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ECONOMICS POLITICS AND THE FUTURE

This weekend saw the political landscape change forever! Liberal seats fell like pins in a bowling alley, not by Labor Party candidates but by a tsunami of teal independents.  Even the Labor Party suffered at the hands of the Australian people’s disappointment, with the two major parties disconnected from their constituents and only winning just 31.8% of the primary vote! All said and done it looks like, the Prime Minister Elect, Mr. Anthony Albanese, will form a majority Labor government, the first in over a decade. The Labor government will come to power inheriting a Trillion AUD$  debt at a time that brings with it greater challenges than ever before both domestically as well as internationally. So what will the future hold for Australian business owners and the Australian People? Perhaps the following will help! Last week I had the benefit of listening to Paul Bloxham, chief spokesperson for HSBC on forecasts and trends for the Australian and New Zealand economies and their interaction with global financial markets and international economies. He is a key spokesperson for HSBC’s unique view on global commodity markets. Paul has a unique talent in simply explaining the vastly complex nature of global and domestic economies in such a way that anyone could understand him, but more importantly what he is saying. Here are the key points and takeaways I got from Paul’s presentation, as well as other economic commentators and my own observations and comments. OVERVIEW The global economy is likely heading into a global recession. The main attributes are: The impact on business and investor confidence of the Ukraine v Russia War and China’s continued push to establish and strengthen its military presence in the South China Sea and the South Pacific. Continued supply chain problems are set to get worse as major Chinese ports are locked down due to China’s ZERO COVID policy. In fact, 1,826 container vessels were waiting outside of ports worldwide which is 20 percent of all container vessels globally, and of those 506 vessels are waiting offshore at China’s ports which represent 27.7 percent of all the ships waiting outside of ports around the world. Much higher than anticipated inflation across all the major global economies. COVID and other factors caused a worldwide increase in demand for manufactured goods. Supply chain problems have caused a material drop in the availability of manufactured and other imported goods. Increased demand and decreased supply has driven prices up. In western economies, higher than expected inflation has, in turn, meant that the buying power of “wages” has not kept up with inflation creating a growing pressure for increased wages and adding further inflationary pressure. The central banks in all the major global economies are increasing interest rates as monetary policies are put in place to reign in inflation. Australia will follow US and UK with inflation and interest Due to increasing interest rates and an overall decrease in investor confidence the cost of property is expected to come off 10% – 15% over the next 18 to 24 months. Due to global economic uncertainty, there will be a move back to the more secure US $Dollar. A strengthening US$ will see the AUD$ drop with some predictions down to 1 AUD$ = 0.68cUS$ INFLATION Supply chain issues are growing, so supply costs will continue to go up. It is estimated that the cost of fuel will also continue going up to $2.70perLtr so transport costs are expected to increase by est 7% Inflation in the UK is running at 9%p.a. Inflation in the US is running at 8.5%p.a. Inflation in AUD is expected to reach 7%p.a. Woolworths is predicting the average food basket to increase by 25% over the next 12 months Inflation in AUD is expected to be 21% over the next 3 years Keep in mind that most commercial rentals have an annual increase fixed at a minimum rate (typically 3%) or CPI, which is the greater. Given the above-predicted inflation rate of 7% – 8%, we could see rents increase equally. INTEREST RATES Interest rates around the world will continue to rise because of inflation and world economic gloom. There are predictions of 14 to 15 interest rate rises predicted over the next 12 months by the Reserve Bank ranging from 5 to 50 basis points. Some predict Australian interest rates for home loans will rise to between 5% – 8% by December 2023 EMPLOYMENT Unemployment is tipped to be 3%, the lowest ever. This in turn is causing higher wages as employers scramble to secure new and keep existing employees , so Employment costs are expected to go up 4% to 5% annually over the next 3 years Already there is a current wage increase push by certain unions,  of circa 25% over a 3 year period WHAT TO DO NEXT Understanding the impact, the above economic circumstances will have on you, your business, your customers, and their customers. Increasing interest rates will result in reduced consumer spending as discretionary spending cash decreases Reduced demand, increased operating costs, higher rents, higher interest costs, etc will result in a growing number of people unable to pay their mortgages and a growing number of business failures What strategies policies and procedures will you put in place to secure your business’s continued profitability, continued cash flow, working capital, and minimise bad debts Over the next 3 to 5 years the main strategies you need to implement to stay ahead of the above predictions are: Whether you are heavily geared or not, pay down as much debt as you can as quickly as you can to reduce the financial impact of rising interest rates. Regularly increase your prices by small increments to pass on increasing costs If you cant increase your price then look at what else can you sell to your clients/customers can you increase the number of times they buy from you Reduce your own costs and/or increase the value you get from each dollar spent. Tighten up and Read More

