February Newsletter 2023
February marks the end of summer holidays for many of us and getting down to business in 2023. It can be a good time to reflect on plans and goals for the months ahead.
Almost one third of adults under 35 are still living in the family home. Our first article looks at some of the benefits and challenges of living in a multigenerational home.
Finding funds and expertise for business development can be challenging. Our second article is a guide to the grants available to help businesses of all sizes.
Artificial intelligence has been in the news lately with the recent release of programs like ChatGPT. Our third article looks at artificial intelligence and its future in finance.
And finally, our last article this month is about the ATO’s focus on rental property owners as top targets for audit this year.
The full nest: living with adult children
If managed well, multigenerational living can be beneficial to both your adult kids’ financial goals and your relationship with them, that said it’s not without its challenges.
What’s behind the shiftToday’s young Australians spend longer in higher education, stay single for longer or choose not to tie the knot at all and start families later than previous generations. They’re also living through a period of sluggish wage growth, high underemployment and youth unemployment and despite recent corrections, a housing market that is inaccessible for many first home buyers.
There are however, young adults who use living at home as a strategic move, with 28% using it as an opportunity to save for their financial goalsii – like owning a home or planning for a big trip.
Benefits of having a kid at homeHelping kids save for their future isn’t the only benefit of continuing to provide a roof over their head. For many, especially those who boomerang (returning to the nest after a period away), it offers the chance to build a relationship on a level footing. You get to know each other as adults which can be a wonderful thing.
Having adult kids at home can also mean you get help with the domestic duties and maintenance around the house or assistance looking after younger siblings.
Problems can ariseDespite the benefits, in some cases continued cohabitation can become detrimental to the relationship. Common gripes include: entitled kids who don’t contribute to costs and chores, and overbearing parents who continue to treat their offspring as if they were tantrum prone toddlers.
Equally worrying is the added cost of having an extra mouth to feed and the associated costs of an extra member in the household. If you are a parent in this situation, make sure the not-so-empty-nest is not derailing your retirement plans. According to a 2018 study, Aussie parents spend a combined $235 million each week on adult children living at home.ii
Set boundaries earlyCommunication is key to making co-habitation with adult kids work. This means staying in touch to make sure everyone’s expectations are understood and that boundaries are in place. If your kids are earning, are they paying board? How much are they contributing towards groceries and bills? And what about household labour?
On the parent’s end, there also needs to be some flexibility. Are you happy to have your child’s friends over to socialise? Are partners allowed to stay the night? Rules around curfews that may have been appropriate when they were a teenager may not be relaxed enough to allow your adult child freedom so as not to become resentful.
Both parties need to be aware of each other’s boundaries and expectations early on to set the foundations for a happy domestic life.
Shared goalsWhile your adult kids are at home it’s a great time to make their financial dreams a reality. Frame it as a shared goal, one that you all have a stake in. If both sides are willing and eager to uphold their side of the bargain, it will alleviate tension and make the goal more likely to succeed.
It might look like this: the parents allow their offspring to live with them rent free, provided the kid puts away 40% of their income towards a house deposit. You can have a system in place to prove this is happening and regularly meet to help make sure everyone is staying on track.
Not always the right choiceIt’s important to acknowledge that cohabitation is not the right choice for all families. If things aren’t panning out well, be honest with each other. Then work together to find alternate living arrangements.
Modern kids are likely to come and go throughout their lives. Treasure the times you have living together while making them as fruitful for both your relationships and finances as possible.
Guide to business grants
It’s been a tough few years for many businesses, with the pandemic and natural disasters, especially small business owners.
Finding funds and expertise for business development can be challenging for smaller organisations. Even larger firms can find it difficult to put together the cash and know-how to keep a business expanding.
That’s where a grant of funds or professional support can help.
What can I get a grant for?
You will find grants supporting all aspects of business operations offered by state, territory and federal government agencies and departments that cover many different business needs.
Some grants are available for several years while others are just a short-term funding opportunity so be sure to check the closing dates.
Some examples include:
An effective online presence can make or break a small business but knowing where to start might be holding you back.
There’s a Federal Government program that helps small businesses access digital tools to create websites and sell online, use social media and business software and ensure online security and data privacy.
