Winter 2021 Newsletter
It’s June which means winter has officially arrived. As we rug up and spend more time indoors, it’s a perfect time to get your financial house in order as another financial year draws to a close.
It’s been a year of change on so many fronts, including tax and super. So for the first article in our Winter newsletter, we cover some last minute ways to reduce your tax bill and boost your savings both in and out of super.
Also, our quarterly tax update provides more details of the recent federal Budget initiatives to support individuals and business.
And finally, optimism has been shown to be great for your wallet and there are a lot of things you can do to cultivate a more positive mindset – and improve your bottom line.
As always, if you would like to discuss the contents of this newsletter don’t hesitate to contact us.
The financial rewards of optimism
If it wasn’t already clear, the past 12 months certainly cemented the fact that life has a habit of throwing us the occasional curveball. The reality is we all face challenges, however approaching life with a positive mindset can help us deal with any issues we may face and improve our lives in many ways.
Having a positive outlook not only improves our health and wellbeing, it can also have a meaningful and very positive impact on our finances.
How optimism can improve our finances
If you have a cautious or anxious approach to your finances, such as worrying you’ll never have enough money or being wary of spending, it will likely come as a surprise to hear that being optimistic can improve your financial situation.
A recent study connected the link between financial well-being and an optimistic mindset, finding that people who classify themselves as optimists enjoy 62 per cent fewer days of financial stress per year compared to pessimists.
Superior financial well-being
When you are positive in your outlook, you are also much more likely to follow better financial habits in managing your money. Optimists tend to save for major purchases, with around 90 percent of optimists having saved for a significant purchase, be it a car, a house or an overseas holiday, compared to pessimists at just 70 per cent.i
However, optimism does not equal naivety and optimists still tend to have contingency plans in place for unforeseen events that may detrimentally impact their bottom line. Some 66 per cent of optimists had an emergency fund, compared to under 50 percent of the pessimists.i
This goes to show that maintaining an optimistic approach to your finances does still involve planning for the future. By being prepared, you’ll reduce the stress that comes from feeling the rug could be pulled from beneath you without a safety net.
Your career and earning capacity
An optimistic approach to life and your career leads to achieving greater career success and the financial rewards that come with being successful in your job.
Optimists are 40 percent more likely than pessimists to receive a promotion within a space of twelve months and up to six times more predisposed to being highly engaged in their chosen career.i
Changing your attitude
Knowing that optimism is great for your wallet and your health is one thing, but how do you shift your outlook? If you’re prone to worry, focussing on pessimistic outcomes or a bit of a sceptic, looking on the bright side of life can seem easier said than done.
It is possible to nurture optimism, and you get this opportunity every day. Cultivating optimism can be as simple as adopting optimistic behaviours.
So, what are the financial behaviours of optimists that we can emulate?
Optimists tend to be more comfortable talking about and learning about money and are more likely to follow expert financial advice than their more pessimistic peers.
Positive people display a correspondingly positive approach to their finances. They tend to put plans in place and have the courage to dream big. You don’t have to be too ambitious in how you carry out those plans, every small step you take will help you to get where you want to be.
Everyone experiences setbacks at various times, however optimists rise to these challenges, learning from their past mistakes and persisting in their endeavours. Don’t be too hard on yourself if you are experiencing difficulties. We all face challenges and during these times, focus on solutions rather than just the problems, be conscious of your “internal talk” and don’t be afraid to seek out support. It’s important to focus on what you can do differently going forward, this could be as simple as working towards a “rainy day” fund.
It’s never too late to change your outlook. By embracing optimism, you can reap the rewards that a more positive outlook provides.
The missing link in the Bitcoin boom
Whether it’s the booming price of Bitcoin, or record-breaking prices for investments paid for in digital currencies, cryptocurrencies continue to feature in the media and in dinner conversation. This has reignited debate about whether we are witnessing an old-fashioned bubble about to burst or a new asset class in the making.
The price of Bitcoin has gone from around $13,800 a year ago to a recent high of $84,350.i Undoubtedly, some people have made money on the way up, but experts urge caution. While cryptocurrencies are being accepted more widely, the Australian Securities and Investments Commission (ASIC) warns they are high risk, difficult to value and unregulated*.ii
You may also have seen recently that a digital artist known as Beeple sold a work at auction for $89 million, while Twitter founder Jack Dorsey sold his first tweet for $3.8 million. Both were paid for in cryptocurrencies in a trend called non-fungible tokens (NFTs).iii NFTs are a unique bit of digital code that cannot be duplicated or counterfeited, making them particularly attractive for collectors.
Cryptocurrencies and NFTs have one thing in common – they are both enabled by a technology called blockchain.
What is blockchain?
Blockchain is a system of recording and storing information that helps keep track of ownership securely and transparently.
