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Australia's Christmas Spending

How do Australians spend at Christmas?

Moneysmart, which is a website run by the Australian Securities and Investments Commission (ASIC) to help people make the most of their money, has produced an interesting infographic which explains:

  - how much Australians plan to spend at Christmas,
- how they pay for it and
- how long it takes them to pay off their credit card debts.




Text Version:
Aussies planned to spend $1,079 on average over the holiday season (1).

Average Christmas spending on gifts (1)
NSW - $548
WA - $435
QLD - $408
SA - $405
VIC - $401

Avoid the Christmas debt hangover

Join the Christmas budgeters (1)
57% set a budget
4 in 5 stuck to it

How people pay for Christmas presents (2)
60% - savings
20% - credit card
10% - borrowed money from family and friends, used their bonus or tax refund
10% - lay-by

Most people pay off Christmas credit card debt (4)
80% - pay it off in 3 months
11% - pay it off in 3-6 months
7% - pay it off in 6 + months

Cashed up kids (3)
9 out of 10 children received some cash as Christmas presents

How much did they get?
22% got $50-100
20% got $100-$200
22% got $200 +

How wisely did girls spend it?
45% - banked it
40% - clothes
29% - saved for big item
22% - music
20% - going out

How wisely did boys spend it?
45% - console games
43% - banked it
31% - saved for big item
24% - computer games
22% - other games

Sources:
Commonwealth Bank, Survey of Australian consumers Christmas spending - December 2014
ASIC's MoneySmart poll, 1,985 votes - December 2014
Roy Morgan, Aussie kids cashed up after Christmas - January 2015
Finder.com.au, Christmas Debt Survey - December 2014

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Where did all my tax go this year? (2016)

So the time for tax returns to be submitted has been and gone with only those who lodge through a tax agent eligible for an extension.  It often feels like all this tax is paid out yet we have no idea where it goes or who it goes to.  For the third year running Power2 have put together a simple graphic to help explain where the tax you paid went to. Check it out here by clicking on the image........ 



Understanding your tax receipt 

When you receive your Notice of Assessment after lodging your tax return you will also receive a tax receipt containing a table showing how your taxes have been allocated to key categories of government expenditure. The table provides an example of how this information is presented on your tax receipt, although yours will show specific dollar figures whereas our example shows the % amounts of your total tax paid.

The tax receipt provides a breakdown of how your tax has contributed towards government expenditure. It also includes information on the level of Australian Government gross debt for the current and previous years. 

This is a government initiative to increase transparency on how and where the government spends taxpayers' money.  You can compare this year to 2015 and 2014 by clicking on the here and here.

You can also read more about this topic at the ATO website here.

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Federal Budget Update - September 2016

Following a closer than anticipated Federal Election, the Coalition has revised some of the proposed superannuation changes from the 2016 Budget, the first under Malcolm Turnbull and Scott Morrison.

Note that these changes are proposed at this stage.


Superannuation - The Ever Moving Target

DUMPED - lifetime limit for non-concessional superannuation contributions

The (Old) Change: A lifetime limit was to be imposed on all non-concessional contributions of $500,000 effective from 7:30 pm, 3 May 2016. This was to count all contributions since 1 July 2007. People who have already exceeded the limit will be deemed to have reached their cap with no further action.

Note that this was to replace the annual non-concessional cap and 3 year bring forward rule.

The (New) Change: Similar to the old bring forward provisions which are currently $180,000 per annum or 3 years worth in one allotment of $540,000. However, the new limits will be $100,000 per annum or $300,000 in one contribution (locking you out for a further 2 years). Note that the $180,000 ($540,000) limit remains until 01 July 2017. There will be no lifetime limit.


RETAINED - reduction in concessional contributions cap

Current Rules: People aged 50 or over can contribute $35,000 to superannuation as concessional contributions and those under 50, $30,000. Concessional contributions come from employer superannuation guarantee, salary sacrifice and deductible self-employed contributions.

