Government announces cuts to deeming rates

Posted on 17 July 2019
Effective from 1 July 2019, the lower deeming rate will decrease from 1.75 per cent to 1.0 per cent for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples. The upper deeming rate will be cut from 3.25 per cent to 3.0 per cent for balances over these amounts.

 

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Income tax cut laws head for Senate battle

Posted on 16 July 2019
Income tax cut laws head for Senate battle

Katina Curtis and Rebecca Gredley
(Australian Associated Press)

Australians earning up to $90,000 look set to get an extra $1000 back in tax within weeks, with the federal government on the verge of winning the Senate support it needs for stage one of its tax package.

The $158 billion package passed the lower house on Tuesday night after about three hours of debate, with Labor failing to secure an amendment to bring forward the second stage of the package.

Labor leader Anthony Albanese said it was a sensible proposition given the central bank's second interest rate cut in as many months.

The opposition also failed to remove the third stage of the tax plan from the bill, which flattens the tax bracket in 2024/25.

"That's all about politics, not about good sound economic policy," Mr Albanese told the lower house.

But Treasurer Josh Frydenberg said it would give Australians confidence their future pay rises were protected from bracket creep.

"This bill lowers taxes for hard working Australians, it puts more money in their pockets."

Centre Alliance MP Rebekha Sharkie supported the bill on her understanding the minor party would reach an outcome with the government on ways to bring down gas prices.

But Ms Sharkie noted her two Senate colleagues were still continuing negotiations with the government.

Labor will now try to convince Senate crossbenchers to support the amendment on Thursday, but the government appears to be moving closer to a deal to get the whole package passed before parliament rises.

The coalition needs the support of four out of six crossbenchers to succeed.

The two Centre Alliance senators are likely to back it, with leader Rex Patrick saying they were working through the final details of a deal to make sure the extra money in taxpayers' pockets doesn't get gobbled up by higher power bills.

Former Liberal Cory Bernardi also backs the tax relief package, leaving the government just one vote short.

This means returning Tasmanian senator Jacqui Lambie is likely to be the deal maker or breaker, but she's yet to declare her hand.

She is working with Centre Alliance in a very loose alignment, with the three senators meeting several times over the last 24 hours since arriving in Canberra.

Senator Patrick said part of the deal was that he and colleague Stirling Griff don't talk about Senator Lambie's position.

Senator Lambie told reporters she hadn't come to a position yet, saying her staff only started work on Monday and she hadn't had enough information from the government.

Senator Griff argues there's no use entertaining Labor's position, given the government has refused to budge on its three-stage plan, describing it as an all-or-nothing proposition.

Some opposition MPs have urged the party to back the full tax relief package.

The Greens implored Labor and the crossbench to stand firm if the Senate was forced to vote on the entire package.

"We don't need to be giving tax cuts to millionaires, to CEOs, to politicians; we need to be funding essential services," leader Richard Di Natale told reporters.

The first stage of the plan will deliver up to $1080 to low and middle-income earners when they lodge their tax returns in coming months.

The second stage will top up a low-income tax offset, which means more people earning up to $45,000 instead of $41,000 will get a 19 per cent tax rate.

The final stage flattens the tax rate from 32.5 per cent to 30 per cent for people earning between $45,000 and $200,000 from mid-2024.

 

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Treasurer nixes regular deeming rate check

Posted on 15 July 2019
Treasurer nixes regular deeming rate check

Katina Curtis and Marnie Banger
(Australian Associated Press)

Hundreds of thousands of pensioners will soon discover how much extra money they will receive each fortnight, with the Morrison government weighing imminent changes to the income test.

But Treasurer Josh Frydenberg has nixed suggestions the system could soon be kept at arm's length of politicians.

Cabinet's expenditure review committee is now weighing up whether to lower deeming rates, which are used to estimate how much some pensioners are earning on their financial investments.

But Mr Frydenberg rejected calls from peak seniors bodies and MPs to take that process out of the hands of ministers.

"We believe we've got a proper process in place and the minister continues to review it as appropriate," the treasurer told Sky News on Tuesday.

