Federal Budget 2021-22

Federal Budget 2021-22

The 2021-22 Federal Budget is a balancing act between a better than anticipated deficit ($106 bn), an impending election, and the need to invest in the long term.

It is also a human budget, with $17.7 billion dedicated to aged care, more money in the pockets of low-income earners, the COVID vaccine rollout, $2 billion for mental health, a women’s economic package including a childcare subsidy increase and funding to prevent violence, and a Royal Commission into defence and veteran suicide.

Access your downloadable guide here PrimeAdvisory Federal Budget Update 2021-22.

We note that this year’s budget did not include as many tax and investment initiatives. However, the key points are:

For You & Your Family

  • Low and middle income tax offset extended
  • Medicare levy low income threshold
  • $250 self-education expense reduction removed

Your Superannuation

  • Work test repealed for voluntary superannuation contributions
  • Expanded access to ‘downsizer’ contributions from sale of family home
  • SMSF residency tests relaxed

Business & Employers

  • Temporary full expensing extension
  • Temporary loss-carry back extension
  • Employee share scheme simplification
  • $450 per month threshold for super guarantee eligibility removed
  • Tax residency rules for trusts and limited partnerships
  • New avenue for small business to ‘pause’ ATO debt recovery

We’ll keep you up to date as the detail of these measures comes to hand. Happy reading!

Get in touch
The team at PrimeAdvisory are available to assist you to capitalise on any of the Budget measures or minimise your risk.

If you have any questions, please don’t hesitate to contact us on 02 9415 1511.

 

Read More
High Income = Higher Wealth Creation? #TheCEOEdition

High Income = Higher Wealth Creation? #TheCEOEdition

Does high income always translate into higher wealth creation? Let’s learn together!

Research shows that the top 5% of high-income earners often express feelings of discontentment with their current level of wealth creation. There is, however, a strong desire to do something about it. The absence of a formal wealth-building strategy and heavy reliance on a company share plan to accumulate personal wealth can be partially responsible for causing this feeling.

A positive lateral shift in the mindset is needed to treat bonuses and company shares  as the cherry on top and a robust financial plan as a strategic priority to accomplish one’s personal lifestyle, financial big-rocks, and retirement goals.

Realistically speaking, it’s never too late to start working on a bullet-proof game plan to fully materialising your dreams #YouOnlyLiveOnce.

At PrimeAdvisory, our Senior Advisors can help you with a complete professional suite of services, such as Cash Flow Management, Savings Plan, Asset Protection, Superannuation, Tax Optimisation, Home Loan Repayments, Debt Management and Reduction, Insurance, Investments, and Retirement Planning.

Lets look at the bigger picture!

Directors and Executives of companies are appointed to increase returns for the shareholders of the company they work for. They are well remunerated and rarely work less than the 40 hours a week they are obligated to work. In fact, a Harvard study tracking CEOs found that most work 62 hours on average a week.

In discharging their duties they selflessly put the company before themselves and their own finances and work on the assumption that “the more I earn, the wealthier my family will be”. This can be the case in the long run, but with strategic assistance, the wealth could be a lot bigger, arrive a lot sooner and have a transformative experience along the way.

Let’s take the example of an executive, Mrs. X, who earns $250k a year and a $50k bonus as part of her long-term incentive plan. Mrs. X has a partner who has not gone back to work in the last five years since they had kids together, and both their children are at school.

The Salary looks great on paper, so how is the money actually spent?

Time poor = high rate of spending

With limited available time, we tend to spend more money to ensure we enjoy the most of it. We may eat out more often and may book more fancy restaurants that offers the finest steak along with an exotic bottle of red. “Of course we do that, because all the people we socialise with do that too.” The entertainment often runs at $1k a week which equates to a family meal out, a few nicer lunches during the week, a nice meal out once a week, and the innumerable coffees and breakfasts along the way. It adds up real quick.

Being time poor also equates the number of jobs we outsource; cleaning the house, cleaning the cars, gardening, the personal training sessions, the pool guy. We know it’s true.

Luxury becomes the way of life

Holidaying becomes syonymous with business class tickets and luxurious high-end resorts. A $20k holiday a year and a few $5k local getaways during the year are an ordinary affair. When travelling for work is done in style, your personal travel tends to elevate to that level too. And once it goes up, it rarely goes back.

