Spring 2024
As we transition into the vibrant spring season, we’re excited to bring you the latest insights and updates to help you navigate your financial journey.
– How do Retirement Income Options Compare: In our first article this month we’re focusing on a topic that’s close to many of our hearts: retirement planning. The way you fund your new life away from paid work is crucial. We explore four different retirement income options to help you make informed decisions about your financial future.
– Quarterly Tax Update: Stay informed with the latest tax news! Our roundup will keep you updated on all the essential news, with information about a number of new tax deductions for small business, and some new employer obligations to be aware of.
– How to Improve Your Business Cash Flow. And in our final article, managing a business’s cash flow and keeping track of expected expenses and income around the corner is essential at any time, but even more so when times are tough, so our last article contains some useful tips to help.
As always, if you would like to discuss the contents of this newsletter, don’t hesitate to contact our office.
How do retirement income options compare?
Retirement is filled with opportunities and choices. There’s the time to travel more, work on long-delayed personal projects or volunteer your help to worthwhile causes.
You also have a host of choices to make when it comes to funding your new life away from paid work. Here are four different options to consider.i
Account-Based Pension
An account-based pension (ABP) using your superannuation is one of the most common retirement income options. The amount you receive depends on the balance of your account and the drawdown rate you choose, subject to the minimum pension requirements set by the government.
Some considerations:
- Tax benefits – Investment earnings, capital gains and withdrawals are tax-free, unless you have an untaxed component within your super.
- Payment flexibility – Subject to pension minimums, most super funds allow you to adjust the payment amount and frequency, and even make partial or full lump-sum withdrawals if needed. You can also return to work and continue to receive a pension.
- Longevity and market risks – You might outlive your account balance, especially if your withdrawals are high or your investment returns are poor.
Transition to Retirement
A transition to retirement (TTR) strategy allows access to some of your superannuation while still working, if you have reached age 60 (based on current rules).ii
Some considerations:
- Flexible work options – You can reduce your working hours and supplement your income from your super.
- Limits on pension rates – Similar to an ABP, there is a minimum annual pension rate. However, there is also a maximum annual withdrawal of 10 per cent of your TTR account balance.
- Reduced retirement savings – Drawing on your superannuation while still working means your retirement savings might grow more slowly.
Annuities
An annuity is a financial product that provides a guaranteed income for a specified period or for the rest of your life. There are various types of annuities, including fixed, variable, and indexed annuities. You can purchase annuities or lifetime income streams using your superannuation.
Some considerations:
- Predictable income – Provides a stable income stream, which can be reassuring for financial stability and provide an income for as long as you live.
- Lack of flexibility – Once you purchase an annuity, the terms are generally fixed and you cannot alter the income amount. There’s a restriction on capital withdrawals or in some instances no access to capital at all.
- Inflation risk – Fixed non-inflation-linked annuities may not keep pace with inflation unless specifically indexed to inflation.
Innovative Retirement Income Stream
An Innovative Retirement Income Stream (IRIS) is provided by a newer range of products. These were introduced after changes to regulations designed to deliver more certainty to retirement income by paying a pension for life without running out of funds.
Some considerations:
- Age Pension benefits – Centrelink only counts 60 per cent of the pension payments received as assessable income and only 60 per cent of the purchase price of the product counts as an assessable asset until age 84 when it is reduced.
- Certainty – Some IRIS products offer a stable guaranteed income stream, providing financial security.
- No minimum requirements – IRIS products do not require an annual minimum amount, instead just requiring at least one annual payment.
- Complexity – Features vary widely between different IRIS products and may involve complex terms or conditions.
Next steps
How do these different options suit your personal needs and how would they affect your retirement income? Consulting with a financial advisor can help you navigate these choices and tailor a plan that best suits your needs. Speak to us, so we can help you structure a plan to fund the retirement lifestyle you’ve worked so hard for.
i Planning to retire | Australian Taxation Office (ato.gov.au)
ii Transition to retirement | Australian Taxation Office (ato.gov.au)
Tax update September 2024
New deductions and employer obligations
Employers need to check that payroll systems reflect recent legislative changes, and the ATO is highlighting deduction opportunities available to some small businesses. Here’s your roundup of the latest tax news.
Updated employer obligations
The ATO is reminding employers to stay on top of legislative changes affecting payroll systems.
The Super Guarantee rate increased on 1 July 2024 to 11.5 per cent of ordinary times earnings, so all payments (starting with those for the July to September quarter) to super accounts for eligible workers must reflect the new rate.i
Individual income tax rate thresholds and tax tables changed also changed on 1 July 2024 so you may need to check calculations for your Pay As You Go Withholding obligations.
Claims for energy expenses
Many small business are eligible for a bonus 20 per cent tax deduction for new assets (or improvements to existing assets), that support more efficient energy usage.
The Small Business Energy Incentive applies to eligible assets first used or installed ready for use between 1 July 2023 and 30 June 2024.ii
Eligible expenditure for external training courses for employees incurred between 29 March 2022 and 30 June 2024 could also qualify for a 20 per cent bonus tax deduction from the Small Business Skills and Training Boost.iii
Pay less capital gains tax (CGT)
While a business can reduce capital gains made during a tax year by offsetting them with capital losses from the same or previous income years, not all capital losses are eligible.iv
Capital losses carried forward from previous years need to be used first, with losses from collectables (such as artwork and antiques) only permitted to be offset against capital gains from collectables.