Council on the Ageing chief executive Ian Yates argues the rates should be reviewed every six months against a pre-determined set of benchmarks, similar to how the pension is indexed.

"Why is it that this one component of the pension system, which is deeming rates, is not related to an objective basket of measures that gives us a benchmark to adjust it on?" Mr Yates told AAP.

"It would take the uncertainty for a part-pensioner out of what they're going to earn."

Labor says it's long past time the government acted.

"Scott Morrison and Josh Frydenberg don't deserve a pat on the back for looking into deeming rates, they deserve a kick in the backside," shadow treasurer Jim Chalmers told reporters in Brisbane.

He said the too-high rate had "smashed the household budgets of thousands of Australian pensioners".

The deeming rates were last dropped in 2015 and are as high as 3.25 per cent, depending on individual circumstances.

For those with smaller financial holdings, the rate is 1.75 per cent.

Those changes were worth about $83 a year to more than 770,000 part-pensioners.

Since then, the Reserve Bank of Australia has cut the official cash rate five times to a new record low of one per cent, meaning savings stashed in bank accounts are earning less interest.

But Mr Frydenberg said it didn't necessarily follow that the deeming rate should also drop by 1.25 points since it applies to a whole range of financial assets.

"It's not a straight-line equation, it's not about looking what has the interest rate done and then reducing the deeming rate the same amount," he told reporters.

"For example if you've got shareholdings I mean, the ASX 200 shares have gone up around 12 per cent over the last 12 months."

Deeming rates affect about one-in-four pensioners.

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What are the best investments for your retirement?

Posted on 27 June 2019
What are the best investments for your retirement?

Money and Life
(Financial Planning Association of Australia)

When it comes to investing for retirement, what are your options? Whether you're retired or still working, our complete guide to retirement investments will help you with making the right choices for your future in retirement.

Your investment options

In the simplest terms, investing your money means buying an asset with the expectation of earning returns from ownership of that asset. If you own an investment property, for example, you can expect to receive rent as income. But if you then sell the property for a higher price than you paid, you've increased your returns from your asset even more.  This is known as a capital gain the growth in value of an asset over time.

Different types of investments are grouped together into asset classes a group of investments with similar characteristics, such as term deposits, bonds, property or shares/equities. When it comes to choosing between different investment options, they generally fall into two broad categories, defensive and growth assets. Defensive assets offer less opportunity for growth, but more stability and security for your original investment. A term deposit is an example of a defensive asset the interest you'll earn is fixed but you're guaranteed to get your original deposit back at the end of the term. Growth assets, such as shares, carry more risk but offer more potential to grow your wealth over time.

Why diversification is important

When choosing growth assets and defensive assets to invest in you're looking at how much you can expect to earn compared with the risk of losing some of the original sum invested. Diversifying your investments can be a good way to strike a balance between risk and reward. Because different asset classes behave differently at different times, spreading your money across a number of assets can help you earn more stable investment returns overall.

Investing costs

Every type of investment comes with costs. For buying and selling shares, you'll pay brokerage fees for each transaction. When you buy and own property, there are upfront and ongoing costs such as stamp duty, agency fees and maintenance costs. Plus, you'll be liable for tax on the income from your investments and on any capital gain you earn when you sell assets. These are all things you need to take into account when looking at different investment options.

Should you invest in a super fund?

You can invest in all sorts of assets outside of super, either directly or through managed funds. Most super funds will also offer a wide range of choices for investing your money, including their own blended investment options, such as growth, conservative (defensive) or balanced.  So should you be investing your retirement savings in super or look elsewhere?

A key benefit of investing through your super fund is the potential savings on the tax on your investment income. Any investment earnings in your super fund are taxed at a maximum rate of 15%, regardless of the marginal tax rate on the rest of your income. The main drawback of investing in super is the money you invest and the investment earnings are locked away until you reach your preservation age and/or meet a condition of release. If you need access to the money you're investing in the short or medium term, then your super fund isn't the right place for it.

What about SMSFs?

