{"id":115737,"date":"2023-06-09T18:11:00","date_gmt":"2023-06-09T18:11:00","guid":{"rendered":"https:\/\/websitedesigns.com.au\/elankanew\/?p=115737"},"modified":"2023-06-09T18:11:54","modified_gmt":"2023-06-09T18:11:54","slug":"noel-news-46","status":"publish","type":"post","link":"https:\/\/websitedesigns.com.au\/elankanew\/noel-news-46\/","title":{"rendered":"Noel News"},"content":{"rendered":"

Noel News<\/strong><\/span><\/h2>\n

\"Noel<\/p>\n

\"Noel<\/p>\n

“The true soldier fights not because he hates what is in front of him, but because he loves what is behind him”<\/em><\/span>
\nG.K. CHESTERTON<\/span><\/p>\n

Major pension changes<\/span><\/h1>\n

There\u2019s good news for pensioners, especially part pensioners, with the change of the assets and income test thresholds starting on 1 July. Details are below with the changed numbers shown in\u00a0red.\u00a0The new charts are on my website<\/a>, and the\u00a0age pension calculator<\/a>, and the\u00a0deeming calculator\u00a0<\/a>above both have been updated for the changes.<\/span><\/p>\n

\"Noel<\/span><\/p>\n\n\n\n
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When assessing eligibility for the aged pension, applicants are given an income test and an assets test \u2013 the test that produces the least amount of pension is the one used.<\/span><\/p>\n

Some assets are exempt \u2013 these include the family home, assets in superannuation under pension age, funeral bonds up to\u00a0$15,000\u00a0for a single bond, an accommodation bond paid to an aged care facility, and gifts within the allowable limits. Home contents, cars and boats are valued at market value \u2013 not replacement value.<\/span><\/p>\n

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The assets test has different thresholds for homeowners and non-homeowners.<\/span>
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\u00a0 Income Test<\/span><\/h3>\n

From 1 July\u00a0 2023\u00a0a single pensioner can earn\u00a0$204\u00a0a fortnight and still be eligible for the full single pension of $1064 a fortnight, including all supplements. They can also earn $460 a fortnight from personal exertion \u2013 this is not included in the income test. Once income exceeds\u00a0$204\u00a0a fortnight, the pension reduces by $0.50 for every additional dollar earned.<\/span><\/p>\n

From\u00a01 July\u00a0 2023\u00a0a pensioner couple can earn\u00a0$360\u00a0a fortnight combined and still be eligible for the full pension of $1604 a fortnight, including all supplements. They can also earn $460 a fortnight each from personal exertion \u2013 this is not included in the income test. Once income exceeds\u00a0$360\u00a0a fortnight, the pension reduces by $0.50 for every additional dollar earned.<\/span>
\n\u00a0<\/span><\/p>\n

\u00a0\u00a0 Assets Test<\/span><\/h3>\n

1 July\u00a0 2023\u00a0the full pension is available, under the assets test, for homeowner singles whose assessable assets are under\u00a0$301,750\u00a0\u2013 for homeowner couples the number is\u00a0$451,500. The numbers for non-homeowners are\u00a0$543,750\u00a0and\u00a0$693,500\u00a0respectively.<\/span><\/p>\n

Once assessable assets exceed the lower threshold, the pension reduces by $3 fortnight for each $1000 by which assessable assets exceed the lower threshold.<\/span><\/p>\n

A single homeowner can have up to\u00a0$656,500\u00a0of assessable assets and receive a part pension \u2013 for a single non-homeowner the higher threshold is\u00a0$898,500. For a couple, the higher threshold to\u00a0$986,500\u00a0for a homeowner and\u00a0$1,128,500\u00a0for a non-homeowner.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Deeming rate changes<\/span><\/h2>\n

When a person is being assessed for pension eligibility under the income test, certain of their assets are given a deemed income. This is applied irrespective of the actual earning rate of these assets.<\/span><\/p>\n

The main assets subject to deeming include superannuation once pensionable age has been reached, cash and bank deposits, government bonds, shares, and managed funds such as share trusts and friendly society bonds. It also includes gold silver and platinum bullion. Assets such as rental properties and businesses and vacant land are not subject to deeming.\u00a0Use the Pension Calculator Here<\/a><\/span><\/p>\n