Regional Grants & Funding offered by NSW Government

There are numerous Government Grants & Funding available to Businesses located in Regional NSW with many closing soon. Below is a list of grants currently available. Primary Industry Support Package (Opens soon) Property Assessment and Demolition (PAD) Program (Now open) Electric Vehicle Destination Charging Grants (Opens 23 May 2022) 2022 Flavours of NSW subsidy ($5,000 subsidy to exhibit at Fine Food Australia 2022, applications close 20 May) 2022 Annual Liquor Licence Fee Waiver (Lodge the application form by 23 September 2022) NSW Regional Business Event Development Fund (Closes 1 June 2022) Australian Renewable Energy Agency – various programs now available Boosting Female Founders Initiative Round 3 (Closes 2 June 2022) Tourism Grants for Indigenous Business (Closes 14 June 2022) Boosting Apprenticeship Commencements (Closes 30 June 2022) February and March 2022 Storm and Flood Disaster Recovery Small Business Grant (Open) Small Business Fees and Charges Rebate (Applications close 30 June 2022) SME Recovery Loan Scheme (Applications close 30 June 2022) Jobs Plus Program (Apply before 30 June 2022) Advanced Manufacturing Commercialisation Fund (Closes 30 June or when funding is fully allocated – you are urged to apply as soon as possible) Rural Landholder Grants (Open until 30 September 2022) Regional Events Acceleration Fund Round Two (Applications close: 4 October 2022) Fee-free Traineeships (Available until 31 December 2023) Farm Innovation Fund (Ongoing) Children and Young People Wellbeing Recovery Initiative (Various Grant categories) SafeWork Small Business Rebate (Ongoing – increased to $1,000) Minimum Viable Product Grants (Ongoing) Advancing Renewables (Open) Women in Business (Open) Assistance for Indigenous businesses (Open) Regional Skills Relocation Grant (Open) Wage Subsidies (Open) For further information or to discuss funding opportunities please contact the NNSW Government – Regional Business Development Managers.  Illawarra: (Wollongong/Kiama) Tony Dyer 0419 093 081 & (Wollongong/Shellharbour) Leanne Smith on 0428 881 598.  

