(Australian Associated Press)
Plans to bring forward tax cuts for middle and high income earners to this year’s 2022/23 federal budget could reportedly be shelved.
Treasurer Josh Frydenberg is now unlikely to accelerate the relief by two years and flatten the tax rate for those earning between $45,000 to $200,000 to 30 per cent, The Australian reported on Wednesday.
Citing an unnamed senior government source, the news outlet said Mr Frydenberg plans instead to focus on cost of living pressures, such as rising petrol prices.
Federal Labor has previously committed to backing the so-called stage three tax cuts, which would cost about $17 billion a year, originally due in 2024/25.
Mr Frydenberg is also reportedly considering extending the low and middle income tax offset, which gives an eligible taxpayer an offset of up to $1,080, for another 12 months.
Meanwhile, Australia’s critical mineral sector will be bolstered in the upcoming federal budget with more than $200 million for manufacturing projects.
The government has announced $243 million will be spent across four projects in the sector.
Critical minerals, such as nickel, magnesium and other rare-earth elements, are heavily used in the manufacture of technology such as mobile phones, electric cars and solar panels.
Nearly half of the funding, $119.6 million, will go towards an integrated nickel manganese cobalt battery material refinery hub in Kalgoorlie.
Meanwhile, $49 million will be spent on processing high-grade vanadium from a Western Australian mine and transporting it to a plant powered by clean hydrogen.
There will be $30 million set aside for a rare-earth separation plant in the Northern Territory, the second of its type outside China and the first in Australia.
The fourth package will be $45 million to help construct a high-purity alumina production facility near Gladstone in Queensland to help meet rising demand for lithium-ion batteries and LED lights.
It is expected the four projects will help create more than 3400 jobs.
Prime Minister Scott Morrison said the new initiatives were critical to expanding the critical minerals sector in Australia.
“These projects are about manufacturing the products and materials Australians need, and the world needs, by making them right here at home,” Mr Morrison said.
“We’re helping grow the local critical minerals processing and clean energy industries and locking in the future of those industries by backing manufacturing projects in Australia.”
The critical minerals projects will form part of the federal government’s $1.3 billion modern manufacturing initiative.
Industry Minister Angus Taylor said the projects would mean Australia would capture more of the global supply chain.
He said the initiatives would help address the dominance of China in the area, which is currently responsible for between 70 and 80 per cent of critical mineral production.
“Australia is lucky to have some of the largest reserves of the critical minerals and metals which drive the modern global economy … this initiative is designed to address (China’s) dominance,” he said.
“These projects are not only game changers for the local region with the creation of new jobs – they will also open up incredible export opportunities.”
Lower tax on your investments can help you reach your financial goals sooner. But don’t choose an investment based on tax benefits alone.
You need to include investment income in your tax return. This includes what you earn in:
You pay tax on investment income at your marginal tax rate.
Use our income tax calculator to find out your marginal tax rate.
You’re allowed tax deductions for the cost of buying, managing and selling an investment. But there are rules around what you can and can’t claim as a tax deduction. See the Australian Taxation Office (ATO)’s investment income deductions.
Investing and tax can be complex. See your accountant for help.
If you sell an investment for more than the cost to acquire it, you make a capital gain. You need to include all capital gains in your tax return in the year you sell the investment. Capital gains are taxed at your marginal rate.
If you’ve held the investment for more than 12 months, you’re only taxed on half of the capital gain. This is known as the capital gains tax (CGT) discount.
The ATO has information to help you work out your capital gains tax on different investments.
If you sell an investment for less than the cost to acquire it, you make a capital loss.
You can use a capital loss to:
Positive gearing is where you borrow money to invest and the income from the investment (for example, rent or dividends) is more than the cost of the investment (interest and other expenses).
If you’re positively geared, you’ll have extra money coming in. But you’ll also have to pay tax on this income at tax time.
Negative gearing is where you borrow to invest and the investment income is less than the cost of the investment.
Investors negatively gear as they can generally claim a tax deduction for the investment loss. The aim is for the capital growth to offset the loss in earlier years.
If you’re making an investment loss, it is still costing you money. You’ll need to have cash from other sources, like your salary, to cover interest and expenses.
A tax-effective investment is one where the tax on your investment income is less than your marginal tax rate.
Choose investments based on your financial goals, risks you’re comfortable with and expected returns. Tax benefits should be a secondary consideration.
Super is a tax-effective investment and one of the best ways to save for retirement. This is because the government provides tax incentives to save through super. These include:
See Tax and super for more information.