From 1 July 2023 the deeming rates will be:\u00a0<\/span><\/p>\n

Singles:<\/strong>\u00a00.25% on the first\u00a0$60,400\u00a0and 2.25% on the balance\u00a0<\/span><\/p>\n

Couples:<\/strong>\u00a00.25% on the first\u00a0$100,200\u00a0and 2.25% on the balance<\/span><\/p>\n

Note that, despite expectations from most of us in the industry, they have not changed the notional rate used in the deeming rates. As you can see, they are way below market rates.<\/span>
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Interest Rates<\/span><\/h1>\n

Last Tuesday the Reserve Bank lifted the cash rate a further 25 basis points taking the cash rate to 4.1%, – this is a full 4% rise over 12 hikes since April last year.<\/span><\/p>\n

Different economic data throughout the month led to a mixed outcome, making it difficult to predict whether there would be a change in the cash rate. On one hand, there was a decrease in consumer confidence, an increase in the unemployment rate, and no significant change in retail trade. These factors suggested that the rates might remain the same. However, these negative indicators were balanced out by the April monthly Consumer Price Index (CPI), which showed a substantial increase of 6.8%. Additionally, the Fair Work Commission’s decision to raise award wages by 5.75% and minimum wages by 8.6% in the next financial year also influenced the outlook.<\/span><\/p>\n

There are more rate rises to come – the RBA is stuck between a rock and a hard place. They claim the goal is to get inflation down to between 2% and 3% per annum but, as Westfarmers Chairman Michael Chaney pointed out last week, inflation is imbedded until at least 2025. Hitting struggling families with more and more mortgage costs won\u2019t do a thing to contain costs which are rising everywhere. One option for the Reserve Bank is to leave rates as they are, ignore the inflation target and adopt a wait-and-see attitude. The other option is to keep increasing interest rates.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

There are some economists who claim that inflation is the biggest danger of all because our money is being devalued at such a fast rate. But despite the recent pay increases the real rise is less than 4% after tax comes out of the pay packet \u2013 the worker is still going backwards if inflation stays at 7% or 8%, which I think it will. The sad reality is, there is no easy way out.<\/span><\/p>\n

To make matters worse, this year will see a record number of borrowers moving from fixed rates to much I fixed rates. This will make it even tougher for many people.<\/span><\/p>\n

\"\" \"\"<\/span><\/p>\n

In my April newsletter I wrote the following:<\/span><\/p>\n

I don\u2019t resile from those comments. You must do what\u2019s right for your own situation, but I believe that however you look at it, it is reasonable to conclude that inflation is still rampant and interest rates will keep on rising.<\/em><\/i><\/span><\/p>\n

If you have a mortgage, your main focus now should be to get ahead in your repayments to create a safety buffer. The last thing anybody wants is to lose their home. And remember there may be a way out for people who are battling with their mortgage payments \u2013 they could always rent their house out, which means the interest will become tax-deductible, and find cheap accommodation elsewhere. This may be moving back in with the in-laws, which is better than losing a house.<\/em><\/span><\/p>\n

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Not so super<\/span><\/h1>\n

Why the next Your Future, Your Super test could fail millions of Australians<\/em><\/span><\/p>\n

Over the last decade, actions by successive federal governments have played havoc with the financial advice industry. The result of their efforts to \u201cprotect consumers\u201d has been thousands of advisers leaving the industry and the cost of financial advice being pushed out of the reach of the ordinary person.<\/span><\/p>\n

It gets worse.\u00a0 This year, the government plans to extend the Your Future, Your Super performance test to a sub-set of what are commonly referred to as \u201cChoice\u201d superannuation products. These are products that enable an individual, often with the help of a financial adviser, to actively make an informed choice about the products in which to invest their hard-earned retirement savings.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

If an option fails the test, the trustee must issue a prescribed notice to all super members holding the option, recommending that the member consider moving their money to a different product. The notice does not differentiate between marginal and significant cases of underperformance, nor does it clearly explain that the \u201cfailure\u201d is limited to one or more options and not the entire product. Worse still, it includes misleading statements that there are no fees for switching, does not include any warning about possible tax consequences or loss of benefits, and does not recommend seeking financial advice.<\/span><\/p>\n

