Stay up to date with what’s happened in Australian and global markets over the past month.

Our August update video takes you through key economic indicators, as both markets and the economy react to the continued on-again, off-again lockdowns throughout numerous states in July.

Please get in touch if you’d like assistance with your personal financial situation

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As we navigate ongoing lockdowns due to COVID-19 across Australia, here is a guide to the latest benefits you may be entitled to from the Federal and State Governments.

Australia-wide initiatives

The Pandemic Leave Disaster Payment (PLDP) is a program to support you if you find yourself in a situation where you are unable to earn an income because you are required to self-isolate, quarantine, or are caring for someone with COVID-19. The payment provides a lump sum of $1,500 per fortnight and you will need to meet certain criteria, which do vary between states and territories.

A COVID-19 Disaster Payment (CDP) is available for workers who are adversely affected by a state public health order including a lockdown, hotspot or movement restrictions. Again, the eligibility criteria vary by state, as can the amounts.

In addition, Centrelink provides a one-off Crisis Payment for National Health Emergency payment for those affected by COVID-19. You would need to already be eligible for income support or in severe financial hardship and are required to quarantine or self-isolate or are caring for someone required to be in quarantine or self-isolation. You will only be able to access 2 Crisis Payments for National Health Emergency in a 6-month period.

Victoria

• The COVID-19 Disaster Program is available for eligible Victorians between July 16 and 27th period. Although this period has lifted you still may be able to access this payment if you are eligible. The opportunity to claim closes on August 12th for the July 16-22nd July period and on August 19th for the July 23-27th period.
• The Pandemic Leave Disaster Payment will provide $1,500 for each 14 day period you must self-isolate or quarantine or are caring for someone who has COVID-19 or must quarantine or self-isolate.
• Victorian Government COVID-19 Test Isolation Payment provides a payment of $450 for workers who are required to self-isolate while waiting for COVID-19 test results.
• The Business Continuity Fund provides relief for up to around 30,000 businesses, that continue to be impacted by capacity limits on businesses with a $5,000 grant. There are 24 eligible sectors (including restaurants & cafes, gyms and hairdressers). For CBD businesses, that are also impacted by reduced foot traffic due to restrictions on staff allowed back into offices, you may also be eligible for an additional $2000 grant. To be eligible, for the Business Continuity Fund businesses must have received, or be eligible for the Business Cost Assistance Program round two.
• The Licensed Hospitality Venue Fund 2021 will receive extra funding to provide grants of up to $20,000, to support licensed venues that continue to be impacted by the current restrictions. This grant recognises the higher operating costs of larger licensed venues. Licensed venues that have received or were eligible for the previous Licensed Hospitality Venue Fund. CBD venues will again, also have an additional $2,000 grant available.
• The Small Business COVID Hardship Fund provides grants of up to $5,000 to small businesses with a payroll of up to $10 million where the current restrictions have resulted in at least a 70% reduction in revenue.
• The Alpine Business Support Program will provide $5,000 – $20,000 grants to 430 Alpine-based businesses, recognising the impact of restrictions of movement and limited interstate travel, throughout peak season. There is also an additional $5 million support to alpine resort operators and management boards.
• The Commercial Tenancy Relief Scheme has been reintroduced to assist eligible tenants with proportional rent relief and to support landlords assisting tenants. Eligible businesses must have experienced at least a 30% reduction in turnover and have an annual turnover of less than $50 million. Again tenants and landlords are encouraged to reach an agreement directly, the Victorian Small Business Commission (VSBC) will be available to provide mediation.
• The Victorian Energy Saver scheme is available to assist with paying energy bills.

New South Wales

• Due to the Sydney lockdown, as of July 2021, NSW residents may be eligible for a COVID-19 Disaster Payment. Eligibility criteria and dates vary by location across the state.
• The Pandemic Leave Disaster Payment will provide $1,500 for each 14 day period you must self-isolate or quarantine, or are caring for someone who has COVID-19 or must quarantine or self-isolate, and unable to earn an income.
• From July 14, there is a 60-day moratorium on evictions for residential tenants who have lost 25% or more of their income due to stay at home orders.
• Businesses that suffer a 30% reduction in revenue due to the restrictions, which have a turnover between $75,000 and $250 million, can now apply for up to $100,000 in JobSaver grants a week.
• For businesses with a turnover between $30,000 and $75,000, the COVID-19 Micro Business Grant provides a fortnightly $1,500 payment, if your revenue has declined by more than 30%.
• Businesses now have the option to defer the payment of their payroll tax, including the 2020-21 annual reconciliation, July and August 2021 monthly return periods until 7 October 2021. Interest-free payment plans will be available for up to 12 months.
• For businesses that have experienced at least a 30% decline in turnover, or for NSW businesses with grouped Australian wages of no more than $10 million, a 25% reduction of their 2021-22 payroll tax liability may be available.