Insurance bonds are investments offered by insurance companies. They can be tax effective if you’re planning to invest for 10 years and follow certain rules.
All earnings in an investment bond are taxed at the corporate tax rate of 30%. If no withdrawals are made in the first 10 years, no further tax is payable. They can be tax effective for investors with a marginal tax rate higher than 30%.
Tax-driven schemes offer tax deductions now for investing in assets that may provide income in the future. These schemes can be high risk and some are scams. Check the ATO page investigate before you invest for how to spot a dodgy tax scheme. Or get professional advice from an accountant.
Keeping good records will help you at tax time to:
It will also help you calculate any capital gains or losses when you sell an investment.
For all investments such as shares, property and cryptocurrencies you need to keep records to show:
You’ll need to keep records for five years after you included the income and capital gain or loss in your tax return.
A critical illness or serious injury can make it difficult to continue to work. Trauma insurance can help support you and your family at this time and pay for medical and rehabilitation costs.
Trauma insurance, also called ‘critical illness’ or ‘recovery insurance’ pays a lump sum amount if you suffer a critical illness or serious injury. This includes cancer, a heart condition, major head injury or stroke. Trauma insurance does not cover mental health conditions.
What’s covered under a trauma insurance policy and medical definitions can be different between insurers. To understand what’s covered under a trauma insurance policy, read the product disclosure statement (PDS).
Trauma insurance can be used to help pay for:
When deciding if you need trauma insurance and how much, think about:
If you need help deciding if you need trauma insurance and how much, speak to a financial adviser.
You can buy trauma insurance:
You can choose to buy trauma insurance on its own or packaged with life cover and TPD insurance. If you buy trauma insurance packaged with life cover, your life cover could be reduced by the amount paid out on a trauma claim. To see if this applies to a policy, read the PDS or ask your insurer.
Super funds no longer offer new trauma insurance policies. But if you were in a super fund that offered trauma insurance before July 2014, you might still have it through your super fund. Check your member statement or contact your super fund to find out.
Before buying, renewing or switching insurance, check if the policy will cover you for claims associated with COVID-19.
You can generally choose to pay for trauma insurance with either:
Your choice of stepped or level premiums has a large impact on how much your premiums will cost now and in the future.
Before you buy trauma insurance, compare policies to make sure you get the right one for you. Check:
A cheaper policy may have more exclusions, or it may become more expensive in the future.
Compare how long different insurers take to pay a trauma insurance claim and the percentage of claims they pay out.
You need to tell your insurer anything that could affect their decision to provide you with trauma insurance. You need to give them this information when you apply, renew or change your insurance.
This can include your:
If an insurer doesn’t ask for your medical history, the policy might have more exclusions or narrower medical definitions.
The information you provide will help the insurer to decide:
It is important that you answer the questions honestly. Providing misleading answers could lead to an insurer to decline a claim you make.
To claim on your trauma insurance, see making a life insurance claim for information on what to do.
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)
Reserve Bank governor Philip Lowe does not expect the Omicron variant to derail Australia’s economic recovery but says the central bank board is prepared to remain patient before lifting the cash rate.
As widely expected by economists at the RBA’s first board meeting of the year, it left the cash rate at a record low 0.1 per cent and is ending its multi-billion dollar bond buying program on February 10.
The program aimed to keep market interest rates and borrowing costs low.
“Ceasing purchases under the bond purchase program does not imply a near-term increase in interest rates,” RBA governor Philip Lowe said in a statement after the meeting.
“The board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve.”
Economists and financial markets had expected Dr Lowe to provide a more definite outlook for the cash rate after the unemployment rate dropped to 4.2 per cent, a year earlier than the RBA had been predicting, while inflation is also running well ahead of its expectations.
Financial markets have been pricing in the risk of a rise in the cash rate by mid-year, while economists had been gravitating towards a move at the August board meeting.
“As the board has stated previously, it will not increase the cash rate until actual inflation is sustainably within the two to three per cent target range,” Dr Lowe said.
He said while inflation has picked up, it is too early to conclude that it is sustainably within the target band.
“There are uncertainties about how persistent the pick-up in inflation will be as supply-side problems are resolved,” he said.
“Wages growth also remains modest and it is likely to be some time yet before aggregate wages growth is at a rate consistent with inflation being sustainably at target.”
EY chief economist Jo Masters said the RBA board remains a long way from financial market expectations about the timing of the first rate.