Lifestyle Boost

When we work hard, so the attitude towards spending is often ‘you deserve it’. Most people let their spending and lifestyle be defined by their income and once the lifestyle is inflated, it’s almost impossible to go back.

What’s your location

When it comes to the family home, the more you earn, the more debt you can afford. It is hard to resist the temptation to be in the ‘right’ location, with a nice big house with all the amentities and peripherals. Setting aside $5k a month for mortgage repayments is commonplace. A nice car in the garage is also a must, with generally one car leased at $1k per month. With the location, comes schooling. Having the kids at private school can cost $20k per child per annum depending on the school.

So, to answer the question earlier, does high income translate  into building wealth?

In this example we have just spent the whole of Mrs. X’s annual salary excluding her bonus prior to the basic living expenses. We have not yet paid for the household running costs, food, car running costs, health bills and any other of the fixed expenditure that comes with a family.

Mrs. X is in the top 5% of income earners in Australia. But with a geared-up lifestyle, there is only small, if any, increases in ‘wealth’ each year – usually only super payments, the long-term incentive plan when received and any principal component of the monthly mortgage when not redrawn to pay school fees.

Building wealth isn’t easy. Especially when your focus is your work and you are working 62 hours a week. Add the time you are thinking about work and that doesn’t leave you with a lot of ‘free’ time. Then you need to prioritise the family, your physical health, mental health, other household chores – it is astounding to note that prioritising wealth building doesn’t rank number one on this list. It probably doesn’t even rank in the top ten.

At PrimeAdvisory, we are passionate about understanding where you are on your journey, being clear on your goals, partnering with you to create the right strategy and keeping you on track with regular catchups along the way.

We understand we might be only helping you in a small capacity at the moment, be it via helping you file your annual ITRs or overseeing your Self-Managed Super Fund (SMSF). However, it is always our intention, and even more so our mission in 2021 to be invested in understanding your overall strategic goals for life and implementing proactive strategies today so we can help you materialise all your dreams in 5 or 10 years from now, i.e., own a home; be debt-free, make the most of your tax benefits, structure a geared property, start an investment portfolio, consider a family trust and manage employee shares, etc.

With Prime 2.0, we hope to take our relationship to another level, make it seem less transactional, more transformational. Contact your senior advisor today. Let’s make this journey exciting and memorable for you.

Read More
Small Business Trends 2021 – How Advisors Make a Positive Impact on SMEs

Small Business Trends 2021 – How Advisors Make a Positive Impact on SMEs

Throughout 2020, Accounting Practitioners reported intense work-activity due to heightened communication with clients struggling with tough circumstances caused by Covid-19. Recent research shows their efforts have not gone unrecognised.

A survey of more than 1500 small-to-medium enterprises (SMEs) conducted on behalf of non-bank lender Scottish Pacific Business Finance (ScottPac) reveals that more than half (54 percent) turned to advisors such as Accountants on average 13.3 times each quarter last year.

The Growth Index indicates that eight in 10 respondents (81 percent) reported that the advice they received had a positive impact on their businesses.

The Top 5 Positive Impacts were:

  • A boost to the bottom line through cost reduction (63 percent)
  • Helping access government support and stimulus measures (37 percent)
  • Providing confidence in the direction the business was taking (28 percent)
  • Enhancing customer relations (18.5 percent)
  • Assistance with funding access (18 percent)

Advisors also played a key role in assisting negotiations with the Australian Taxation Office, helping one in 10 clients. Further, one in 12 survey respondents noted advisors also helped with the sale of assets.

Key Trends for 2021:

Last year was crucial for all of us and has taught many businesses world-wide to be mentally resilient and financially vigilant. Some businesses buffeted due to Covid-19, and others buoyed.

The data collected from XERO’s 2.3 million users shows some key trends identified in 2020 and vital forecasts for SMEs in 2021.