These Choice funds are tightly regulated products, with extensive disclosure requirements about their structure, fees and investment objectives. Objectives vary from fund to fund because they are designed and chosen by individuals to meet their particular financial objectives and match their risk appetite. Yet the government and APRA appear determined to apply a blanket performance test to all of these products, forcing them into the same square hole, despite their deliberate and well-communicated differences.\u00a0The logic of the test simply doesn\u2019t stack up, and the risks are considerable.<\/strong><\/span><\/p>\n

Someone approaching retirement and wanting more certainty about their retirement savings might invest in a relatively low-risk product designed to provide a specific return above inflation. During periods of strong market performance, this product could outperform its stated objective but underperform market benchmarks. Such products would likely fail the performance test, because the test is based solely on net return, inexplicably ignoring the fundamental investment principle that with greater return comes greater risk.<\/span><\/p>\n

There are further pitfalls. For many Choice superannuation products, especially older products now closed to new investors, the performance test would not be determined based on the actual administration and investment fees charged to an individual, but on the average or highest fee charged to a member holding an interest in the same underlying investment. This will understandably confuse people who are told they are in an underperforming product, when in fact their individual investment may pass the government\u2019s own assessment.<\/span><\/p>\n

Additionally, members who move their entire balance to a different superannuation product in response to receiving a \u201cfailed test\u201d notice may be hit with a large capital gains tax bill, if their superannuation is in accumulation mode. If they move to another fund, they may lose any insurance cover they hold within their current fund. And there is a very real risk that they may never be able to get the same level of cover, or the same terms. Worse still, they may not be able to get insurance at all.<\/span><\/p>\n

These are all very real issues for many Australians, to which the government and APRA appear to be wilfully turning a blind eye. They need to stop and reconsider. Choice is not always a bad thing, particularly when it comes to investing for retirement.\u00a0 Many Australians are keen to actively and carefully manage their risk in their retirement savings portfolio, which the test, as currently proposed, would make harder.<\/span><\/p>\n\n\n\n
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Preparing for 30 June<\/span><\/h1>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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30 June is rapidly approaching, which means it is time to seek advice about\u00a0ways to save tax<\/strong>.<\/span><\/p>\n

The end of the financial year is critical for\u00a0capital gains tax<\/strong>\u00a0purposes. Remember, CGT is not triggered until you dispose of the asset and you must have owned that asset for over 12 months to get the 50% discount. In this context, the appropriate date for CGT purposes is the date of the contract, not the date of settlement.<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

\"Noel<\/span><\/p>\n

If you\u2019re thinking of selling a property, talk to your accountant and decide whether it\u2019s better to have the contract dated before or after 30 June. If you choose after 30 June, you have 12 more months to pay the CGT, but the most important thing is which tax bracket you\u2019ll be in when you trigger it.<\/span><\/p>\n

CGT is calculated by adding the capital gains to your taxable income in the year the sale has been triggered \u2013 often you can reduce the CGT by making tax-deductible contributions to superannuation. A little-known strategy that can be great for retirees under 67 is to use catch-up contributions. Provided your superannuation balance was under $500,000 on June 30 last year, you may be able to make tax-deductible catch-up concessional contributions right back to 2018. This could give rise to a personal tax deduction of $100,000 and wipe out some CGT. It’s a bit complex, so take advice if you think it may be appropriate for you.<\/span>
\n\"Noel<\/span><\/p>\n

Making\u00a0tax-deductible superannuation contributions\u00a0<\/strong>up to your maximum concessional cap of $27,500 a year is a no-brainer.<\/span><\/p>\n

Once you have reached that cap, consider making a contribution for your spouse. If they earn less than $37,000 this financial year you may even get a tax offset as a bonus. Get advice on your particular circumstances, as this tax offset is unlikely to be a better option than making a deductible contribution for yourself. To qualify for the spouse contribution tax offset of $540 all you need to do is make a $3000 non-concessional contribution on their behalf. Your spouse may also like to consider making a non-deductible super contribution for themselves of $1,000 if they are eligible for a $500 government co-contribution.<\/span><\/p>\n