It is essentially a digital ledger of transactions stored in blocks that is duplicated and distributed across a network of computer systems forming a blockchain. Every new transaction that occurs on the blockchain is added to every participant’s ledger.
This means if one block in the chain is changed, it would be immediately apparent that it had been tampered with, making it near impossible to change, hack or cheat the system.
History teaches us that fortunes are more likely to be made selling shovels to miners in a goldrush, than buying a shovel and joining them. So could it be that long-term value is more likely to come from investing in the underlying blockchain technology than chasing quick profits from the likes of Bitcoin and NFTs?
Given rising concerns about hacking and data breaches, it’s no surprise that blockchain is being embraced by government and businesses alike.
Government backs digital technologies
In the 2020 Federal Budget, the Australian government set aside $800 million to invest in digital technologies, including blockchain technology pilots to cut business compliance costs.iv
This followed the launch two years ago of the government’s National Blockchain Roadmap, developed in collaboration with industry and universities to highlight the technology’s potential to save businesses money and open new business and export opportunities.
According to the Roadmap, blockchain technology is predicted to generate an annual business value of over US$175 billion by 2025. By 2023, blockchain will support the global movement and tracking of US$2 trillion worth of goods and services annually. By next year, it is predicted to save the financial services industry US$15-20 billion annually.v
Practical uses of blockchain
In Australia, the biggest user of blockchain is the financial services industry. For example, the Australian Securities Exchange (ASX) is working on a new blockchain system to finalise local equity trades which will replace the old CHESS system in early 2022.
But it also has applications across the economy in sectors including trade, logistics, real estate, energy, water, resources and agriculture. The cost to Australian food and wine producers of direct product counterfeiting and substitution was estimated to be over $1.7 billion in 2017 alone.v
Take the example of the wine industry. Blockchain can help with inventory tracking, facilitate automated payments between supply chain members, and reduce counterfeiting through provenance transparency.
Thanks to government and industry support, a growing number of blockchain companies are listing on the ASX. There are companies using blockchain to:
- Keep track of financial data and identity documents for compliance
- Verify human engagement on social media to prevent interaction with bots and fake profiles
- Make supply chains transparent in combination with artificial intelligence technology.vi
Other companies have integrated blockchain into parts of their business to enhance security on digital platforms or to accept and settle payments.
While the local ASX-listed technology sector is still relatively small and high risk, it does offer investors increasing opportunities to invest in cutting-edge technologies with real world applications.
If you would like to discuss your overall investment strategy, don’t hesitate to get in touch.
*Disclaimer: We cannot advise clients on investments in Bitcoin or any other cryptocurrency as they are not regulated financial products.
Tax Alert June 2021
The Government is continuing to support COVID-affected businesses by extending most of its pandemic inspired tax offsets and benefits. But at the same time the ATO has micro businesses like contractors who fail to declare all their income in its sights.
Here’s a roundup of some of the key developments when it comes to tax.
LMITO extended again
For individual taxpayers, an important tax change is the Budget announcement of another one-year extension to the current low- and middle-income tax offset (LMITO) for 2021-22.
This welcome decision will provide a valuable tax offset of up to $1,080 for individuals and $2,160 for dual income families as taxpayers repair their post pandemic finances.
Reduction of minimum pension for 2021-2022
The Government temporarily reduced the minimum drawdown amounts
in March 2020 in response to COVID-19’s impact on investment markets. Reduced
minimum amounts give you the option to manage your income payments differently
during difficult times.
29 May 2021, the Government extended this COVID-19 measure to
30 June 2022 for the 2021-22 financial year. (See table below)
to minimum pension drawdowns extended to 30 June 2022
Minimum yearly payment as a percentage of
Temporary reduced minimum yearly
65 – 74
75 – 79
80 – 84
Continuation of full expensing and loss carry-back
Business taxpayers should also be happy with the Budget announcement of an extension to the full expensing and loss carry-back measures. Under the full expensing rules, eligible businesses with an aggregate annual turnover of up to $5 billion are able to deduct the full cost of eligible depreciable assets until 30 June 2023.
Eligible companies can also carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as 2018-19. This tax refund is available when you lodge your business tax return for the 2020-21, 2021-22 and 2022-23 financial years.
ATO tracks contractor payments
While the Budget provided tax incentives, contractors working in courier, cleaning, building and construction, road freight, IT, security and surveillance industries are increasingly under the tax man’s spotlight.
The ATO has announced it’s now combining data from its Taxable Payments Reporting System (TPRS) with its other data and analytical tools to ensure more than $172 billion in payments to contracting businesses have been properly declared. The ATO is now proactively contacting contractors identified as not declaring income reported by their customers through the TPRS.
New food and drink limits
The new reasonable weekly food and drink amounts businesses can pay an employee as a living-away-from-home allowance (LAFHA) have been released.