The Change: A new limit for all workers of $25,000 per annum will be introduced effective from 1 July 2017.


MODIFIED - allow catch up of unused concessional caps

Current Rules: Concessional caps are currently on a "use it or lose it" basis and expire at the end of each year.

The Change: For clients with super balances less than $500,000, from 1 July 2019 (WAS TO BE 2017) there will be provision to make additional concessional contributions using the previous year of unused caps, continuing to accumulate in 5 year rolling periods.


RETAINED - changes to transition to retirement pensions

Current Rules: The earnings on the assets used to back transition to retirement pensions are currently tax free. In contrast, assets in superannuation accumulation mode earnings are taxed at between 10% and 15%. Note that these are the internally taxed superannuation earnings, not how the pensions are taxed ultimately in the clients hands (no changes apply here).

The Change: Transition to retirement pensions will lose their tax free status on the asset earnings base come 1 July 2017.


RETAINED - introduction of $1.6 million retirement income stream cap

Current Rules: There is currently no limit on the amount that clients can use to commence a retirement income stream.

The Change: From 1 July 2017 a "superannuation transfer balance cap" of $1.6 million will be introduced on the total amount of funds a retiree can use to purchase a tax free income stream. Note that this does not limit the amount you can accumulate in super, just the amount you can commence an income stream with.

Importantly, those with balances above $1.6 million will be required to bring their account balance back below $1.6 million by 1 July 2017.


SCRAPPED - changes to contribution rules for 65-74 year olds

Current Rules: In order to contribute to superannuation, those aged between 65-74 must meet a work test of 40 hours in a 30 day period. The Government was going to remove this test, but has instead elected to retain it.


RETAINED - tax deductions for personal superannuation contributions

Current Rules: To make a deductible contribution to superannuation, an employee must make a salary sacrifice contribution. Alternatively, those who are substantially self-employed can claim a tax deduction on their personal superannuation contributions via their tax returns.

The Change: From 1 July 2017, employees will now be able to make after tax contributions to superannuation and claim these as a personal tax deduction at tax time. For example, if your employer makes $15,000 worth of contributions for you during the year, you can then make a further $10,000 personal contribution to super and claim this at tax time (providing your overall contribution does not exceed $25,000).


RETAINED - changes for high income earners

Current Rules: Currently those with adjusted taxable income of $300,000 are required to pay an additional 15% contributions tax on their concessional contributions, bringing total superannuation contributions tax paid up to 30%.

The Change: From 1 July 2017, the additional 15% contributions tax will apply to those on adjusted taxable income of $250,000.


RETAINED - removal of anti detriment provisions

Current Rules: Clients who pass away are able to claim back the amount of superannuation contributions tax paid throughout their lifetime.

The Change: From 1 July 2017, the government will remove the ability to make this claim.


RETAINED - extension of spouse contribution rebate

Current Rules: If you make a superannuation contribution for your spouse of up to $3,000, you can receive a $540 rebate provided your spouses' income is below $10,800.

The Change
: From 1 July 2017, the income level for the receiving spouse will be increased up to $37,000.


Conclusion

The relaxation of some of these measures is welcome. However, the cut to the concessional limits is certainly frustrating.

If you have any questions in relation to this at all, please do not hesitate to contact me.

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MoneySmart have put together a really informative infographic to explain everything about the average tax refund and how people said they spent last year's tax refund. MoneySmart also explains some ways to make the most of your refund. MoneySmart website is run by the Australian Securities and Investments Commission (ASIC) to help people make the most of their money.