A re-contribution strategy is worthwhile if you have access to superannuation and are still eligible to make contributions. You could withdraw up to $330,000 tax-free and re-contribute it as a non-concessional contribution, on which there would be no entry tax. By doing this you would convert a large chunk of the taxable component of your fund to non-taxable, and so alleviate substantial taxes for your inheritors if you died suddenly and your superannuation went to a non-dependent.<\/span><\/p>\n

The cap for concessional superannuation contributions is\u00a0$27,500 and for non-concessional superannuation contributions is\u00a0$110,000\u00a0for the 2022 financial year.\u00a0To make contributions to superannuation and to utilise these caps, your fund must receive your contributions by 30 June. If you have more than one fund, all contributions made to all of your funds are added together and counted towards contribution caps. You may also be eligible to carry forward any unused contribution caps to a later financial year (if your total superannuation balance is less than $500,000 on the previous 30 June).<\/span><\/p>\n

Take advice if you are nearing age 75 because apart from the downsizing contribution, it may be your last chance to boost your superannuation. You could still use the bring-forward rule, which will allow you to contribute up to $330,000 as a non-concessional contribution and so move funds to an area where tax will be zero once you start to draw a pension from your fund. Keep in mind that no non-concessional contributions can be made if your balance was $1.7 million or more on 30 June last year.<\/span><\/p>\n

Mandatory pension drawdowns<\/span><\/h1>\n

As I predicted in the last newsletter, it\u2019s been confirmed that the payments will return to what they were pre-Covid. Anybody who is drawing an account-based pension should make sure there are adequate funds in their superfund to make the payments, but also be aware that they rise with age. For example, in the next financial year\u00a0a 74-year-old has to draw 5% of the balance by 30 June but once they turn 75 this rises to 6%.<\/span><\/p>\n

I\u2019m always surprised when people complain about having to withdraw so much money out of their super. There is no compulsion to spend it and withdrawals from superannuation to your bank account will not affect any age pension entitlements because they\u2019re both financial assets for the assets test and deemed for the income test. Furthermore, you can now contribute non-concessional contributions to superannuation up to age 75 provided your balance is not over $1.7 million. This will rise to $1.9 million after 30 June.<\/span><\/p>\n

Keep in mind you can\u2019t make contributions to an account in pension mode, but there\u2019s no problem opening an accumulation account within your existing superannuation fund. As always, take advice.<\/span>
\n\"Noel<\/span><\/p>\n\n\n\n
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Tightening the squeeze<\/span><\/h1>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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The quick growth in residential rents is making headlines every day. Of course, we keep hearing all sorts of ridiculous suggestions to solve the problem \u2013 think freezing rents.<\/span><\/p>\n

But the reality is that when you let in hundreds of thousands of immigrants, they need somewhere to live. To make it worse, there have been more and more rules passed that make investment property less attractive. In most states now a landlord can\u2019t refuse any reasonable request, and this could include having a pet or installing air conditioning.<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

\"Noel<\/span><\/p>\n

Then you\u2019ve got the ever-increasing costs of owning a rental property, and it\u2019s not just the interest rates. In Queensland the land tax thresholds have not been indexed for 15 years, and when property values go up, the land tax bill goes up with it.<\/span><\/p>\n

\"Noel<\/span><\/p>\n\n\n\n
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The ACT was the first state to embrace the concept of imposing a land tax on every residential property instead of stamp duty. They promised to phase out stamp duty over 20 years while simultaneously ramping up land tax. You can guess what has happened: they introduced land tax and kept the stamp duty.<\/span><\/p>\n

If a person has a property, they pay land tax, but if they convert that property to an investment property, they pay two lots of land tax. I hear the combined land taxes on a standard family home in a middle-class suburb can be up to $14,000 a year. That\u2019s a massive chunk out of the rental income.<\/span><\/p>\n

In the recent Victorian state budget they imposed higher rates of land tax with a lower threshold on businesses and investors, and those otherwise liable to land tax. The changes, proposed to commence from 1 January 2024, will also temporarily decrease the tax-free threshold for general land tax from $300,000 to $50,000.<\/span><\/p>\n

Those liable to pay land tax will incur the following additional amounts:<\/span><\/p>\n