If you're looking for more flexibility in your choice of investments than you can expect from a super fund, a Self Managed Super Fund (SMSF) could be the answer. However, there are significant costs involved in setting up and managing an SMSF so your freedom to invest super savings in property or collectibles, for example, comes at a price.

Your superannuation investment strategy

There's no one-size fits all when it comes to investing. Whether it's your investment strategy for retirement or another purpose, there are lots of personal circumstances and preferences to think about. Some of these include your investment timeframe, your appetite for risk and how much you already know about different types of investments. Talking with a CERTIFIED FINANCIAL PLANNER® professional can help you narrow down the options and guide you towards a blend of investments that works best for you and your goals.

Investing after retirement

An investment strategy that works well for you whilst working full-time may need to change when your goal is having an income to rely on in your retirement years. You may want to limit your investment risk to be sure of having enough money to last throughout retirement, but also earn sufficient returns so that inflation won't reduce the value of your savings over time.

This is why it's important to get the right advice about changing your blend of investments when you retire. Plus, there are new types of investment opportunities available when you retire. Annuities and account-based pensions come with pros and cons and a CERTIFIED FINANCIAL PLANNER®professional can help you understand how products like these can work with your retirement investment strategy and financial plan.

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Tax return tips

Posted on 20 June 2019
Tax return tips

MoneySmart
(ASIC)

Getting tax right

It's tax time again so here's our guide to what you can and can't claim in your 2018 tax return, and tips to make lodging your tax on time a breeze.

Records you'll need to complete your tax return

Before you sit down to do your tax, you'll need to gather all the right information. Here are some of the documents you'll need to complete your tax return.

  • Payment summaries - Outlines the income you have received from your employer, super fund or government payment like Centrelink and the Department of Veterans Affairs.
  • Bank statements - Details any interest you have earned during the period and fees you have paid. Your bank may have summarised these for you, either online or at the bottom of your bank statement.
  • Shares, unit trusts or managed funds statements - Information on dividends or distributions you've received. Dividends that you've elected to reinvest must be declared as income.
  • Buy and sell investment statements - Needed to calculate capital gains and losses. If you bought or sold any shares you can access the details on your online broking account or you can get them from your investment adviser or stockbroker.
  • Records from your rental property - If you use a property manager, you will probably get an annual tax statement that details income and expenses. Otherwise you will need to gather details of income received and expenses paid, including any capital gains or capital losses if you have sold the property.
  • Foreign income - Details of foreign pensions or other foreign income.
  • Private health insurance policy statement - Information needed to complete the private health insurance section of your tax return.

Income you must declare

You can do your tax online using myTax. You can access myTax through myGov or the Australian Taxation Office (ATO) website.

Smart tip

If you wait until mid-August, the ATO will pre-fill your tax return with most information from employers, banks, government agencies and other third parties. You just have to check the information, enter any deductions you have, and submit.

If you lodge your tax return before the information is pre-filled, here's a list of common types of income that must be declared on your tax return:

  • Employment income
  • Super pensions, annuities and government payments
  • Investment income (including interest, dividends, rent and capital gains)
  • Business, partnership and trust income
  • Foreign income
  • Income from crowdfunding (for example, donations received for a venture in which you intend to make a profit)
  • Income from the sharing economy (for example Uber or Air BnB)
  • Other income including compensation and insurance payments, discounted shares under employee share schemes, some prizes and awards

Visit the ATO's website for more information on income you must declare.

Tax deductions you can claim

When completing your tax return, you're entitled to claim deductions for some expenses, most of which are directly related to earning your income (called 'work-related expenses'). A deduction reduces your taxable income, and means you pay less tax.

