Profile Blog

Severe market downturns feel anything but fair. In many ways the biggest risk facing investors now is the impulse to take action and to make hasty, short-term decisions based on emotional factors rather than accepting where we are today and riding things out.

       

The loss of market value that seemingly evaporates overnight is deeply unsettling and challenging even for committed, well-diversified long-term investors.

But market downturns are not unexpected – most of us will experience several during our lifetimes – particularly after such a long bull market run where market surprises were generally on the upside.

Australia we also should remember has not felt a recession in 29 years. That may feel like cold comfort at this time particularly because we are first and foremost dealing with a global health crisis that unravelled extremely quickly, and then the economic impacts that flows from the measures required to contain and combat it.

Uncertainty and the sense of loss of control are powerful emotions to grapple with. But what we know from past market events is that patience will be rewarded and recoveries can be just as sudden and strong.

The positive news is that the general consensus among economists is that while the recession will likely be sharp it is also likely to be relatively short and the upswing quite rapid. It has also been encouraging to see governments around the world prescribing measures to help hasten the recovery.

But the question about what to do – now – remains. At Vanguard we feel there are probably five things investors should think about:

  1. Tune out the noise. We all want to be informed but with dedicated television channels, websites and newsletters all on top of our normal media consumption habits this type of news event can be overwhelming. Consider checking in with one or two trusted sources and tune out the rest. It's ok not to be checking account balances when markets are falling.
     
  2. Revisit your asset allocation. These type of market events impact investors differently. But it is not all doom and gloom. Younger investors have that incredibly valuable asset – time – while those approaching retirement have just been given a sharp example of how much risk is in their portfolio. If it has surprised you then going forward as markets recover it may mean you should re-evaluate your risk tolerance and rebalance your portfolio to take a more conservative approach.
     
  3. We know we cannot control markets but there are some things we can control – like costs. Costs are particularly painful during downturns so take the time to review high cost investments in your portfolio. For those already in retirement it may mean temporarily trimming back on discretionary lifestyle spending to lighten the amount you need to draw down.
     
  4. Stay diversified. Different asset classes and sector exposures can help insulate your portfolio by spreading the risk.
     
  5. Set realistic expectations. Have a long-term plan and be realistic about returns you expect in the decades ahead.

Staying the course can pay off, abandoning course can be costly.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
31 March 2020
vanguardinvestments.com.au

 

 

Anthony Landahl, Managing Director from Equilibria Finance helps many of our clients navigate their lending needs. Banks and lenders across Australia have announced a range of relief measures through this time with the COVID19 situation impacting all of our lives. Anthony discusses the options available in a series of 3 videos:

Owner Occupiers and Investors:

Business Owners:

Here we discuss some of your options:

Multiple sources of help and explanation the relief packages and programs our Governments have recently. All relate to Covid-19 so that you don't have to hunt for information or miss out.  Your accountant can help with any question you have.

         

Please click on the following links to access a wide range of resources. Once done, click on the X (top right) to close the article and you'll return to this list.
 

 

  • Breakdown of Federal Government Covid-19 support. Click here.

 

 

  • 12 Treasruy Fact Sheets on Covid-19 releif measures. Click here.

 

 

 

 

  

 

 

 

 

 

Prime Minister Scott Morrison has now unveiled an extraordinary $130 billion wage subsidy which will see businesses receive $1,500 a fortnight per employee for the next six months.

       

In the third and largest economic stimulus package announced by the government in response to the coronavirus pandemic, up to 6 million workers are set to be eligible for the $130 billion wage subsidy, known as the JobKeeper payment.

The flat $1,500 payment, which will be delivered by the ATO, will be paid to businesses, including businesses structured through companies, partnerships, trusts and sole traders.

Employers will be required to pass on the full $1,500 a fortnight, before tax, to eligible employees.

To qualify, businesses with a turnover of less than $1 billion will need to self-assess a reduction in revenue of 30 per cent or more, relative to a comparable period a year ago.