Losses from personal use assets (such as boats or furniture), CGT exempt assets (such as cars and motorcycles), paying personal services income to yourself through an entity you set up, and leases producing income (such as commercial rental property), are ineligible as offsets.
Fuel tax credit rates change
Before claiming fuel tax credits in your next Business Activity Statement (BAS), check you are using the latest rates as they have changed twice in the new financial year.v
On 1 July 2024, the rate for heavy vehicles travelling on public roads changed due to an increase in the road user charge, with the rate altering again on 5 August 2024 due to a change in fuel excise indexation.
Different rates apply based on when you acquired fuel for your business’ use, so ensure you use the correct rate. If you are unsure, try the ATO’s online Fuel Tax Credit Calculator to work out the amount to report in your BAS.
Records essential for rental expense claims
Rental property investors without correct documentation to substantiate their expense deductions may find their claims declared invalid.vi
The ATO is warning investors they need all receipts, invoices and bank statements plus details of how deductions were calculated and apportioned for a valid claim.
Lodging a ‘nil’ BAS
While taxpayers registered for GST automatically receive a Business Activity Statement and are required to lodge and pay in full by the due date, businesses with nothing to report are still required to lodge.
If you have paused your business, you are required to lodge a ‘nil’ BAS by the due date either online or via the ATO’s automated phone service.vii
i How much super to pay | Australian Taxation Office (ato.gov.au)
ii Small business energy incentive | Australian Taxation Office (ato.gov.au)
iii Small business skills and training boost | Australian Taxation Office (ato.gov.au)
iv Pay less capital gains tax (CGT) | Australian Taxation Office (ato.gov.au)
v From 1 July 2024 to 30 June 2025 | Australian Taxation Office (ato.gov.au)
vii Cancelling your GST registration | Australian Taxation Office (ato.gov.au)
How to improve your business cash flow
With the cost of doing business continuing to squeeze the bottom line, careful cash flow management has never been more important.
Not only is the ATO paying extra attention to timely payment of tax debts, but once the new payday super rules commence, many small businesses will no longer have access to one of their traditional sources of emergency funding.i
The government recognises how important cash flow is in small businesses and allocated an additional $23.3 million in the May 2024 Federal Budget to boost the adoption of eInvoicing. This electronic system is designed to help improve cash flow and productivity in smaller operations.
If you don’t have clear insights into your cash flow position and are not careful in managing income and expenses, it’s much harder to pay your bills and meet your tax, super and employer obligations.ii
A cash flow projection or budget helps to ensure there is enough cash available to meet upcoming expenditure. You will be able to understand your likely cash position at any time, identify fluctuations that could lead to potential cash shortages and plan for tax payments and major expenses.
The three main things to consider when creating a cash flow budget are timing, fixed and variable costs, and your income.
While cash flow projection tools can be off-the-shelf digital products or simple templates, we can also work with you to use the ATO’s Cash Flow Coaching Kit to improve management of this critical area.iii
Improving your position
When you have completed a cash flow projection and understand your position, it is time to work on ways to improve it.
One of the most important ways to improve cash flow is to ensure your invoices are paid as quickly as possible. Make sure invoices are sent out as soon as you can and, if possible, ask for immediate payment.
Consider shortening your payment terms, particularly if they are currently longer than 30 days. Some businesses offer an early payment discount or charge interest on overdue accounts to help speed up payments.iv
Setting clear payment guidelines for your customers is also valuable and think about taking action with customers who regularly fail to pay on time.
Review your payment cycle
Check suppliers’ payment terms to make sure you are not paying earlier than required (unless there is a discount on offer!).
Using a business credit card with an interest-free payment period can be an easy way to smooth your cash flow.
Separating your personal and business expenses makes tracking your business cash flow and expenses easier and reduces the time required for reconciliations.
Check stock levels
If you sell or supply products, carry out regular reviews of your inventory to ensure you are only holding the stock needed and are not tying up valuable cash flow and possibly increasing storage and insurance costs.
An inventory management system can be helpful to automate ordering and reduce lags between placing and receiving orders, and to identify unwanted or outdated stock.
Also review your pricing and margins to see if it is possible to raise prices without losing business.
Reduce your outgoings
Keeping a close eye on regular expenses and one-off spending helps to keep outgoings to a minimum.
Look for opportunities to save money by streamlining operations and reducing operating costs by cutting energy expenses and reviewing existing service contracts including phone and insurance.
Negotiating better prices with suppliers and more tightly targeting marketing expenditure can also boost your cash flow.
Make your asset work harder
If your business includes expensive assets like vehicles and equipment, ensure they are working hard for you.
Consider leasing or hiring assets to reduce upfront costs, sell assets you no longer need, and review any asset financing to make sure that it is competitive.
While these general tips may help improve your cash flow position, don’t forget we can provide advice tailored to the specific needs of your business. So, call us today if you would like our help.
i Payday superannuation | Australian Taxation Office (ato.gov.au)
ii Manage your business cash flow | Australian Taxation Office (ato.gov.au)
iii Cash Flow Coaching Kit | Australian Taxation Office (ato.gov.au)
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