For this FBT year (starting 1 April 2021), the ATO considers it reasonable to pay an adult working in Australia a total food and drink expense of $283 per week. As an employer, if you pay more than this you will be liable for FBT on the LAFHA over this amount.
New tax umpire
Small businesses will now have more rights to pause or modify the collection of tax debts under dispute with the ATO.
The Budget included an announcement that small businesses will be able to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal to have an ATO debt recovery action paused until their case is decided.
End to STP exemption
From 1 July 2021, the exemption for small employers on reporting closely held payees through the Single Touch Payroll (STP) system will end.
This exemption allowed small employers to not report payee information for any individuals directly related to the business. Closely held payees include family members of a family business, directors or shareholders of a company, or beneficiaries of a trust.
More support brewing
The Budget also recognised the importance of small business entrepreneurs and technology-driven innovators, with incentives to spur economic growth.
Brewery and distillation businesses will also benefit from a new measure giving them full remission (up from 60 per cent) of any excise paid on alcohol produced up to a new $350,000 cap on the Excise Refund Scheme from 1 July 2021.
The Budget also recognised the growth in local digital gaming businesses, with a new Digital Games Tax Offset. From 1 July 2022, eligible game developers will be able to access a 30 per cent refundable tax offset for qualifying Australian games expenditure of up to $20 million a year.
The Government also plans to provide tax incentives for medical and biotechnology companies by introducing a new ‘patent box’ from 1 July 2022. Income from patents will be taxed at 17 per cent, rather than the normal 30 per cent corporate rate.
Counting down to June 30
It’s been a year of change like no other and that extends to tax and superannuation. As the end of the financial year approaches, now is a good time to check some new and not so new ways to reduce tax and boost your savings.
With so many of us confined to our homes over the past year, the big deductible item this year is likely to be working from home expenses.
Home office expenses
If you have been working from home, the Australian Taxation Office (ATO) has introduced a temporary shortcut method which can be used for the 2020-21 financial year. This allows you to claim 80c for each hour you worked from home during the year.i
The shortcut method covers the additional running costs for home expenses such as electricity, phone, internet, cleaning and the decline in value of home office furniture and equipment.
Some people may get a better result claiming the work-related portion of their actual working from home expenses using the actual cost method.
Alternatively, if you do have a dedicated home office, you can claim using the fixed rate method. The fixed rate is 52c an hour for every hour you work at home and covers things like gas and electricity, and the decline in value or repair of office furniture and furnishings. On top of this, you may be able to claim the work-related portion of phone and internet expenses, computer and stationery supplies, and the decline in value of your digital devices.ii
While COVID has changed many things, some things stay the same. Such as the potential benefits of pre-paying next year’s expenses to claim a tax deduction against this year’s income.
Some examples are pre-paying 12 months’ premiums for your income protection insurance and work-related expenses such as professional subscriptions and union fees. If you are unsure what you can claim, the ATO has a guide for a range of occupations.
If you own an investment property, you might also consider pre-paying 12 months’ interest on your loan and other property-related expenses.
Top up your super
If your super could do with a boost and you have cash to spare, now is the time to check whether you are making the most of the contribution strategies available to you.
You can make tax-deductible contributions up to $25,000 a year, including Super Guarantee payments by your employer. You can also contribute up to $100,000 a year after tax. From July 1 these caps will increase to $27,500 and $110,000 respectively, so it’s important to factor this into decisions you make before June 30.
For instance, if you recently received a windfall and are considering using the ‘bring forward’ rule, you might consider holding off until after July 1. This rule allows you to bring forward two years’ after-tax contributions. By holding off until July 1 you could contribute up to $330,000 under the new limits.
Also increasing on July 1 is the amount you can transfer from your super account into a pension account. The transfer balance cap is increasing from $1.6 million to $1.7 million.
So if you are about to retire and your super balance is close to the cap, it may be worth delaying until after June 30.
Finally, from 1 July 2020, if you are under age 67 you can now make voluntary contributions without meeting a work test. And if 2020-21 is the first year that you no longer satisfy the work test, you may still be able to add to your super if you had a total super balance below $300,000 on 1 July 2020.
Manage investment gains and losses
Now is a good time to look at your portfolio for any loss-making investments with a view to selling before June 30. Any capital loss may potentially be used to offset some or all of your gains.
Of course, any decisions to buy or sell should fit with your overall investment strategy and not for tax reasons alone.
For all the challenges of the past year, there are still many ways to improve your overall financial situation. So get in touch to make the most of strategies available to you to before June 30.
The MWL Financial Group includes but is not limited to:
MWL Financial Group Pty Ltd (ABN 49 145 576 058)
MWL Financial Services Pty Ltd (ABN 22 095 907 574; AFSL/ACL 235096)
MWL Accounting Pty Ltd (ABN 25 005 965 597)
MW Planning Pty Ltd (ABN 18 117 913 550; AFSL 312489)
This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.