“It’s clear that policymakers want to see wages growth accelerate to be confident that inflation will remain within the target band, as supply disruptions fade,” she said.
Key December quarter wages data is due on February 23.
Dr Lowe said the Australian economy remains resilient and spending is expected to pick up as Omicron case numbers trend lower, but he conceded the main source of uncertainty continues to be the pandemic.
The RBA now expects economic growth of around 4.25 per cent over 2022 and two per cent over 2023.
This is lower than the RBA’s central case predicted in November when it had forecast growth of 5.5 per cent and 2.5 per cent respectively.
However, it has upgraded its annual underlying inflation forecasts after the unexpected jump to 2.6 per cent as of the December quarter, predicting 3.25 per cent in coming months before declining to around 2.75 per cent over 2023.
The central bank had previous not expected underlying inflation to hit 2.5 per cent until the end of 2023.
“One source of uncertainty is the persistence of the disruptions to supply chains and distribution networks and their ongoing effects on prices,” Dr Lowe said.
“It is also uncertain how consumption patterns will evolve and how this will affect the balance of supply and demand, and hence prices.”
Dr Lowe will get the opportunity to flesh out his expectations for the outlook when he addresses the National Press Club in Sydney on Wednesday.
The RBA will also release its quarterly statement on monetary policy on Friday which will provide its full suite of forecasts.
Money and Life
(Financial Planning Association of Australia)
With a new year just around the corner, now’s the perfect time to say bye-bye to bad habits and get your finances on track. Here are five things you can do to set yourself up for financial success in the new year.
Whether you’ve been naughty or nice all year long, it’s likely that a few bad habits have crept in when it comes to your finances. It’s certainly tempting to splurge on all of those little luxuries you might have missed in the last two years, like dinners, nights out, and oh yes, travel.
But spending up big without a financial plan in place is asking for a new year’s hangover. So before you go ahead and enjoy a summer to remember, take a closer look at your financial health. Here are five things you can do ahead of the new year, to get yourself into Santa’s financial good books.
The start of a new year is a great time to revisit your spending and set some goals for the year ahead. With more freedoms available than we’ve had in a long time, you can dream big! Perhaps you’d like to travel, study or even buy a home?
Write down your top goals for the year, and check that your budget will get you there. If you don’t have a budget, now’s the time to create one. Use a spreadsheet or online budget planner to list your income, expenses and savings.
If you already have a budget in place, review your bank statements to see whether you’ve been living within your means this year. Make any changes to your budget – or spending – that are needed. If your savings aren’t looking too merry and bright, look for places where you can cut back on spending and divert those funds towards your savings.
The silly season can get the best of us all when it comes to overspending, but it’s important to get on top of debt quickly. If you’ve borrowed money to help cover your costs, make a plan to repay it as soon as possible.
The repayments on consumer debt like credit cards, personal loans and buy-now-pay-later schemes can quickly add up, eating into your cash flow. The sooner you pay off your debts, the sooner you’ll be on your way to a happy new year.
If the last 18-months has shown us anything, it’s that the unexpected can happen at any time. But you can set yourself up to weather an unexpected loss of income. There are two aspects to emergency planning:
Once living expenses, debt repayments and emergency provisions are taken care of, next in line is you! That’s right, it’s time to pay yourself, in the form of savings and investments. If you’re just starting your savings journey, look for a high-interest account to build your savings in. You can also keep your savings in your mortgage offset account to help reduce the interest you pay on your home loan, just be sure to read the fine print on your loan.
Once you have enough funds saved, you can look at investing for a return, and/or contributing more towards your superannuation.
If your funds are already invested, review your strategy and make sure it still meets your goals. Evaluate how your investments are performing, using benchmarks and your long term plan, and make any changes to your investment portfolio that are needed.
If you’d like advice to help optimise your investment strategy, speak to a financial planning professional.
Read more: Where to invest in 2022
Finally, if you don’t have an estate plan in place, make an appointment with a lawyer to get one drawn up. An estate plan includes several legal documents, like your will, binding nominations designating your beneficiaries, and, powers of attorney over your health and affairs.
If you die intestate (without a will) your estate will be distributed according to the legislation in your state or territory. That means it’s up to the relevant authorities to decide what happens to your assets and any dependent minors. Even worse, it can take a long time for your estate to be finalised, creating extra stress for your family at an already difficult time. With an estate plan in place, you can rest easy knowing your affairs will be taken care of in accordance with your wishes.
With just a few simple steps, you can get your finances on track for an enjoyable summer and a happy new year.