.
The instant asset write-off allows eligible businesses to claim an immediate deduction for the cost of assets including: tools, computers and office equipment, freestanding office furniture, and vehicles.
Instant asset write-off can be used for any number of assets purchased for use during the year, if the cost of each individual asset is less than the threshold of $20,000. It can also be used for second-hand assets.
However, there are some exclusions.
These include some assets that are leased out, plants including
grapevines, assets used in research and development activities, and capital works such as new buildings and structural improvements.
Assets valued at $20,000 or more, which can’t be immediately deducted, can be depreciated at 15 per cent in the first income year and 30 per cent each income year after that.
Get in touch with us for more information on the new rules and regulations or to help improve your cashflow management.
Will these Super changes affect you?
As our superannuation balances grow larger, it makes more sense than ever to keep track of the many rules changes that have recently happened or are coming up soon.
So, check out these latest changes in case they affect you.
Super bonus for workers
For employees, the new financial year kicks off with an increase in the Superannuation Guarantee paid by employers. It is now 11 per cent of eligible wages.
This rate will increase by 0.5 per cent each year until it reaches 12 per cent in 2025. The Australian Tax Office will also be cracking down on employers who don’t pay on time or at all.
Minimum pension drawdown increased
A COVID-19 measure to reduce the minimum drawdown required on super pensions will end on 1 July 2023.
Investors receiving super pensions and annuities must withdraw a minimum amount each year.
The federal government reduced this amount by 50 per cent over the last four financial years to help those wanting to protect their capital as the markets recovered from the chaos
of the pandemic. You can find out more by visiting the ATO’s minimum pension standards.
Transfer balance cap to be lifted
The maximum amount of capital that can be transferred to your super pension will increase to $1.9 million from 1 July 2023. The transfer balance cap limits the total amount of super that can be transferred into a tax-free pension account. This is a lifetime limit.
The cap is indexed and began at $1.6 million when it was introduced in 2017. Increases in the cap are tied to CPI movements.
Extra tax for large balances
Investors with super balances of $3 million or more will lose the benefit of super tax breaks on earnings.
From 1 July 2025, taxes on future earnings will be 30 per cent instead of 15 per cent although they will continue to benefit from more generous tax breaks on earnings from the funds below the $3 million threshold.
Other recent changes
A number of changes announced in both federal budgets last year have also been slowly introduced over the past 12 months.
In one major change, the minimum age was lowered for those able to invest some of the proceeds of the sale of their homes into super, known as a ‘downsizer contribution’.
From 1 January 2023, if you are aged 55 or older, you can now contribute to your super up to $300,000 (or $600,000 for a couple) from the sale of their home.
The home must be in Australia and owned by you for at least 10 years.
Another significant reform for many has been the removal of the work test for those under 75, who can now make or receive personal super contributions and salary sacrificed contributions. (Although the ATO notes that you may still need to meet the work test to claim a personal super contribution deduction.)
Previously if you were under 75, you could only make or receive voluntary contributions to super if you worked at least 40 hours over a 30-day period.
While caps have been lifted and programs expanded, at least one scheme has not changed. The Low Income Super Tax Offset (LISTO) threshold remains at $37,000. LISTO is a government payment to super funds of up to $500 to help low income earners save for retirement.
If you earn $37,000 or less a year you may be eligible a LISTO payment. You don’t need to do anything other than to ensure your super fund has your tax file number.
Finally, a project that may pay off down the track, the Federal Budget included continued funding for a superannuation consumer advocate to help improve investors’ outcomes.
Expert advice is important to help navigate these changes over the coming year. Call us for more information.
Making conscious the unconscious for better decisions
When you’re faced with a decision, do you trust your feelings or do you look at the situation objectively, making a careful list of pros and cons? Emotions exert a strong influence on our decisions, so it’s important to have a bit of balance between reason and emotion – particularly when it comes to the big decisions in life.
The decisions we make have the potential to steer our lives in vastly different directions. Good decisions can profoundly improve our situation in life, while a poor decision can have unpleasant consequences. Examining how emotions influence your thoughts and actions can equip you to make well grounded decisions, including those relating to your financial affairs.
The influence of emotion
Even if you think your decisions are based on logic and common sense, the reality is they are often steered by emotion.
A study performed by Nobel Prize winning psychologist Daniel Kahneman showed that emotions contribute around 90% to our decisions, while logic only factors in for around 10%.; Kahneman’s position was that human reason left to its own devices is subject to emotional biases, so if we want to make better decisions in our personal lives, we need to be aware of these biases.
Awareness is key
Given that emotions and unconscious bias can cloud our judgement, some self-examination can help ensure that you are making the best decisions. It’s been shown that people who could identify the emotions they were feeling were able to make better decisions, in part due to a greater ability to control any biases caused by those feelings.
This is known as “making conscious the unconscious” and it involves examining your emotions and beliefs to so you can better understand their influence on you. The goal isn’t to be emotionless – it’s important to ‘feel’. The key is to understand how your feelings are impacting your choices. A good example might be how feeling particularly confident may cause you to take on more risk associated with an investment than you would ordinarily be comfortable with.
Hit ‘pause’ on reacting
Once you’ve identified how you are feeling, it’s time to hit ‘pause’ for a moment. Decisions driven by the unconscious mind generally happen faster than those we think about. Not reacting immediately gives you a chance to observe any biases without being controlled by them, allowing for improved and more objective decision-making.
Even taking a couple of deep breaths before responding to that email that’s made you angry will help you respond in a more rational way. Just think about
how scammers use people’s tendency to react to fear, without thinking too much about what they are being asked to do.
Taking time to think also allows you to reflect on past decisions and the result of those decisions. For example, reflecting on past investment choices that were unduly influenced by a fear of missing out, can help individuals better manage future decisions.
Your subconscious can cause you to cling to outdated views you hold of yourself – and these can drive poor decisions. A good example is people managing their wealth according to how they did things when they first started out, rather than adapting their behaviours to their changed financial circumstances.
Once you have acknowledged the part that your subconscious and past patterns of behaviour play in decision making, it’s time to get rational. Rational decision-making involves taking emotion and any unconscious biases out of making decisions and applying logical steps to work towards a solution.
The process involves a series of steps that generally encompass: identifying a problem or opportunity then gathering the relevant information, developing options, evaluating alternatives, then finally selecting a preferred alternative on the basis of the research you’ve done.
It’s also a good idea to run important decisions by a third party who is not so emotionally involved. For your financial decisions that’s where we come in. While we respect and acknowledge how you feel in relation to your financial life, we can provide factual information and challenge any notions that no longer serve you, to help you make the best possible decisions regarding your finances.