Queensland

• In addition to the Pandemic Leave Disaster Payment, workers in Queensland may be eligible for support and relocation incentives.
• Small and medium businesses impacted by the South East Queensland lockdown commencing 31 July 2021 may be eligible for a $5000 grant to use on business expenses. To be eligible, the business needs to have a turnover of more than $75,000 and an annual payroll in Queensland of up to $10 million and need to have at least a 30% reduction in turnover as a result of the lockdown.
• Grants are also available for large hospitality and tourism businesses operating in the 11 local government areas in lockdown, eligibility criteria apply. Applications open mid-August.

Australian Capital Territory

• While the ACT has a number of smaller support packages in place to help the community, the primary COVID-19 relief scheme available is the $1,500 Pandemic Leave Disaster Payment.

Northern Territory

• Similar to other states, if you can’t earn an income because you need to self-isolate or quarantine for 14 days, or need to care for someone with COVID-19, you may be eligible for the $1,500 Pandemic Leave Disaster Payment offered to Territorians.

Western Australia

• On top of the state’s one-off 2020 $600 electricity bill credit, WA now offers the Pandemic Leave Disaster Payment.

South Australia

• In addition to the Pandemic Leave Disaster Payment, one-off grants of $300 are available to eligible workers required to self-isolate.

Tasmania

• In addition to the Pandemic Leave Disaster Payment, grants are available to eligible low-income casual workers or self-employed Tasmanians required to self-isolate.

If you have any questions about the grants available or whether you are eligible, please don’t hesitate to give us a call.

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

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When the coronavirus pandemic hit financial markets in March 2020, almost 40 per cent was wiped off the value of shares in less than a month.[1] Understandably, many investors hit the panic button and switched to cash or withdrew savings from superannuation.

With the benefit of hindsight, some people may be regretting acting in haste. Although for others, accessing their super under the early release due to COVID measures was a difficult but necessary decision at the time.

As it happened, shares rebounded faster than anyone dared predict. Australian shares rose 28% in the year to June 2020 while global shares rose 37%. Balanced growth super funds returned 18% for the year, their best performance in 24 years.[2]

While every financial crisis is different, some investment rules are timeless. So, what are the lessons of the last 18 months?

Lesson #1 Ignore the noise

When markets suffer a major fall as they did last year, the sound can be deafening. From headlines screaming bloodbath, to friends comparing the fall in their super account balance and their dashed retirement hopes.

Yet as we have seen, markets and market sentiment can swing quickly. That’s because on any given day markets don’t just reflect economic fundamentals but the collective mood swings of all the buyers and sellers. In the long run though, the underlying value of investments generally outweighs short-term price fluctuations.

One of the key lessons of the past 18 months is that ignoring the noisy doomsayers and focussing on long-term investing is better for your wealth.

Lesson #2 Stay diversified

Another lesson is the importance of diversification. By spreading your money across and within asset classes you can minimise the risk of one bad investment or short-term fall in one asset class wiping out your savings.

Diversification also helps smooth out your returns in the long run. For example, in the year to June 2020, Australian shares and listed property fell sharply, but positive returns from bonds and cash acted as a buffer reducing the overall loss of balanced growth super funds to 0.5%.

The following 12 months to June 2021 shares and property bounced back strongly, taking returns of balanced growth super funds to 18 per cent. But investors who switched to cash at the depths of the market despair in March last year would have gone backwards after fees and tax.

More importantly, over the past 10 years balanced growth funds have returned 8.6 per cent per year on average after tax and investment fees. High growth funds returned 10.3 per cent per year and the most conservative funds returned 5.5 per cent per year.ii

The mix of investments you choose will depend on your age and tolerance for risk. The younger you are, the more you can afford to have in more aggressive assets that carry a higher level of risk, such as shares and property to grow your wealth over the long term. But even retirees can benefit from having some of their savings in growth assets to help replenish their nest egg even as they withdraw income.

Lesson #3 Stay the course

The Holy Grail of investing is to buy at the bottom of the market and sell when it peaks. If only it were that easy. Even the most experienced fund managers acknowledge that investors with a balanced portfolio should expect a negative return one year in every five or so.

Unfortunately, we can only ever be sure when a market has peaked or troughed after the event, by which time it’s usually too late. By switching out of shares and into cash after the market crashed in March last year, investors would have turned short-term paper losses into a real loss with the potential to put a big dent in their long-term savings.

