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  • Work test repealed for voluntary superannuation contributions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.

 

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Changes to superannuation contribution caps and limits

Changes to superannuation contribution caps and limits

The Government has announced some very important changes to super and how Australians can save for their retirement.

In our February 2021 Newsletter, we discussed the general transfer balance cap (TBC) – the limit on the amount you can transfer into the tax-free retirement phase in super – is increasing from $1.6 million to $1.7 million on July 1.

From July 2021, concessional contributions will increase from the current limit of $25,000 p.a. to $27,500 p.a. and non-concessional contributions will increase from $100,000 p.a. to $110,000 p.a.

Kindly note: The advice contained in this article is of a general nature only. It has been prepared without considering your individual goals and objectives, or financial situation. Before making any decision about your super, please consider your personal circumstances and consult with your senior advisor at PrimeAdvisory.

Concessional (pre-tax) Contributions

From July 1, 2021 the annual concessional contributions cap is being indexed from $25,000 to $27,500.

These are pre-tax super contributions and include an employer’s compulsory award, Superannuation Guarantee (SG) and additional voluntary contributions – including salary-sacrifice – and personal contributions you may make for which you claim a tax deduction.

For people making voluntary pre-tax contributions, the increase in the cap for the 2021-22 financial year onwards will likely mean a bigger deduction and tax saving.

However, please be aware if you are a wage-earner and your employer pays the super fund’s administration fees and/or insurance premiums on your behalf, these amounts also count towards your cap.

The SG rate is legislated to increase from 9.5 per cent to 10 per cent from July 1, but there is considerable lobbying in the wake of the COVID-19 crisis to delay this increase once again. So, if you are wage-earning, the opportunity to make increased voluntary concessional contributions from July 1 will be partly absorbed by the increase in your employer’s SG contributions, provided the government does not postpone it.

If you want to use the catch-up rule this financial year – that is, you intend making additional contributions by utilising unused cap amounts from previous years – then you can only do it where you did not utilise the full $25,000 cap in 2018-19 and/or 2019-20, and your total superannuation balance – the total of everything you have in the super system – on June 30, 2020, was less than $500,000. The opportunity arises from unused cap amounts from previous years and until July 1 this year, the concessional contribution cap is $25,000 a year. The higher $27,500 cap does not come into play until the 2021-22 financial year.

If you wish to use the “contribution reserving strategy” in June this year to claim a larger tax deduction in 2020-21, then be mindful that the maximum deduction may be $52,500 (up from $50,000) with the second contribution now being up to $27,500 because it is being tested against the cap in 2021-22 – and do not forget to allocate this contribution by July 28.

Non-Concessional (after-tax) Contributions

From July 1, personal after-tax contributions are on the rise too.

The non-concessional contributions annual cap – currently $100,000 – is four times the concessional contribution cap. Accordingly, with the concessional cap increasing to $27,500, the non-concessional cap will increase to $110,000.

Your total superannuation balance (TSB) determines your eligibility to make non-concessional contributions and relates to the general TBC.

With the TBC increasing to $1.7 million from July 1, it means that if your TSB on June 30, 2021 is less than $1.7 million you may be able to make non-concessional contributions of at least $110,000 next financial year (i.e., in 2021-22). Without indexation of the TBC, you would have been unable to contribute if you had between $1.6 million and $1.7 million in super.

Your TSB also determines your entitlement to use the non-concessional bring-forward rule to get more into super. There are some complicated calculations to understand your bring forward rule, particularly if your individual balance is more than $1.48m as at 30 June 2021.

Salary-Sacrifice and Personal Contribution Rules

Your eligibility to contribute to super is reliant on your age. Anyone under 67 may contribute, but if you are 67-74, you must meet the work test (40 hours of gainful employment in 30 days) or work test exemption to contribute.

The work test exemption may be used to contribute to super – provided you have not used it before – where you had no more than $300,000 in super at the previous June 30 and you met the work test in the last financial year.

You cannot contribute after 28 days after the end of the month in which you turn 75. Only employer-mandated award and SG contributions can be made.

While the age to make super contributions without meeting the work test or work test exemption has been extended to people aged 65 and 66, the extension of the non-concessional contribution bring-forward rule for people in this age group has not – yet.

Note that the age restriction, work test and TSB test do not apply to downsizer contributions.

The long-awaited indexation of the contribution caps and the transfer balance cap is a much-needed relief for the superannuation system. It was wished that it would have occurred last year – but it did not. So, it is wonderful news it is finally happening this year.

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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.

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Identifying Your Goals and Simplifying Your Finances at Each Stage of Life

Identifying Your Goals and Simplifying Your Finances at Each Stage of Life

People often turn to a Financial Planner to simplify their finances and set achievable financial goals, providing greater confidence to plan for their future.

At PrimeWealth, our Senior Advisors can help you with areas such as Cash Flow Management, Savings Plan, Asset Protection, Superannuation, Tax Optimisation, Home Loan Repayments, Debt Management and Reduction, Insurance, Investments, and Retirement Planning.