What You Need to Know About 2022 Fringe Benefits Tax

On 31 March 2022, the Fringe Benefits Tax (FBT) year ends. With the ever increasing budget deficits as a result of COVID-19, the ATO will be reviewing whether all employers who should be paying FBT are paying it, and that they are paying the right amount. To help you meet your FBT obligations, we’ve put together a list of essentials every employer needs to know about FBT and review every year, such as: Should I be registered for FBT? Should you lodge a FBT Return even if no FBT is payable? Key things you MUST do on 31 March 2022 What is exempt from FBT? Are there any special COVID-19 exemptions with FBT? How can I reduce my FBT liability? These questions are all answered for you below. We also have a number of specially prepared FBT Factsheets that you can request from us to help you better understand your FBT obligations as a business owner. These questions are all answered for you below. We also have a number of specially prepared FBT Factsheets that you can request from us to help you better understand your FBT obligations as a business owner. SHOULD YOU BE REGISTERED FOR FBT? Generally, if you have employees (including Directors) and you provide them with cars, car parking, entertainment (food and drink), employee discounts, loans, or reimburse private expenses, then you are likely to be providing a fringe benefit and we will need to register your business for FBT. SHOULD YOU LODGE AN FBT RETURN EVEN IF NO FBT IS PAYABLE? Where no FBT is payable there is legally no need to lodge an FBT return, but should you lodge one anyway? Our strong recommendation to you is yes, you should lodge an FBT Return, even if no FBT is payable. This restricts the ATO’s audit window to only 3 years from the date of lodgement. Otherwise, the ATO is entitled to go back an unlimited number of years and audit your business and possibly find areas where they will charge you FBT and penalties. We have compiled an FBT Factsheet that outlines some of the simple points that the ATO will review if you are selected for audit – How the ATO identifies potential audits. We have also prepared an FBT Factsheet that outlines why an FBT return is a good idea even where no FBT is payable – Why should you lodge a return. KEY THINGS YOU MUST DO ON 31 MARCH 2022 Whilst we strongly recommend that you register for FBT and if applicable lodge a Nil FBT Return, if you decide not to there is still key information that we need you to record as at 31 March 2022.  We will then rely on this when we complete your 2022 annual Financial Statements. Here’s a summary of what you need to do: On 31 March 2022, when they have finished their travel for the day request your team each take a photo of their vehicle odometer readings using their phones and email it the photo to you, or to a nominated person in your business to collate them all for you. Having these vehicle odometer readings for all business vehicles is vital to us being able to examine ways your FBT can be reduced. Carefully manage the private use of business cars, including the travel between home and work. The ATO is conducting a data matching program aimed at motor vehicles to capture benefits that aren’t currently being reported through FBT. If you are selected for a review, the ATO will review your vehicle odometer readings and calculate the distance between your employee’s home and your office.  If significant variances are identified a full ATO audit may follow. Review all meal entertainment expenses provided to employees, associates and clients and prepare a register that outlines the following for every event: The total cost (GST inclusive) How many employees were present and their names How many employees’ associates were present and their names How many clients were present (names not needed) The nature of the event (dinner, lunch, coffee, drinks, etc.) WHAT ITEMS ARE EXEMPT FROM FBT? If you are providing items like mobile phones, laptops, tablets, portable printers, protective clothing, tools of trade etc, or minor and infrequent benefits that are less than $300 in value, you are unlikely to have to worry about FBT. The exemption only applies if the benefits are both minor and infrequent. To find out if you pass of these tests – please ask us to send you our Applying the Minor & Infrequent Benefits Exemptions factsheet. ARE THERE ANY SPECIAL COVID-19 EXEMPTIONS FOR FBT? You may provide your employees with benefits you do not usually provide because of COVID-19. This includes paying for items that allow your employees to work from home. Working from Home You may have provided employees with items to allow them to work from home (or from another location) due to COVID-19. Some items will usually be exempt from FBT if they are primarily used by your employees for work. The items include: laptops portable printers other electronic devices. Also, the minor benefits exemption or the otherwise deductible rule may apply if you: allow your employee to use a monitor, mouse or keyboard they otherwise use in the workplace, or provide them with stationery or computer consumables or pay for their phone and internet access. Protective Equipment You may need to pay FBT on items you give your employees to help protect them from contracting COVID-19 while at work. These include: gloves masks sanitisers anti-bacterial spray. However, these benefits are exempt from FBT under the emergency assistance exemption if you provide them to employees: who have physical contact with – or are in close proximity to – customers or clients while carrying out their duties, or are involved in cleaning premises. Examples of this type of work include: medical (such as doctors, nurses, dentists and allied health workers) cleaning airline hairdressing and beautician retail, café and restaurant. If your employees’ Read More

