August is here and the wattle is in bloom, a sign that spring is around the corner. Australians will all be hoping for brighter days ahead, as we contend with rising COVID cases and sobering news on the economic front.
After postponing the Federal Budget until October due to COVID, the government released a budget update on July 23 which gave an insight into the economic impact of the health crisis. It estimates a budget deficit of $85.8 billion in 2019-20 (4.3% of GDP) rising to $184.5 billion in 2020-21 (9.7% of GDP). This would be the biggest deficit as a share of GDP since 1946 in the aftermath of WWII. The economy contracted an estimated 0.25% in 2019-20, with a further fall of 2.5% in 2020-21, the first consecutive annual falls in over 70 years.
Unemployment rose from 7.1% to 7.4% in June, the highest in almost 22 years. The jobless rate is expected to peak at around 9% in December before it begins to fall. As a result of the economic slowdown, inflation fell 1.9% in the June quarter (minus 0.3% on an annual basis), the biggest quarterly fall since 1931 during the Depression. The biggest price falls were for childcare, petrol, primary education, and rents. This was reflected in falling consumer confidence, with the ANZ-Roy Morgan confidence rating falling to a 13-week low of 89 late in the month (the long-term average is 112.8 points).
On financial markets, gold rose to a record high of US$1975 an ounce in July, reflecting its role as a defensive asset in difficult times. Crude oil prices inched up 1% in July but are down 25% over the year. And in good news for Australian exports, iron ore prices rebounded 8% in July (down 7% for the year). The Australian dollar continued to climb, closing the month above US72c.
Just when you thought you had a grip on the superannuation rules, they change again. This time though, the changes are mostly positive, especially for older super members keen to top up their savings.
From 1 July 2020, changes came into effect with the potential to help retirees as well as members suffering financial hardship due to COVID-19.
Here’s a summary of the new rules.
Work test to kick in at 67
Under changes to the work test, if you are aged 65 or 66 you can now put money into super even if you aren’t working. This gives people flexibility to make voluntary catch-up contributions for a few more years and give their retirement savings a last-minute boost.
Under the work test, which now kicks in at age 67, you must work at least 40 hours within 30 consecutive days in the financial year in which you make the contribution.
It was also proposed to allow people aged 65 and 66 at the start of the financial year to use the existing non-concessional bring forward rules. If eligible, this allows you to ‘bring forward’ up to three years’ worth of non-concessional contributions (up to $300,000) in the current financial year. Legislation must be passed before this proposal becomes effective.
Couples get a super boost
Couples also have more flexibility to grow their retirement savings later in life, thanks to recent changes to spouse contributions. As of 1 July 2020, you can contribute to your spouse’s super fund until they reach age 75, up from the previous age limit of 70.
What’s more, if your spouse (married or de facto) earns less than $37,000 you may be able to claim a tax offset of up to $540 for your contribution to their super. The offset phases out once your partner’s income reaches $40,000.
The usual non-concessional contribution limits still apply, and the receiving spouse still needs to meet the work test where applicable.
Super pension drawdowns halved
Retirees whose superannuation has taken a hit from the COVID-19 market volatility have also been given a bit more wriggle room this financial year. The government has temporarily halved the minimum amount retirees must withdraw each financial year from their account-based super pension.
This temporary measure will help retirees who might otherwise have to sell assets at depressed prices to provide cash for their pension payments.
For example, someone aged 65 would normally be required to withdraw 5 per cent of their super pension account balance each financial year. But in 2020-21 they need only withdraw 2.5 per cent of their account balance if they wish. There’s no maximum withdrawal rate.
Early release of super
Younger super fund members have not been forgotten. You can withdraw up to $10,000 from your super account this financial year if you are suffering financial hardship due to the economic impact of COVID-19. This is in addition to the $10,000 you could withdraw last financial year.
It must be stressed though, that the early withdrawal of your super should be a last resort because of the adverse impact on your retirement savings. An amount of $10,000 withdrawn early in your working life could potentially be worth many times that by the time you retire.
If, after weighing up your financial options, you wish to take advantage of this temporary measure then you need to apply by 24 September 2020.