  • Cashflow – Seventy percent of business owners reported they experienced cash flow difficulties last year. Therefore, it is no surprise that cash flow forecasting shot to prominence in 2020 and will remain critical this year.
  • Contingency Planning – In 2020, the year’s events prove that a cash cushion is a necessary survival tactic. Some advisors have advocated a reserve of four months’ business running costs.
  • Goodwill Worth It’s Weight In Gold– Business relationships assumed even more importance in 2020, with SMEs relying on customers, employees, and advisors. 2021 will be all about paying it forward.
  • Technology As An Asset – A positive impact of the pandemic has been upgrading digital knowledge and capacity. PrimeAdvisory upgraded all technology in it’s boardroom and is running more online meetings with it’s clients. While there is no substitute for a conversation over coffee, there is no excuse for not having one due to Covid restrictions.
Read More
NSW State Budget 2020-21

NSW State Budget 2020-21

The New South Wales (NSW) Government delivered the 2020-21 State Budget on 17 November 2020. The Budget forecasts a deficit of $16.0 billion in 2020-21 and a return to surplus by 2024-25, with net debt to return to around 7 percent of Gross State Product over the medium term.

Tax-related announcements include:

  • Reduction in payroll tax from 5.45% to 4.85% from 1 July 2020 to 30 June 2022, which is less than or equal to the lowest headline rate across all Australian jurisdictions (except for Queensland which has a rate of 4.75% for employers or groups who pay $6.5 million or less in wages).
  • A permanent increase in the payroll tax-free threshold to $1.2 million (up from the already introduced increased threshold of $1 million) from 1 July 2020.
  • A $500m “Out and About” program to stimulate spending in the local economy – including restaurants, visitor sites, and cultural attractions. Every adult resident will be eligible to claim up to $100 in digital vouchers for spending on entertainment and eating out.
  • For those small and medium businesses who do not pay payroll tax, each business will have access to a $1,500 digital voucher to be used towards the cost of any government fees from April 2021 to 30 June 2022. This will be available through the MyService NSW Portal and will operate as a rebate, where a claim can be made after fees have been paid.
  • Reform of stamp duty and land tax – the Government has announced a consultation process to tackle inefficient property taxes and will seek feedback from the public on a possible transition away from the current transfer duty and land tax regimes to a single property tax model, such as an annual property tax, that will reduce the up-front cost of acquiring homes and other properties.

Read More

Read More
Personal income tax cuts

Personal income tax cuts

As widely predicted, the Government has brought forward stage 2 of its planned income tax cuts by two years. Originally intended to apply from 1 July 2022, the tax cuts will come into effect from 1 July 2020 (subject to the passage of the legislation). The Treasurer the Hon Josh Frydenberg anticipates more than 11 million taxpayers will get a tax cut backdated to 1 July this year.

At a cost of $17.8 billion over the forward estimates, bringing forward the tax cuts is a controversial move. The Government argues that the measure will “boost GDP by around $3.5 billion in 2020-21 and $9 billion in 2021-22 and will create an additional 50,000 jobs by the end of 2021-22.” Others in Parliament believe the measure rewards higher income earners and the money could be better spent elsewhere. The Senate will decide whether the Government’s plan comes to fruition.

Stage 3 of the Personal Income Tax Plan that simplifies and flattens the personal income system remains scheduled for 2024-25.

  Tax thresholds
Tax rate Current From 1 July 2020 From 1 July 2024
0% $0 – $18,200 $0 – $18,200 $0 – $18,200
19% $18,201 – $37,000 $18,201 $45,000 $18,201 – $45,000
30%   $45,001 – $200,000
32.5% $37,001 – $90,000 $45,001$120,000
37% $90,001 – $180,000 $120,001 – $180,000
45% >$180,000 >$180,000 >$200,000
LITO Up to $445 Up to $700 Up to $700

Bringing forward the personal income tax plan will:

  • Increase the top threshold of the 19% tax bracket to $45,000 (from $37,000)
  • Increase the top threshold of the 32.5% tax bracket to $120,000 (from $90,000)
  • Increase the low income tax offset from $445 to $700

In addition, the LMITO (low and middle income tax offset), which provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000, will be retained for 2020-21. This measure was to be removed at the commencement of stage 2 of the reforms from 2022-23.

If you need any assistance please contact your PrimeAccountant on 02 9415 1511 or email reception@primeadvisory.com.au.

Read More

SIGN UP

For our free e-newsletter

TAKE A HEALTH CHECK

For our free e-newsletter

Personal