Here is the text version just in case you prefer:

82% - Taxpayers likely to get a tax refund this year 1
$2,112 - Average tax refund 2
26% - People do their own tax 1

What MoneySmart users say they did with last year's tax refund:3
29% - Paid bills
21% - Saved it
16% - Didn't get a refund
13% - Loans or credit card payments
9% - Home loan payments
5% - Holiday
5% - Other things (including engagement ring, education, car rego/tyres, party)
2% - Household appliances

Make the most of your tax refund: Work out where you can make a difference

Reduce debt stress
Credit cards
Personal loans
Mortgage
Outstanding bills or fines

Stash it away
Emergencies or unexpected costs
Super
Home deposit

Reward yourself
Take a break
Home improvements
Pamper yourself just a little

Sources:
1 - Australian Taxation Office Annual Report 2013/14
2 - Australian Taxation Office Annual Report 2014/15
3 - MoneySmart poll, August 2015 (n-2124)


Federal Budget Update - May 2016

The Coalition Government has released their third Federal Budget and first under Malcolm Turnbull and Scott Morrison.

This budget has delivered the biggest raft of superannuation rule changes since 2007, when the then Treasurer Peter Costello significantly increased the attractiveness of superannuation.
 
Our initial reaction to this budget is that super is still very attractive, just with more rules, regulation, and pitfalls than ever.  This of course highlights the need for ongoing financial advice.

Note that these changes are proposed at this stage.

Superannuation - The Ever Moving Target

Lifetime Limit For Non-Concessional Superannuation Contributions

Current Rules:  Non-concessional contributions are made with after tax money and typically follow clients receiving money from a property sale, work payout, or inheritance.  At present, people can contribute up to $180,000 in any one year, capped at $540,000 over a 3 year period.  So in effect, every three years, there is a fresh $540,000 cap allowance to be planned around.

The Change: A lifetime limit will be imposed on all non-concessional contributions of $500,000 effective from 7:30 pm, 3 May 2016.  This will count all contributions since 1 July 2007.  People who have already exceeded the limit will be deemed to have reached their cap with no further action. 

Note that this replaces the annual non-concessional cap and 3 year bring forward rule. 

Comment:  This change will require extra planning and tracking mechanisms (2007 is 9 years ago now!). This is the only rule effective immediately and we suspect might get tweaked a little before becoming law.  Some clients will be immediately affected and we will of course be in touch.

Note that all of the following changes will take effect from 1 July 2017.
Reduction In Concessional Contributions Cap

Current Rules:  People aged 50 or over can contribute $35,000 to superannuation as concessional contributions and those under 50, $30,000.  Concessional contributions come from employer superannuation guarantee, salary sacrifice and deductible self-employed contributions.

The Change: A new limit for all workers of $25,000 per annum will be introduced effective from 1 July 2017.

Comment:  This is the most disappointing change the government has made.  It will limit the amount people can save in a tax effective manner for their retirement.  Many of our clients still working will need to revise their contribution strategy.
Allow Catch Up Of Unused Concessional Caps

Current Rules:  Concessional caps are currently on a "use it or lose it" basis and expire at the end of each year.

The Change: For clients with super balances less than $500,000, from 1 July 2017 there will be provision to make additional concessional contributions using the previous year of unused caps.  Say for example, in 2017/18, you only used $10,000 of your limit, $15,000 will be available in the subsequent year, giving a cap of $40,000 for 18/19.  A maximum of 5 years' worth of caps can be carried forward on a rolling basis.
 
Comment:  This is a good measure and will enable some flexibility around concessional cap planning over a 5 year period.
Changes To Transition To Retirement Pensions
  
Current Rules: The earnings on the assets used to back transition to retirement pensions are currently tax free.  In contrast, assets in superannuation accumulation mode earnings are taxed at between 10% and 15%.   Note that these are the internally taxed superannuation earnings, not how the pensions are taxed ultimately in the clients hands (no changes apply here).
  
The Change: Transition to retirement pensions will lose their tax free status on the asset earnings base come 1 July 2017. 

Comment: For a lot of clients the tax free earnings status on transition to retirement strategies is the primary driver of the strategy.  Hence its removal will mean a revision to many strategies.
Introduction Of $1.6 Million Retirement Income Stream Cap
 
Current Rules: There is currently no limit on the amount that clients can use to commence a retirement income stream.
    