The Australian Small Business Advisory Services program provides seven hours of support with a digital solutions advisor to businesses with fewer than 20 full-time employees.
Recovering from natural disasters
Businesses affected by the floods or Black Summer bushfires can apply for support from the AusIndustry Entrepreneurs’ Program.
Under the program, a facilitator identifies ways to improve your business systems, operations and strategies.
Each state affected by a recent disaster also provides grants and loans to small businesses such as the Queensland governments low interest Disaster Assistance Loans of up to $250,000.
If you have a business idea but you just need a little help to get it across the line, the AusIndustry Entrepreneurs’ Program is an option.
The Program’s Accelerating Commercialisation service provides advice and funding to get novel products, processes or services to market.
Exporters or those interested in starting to sell overseas can find useful information, advice and financial support from government agencies.
Export Australia provides small to medium businesses with loans to secure specific export contracts when traditional lenders can’t help. Export Finance Australia will give approved export businesses a guarantee to help access finance from their bank or there’s a Small Business Export Loan that covers up to 80 per cent of the costs to secure an export contract.
State and territory governments also offer exporters support such as the Going Global Export Program in New South Wales for businesses in the health and medtech, technology, and food and beverage sectors or the Export Fundamentals Program for South Australian businesses looking to expand or to start exporting.
Regional and rural support
Various levels of government offer funds and professional support to small businesses operating in country areas. For example, there is a three-year payroll tax exemption to interstate businesses relocating to regional Tasmania.
In NSW, the state government will match funding for projects in regional areas that are time-sensitive and strategically significant. While in Victoria, a government program provides incentives to regional hospitality and tourism businesses to take on trainees and to develop and retain jobs in other sectors.
Wage subsidies are available when you employ certain eligible individuals such as long-term unemployed, apprentices and trainees or people with a disability.
Where to find information
To find information about government grants, visit the business.gov.au website. It outlines the business grants and programs offered by agencies from every level of government across Australia.
Each state and territory government has a database of their grants and programs. And, check your local council’s website for opportunities.
How to apply
Firstly, read the requirements to make sure you are eligible, you will then be steered through a series of questions.
Remember to provide as much relevant information as possible to help your chances.
If you would like to discuss how to make the most of a business grant in your business, give us a call.
Artificial Intelligence: the future of finance
AI is the development of computer systems that have the ability to perform tasks normally requiring human intelligence. These processes include learning, reasoning, and self-correction. The first AI algorithms were in fact written way back in the fifties, but it’s only been in the last twenty years, with huge advances in computer processing power, that we’ve really been able to see the tangible effects of AI in our lives and on our finances.
Big data, changing legislation and technological advances are feeding an AI revolution in the finance sector that is having wide-ranging repercussions for stock market trading and our personal finances.
Impact on tradingSince the late 90s when electronic trading became widespread, the proliferation of AI has totally changed the functioning of the global economy. Most of this is done through algorithmic trading, which, though nothing new, has been enhanced by huge advances in computational power.
Advocates of this sort of trading talk about how it eradicates human error, and removes emotion from investment decisions. While others argue that if algorithms aren’t thoroughly back-tested over a long enough period—or if the input data is somehow compromised—people’s assets are at risk. Many point to the inability of AI to predict the GFC as an example of this. The 2010 Flash Crash is another, wiping nearly $1 trillion USD from the market in seconds because of spoofing algorithms (which have since been banned), before rapidly rebounding.i
The truth is, as AI has developed so has its regulation, meaning hiccoughs experienced even ten years ago are less likely to occur today. And you need only look at changing rules around data sharing and instant transactions occurring globally, or the massive returns last year on quantitative hedge funds—which employ algorithms and machine learning to inform their investment decisions—to know that this sort of trading is here to stay.ii
Personal FinancesAI has already had a big effect on how we manage our personal finances. The credit card industry for example has benefited from increased data security and reductions in fraud as a result.
Similarly, banks are now able to analyse the data of billions of transactions to predict the spending of consumers and market their products accordingly. This same technology allows individuals to automate their expenditure, with many banking apps now sorting purchases by type and alerting users when they’re reaching their limits.
