Ups & Downs: Managing in uncertain times
How do you create certainty in uncertain times? The answer is that you can't: but that doesn't mean you can't take steps to ensure you can get through periods of unpredictable change.
Much of what we do to grow and protect our personal wealth – and commercially for businesses – is subject to things that are simply out of our control. So while you can't charge and protect against uncertainty, you can shift your perspective on how you view it.
The Australian economy is experiencing a great deal of change as the economy rebalance. The mining boom has passed and how the economy is recalibrating for the downturn.
So where are we actually at?
Government spending will continue to be front and centre this year, as interest on its debts is now running upwards of $1 billion per month, according to Treasury.
The Government has a handful of approaches to deal with the increasing debt load, such as initiatives to lift productivity growth to boost tax revenues, spending cuts and increased taxes – or a reduction in tax concessions. In 2016, this means for SMSF and business, you should keep this in mind when trying to manage change as Government policy is likely to create opportunities and risks in the short and long term.
Superannuation concessions are increasingly likely to be reduced as it seems they are a politically easy change to make, with more than 50% of people supporting them, and many clients are punting on the changes coming through by contributing early.
Australia's equity markets have taken a hefty pummelling in the last nine months, with a drop of almost 18% since April 2015.
In a volatile market, it's difficult to know what to do beyond the standard of advice of "don't panic". Most leading economists are predicting continued growth despite the markets being very easily spooked. It's at times like these that it's important to understand your individual position and the impact of likely changes on you, for example, investing vs paying down the mortgage; different investment types; SMSF vs retail funds and so on.
It's hard to hold your nerve against the reactions of the herd, however it's never a good idea to react with the crowd. If you're unsure about how your assets are performing or you need a different perspective on you're your position, contact your adviser about your options.
The past few Federal Budgets have introduced changes to social welfare, however most haven't made it through the Senate. That said, times have changed and Palmer United is no longer a Senate king-ping directing traffic on Government policy and social reform.
One of the few changes that have passed through Parliament is the 'no jab, no pay' reforms, which means that families whose children have not been immunised against common childhood diseases will not be eligible for subsidised childcare or the Family Tax Benefit Part A end of year supplement.
Other extensive reforms introduced pre-Christmas will change how families receive childcare subsidies: instead of receiving multiple subsidies, they will now receive just one, which will be income tested and activity tested. The reforms will not be in effect until 2017 (assuming they pass Parliament), however it's important to understand the change is coming.
In general, if you currently receive family tax benefits and your household income is getting towards the upper threshold limits, you should do a quick check and see if you can still cover your expenses if any benefit payments you currently receive were removed. Further reforms to refocus benefits on lower income families are likely.
Living outside of Australia?
From 1 January 2016, Family Tax Benefit A will be reduced for people outside of Australia. Families will only be able to receive FTB A for 6 weeks in a 12-month period while they are overseas.
Also, if you have a Higher Education Loan and live overseas for 6 months or more, from 1 January 2016 you will be required to make repayments of your HELP debt if your worldwide income exceeds the minimum repayment threshold at the same repayment rates as debtors in Australia.
Check your debt
Every so often it's important to review what you're spending money on and why. Debt is a big issue for Australian households and takes its forms in home loans, investments, credit cards etc. If you're carrying a lot of debt, it's almost a guaranteed that you're paying too much for it. Take stock of what you have, how much debt you're carrying and whether there's a better deal to be had.
Look at the trends and opportunities
There were recognisable indicators for each of these changes well before they had a direct impact on Australian businesses. Online retailing existed decades before denting bricks and mortar retail sales in any recognisable way, and as soon as faster internet speeds enabled quicker downloads the packaging and B2B sale of most electronic products became unnecessary.
Tech company Uber started in 2009, spreading exponentially around the world well before it launched in Australia in 2014. If anything, Uber proves that the foundation of any industry can be shaken dramatically in less than a few years.
In many cases, these 'disruptive' businesses offered something to consumers not reliably fulfilled by the existing market - efficiency, access, range, and importantly, greater consumer control not just acceptance of what is on offer.
As business operators, it's important to constantly assess the impact of trends on our current business and product range and work toward the 'what ifs'.
Trends also exist in Government policy and can have a positive or negative effect on your business. At present, the Government is firmly focussed on boosting business productivity and investment. There are a wide range of incentives to stimulate spending and the entrepreneurial spirit:
- Crowd funding – funding is difficult for entrepreneurial start-up businesses in Australia. New frameworks are currently being developed to formalise crowd and other funding sources to encourage investment opportunities beyond bank finance.
- Employee share schemes (ESS) – new rules introduced last year bolster the tax benefits for employees of ESSs and provide special concessions for start-ups. Further changes should follow shortly.
- Accelerated depreciation – small business and primary producers can access a range of concessions that enable them to offset expenses in the same year as the expense – rather than depreciating the expense over time.
- Tax relief for restructures - changes to be introduced this year should allow small business to change their business structure without the risk of triggering CGT and other income tax implications. So, it is a good time to check whether your structure is right for your long-term business plans.
There are few pundits that doubt that the current raft of concessions available to superannuation will change.
To lock in your access to the current concessions, you should focus on maximising the tax-free component of your superannuation. If you haven't already, come and see us to have a chat as there are different strategies that can be utilised depending on your situation.
SMSF and related party loans
The Australian Tax Office is looking closely at related party loans in SMSFs. What this means is that if your fund has borrowed money from a related party, such as a member of the fund, to acquire an asset and the terms of the loan are not at arm's length (or well documented), then it's time to get the paperwork and loan terms in order ASAP.
While the ATO have stated that they are not necessarily looking at arrangements before the 2014-15 income year (unless it comes up in audit), you can expect a much closer scrutiny from now on.
Super and Social Security
The social security income test tightened on 1 January 2016 for superannuants. If you receive defined benefit income from your superannuation, a larger portion of this income will now be taken into account when applying the relevant social security income tests - capping the proportion of income that can be excluded at 10%. This affects aged care fees, income support payments, the Low Income Health Care Card, etc.
Contact us on 02 9957 4033 to discuss any issues in this article.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.