Super guarantee amnesty for employers
If you run your own business and you have taken your eye off the ball when it comes to paying the correct amount of super to your employees, then the Australian Taxation Office (ATO) is offering a temporary amnesty to set things right.
You have until 7 September 2020 to disclose and pay any unpaid Super Guarantee (SG) amounts for your employees. These contribution shortfalls can be from any quarter from 1 July 1992 to 31 March 2018.
Under the amnesty, you will not have to pay the administration charge or Part 7 penalty (up to 200 per cent of the Superannuation Guarantee Charge). You can also claim a tax deduction for your payments.
If you would like more information about any of these changes or how to take advantage of them, give us a call.
While Australia’s handling of the COVID-19 pandemic was among the best in the world, the speed and spread of the illness underlined just how fragile life can be.
It was also a solemn reminder of the importance of ensuring your affairs are in order, so your wishes are met – in life and death.
The centrepiece of any estate planning is your Will, which sets out who you would like to receive your assets when you die, and how they are to be distributed. But you also need to consider what will happen to your superannuation as well as who will act on your behalf if you are unable to make decisions about your finances, health or wellbeing.
Expressing your Will
Despite the importance of a Will, it’s estimated that nearly half of Australians don’t have one.i If you die intestate (without a Will), your assets will be distributed according to a legal formula within each State, which may not be in line with your wishes. In an era where complex family situations and blended families are common, this can create unnecessary conflict at what is already a difficult time.
Even if you have a Will, it’s not a set-and-forget document. You must make sure it is up to date and reflects major changes in your life, such as marriage, divorce, the birth of a child or the purchase of a home.
Super is not part of your Will
It is not widely understood that superannuation is not covered by your Will unless you specifically direct it to be by nominating a legal personal representative (LPR) as your beneficiary.
Unless you nominate a valid beneficiary, the fund’s trustees will determine who receives your super. Even if you don’t have much money in super yet, chances are you have life insurance with your super which is paid out to your beneficiaries on your death.
To be valid, a beneficiary must be your LPR or a dependent, defined under super legislation as your spouse, child, someone in an interdependency relationship with you or a financial dependent. If you don’t nominate anyone, or your nomination is not valid, generally the money will go to your dependants or your LPR – but it’s always good to make sure.
The best way to ensure your super and any insurance payout ends up with the people you want to receive it is to make a binding death benefit nomination. There may be a small charge and you need to renew it every three years to remain valid. A non-binding nomination is only a guide so the trustees can overrule your nomination.
It is also worth remembering that if your beneficiaries are adult children, there may be tax implications for them.
Estate planning isn’t just about planning who gets what when you are gone. You should also consider putting in place directives to let your family and others know how you want to see out your days.
An enduring power of attorney will allow you to nominate somebody to act on your behalf if you are no longer capable of conducting your own financial matters. A general power of attorney is not sufficient as it is usually for a set period and becomes invalid once you can no longer make your own decisions.
You should also organise enduring guardianship to appoint somebody to take control of any lifestyle or medical issues should you become incapacitated. And it is worthwhile introducing an advance care directive which states exactly what medical treatment you do and don’t want to receive towards the end of your life.
Spread the word
Once you have prepared an estate plan, it’s a good idea to gather all your documentation in one place and tell your family and legal representative where they are. Also, consider giving someone you trust your online passwords to avoid complications down the track.
Getting your affairs in order can provide great peace of mind for you and your family, now and in the future and we are here to assist.
Norman Sinclair – MastFP, DipFP, AFP ASIC No. 249943.
Stephen Vigh – CFP, B Bus (Acc & Man), Dip FP ASIC No. 239508 Kyle Medson – Certified Financial Planner ASIC No. 328912
Sinclair Financial Group is an authorised Representative of Madison Financial Group Pty Ltd | ABN 36 002 459 001 | AFSL 246679
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.
This email, including any attachments may contain information that is confidential, commercially sensitive and may be subject to legal privilege. If you are not the intended recipient you must not read, use, disseminate, distribute or copy any part of this email, disclose its contents to any other party, or take any action in reliance on it. If you have received this email in error, please contact the sender immediately and delete this email.
Sinclair Financial Group does not warrant that this email, or any attachments are free from viruses or other defects. Please ensure that you check them for viruses and defects prior to opening any attachments. Thank you.