AI is also changing processes around lending and borrowing. This is especially true in the developing world, where credit scores might not be available. Startups such as LenddoEFl in Singapore are tracking people’s behaviours on their smartphones to glean the likelihood of them meeting their repayments.iii The algorithm they’ve developed recognises behaviours indicative of financial responsibility and therefore can advise lenders, with a high degree of accuracy, on whether the loan should be approved. This technology will be interesting to watch as banks tighten lending standards and start to look not just at salary but also spending habits to determine if a loan is approved.
The robots aren’t coming… yetIn the world of AI, scholars often make the distinction between Artificial Intelligence, which is now common place in many industries, and Artificial General Intelligence (AGI), the sort that might mimic a human brain and create links between disparate ideas and deal in abstract notions.iv We are still a long way from achieving the latter. And it has been argued that there are some aspects of the human experience that can’t be replaced by code, however clever it is.
When it comes to your financial life, technology can certainly provide us with useful tools. There is no substitute however for knowledgeable advice that takes into consideration your unique circumstances, goals and dreams. We can help you navigate this brave new world, while also assisting you in a way that no algorithm is yet capable of.
ATO focus on rental properties
The tax office estimates it’s missing out on around $1.5 billion due to over-claiming of rental property expenses and omission of rental income.
Growing interest in rental property taxAround 2.2 million individuals have an interest in a rental property in Australia. In a recent media release the ATO warned these taxpayers they are under the spotlight as rentals are “an area that’s easy to get wrong, and needs extra care when lodging”.ii
It’s urging property owners to carefully review their rental property records and ensure they understand the income they need to declare and what expenses can be correctly claimed as a deduction.
Declare all rental incomeThese days the ATO receives rental income data from a range of sources, including sharing economy platforms, rental bond authorities, property management software providers and land title authorities.
This allows the ATO to spot rental income being charged to a tenant but not declared. Landlords must include all rental income, whether it’s from short-term rental arrangements or from rental-related sources like insurance payouts and retained bond money.
Get your expense claims rightAlthough landlords can deduct many expenses relating to a rental property, claims need to stay within the rules.
Some expenses can be claimed immediately (such as management fees, council rates and insurance premiums), while others (loan interest, borrowing expenses and capital works) must be claimed over time.
Major capital works (such as replacing the property’s roof or existing kitchen) need to be claimed over a number of years.
Depreciating assets (such as a new dishwasher or oven) are claimed over their effective life, although items costing under $300 can be claimed immediately.
If you refinance your rental property loan or draw down on it for private expenses like a holiday, the loan interest relating to the private expense cannot be claimed as a deduction.
Claiming for private usageSpecial care is needed if you use your property for certain periods, stop renting it out for a time, or allow family or friends to stay at cheaper rates.
You can’t claim deductions for these periods as the property is not being used to produce rental income. Normal annual expenses must be apportioned to omit these non-income periods.
Deductions also can’t be claimed if you pretend your property is available for rent when it isn’t, or if you place unreasonable restrictions on a potential tenant.
Common mistakesAccording to the ATO, the most common tax error relates to apportioning expenses. If you don’t split your expenses – or do it incorrectly – you may find your return being queried or adjusted.
Another mistake is claiming for all the cost of purchasing your property. Costs such as conveyancing fees and stamp duty are used when working out if you need to pay capital gains tax (CGT), not as deductions.
Claims for capital works and capital allowances are also a danger area. Repairs directly related to wear and tear and damage while the property is rented can be claimed in the financial year the expense is incurred, but initial repairs for damage when purchased are not immediately deductible.
Failing to keep detailed records covering the income and expenses for your rental property is also a recipe for trouble. The ATO requires landlords to keep records for five years from when your return is lodged.
Don’t forget other taxesWhile the ATO is focussing on income and deduction claims for rental owners, they are not the only tax obligations landlords need to keep in mind.
When you sell your rental property, you may be liable for CGT and detailed records of all your expenditure will be needed to correctly calculate the cost base for the property.
If you are not registered for GST, or if the rental income is from a residential premises, you can include any GST in the rental expenses you claim. GST-registered landlords follow different rules.
You will also need to make PAYG instalment payments if you earn $4,000 or more in rental income. The ATO will inform you if this occurs.
The tax rules around a rental property are complex. If you would like help in this area, contact our office today.