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After months in lockdowns and living under tight restrictions, many Australians have gone on a “revenge spending” spree. But before you go out and buy buy buy, do a financial stocktake to see if those purchases are viable and that your emotions aren't ruling your reality.

 

 

After months in lockdowns and living under tight restrictions, many Australians have gone on a “revenge spending” spree. Revenge spending is the term widely being used to describe how some people are taking out their revenge on the COVID-19 pandemic by spending money on things they haven’t been able to do for a long time.

This includes activities such as going out to restaurants and entertainment venues, buying household items, and getting much-needed personal grooming treatments. High on the revenge spending list is travel. People are finally able to book in holidays to places that have been off-limits due to border closures for the best part of two years. Domestic and international flights, and accommodation vacancies for the remainder of 2021, and well into 2022, are filling rapidly. Of course, these new spending freedoms all add up. Which is why it’s so important that any revenge spending you choose to do is within your existing financial limits.

Do look before you spend

It may sound basic, but it’s always wise to look before you leap.

In other words, it’s sensible to check your financial situation to make sure you can actually afford to go on that long-awaited trip or to buy all those items sitting on your spending wish list. Let’s call this a financial stocktake. You may have more money in your bank account than would normally be the case, because you haven’t been able to spend on these things for a while. Then again, you may have used your accumulated savings over 2020 and 2021 to take advantage of record low interest rates and pay down outstanding debts. Either way, it’s about taking a close look at what’s logical and achievable.

An obvious first step is to check your current savings balance, and then your personal or household financial budget if you have one. Keeping a budget ledger (such as an online spreadsheet) is the best way to track your ongoing income and expenses, which should give you a fairly accurate picture of how much you can afford to spend. Are there any large spending events on the horizon that you know are likely to come up in the short or medium term? Another consideration is whether you’re intending to keep a portion of your current savings aside as an emergency buffer to cover unexpected events?

Don’t let your emotions rule reality

Revenge spending is largely the product of pent-up emotions.

Over the last 18 months COVID has brought up a range of emotions for many but those general feelings are now shifting fairly quickly towards the positive because we can start doing most of our normal activities again. Increases in spending goes hand-in-hand with any negative-to-positive emotional transition. It’s often referred to as retail therapy. For example, you may be feeling that you desperately need to take a holiday, that it’s non-negotiable. And while that’s understandable, consider if you’ll need to use a high-interest credit card or draw down funds from your mortgage to pay for that holiday? If you’re prepared to take on extra debt, that’s fine. The key though is to assess whether your short-term spending decisions make sense and how they may impact your longer-term financial goals.

Do realign to your financial goals

Your financial goals may have been affected by the onset of COVID-19, either directly through the loss of earnings, or due to other related factors.

If that’s the case, take a look at all your financial goals to make sure you’re still on track to achieve them. If you don’t really have a proper financial plan, or haven’t reviewed your plan for a while, here’s a few things to consider.

  • What are your actual financial goals?
  • If you already have a financial plan, has it changed over time?
  • Are there any limitations (short, medium or long term) that you need to keep in mind that may stop you from achieving your goals?
  • How much investment risk are you comfortable with? And are you more of a hands-on or hands-off investor? This may influence the type of investments you choose.
  • Do you have a regular investment plan, for example to make fortnightly, monthly, or quarterly contributions into one or more managed funds?
  • If you do, will your spending plans potentially derail your investment plans?

It’s a good idea to document all your answers, and discuss them with your family, so you can assess them and come back to them later on. Any revenge spending plans you have should definitely be factored into the overall equation. There’s nothing wrong with spending more over the short term to make up for lost spending time. What’s important is to join all the financial dots, between your short-term wants and your long-term needs.

 

 

01 Nov, 2021
Tony Kaye

https://www.vanguard.com.au/

The new recently introduced bill on enhancing superannuation outcomes has provided a further update on how the government will implement its new contribution rules along with its potential effect on contribution strategies for SMSFs.

 

The Morrison government has recently introduced into Parliament the Treasury Laws Amendment (Enhancing superannuation outcomes for Australians and helping Australian businesses invest) Bill 2021which implements a raft of changes to superannuation contribution rules.

Heffron managing director Meg Heffron said the new bill provides some important details that were missing from the federal budget.

As the work test measures are implemented through regulation changes, which the government intends to make this year, Ms Heffron noted the current bill deals with a component that requires a change to the Income Tax Assessment Act 1997

 

“That was the government’s announcement that the work test would still apply if the member wanted to claim a tax deduction for his or her contribution. The bill does this by placing some additional limits on when a member can claim a tax deduction for his or her contributions after age 67,” Ms Heffron said in a recent blog update.