Understandably, your financial goals will change over your lifespan. It would be best if you had a financial plan to suit the stage of life you are in. Here are some of the common needs of each life stage:

  • Young to Mid-Life
  • Mid-Life
  • Pre-Retirement
  • Retirement

1. Young to Mid-Life

In this life stage people are often motivated in establishing and building their careers and perhaps starting a family. You may be interested in:

  • Buying your first home
  • Travelling
  • Paying off your HECS
  • Getting Married
  • Family Planning
  • Organising Family Healthcare
  • Starting a Business

2. Mid-Life

This is known as the Consolidation Stage, achieving a comfortable lifestyle and working towards a long term future are usually the key priorities. You are likely to focus on:

  • Healthcare
  • Investments
  • Financing Home Renovations
  • Tax Optimisation
  • Debt Management
  • Inheritance
  • Retirement Planning
  • Long Term Care Planning
  • Income Protection

3. Pre-Retirement

With 20 or more years of retirement ahead of you, your priorities will depend on how well you have planned for your future. Your main concerns may be:

  • Asset Protection
  • Debt Elimination
  • Family Healthcare
  • Planning For Your Children’s Future
  • Retirement Planning
  • Wills and Trusts
  • Business Exit Strategy

4. Retirement

This is the time to indulge in hobbies or travel, enjoy your family, and make preparations to transfer your wealth. You may be thinking of:

  • Asset Protection
  • Healthcare
  • Aged Care Planning
  • Travelling
  • Buying a Boat
  • Inheritance Tax Mitigation
  • Preserving Your Capital
  • Gifting To Family
  • Estate Planning

At PrimeWealth, 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.

 

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FPA 2020 Survey Insights – COVID Edition &Top Tips For a Financially Secured Future

FPA 2020 Survey Insights – COVID Edition &Top Tips For a Financially Secured Future

According to a recent FPA 2020 Survey, the global pandemic has caused an inexplicable disruption to our professional and social lives, one of the biggest setbacks humankind has witnessed in the last decade. Observations concede, four in ten Australians have lost income because of COVID-19 and are either struggling to make ends meet (11 percent) or dipping into savings to get by (31 percent). So, it is no wonder a quarter of Australians (23 percent) are experiencing acute stress about their financial position, with roughly a third (30 percent) ‘feeling okay’.

The figures also depict a contrasting story for people making the most of their changed circumstances. A small number (one in 10) said they are in a better position financially as they have managed to build some savings due to working from home and canceled holidays. And the majority, (46 percent) are still feeling in control of their finances, at least for the time being. It will be interesting to see if these financial comfort levels change in 2021, as JobKeeper comes to an end and the long-term effects of this pandemic may still linger on our economy and household incomes.

‘No Worries’ – Not Quite Yet

Despite the JobKeeper payments supporting businesses to keep employees on the payroll, ‘job insecurity’ is still the number one concern for Australians right now. Women are far more likely to be worried about losing their job (40 percent compared to 29 percent for men). Whereas, the vast majority in the 18-24 year-old cohort (81 percent) are worried about becoming unemployed.

Having ‘less in savings’ and ‘loss of super’ was next in line as the most common financial worries, except for the 35-44-year-old age group. This age group is most worried about paying off their mortgage, a concern, that is also linked to their work prospects and ability to earn an income.

What COVID Events Of 2020 Has Taught Us?

For vast Australians, the recent events of 2020 have been a wake-up call for their financial habits and behaviors. With 70 percent of Australians surveyed saying, they could have done better to improve their financial position. It seems we all have learned an important lesson about being financially prepared for the unexpected.

One in five said they could have put money in reserve for a rainy day, 17 percent think they could have controlled impulse buying and 11 percent believe they could have focused more on paying down their debt.

The good news is that these ‘key learnings’ are helping us re-think our financial priorities. When asked about positive behaviors that could be propelled post-COVID, the survey respondents ranked “be more frugal about my lifestyle choices” first, followed by “pay down debts” and “create a budget to understand what I’m spending and saving.”

Top Tips For a Financially Secured Future

To help you experience greater peace of mind and financial well-being, please read and share these simple steps to commit to a long-term plan for better financial outcomes:

  • Prepare for ‘The Unknown’ – Take this as an opportunity to harness the positive financial habits you have imbibed during COVID. Prepare a list of expenses you don’t need anymore and another list of how you could use this money to meet your current needs or look after your future – by saving, investing, or paying down debts for example. By keeping a COVID mindset even after COVID is over, you can make a lot more progress towards your financial and life goals.
  • Plan Ahead  Peacefully think over where you want to be financially in the future – think five years, ten years, or retirement. Then, work backwards for how to get there, along with a timeline of the important milestones you want to achieve along the way.
  •  Book an Appointment with a Qualified Financial Planner – Understanding your current financial situation and short and long-term financial goals – having a financial plan – means you can better manage your finances. Planning your immediate expenses, without compromising on saving for the future allows you to live your best today while making sure your future is on track. Contact Prime Advisory to speak with a Senior Financial Advisor, today.

 

 

 

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