Businesses with a turnover of more than $1 billion will need to demonstrate a loss of 50 per cent of revenue.

Eligible employees will include those employed by the employer at 1 March 2020, including those who have been stood down. Retrenched workers can be re-hired to qualify for the payment.

How to apply

 

Eligible businesses, including not-for-profits, charities, and self-employed individuals, will need to register an intention to apply on the ATO’s website.

Information on the number of eligible employees engaged as at 1 March 2020 and those currently employed by the business, including those stood down or rehired, will need to be provided to the ATO, although the Tax Office will look to use Single Touch Payroll data to pre-populate the employee details for the business.

The ATO will make payments to the employers monthly in arrears but the first payment will be sent in the first week of May and will be backdated to 30 March 2020 to allow employers to start paying their workers now.

Employers will be required to report the number of eligible employees employed by the business to the ATO on a monthly basis.

‘A lifeline’

According to Mr Morrison, the wage subsidy is meant to prop up businesses by paying for their employees even as the economy comes to a standstill.

“We will pay employers to pay their employees and make sure they do,” said Mr Morrison.

“This plan is about keeping those businesses together, by keeping these employees in these businesses.

“We want to keep the engine of our economy running through this crisis. It may run on idle for a time, but it must continue to run.”

What employees will get

Businesses must pay their employees a minimum of $1,500 per fortnight, before tax.

According to Treasury’s fact sheet, if an employee ordinarily receives $1,500 or more in income per fortnight before tax, they will continue to receive their regular income according to their prevailing workplace arrangements, with the JobKeeker payment to subside all or part of their income.

If an employee ordinarily receives less than $1,500 in income per fortnight before tax, their employer must pay their employee, at a minimum, $1,500 per fortnight, before tax, meaning employers will not be able to pocket the difference.

If an employee has been stood down, their employer must pay their employee, at a minimum, $1,500 per fortnight, before tax.

The $1,500 will be taxed as ordinary income but employers can choose to pay superannuation on the amount.

Employees who receive the JobKeeker payment will not be allowed to double dip with the recently expanded JobSeeker payment, which is paid through Services Australia.

The latest package by the government brings the total amount thrown at the coronavirus crisis to $214 billion, including the $66.1 billion second tranche support package and the initial $17.6 billion.

Mr Morrison said the government is currently in discussions with Labor to reach agreement over the latest announcement and will be looking to recall Parliament shortly to speed through legislation as it did with the first two packages.

Treasury example:

 

Employer with employees on different wages

Adam owns a real estate business with two employees. The business is still operating at this stage but Adam expects that turnover will decline by more than 30 per cent in the coming months. The employees are:

Anne, who is a permanent full-time employee on a salary of $3,000 per fortnight before tax and who continues working for the business; and
Nick, who is a permanent part-time employee on a salary of $1,000 per fortnight before tax and who continues working for the business.
Adam is eligible to receive the JobKeeper Payment for each employee, which would have the following benefits for the business and its employees:

The business continues to pay Anne her full-time salary of $3,000 per fortnight before tax, and the business will receive $1,500 per fortnight from the JobKeeper Payment to subsidise the cost of Anne’s salary and will continue paying the superannuation guarantee on Anne’s income;
The business continues to pay Nick his $1,000 per fortnight before tax salary and an additional $500 per fortnight before tax, totalling $1,500 per fortnight before tax. The business receives $1,500 per fortnight before tax from the JobKeeper Payment which will subsidise the cost of Nick’s salary. The business must continue to pay the superannuation guarantee on the $1,000 per fortnight of wages that Nick is earning. The business has the option of choosing to pay superannuation on the additional $500 (before tax) paid to Nick under the JobKeeper Payment.
Adam can register his initial interest in the scheme from 30 March 2020, followed subsequently by an application to ATO with details about his eligible employees. In addition, Adam is required to advise his employees that he has nominated them as eligible employees to receive the payment. Adam will provide information to the ATO on a monthly basis and receive the payment monthly in arrears.