“Importantly, it refers to contributions made between 67 and ‘28 days after the end of the month in which you turn 75’ rather than the member’s 75th birthday. That makes perfect sense – it’s the same language used in the work test at the moment. 

“It suggests that when regulations are made to remove the work test, they will do the same – extend the opportunity to make contributions without meeting a work test up until the 28th day of the month after the member’s 75th birthday rather than their birthday itself. It’s what we expected but is useful clarity.”

Interestingly, Ms Heffron said it appears that moving the work test from the superannuation regulations to the Income Tax Assessment Act will get rid of the current requirement to meet the work test before the contribution is made. The new wording in the Income Tax Assessment Act simply requires the work test to be met at any time in the financial year.

“The bill also specifically allows someone meeting the rules often described as the “work test exemption” to claim a tax deduction for their personal contributions,” Ms Heffron noted.

“The work test exemption applies in very limited circumstances: the member must have a total super balance of less than $300,000 at the previous 30 June, have met the work test in the previous year and not used the work test exemption rules before.

“Someone meeting these rules at the moment can make a personal contribution even if they don’t meet the work test this year. From 1 July 2022 (when these changes are scheduled to take place), members will be able to contribute regardless of whether or not they meet the special work test exemption, but they will only be able to claim a tax deduction for it if they meet the work test or work test exemption rules.

“We’ll have to wait until the regulations are released, but if the work test is simply removed from the super rules from 1 July 2022 (as appears likely from these changes), CGT cap contributions and personal injury contributions will be able to be made without meeting a work test.”

Updates on bring forwards

As expected, the new rules also extend to bring forward opportunities up until the year in which the member turns 75. In other words, if a member turns 75 in November 2022, he or she will be able to use the bring-forward rules in 2022-23, according to Ms Heffron.    

“Of course, they will be unable to make any voluntary contributions at all after 28 December 2022, so they would need to do so earlier in the year,” she said.

“The legislative change contained in the bill is extremely simple – it replaces ‘67’ with ‘75’. The Explanatory Memorandum specifically states that these amendments aren’t intended to allow people to use caps that they would never have had (i.e. in the years when they turn 76, 77 etc).

“But it’s difficult to see how the current legislation stops this from happening – unless there are other changes still coming to support the government’s intention. 

“The change set out in this bill would allow someone with a total super balance of less than $1.48 million at 30 June 2022 who turns 75 in November 2022 to make non-concessional contributions of $330,000 in October 2022. In doing so, they would be using their caps for 2023-24 and 2024-25.”

Downsizer contributions age reduced to 60

For downsizer contributions, the legislation to implement this measure simply replaces 65 with 60 in the sections that define downsizer contributions and provides that the change should take effect from 1 July 2022.

“So, there is no requirement for the member to be over 60 when contracts are exchanged or settlement occurs; it is all about the age at which the contribution is made,” Ms Heffron said.

“Unless other changes are made via regulations, the downsizer contribution will be preserved if it is made at a time when the member is not retired or over 65. 

“Previously, this wasn’t a consideration as all superannuation stops being preserved when the member turns 65, and this was the earliest age for a downsizer contribution in any case.”

For the First Home Super Saver Scheme, an amendment of similar lack of complexity increases the maximum amount that can be released under this scheme from $30,000 to $50,000 from 1 July 2022, with all the other rules remaining the same.

 

 

29 October 2021
Tony Zhang

https://www.smsfadviser.com

ASIC has released new regulatory guidance for product issuers and market operators on how they can meet their regulatory obligations in relation to crypto-asset exchange traded products (ETPs) and other investment products.

 

ASIC’s guidance is set out in Information Sheet 225 Crypto-assets (INFO 225) and Information Sheet 230 Exchange traded products: Admission guidelines (INFO 230).

The information covers good practices for market operators in how they admit and supervise these products, and good practices for product issuers in how they establish and operate these products. Key matters covered by ASIC’s good-practice guide include admission and monitoring standards, custody of crypto-assets, pricing methodologies, disclosure and risk management.

Responsible entities that intend to hold underlying assets that comprise crypto-assets will need to hold an authorisation in relation to crypto-assets. ASIC has introduced a new ‘crypto-asset’ category in the licensing application for responsible entities. Details of this are set out in INFO 225, with updates to relevant forms and regulatory guides to be made in due course.

“Crypto-assets have unique characteristics and risks that must be considered by product issuers and market operators in meeting their existing regulatory obligations,” ASIC commissioner Cathie Armour said.

“The good practices we published provide practical examples of how these obligations may be met, in a way that maintains investor protections and Australia’s fair, orderly and transparent markets.”