New ATO ruling on Trusts

Have a family trust? You could be affected by a new ATO ruling The Australian Tax Office (ATO) have just released four tax rulings that will stop commonly used trust distributions to related entities like family members. It’s one of the most significant developments for the taxation of trusts in over two decades. The key impact from these ATO rulings on your trust are: The ability to spread trust income across family members with a lower tax rates will be limited if not totally denied, consequently A family group’s overall tax payable will probably increase We need to let you know about this now, so that you can plan for the extra tax payments you may need to make. Consequently, if your trust is directly affected, we will be contacting you over the next two weeks as we recommend scheduling a meeting sooner than, and in addition to, your scheduled Interim Tax Planning Meeting in April/May. The purpose of this meeting will be to discuss how these new rules will affect you in this 2022 tax year, and in future years. The following explains in more detail the ATO rulings. Distributing income to adult children changes For many years, it has been common practice by all business owners and investors who use Family (Discretionary) Trusts to look to spread trust income across various family member beneficiaries. These trust distributions are often made to adult children for asset protection, estate planning purposes and tax reduction (adult children in a family may have lower tax rates than their parents, so the overall tax rate percentage for the family group is lower as a result of the spread of these trust distributions). This is about to get harder and more expensive. On the 23rd of February 2022, the ATO issued Taxpayer Alert TA 2022/ targeting parents benefitting from the trust entitlements of their children over 18 years of age, by treating any income if the main aim is to reduce tax, at 47%. This is a game changer. It states that the ATO believes that parents who make trust distributions to their adult children and then arrange for their children to give the distribution back to them are only doing this to reduce tax. The ATO plans to invalidate the trust distribution and tax the trustee of the trust at this 47% rate on the amount of the distribution. The ATO have stated that they can go back as far as the 2015 tax year to review trust distributions. Past distributions caught by these new rules will end up being taxed at 47%. In addition you will more than likely be hit with penalty tax between 50% – 200% of the tax avoided  plus interest charged on the above from the date the amended tax should have been paid. All in all it could be very expensive! A helping hand There are different levels of risk associated with different tax planning strategies that involve trust distributions, and the ATO has classified these risks as white, green, blue and red. We want to help you to understand how these ATO tax law changes affect you, discuss new strategies that you might be able to use, and estimate your tax payable for 2022 and 2023 so you can carefully plan for it. Our assistance will give you peace of mind that the way you are using your Trust, will satisfy the ATO and not draw audit attention to yourself. Our plan to help you Our recommendations are to: Review your current 2022 estimated taxable income for your entire family group, including any companies and trusts Provide you with an “Estimated Tax Payable” report with trust distributions, without breaching any of the new ATO rulings Meet with you to discuss your options under the new rules for distributions and your   2022 tax planning Please note that this is initial advice for your 2022 tax planning to advise you on the new ATO Tax Rulings and how they affect you. After the 2022 Federal Budget on 29 March 2022 and the Federal Election before June 2022, we believe we will need to give you further tax planning advice for 2022 to take advantage of further Government announcements. Next steps If you are impacted by these new rules we will contact you to book a time to discuss your response and plan moving forward. 02 4228 4877 Admin@Journey2.com.au  

Commercial Landlord Hardship Grant – Eligibility Criteria

The protections under the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the Regulation) for small retail and commercial tenants will be extended for an additional two months, until 13 March 2022. Grants of up to $3,000 per month (GST inclusive), per property, are available for eligible landlords who have provided rental relief waivers to affected tenants. Rent relief waived must comprise at least half of any rental reduction provided. The program is expanded in 2022 to landlords who claimed the 2021 land tax relief. The Regulation prohibits certain actions by landlords (such as lock out or eviction) unless they have first renegotiated rent with eligible tenants and attempted mediation. Eligibility To be eligible for relief on your 2021 land tax,  you’ll need to: be leasing property on your parcel of land to: a commercial tenant who has: an annual turnover of up to $50 million, and is eligible for the: Micro-business COVID-19 Support Grant 2021 COVID-19 NSW Business Grant and/or JobSaver scheme, or a residential tenant who has lost 25% or more of household income due to COVID-19. have reduced the rent of the affected tenant for any period between 1 July 2021 and 31 December 2021 have provided the rent reduction without any requirement for it to be paid back at a later date have a 2021 land tax liability attributable to the parcel of land where the rent reduction has been given. If you’re not eligible for land tax relief you can request an extended payment arrangement for your land tax if necessary. Note: You can still apply for this period of land tax relief, even if you applied for any of the previous relief periods, provided you meet all the eligibility requirements. For information on required documents see here To apply online go to the Service NSW website

Small business fees, charges and RAT rebate – Eligibility criteria

The rebate has been increased from $2,000 to $3,000. In addition, eligible employing small businesses will be able to use the rebate to cover half the cost of Rapid Antigen Tests (RATs). The funds can be used not only to offset the cost of RATs, but also other Government fees and charges such as food authority licences, liquor licences, tradesperson licences, event fees, outdoor seating fees, council rates and road user tolls for business use. Already registered businesses will receive an automatic top up of $1,000 and newly registering businesses will receive a rebate of $3,000. Eligibility Criteria To be eligible for this rebate, small businesses (including non-employing sole traders) and not-for-profit organisations must: have total Australian wages below the NSW Government 2020–21 payroll tax threshold of $1.2 million have an Australian Business Number (ABN) registered in NSW and/or have business premises physically located and operating in NSW. To apply online go to the Service NSW website 