Self-employed
Melissa is a sole trader running a florist. She does not have employees. Melissa’s business has been in operation for several years. The economic downturn due to the Coronavirus has adversely affected Melissa’s business, and she expects that her business turnover will fall by more than 30 per cent compared to a typical month in 2019.

Melissa will be able to apply for the JobKeeper Payment and would receive $1,500 per fortnight before tax, paid on a monthly basis.

 

 

Jotham Lian 
31 March 2020
accountantsdaily.com.au

 

 

Detail on what the second stimulus package means to your hip pocket, Centrelink payments and staff retention.

The announcements for individuals, retirees, households and employers: 

  • Temporary early release of superannuation for those in need
  • Reducing the minimum drawdown rates for superannuation income streams for the 2019/20 and 2020/21 years
  • Reducing the deeming rates by a further 0.25%
  • An additional $750 lump sum for pensioners and concession card holders
  • Additional income support payments for the unemployed
  • Keeping staff employed

NB: There is another article on our site that covers details of Stage 1 of the Government’s Covid-19 stimulus package.

Release of super funds:

The Federal Government has decided to allow financially stressed people to access $10,000 tax free of their super fund this financial year and $10,000 next financial year.

Treasurer Josh Frydenberg made the announcement on Sunday as part of a broader $66 billion stimulus package to mitigate the fallout from the outbreak that has killed more than 13,000 people worldwide and is tipped to plunge the global economy into a recession.

“These extraordinary times demand extraordinary measures,” the treasurer said in a statement. “The government is taking unprecedented action to strengthen the safety net available to Australians that are stood down or lose their jobs and increasing support for small businesses that do it tough over the next six months.”

Eligibility: One of the following requirements must be satisfied for the early release of super:

  • You are unemployed; or
  • You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment, special benefit or farm household allowance; or
  • On or after 1 January 2020:
    • You were made redundant; or
    • Your working hours were reduced by 20 per cent or more; or
    • If you are a sole trader – your business was suspended or there was a reduction in your turnover of 20 per cent or more.

If eligible, individuals can apply directly to the ATO via MyGov (www.my.gov.au) and will be required to certify that they meet the eligibility criteria. The ATO will then issue a determination and contact the super fund directly to release the money.

It is anticipated that payments will be available from mid-April. Payments will be received tax free and will have no impact on existing income support payments.

Reduction of minimum pension drawdown requirements

As we saw in the Global Financial Crisis (GFC), a temporary reduction to the minimum payment rules will apply for superannuation income streams to assist retirees who would otherwise be forced to sell down assets to meet their minimum pension.

For the 2019/20 and 2020/21 financial years, the minimum drawdown rates will be:

Deeming rates.

Further to the recent decrease in deeming rates announced earlier this month, the Government will reduce deeming rates by another 0.25% from 1 May 2020. The new rates are provided in the table below.

Additional $750 lump sum payment 

Two separate lump sum payments will now be available to eligible social security, veteran and other income support recipients and eligible concession card holders as follows:

Payment one – available to those eligible income support recipients and concession card holders at any time between 12 March 2020 and 12 April 2020.

Payment two – available to eligible payment recipients and concession card holders on 10 July 2020.

The two lump sum payments will be received tax free and will not impact existing income support payments.

The payment will be made automatically from July 13 to about 5 million Australians, including those receiving the age pension, a carers allowance or family tax benefit and Commonwealth senior card holders.

For payment one, the qualifying payments and concession cards are as follows:

To be eligible for payment two, the same list applies EXCEPT if you are entitled to the Coronavirus Supplement (explained below).

Additional income support for the unemployed and faster access

The Government will introduce the Coronavirus Supplement, a $550 per fortnight payment available for the next six months to eligible payment recipients. Additionally, access to income support will be expanded and the claims process accelerated to ensure timely payments for those in need.