The good practices and licensing changes follow ASIC’s public consultation in Consultation Paper 343 Crypto-assets as underlying assets for ETPs and other investment products (CP 343) in June 2021. In CP 343, ASIC consulted on proposals to establish good practices for these products within the existing regulatory regime and changes to our licencing regime.

ASIC received 32 non-confidential submissions in response to CP 343. Most of the submissions received were generally supportive of ASIC’s proposals in CP 343. Some submissions raised comments, questions or suggestions for ASIC to consider. ASIC’s consideration of these submissions is detailed in Report 705 Response to submissions on CP 343 Crypto-assets as underlying assets for ETPs and other investment products.

ASIC also notes the Senate Select Committee on Australia as a Technology and Financial Centre released its Final Report on 20 October 2021, with recommendations on developing an Australian regulatory framework for crypto-assets. 

ASIC has made submissions to the Select Committee and will work with Treasury and Government as they consider the recommendations in the Final Report.

This comes as recent reports have revealed there has been increased demand from SMSF investors driving crypto investment in a rapidly maturing market.

 

 

29 October 2021
Tony Zhang

https://www.smsfadviser.com

Beyond accumulating wealth over time, planning your financial legacy is one of the most important aspects of estate planning. With the greatest family wealth transfer set to occur in the next 20 to 30 years, here are a few things investors should consider when planning.

 

Succession planning is common in the business world. Last week, the United States investment group Berkshire Hathaway announced the appointment to its board of Susan Buffett (68). She's the daughter of the company's billionaire founder Warren Buffett (91), who's still the chairman and chief executive. While it's unlikely Susan will succeed her father in those roles, her joining the board is a sure sign that Warren Buffett's children will play a role in Berkshire Hathaway's future.

Another Buffett already on the company's board is Howard (66) and, together, the trio are effectively the custodians of the family's remaining shareholding in Berkshire Hathaway. At current values, that stake is worth a tidy US$103 billion. But what's most interesting is that Warren Buffett doesn't plan to pass on his huge personal fortune to any of his children when he dies. A large amount of it will be gone by then. Once the richest man in the world, he now ranks ninth. And the main reason for that is because, over the last 15 years, he's donated US$41 billion of his shares in Berkshire Hathaway to select foundations including the Bill and Melinda Gates Foundation. Buffett, who draws no salary and lives a relatively frugal life, has stated publicly on numerous occasions that he'll donate his remaining company shares in the same way. “The easiest deed in the world is to give away money that will never be of any real use to you or your family,” he said in a statement in June. “The giving is painless and may well lead to a better life for both you and your children.”

The importance of estate planning

Beyond accumulating wealth over time, planning your financial legacy is probably one of the most important aspects of estate planning. Of course, how you intend to have your accumulated wealth distributed, is a very personal choice. The next 20 to 30 years will see the biggest family wealth handover in history. The largest part of this great wealth transfer will be between members of the “Baby Boomer” generation (people born just after the end of World War II through to 1964) and their children and other heirs. This will include homes, investment properties, superannuation money, direct shares, life insurance payouts, and a wide range of other financial and non-financial assets. Inheritance planning, unlike business succession planning, is an area that's rarely discussed at the family level. Most families regard subjects such as death and the future division of wealth as unpleasant, and potentially sensitive when multiple heirs are involved. But there's a lot to be said for having open discussions within your family about the intended treatment of assets and future inheritances.

Why you need a will

Creating a valid will, and specifically documenting how you want your assets to be managed and divided after your death, should be a key step in the inheritance planning process. Dying without a will (intestate) will invariably create complications, because your estate will be passed over to the state or territory in which you live to administer. This can result in your assets not being distributed to your surviving family members in the way you would have preferred. Residential real estate and superannuation, which combined make up more than three quarters of total household assets, are the largest components of most financial legacies. Federal Treasury also estimates that assuming there's no change in how most retirees draw down their superannuation balances, superannuation death benefit payouts will increase from around $17 billion to just under $130 billion by 2059. Ensuring that any superannuation you have left over at the time of your death is distributed according to your wishes requires you to complete a binding death benefit nomination form provided by your super fund. It's important to be aware of any potential tax implications. For example, while superannuation distributed to a surviving spouse or dependent children is generally tax free, non-dependents (including adult children) may be required to pay tax on amounts they receive. That comes down to how much of your super is made up from pre-tax and after-tax contributions. Capital gains tax does not apply if someone inherits direct shares or other financial securities, but tax may apply if they later dispose of them. Any unapplied capital losses that could be used to offset capital gains tax cannot be transferred to beneficiaries. Estate planning can be complex. Consulting a licensed financial adviser to help you and your intended beneficiaries map out an inheritance framework that also identifies issues such as potential tax liabilities is a prudent step.

 

 

01 Nov, 2021
Tony Kaye

https://www.vanguard.com.au

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