Even if you had seen the writing on the wall in February 2020 and switched to cash, it’s unlikely you would have switched back into shares in time to catch the full benefit of the upswing that followed.

Timing the market on the way in and the way out is extremely difficult, if not impossible.

Looking ahead

Every new generation of investors has a pivotal experience where lessons are learned. For older investors, it may have been the crash of ’87, the tech wreck of the early 2000s or the global financial crisis. For younger investors and many older ones too, the coronavirus pandemic will be a defining moment in their investing journey.

Now that shares and residential property prices have rebounded strongly, investors face new challenges. That is, how to make the most of the prevailing market conditions while ignoring the FOMO (fear of missing out) crowd.

By choosing an asset allocation that aligns with your age and risk tolerance then staying the course, you can sail through the market highs and lows with your sights firmly set on your investment horizon. Of course, that doesn’t mean you shouldn’t make adjustments or take advantage of opportunities along the way.

We’re here to guide you through the highs and lows of investing, so give us a call if you would like to discuss your investment strategy.

[1] https://www.forbes.com/sites/lizfrazierpeck/2021/02/11/the-coronavirus-crash-of-2020-and-the-investing-lesson-it-taught-us/?sh=241a03a46cfc

[2] https://www.chantwest.com.au/resources/super-funds-post-a-stunning-gain

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

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Fixed term rates have never been lower in Australia but with some lenders starting to move fixed rates and further changes on the horizon, is it time to have a look around to ensure you are getting the best deal?

Fixed rate loans have provided the lowest rates in the market for some time, with the official cash rate stable at an all-time low and lenders setting their variable rates essentially betting that the cash rate will remain low.

While the Reserve Bank of Australia (RBA) is still currently anticipated to keep the cash rate low until 2024, other forces including concerns about inflation and changing lending conditions are impacting lenders’ decisions about fixed rates.

So now that rates are again on the move – is it time for you to make a change? Here’s what you need to know about what’s happening to help you decide whether or not to fix your rate.

Current environment for rates

Interest rates set by lenders are independent of, although strongly influenced by, the cash rate set by the RBA. The cash rate was reduced to 0.1% in November 2020 – down from the previous record low of 0.25% and most banks passed on the cut by correspondingly reducing their rates.

These low rates have boosted Australia’s property market, with over 100,000 first home buyers buying property since the start of the pandemic. [1]

Current low interest rates have also spurred existing mortgage holders to review their arrangements. If you’re looking to refinance, you’re joining a growing number of Aussies doing so – 1.5 million according to a recent realestate.com.au survey, with the most common motivator being competitive rates, followed by wanting to consolidate debts or unlock equity. And 45% of new lending is occurring at fixed rates, reports Commbank – this is usually around the 15% mark, so it’s a notable increase.[2]

Why banks might shift rates

Despite the RBA stating they don’t intend to raise the official cash rate until 2024, some lenders have started to increase their longer-term fixed interest rates.

Concerns about inflation are having an impact on fixed rates. There has been conjecture that the RBA may be forced to increase their rates earlier than 2024 to put the brakes on inflation as the economy recovers from the COVID induced recession.

Changes to lending conditions are also contributing to recent rate rises. Lenders have been able to access money at very low interest rates through the RBA’s term funding facility, which was put in place to mitigate the impact of the coronavirus crisis. However this expired on June 30.[3] And with bond yields on 4-, 5- and 10-year fixed rates increasing, there is pressure on lenders to increase longer-term rates.

Money website Mozo recently reported that at least 25 out of 99 lenders have increased their fixed rates since January, the majority being for 4- or 5-year terms.[4] Some of the larger banks that have increased interest rates include Westpac, Commbank, NAB and UBank.

Is it worth fixing your rate?

Despite some lenders beginning to lift some fixed rates, it can still pay to look around for lower rates. Refinancing may put you in a better financial position and fixed rates could be the way to go, but it’s worth being mindful that if you need to break a fixed loan early, this could prove costly.

And even with record low rates, always be aware of the possibility that rates can drop, in which case you could be spending more. Fixed rate loans also tend to be more restrictive than variable as you won’t be able to make additional repayments, or if you are, they will be capped. They also tend to have fewer features so you may not be able to link to an offset account or redraw funds.

Should you want out, you will have to pay a ‘break fee’, and this doesn’t tend to come cheap. Savings.com.au reported break fees from a few thousand to much more, so this is something to keep in mind. While fixed rates are less flexible than variable, it could be argued that there has been no safer time to choose a fixed rate than now, so you’re less likely to want to get out of the loan.