Eligibility: The payment categories eligible to receive the Coronavirus Supplement are:

  • Jobseeker Payment (including all the payments that are currently moving to Jobseeker Payment)
  • Youth Allowance Jobseeker
  • Parenting Payment
  • Farm Household Allowance
  • Special Benefit recipients

While the Coronavirus Supplement is available (temporary measure for approximately six months), the Government will expand access to income support (such as Jobseeker Payment) to:

  • Permanent employees who are stood down/lose their job
  • Sole traders/self employed
  • Casual workers
  • Contract workers

The standard allowance income test must be met however the assets test that normally applies to allowances (ie $1 over the asset test threshold results in no payment) will be waived for the Coronavirus Supplement period.

Some waiting periods will also be reduced or waived. The standard one week Ordinary Waiting Period, the Liquid Assets Waiting Period (LAWP) and the Seasonal Work Preclusion Period will all be waived.

How to apply: The Government is encouraging all applications to be made online or over the phone if internet access is not available. Measures have been adopted to accelerate the claims process such as removing the requirement for Employment Separation Certificates and the need to make appointments with an employment service.

The commencement date for the Coronavirus Supplement and the expanded access to income support is 27 April 2020.

Casuals and sole traders

If you’ve found yourself affected by the economic downturn, you’ll be able to access a “coronavirus supplement” of $550 a fortnight for the next six months.

That’s on top of other benefits — so if you’re already receiving payments through Jobseeker (formerly known as Newstart), you can claim both.

Sole traders and casual workers who are currently making less than $1,075 a fortnight will be eligible to receive the full supplement.

In practice, that means if you’re a single parent (receiving a maximum fortnightly payment of $612 through Jobseeker), for example, and you meet the criteria, you’ll take home about $1,162 a fortnight.

“This means anyone eligible for the maximum Jobseeker payment will now receive more than $1,100 a fortnight, effectively doubling the Jobseeker allowance,” Treasurer Josh Frydenberg said.

Sole traders or casual workers who have had their income or hours reduced by 20 per cent or more as a result of coronavirus will also be able to access to up to $10,000 of their superannuation tax-free.

Employers who want to keep staff

Not-for-profits and small businesses with a turnover under $50 million will receive a tax-free cash payment of up to $100,000 to help them retain staff and continue operating.

The Government expects 690,000 businesses employing 7.8 million people and 30,000 not-for-profits will be eligible for measures in the stimulus package.

It doesn’t mean extra pocket money if you’re an employee, but by linking the payments to staff wage tax withholdings, businesses will be given an incentive to hold on to more of their workers.

“We know that small businesses are enormously resilient but this is really hurting them,” Mr Morrison said.

“Whether it is a coffee shop or mechanic or hairdresser… by providing at a minimum $20,000 and up to $100,000 for small businesses who employ people, [it] gives them a chance to get to the other side.”

Expect more to come…

An important thing to keep in mind is that this is the second suite of measures announced by the Government in just a matter of weeks.  Details about the first stimulus package can be read here.

For more information

For more information on these measures and other announcements made by the Australian Government visit treasury.gov.au/coronavirus or speak with your Financial Planner or Accountant.

Source:  Several sources and the ATO.

FACTUAL INFORMATION & GENERAL ADVICE WARNING This communication is issued by Profile Financial Services Pty Ltd. (ABN 32 090 146 802), holder of Australian Financial Services Licence and Australian Credit Licence No. 226238. It contains factual information and general advice only, and does not take into account any investor’s individual objectives, financial situation or needs. It should not be relied on by any individual. Before making any decision about the information provided, investors should consider its appropriateness having regards to their personal objectives, situation and needs, and consult their adviser. Any indicative information and assumptions used here are summarised, are not a product illustration or quote, and also may change without notice to you, particularly if based on past performance.

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