To claim a deduction for work-related expenses:

  • you must have spent the money yourself and not been reimbursed
  • it must be directly related to earning your income
  • you must have a record to prove you paid for it.
When your expenses meet these criteria, here's a list of the things you may be able to claim.
  • Vehicle and travel expenses - This does not normally include the cost of travel between work and home but, if you use your car for work or work in different locations, then you may be able to claim a deduction.
  • Clothing, laundry and dry-cleaning expenses -To legitimately claim the cost of a uniform, it needs be unique and distinctive, for example it contains your employer's logo, or is specific to your occupation, like chef's pants or coloured safety vests.
  • Gifts and donations -  to organisations that are endorsed by the ATO as deductible gift recipients.
  • Home office expenses - Costs could include your computer, phone or other electronic device and running costs such as an internet service. You can only claim the proportion of expenses that relate to work, not private use.
  • Interest, dividend and other investment income deductions - Examples include interest, account fees, investing magazines and subscriptions, internet access, depreciation on your computer.
  • Self-education expenses - If the study relates to your current job, you can claim expenses like course fees, student union fees, textbooks, stationery, internet, home office expenses, professional journals and some travel.
  • Tools, equipment and other equipment - If you buy tools or equipment to help earn your income, you can claim a deduction for some or all of the cost. Examples include protective gear, including sunscreen, sunglasses and hats if you work outside, office equipment, safety equipment and technical instruments.
  • Other deductions - Other items you can claim include: union fees, the cost of managing your tax affairs, income protection insurance (if it's not through super), overtime meals, personal super contributions and other expenses incurred in the course of earning an income.

The ATO's website has more information about these types of expenses. They have also created a series of fact sheets explaining what expenses are tax deductible for specific occupations, including teachers, hospitality workers and tradies.

Make it easier for next year

The ATO's myDeductions app makes record keeping easier. The tool allows you to record deductions including work-related expenses, gifts and donations, interest and dividends. It also lets you store photos of receipts and record car trips. The myDeductions app can be used by individuals and sole traders (sole traders can use it to keep track of business income) and at tax time you can send your deductions to your tax agent or upload them directly to myTax.

What tax deductions are not allowed

The ATO is focused on helping taxpayers get their deductions right, but they're also on the lookout for red flags that identify people who are doing the wrong thing.

Here's a list of deductions you usually can't claim on your tax return:

  • Travel between home and work - which is generally considered private travel.
  • Car expenses - unless you are transporting bulky tools or equipment that your employer requires you to use, and you cannot leave it at work.
  • Car expenses - that have been salary sacrificed.
  • Meal expenses - unless you were required to work away from home overnight.
  • Private travel - including any personal travel portion of work-related travel.
  • Everyday clothes - you bought to wear to work (for example, a suit or black pants), even if your employer requires you to wear them.
  • The cost of laundering eligible work clothes - unless you can show how you calculated the cost.
  • Higher Education Loan Program - contributions charged through the HELP scheme.
  • Self-education expenses - where there is no direct connection to your current employment.
  • Phone or internet expenses - that relate to private use.
  • Tools and equipment that cost more than $300 - however, you can depreciate the cost over a number of years.

Test your understanding of income you must declare and what you can and can't claim with the ATO's tax time quiz. If you're still not sure what you can or can't claim visit the ATO or a registered tax agent.

Lodging your tax return

You can lodge your tax return online using myTax it's quick, easy, safe and secure. If you haven't already set up a MyGov account, you'll need to create one and then link to the ATO. Visit the ATO website to find out how to lodge online.

Smart tip

Check your super while you are logged into MyGov. Just click on the 'super' tab, to see how many funds you have. You can even consolidate your funds on the spot if you know which one you want to keep.

If you have a spouse you will also need details of their income and expenses to make sure your entitlements are correctly calculated.

Once you have lodged your tax return keep an eye on your myGov inbox for your notice of assessment and tax receipt.

Lodge your return before the deadline

If you're lodging your own tax return, you have until 31 October 2018 to lodge it. If you decide to use a registered tax agent, or are using a different agent from last year, you will need to contact them before 31 October.

Take a look at the ATO's video on lodging using myTax:

https://youtu.be/3d7kKpQt-BA

Get help from a registered tax agent

If you want to use a professional to do your tax return, make sure you use a registered tax agent. You can check if the agent is registered on the tax and BAS agent register.

Whichever way you choose to lodge your tax return, remember you are responsible for the claims you make, so make sure your deductions are legitimate and you include all your income before you or your agent lodges your return.

Make tax this year as easy as possible by getting organised and knowing what information you will need to lodge.

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