The Change: From 1 July 2017 a "superannuation transfer balance cap" of $1.6 million will be introduced on the total amount of funds a retiree can use to purchase a tax free income stream.  Note that this does not limit the amount you can accumulate in super, just the amount you can commence an income stream with. Importantly, those with balances above $1.6 million will be required to bring their account balance back below $1.6 million by 1 July 2017.
 
Comment: With decreased contribution limits it will be difficult to obtain an account balance of $1.6 million for an individual. Strategies such as spouse splitting in order to equalise balances between spouses will become an important planning strategy.
Changes To Contribution Rules For 65-74 Year Olds

Current Rules: In order to contribute to superannuation, those aged between 65-74 must meet a work test of 40 hours in a 30 day period.  There is no work test for those under 65.

The Change:  From 1 July 2017, in order to make a superannuation contribution, the requirement to meet a work test will be removed for those in the 65-74 year age bracket.
  
Comment: This will provide increased flexibility for those wishing  to re-arrange their finances and are aged 65-74.
Tax Deductions For Personal Superannuation Contributions
 
Current Rules: To make a deductible contribution to superannuation, an employee must make a salary sacrifice contribution. Alternatively, those who are substantially self-employed can claim a tax deduction on their personal superannuation contributions via their tax returns.

The Change: From 1 July 2017, employees will now be able to make after tax contributions to superannuation and claim these as a personal tax deduction at tax time.  For example, if your employer makes $15,000 worth of contributions for you during the year, you can then make a further $10,000 personal contribution to super and claim this at tax time (providing your overall contribution does not exceed $25,000).
    
Comment: This is a six in one hand, half a dozen in the other strategy and won't really benefit too many.  Most clients will make their contributions via salary sacrifice throughout the year.
Changes For High Income Earners
 
Current Rules: Currently those with adjusted taxable income of $300,000 are required to pay an additional 15% contributions tax on their concessional contributions, bringing total superannuation contributions tax paid up to 30%.

The Change: From 1 July 2017, the additional 15% contributions tax will apply to those on adjusted taxable income of $250,000.
  
Comment:  In recent years, we have found this tax catching a lot of people who have received redundancy payments.  For example, your normal wage might be $100,000, but if you get a payout of $150,000 in addition, you will be caught by this tax.
Removal Of Anti Detriment Provisions
 
Current Rules: Clients who pass away are able to claim back the amount of superannuation contributions tax paid throughout their lifetime.

The Change:  From 1 July 2017, the government will remove the ability to make this claim.
   
Comment: It is a shame this one is being removed as we have used it for a few clients over the years and it results in a tidy refund in many cases.
Extension Of Spouse Contribution Rebate
 
Current Rules: If you make a superannuation contribution for your spouse of up to $3,000, you can receive a $540 rebate provided your spouses' income is below $10,800.

The Change: From 1 July 2017, the income level for the receiving spouse will be increased up to $37,000.

Comment: This will dramatically extend the potential use of this rebate strategy for many clients.
Introduction Of Low Income Superannuation Tax Offset
 
Current Rules: All concessional superannuation contributions are taxed at a minimum rate of 15%.

The Change:  A new Low Income Superannuation Tax Offset (LISTO) will be introduced from 1 July 2017.  This will be payable to superannuation funds on behalf of members earning less than $37,000 and will help offset contributions tax up to $500 per annum.

Comment: This is a good measure that ensures lower income earnings will pay no more tax by contributing to super compared to keeping the money outside of superannuation.
Conclusion
These are by far the most comprehensive changes to the superannuation system of the last 5 years.  Thankfully, most changes do not come into effect until 1 July 2017.  Over the next 12 months, we will be reviewing the situation of our clients to determine how best to structure their affairs in light of the new rules.

If you have any questions in relation to this at all, please do not hesitate to contact me.

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