It’s time for a personal financial stock take – tips to improve your situation.
No matter if COVID-19 has affected your financial position in a positive or a negative way we can all benefit from making our money work harder.
New laws and changes for this financial year
Increase in age limits for contributions: I think this is a positive with the work test age increased to 67 and an increase in spouse splitting age limit to 75 it will allow you contribute to your super for longer – giving you a bigger nest egg for your retirement. I have some clients who are 65 years of age, not working with $800,000 stuck outside of their super which is being taxed at their marginal tax rate. Now with this law they can contribute an extra $100,000 per financial year for the next 2 years (until they hit 67 years of age) to their super, which will reduce their tax payable on earnings – win win!
Reduction in minimum pension: With pension withdrawal minimums reduced by 50% you will not have to sell down if the market is red to meet your pension withdrawal minimums and it also means you can preserve your super pension funds if you require less than the regular minimum. For example Sally has $1.2m in super and was previously required to withdraw 5% minimum pension ($60,000) but she really only needs $40,000 from her fund to meet her expenses, so she would have to had to draw an extra $20,000 more than she needs, possibly selling at a bad time and which could otherwise be working harder for her. Now she has the option to keep that extra amount in her super.
Early access of super: You can now take $10,000 out of your super (based on meeting eligibility requirements). So depending on your circumstances that is both positive and negative. Check out my article from last week for the low down Should I take that $10k out of my super?
Instant Asset write off extension: Write off extended to 31st December 2020, so if you are a SME and can acquire and install an eligible asset by 31st December 2020 you can take advantage the instant write off. This has been great as I know we have some clients who struggled to get an eligable asset installed and ready by the original dead line.
Small business tax cuts: Reduction of tax rate to 26% for businesses with aggregated turnover less than $50m and sole traders enjoy increased unincorporated tax offset from 8% to 13%. These tax cuts are likely to save SMEs thousands of dollars and there might be more coming next financial year.
JobKeeper & JobSeeker extended: This has been extended until the 28th March 2020 but will be reduced in September 2020 and January 2021. This is an obvious positive as recipients of the subsidies will be able to continue to pay their bills and expenses, with the gradual reduction method much better than a complete cut off. You can read more here on JobKeeper extension here Australian Government announces JobKeeper extension
Grants to assist in purchase/renovation of real estate assets: Further guarantees available between July to December 2020 up to $70,000, this will give people the option to buy a home and not have to take out Low Mortgage Insurance (LMI).
Changes to parental leave: Continuous pay period of up to 12 weeks and 30 days flexible parental leave that can be taken any time until child is 2 allowing you to defer 4 weeks of leave without losing it.
Able to save? Some tips to strengthen your financial position
Get a head start on your mortgage by making extra repayments or implementing an offset account strategy. This will reduce interest and accelerate repayment period.
Review the interest rates of your cash accounts and lending accounts. Make sure you are aware of fixed rate and variable rate options with lending providers.
Set up a ‘slush fund’ you can dip into if a rainy day does happen. Put it in a separate bank to your everyday bank so you won’t be tempted to use it for an everyday purchase.
Don’t take your eyes off your retirement, make sure you are still considering ALL contribution options and how this may impact you based on your personal circumstances.
Consider making a regular investment in in other investment vehicle like shares. This may contribute to your long-term wealth in a diversified manner. Regular contributions means you benefit dollar cost averaging
Is now the time to STOP renting and BUY your own home?
Here are some good incentives available until the end of December 2020
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.
COVID-19: A summary of Australia's tax measures
The governments of Australian states and territories have also released independent stimulus packages. For an overview of all Australian measures, click here.