If you have an existing loan, it’s always a good idea to reassess your rates and check that the type of loan you have in place is the best match for your circumstances. And for prospective homeowners, it is important to get advice on what loan is most appropriate for you before signing on the dotted line. There are a lot of things to take into consideration beyond getting the best rate so reach out today to find out more.

Fixed rate home loans

Average 2 year fixed rate for owner occupiers – June 2021

Average Fixed Home Loan Rates at a $400,000 loan amount, 80% loan-to-value ratio, owner-occupier, principal and interest, from the mozo.com.au database. Source: Mozo

If you’d like help or more information give us call.

[1] https://www.news.com.au/finance/economy/australian-economy/how-interest-rate-increase-would-impact-aussie-house-prices/news-story/e90dcf416558b4938884d8c3fd1b6abc

[1] https://www.smartline.com.au/mortgage-news/interest-rates/borrowers-rush-to-fix-loans-as-lenders-lift-longer-term-rates/

[2] https://www.savings.com.au/home-loans/term-funding-facility-ending-june

[3] https://mozo.com.au/home-loans/articles/more-lenders-hike-up-home-loan-fixed-rates-will-variable-rates-follow

[4] https://www.savings.com.au/home-loans/the-potential-35-000-cost-of-breaking-a-fixed-home-loan

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

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Stay up to date with what’s happened in Australian and global markets over the past month.

Our July update video takes you through key economic indicators so you can understand how the Australian economy is faring as we recover from the COVID-19 induced recession of 2020.

Please get in touch if you’d like assistance with your personal financial situation.

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

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The principle of ‘salary sacrificing’ may not sound very appealing. After all, who in their right mind would voluntarily give up their hard-earned cash. But it can have real financial benefits for some in terms of reducing your taxable income, which could see you pay less at tax time.

A salary sacrifice arrangement Is also commonly referred to as salary packaging or total remuneration packaging. In essence, a salary sacrifice arrangement is when you agree to receive less income before tax, in return for your employer providing you with benefits of similar value. You’re basically using your pre-tax salary to buy something you would normally purchase with your after-tax pay.

How does salary sacrifice work?

The main benefit of salary sacrificing is that it reduces your pre-tax income, and therefore the amount of tax you must pay. For example, if you’re on a $100,000 income, you may agree to only receive $75,000 as income in return for a $25,000 car as a benefit.

Doing this would reduce your taxable income to $75,000 which could lower your tax bill because you’re essentially earning less as far as the tax office is concerned.*

This arrangement must be set up in advance with your employer before you commence the work that you’ll be paid for and it’s advisable that the details of the agreement are outlined in writing.

What can you salary sacrifice?

According to the Australian Tax Office (ATO), there’s no restriction on the types of benefits you can sacrifice, as long as the benefits form part of your remuneration. What you can salary sacrifice may also depend on what your employer offers.

The types of benefits provided in a salary sacrifice arrangement include fringe benefits, exempt benefits and superannuation.

Fringe benefits can include:

• cars
• property (including goods, real property like land and buildings, shares or bonds)
• expense payments (loan repayments, school fees, childcare costs, home phone costs)

Your employer pays fringe benefit tax (FBT) on these benefits.

Exempt benefits include work-related items such as:

• portable electronic devices and computer software
• protective clothing
• tools of the trade

Your employer typically does not have to pay fringe benefits tax on these.

Superannuation

You can also ask your employer to pay part of your pre-tax salary into your superannuation account. This is on top of the contributions your employer is already paying you under the Superannuation Guarantee, which should be no less than 9.5% of your gross (before tax) annual salary, though this may rise in the near future.

Salary sacrificed super contributions are classified as employer super contributions rather than employee contributions. These contributions are called concessional contributions and are taxed at 15 per cent. For most people, this will be lower than their marginal tax rate.

There is a limit as to how much extra you can contribute to your super per year at the 15 per cent tax rate. The combined total of your employer and any salary sacrificed concessional contributions cannot exceed $25,000 in a single financial year. If you exceed the cap, you could be charged additional tax on any excess salary sacrifice contributions.

Most employers allow employees to salary sacrifice into super, but not all employers will allow salary sacrificing for other benefits.

Is salary sacrifice worth it?

Salary sacrifice is generally most effective for middle to high-income earners, while there is little to no tax saving for people who are already in a low tax bracket.

If you are a middle to high-income earner, then it may be worth considering salary sacrifice to reduce your taxable income and to take advantage of some of those benefits.

Before you do, make sure you talk to us so we can help ensure it is an appropriate strategy for your circumstances.

Footnotes

*Note: This example illustrates how salary sacrifice arrangements can work and does not constitute advice. You should not act solely on the information in this example.

Source for all information in this article: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Salary-sacrifice-arrangements/

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Email: integrityone@iplan.com.au

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