Financial Safety Checklist

You can do these things to improve your financial life: Reduce Credit Card Debt Why this is important You get charged around 20% interest on credit card balances. Unpaid credit card balances are the fastest way to go backwards financially. What action you should take Focus on reducing your Credit Card balances to NIL before you do anything else, and then keep your spending down so you can repay your credit card balance each month. Separate Bank Accounts Why this is important It’s too hard to know where you are financially with just one bank account. Using 3 different accounts to keep your Bills money and your Cash Savings separate from your Everyday Account helps you tell at a glance what you can afford to spend each week What action you should take Set up new bank accounts so you have an Everyday Account, a Bills Account, and a Cash Savings Account Set up auto bank transfers Why this is important Pay yourself first! Have your bills and cash savings covered automatically – and then spend what’s left in your everyday account. So easy to keep on track by this one simply strategy What action you should take Set up auto transfers using internet banking to transfer a set % of your wages each week into your Bills Account and into your Cash Saving Account Create a cash reserve Why this is important Aim to create a cash reserve to last you for 3 months. Most income protection insurance takes 1 to 3 months to start up – so you’ll need a cash reserve if anything stops you working. What action you should take Set up a Cash Savings account separate to your everyday account. Try to put aside into this account 5% of your weekly pay and build up a 3 month cash reserve. Lower Home Loan Interest Rate Why this is important Your bank won’t offer you an interest rate reduction on your loan unless you ask for it. So… ask for it! This could save you thousands of $ each year. What action you should take Contact your bank and ask for a reduction in your home loan interest rate. Quote a lower comparative interest rate from another bank and tell your bank if they don’t match or better it you’ll consider switching your home loan to the other bank Be tax Effective Why this is important Many people pay tax they shouldn’t have to. Being smart about where you keep your cash savings can reduce your overall family tax payable What action you should take Move your family savings into either a home loan offset account (you won’t be taxed on interest received) or into the name of a lower taxed spouse/partner to reduce your tax. Find your important documents Why this is important In an emergency, can you or your spouse/partner or trusted family members find your important legal documents? Where are the originals stored? Who has copies? What action you should take Know where all your original important documents are, including your Will, Enduring Power of Attorney, Advance Health Directive, etc. Plus: Scan and send a copy of these documents to your Accountant The Journey2 Team can assist you (along with our referral partners) with the following tips to improve your financial life: Keep Your Family Wealth in Your “Bloodline” Why this is important If your kids are married / in a relationship and it ends, any family wealth they inherit from you may end up going to another family and your kids miss out. We can help to set up a structure that keeps your family wealth in your family “bloodline” and protects everything you’ve worked so hard for. What action you should take Meet with us and our recommended Estate Planning Lawyer to discuss your options for your unique family circumstances. We will then prepare a Letter of Advice for you which includes your options, diagrams, actions and prices to protect your family wealth Set up Successor Directors for your Companies Why this is important If you die or are incapacitated – without the right documents in place your single director company can’t operate, and your family’s position in a multi director company may not be properly represented. What action you should take Request us to prepare a “Successor Director” pack of documents for you to sign now to nominate your successor director to take your place, if required. Protect your Family Home Equity Why this is important You’ve built up equity in your home – now it’s time to protect it using a “Family Protection Trust”. This can be done without triggering stamp duty and Capital Gains Tax. What action you should take Request a Letter of Advice from us to explain how the equity in your family home (and other investment properties) can be given the maximum protection available. Update Your Will Why this is important If you die without a Will – the Public Trustee will charge your estate (could be up to 5%) and your wealth may not go where you want it to. What action you should take Request us to facilitate the preparation of a new Will for you with our recommended Estate Planning Lawyers. Update your Enduring Power of Attorney Why this is important If you are unconscious or incapacitated and cannot make decisions – you need someone who can make financial decisions on your behalf. What action you should take Request us to facilitate the preparation of a new Enduring Power of Attorney for you with our recommended Estate Planning Lawyers. Update your Advance Health Directive Why this is important If you are unconscious or incapacitated and cannot make decisions – you need someone who can make financial decisions on your behalf. What action you should take Request us to facilitate the preparation of a new Advance Health Directive for you with our recommended Estate Planning Lawyers. Debt Reduction + Recycling Why this is important This allows you to focus on reducing your Read More

Scam Awareness week

Australians have lost over $192 million dollars to scams during the last year. This is an increase of 95.4% from last year.  This scam awareness week the ACCC is encouraging Australians to talk about scams with their family and friends to raise awareness. How to identify a scam Someone asks your for personal information, like your bank details or passwords, or access to your computer. Someone you’ve never met in person asks you for money or asks you to give them money by unusual payment methods such as gift cards, wire transfers, or cryptocurrencies. Something sounds too good to be true, like an online shopping deal, a competition you’ve won, an unclaimed inheritance, or being invited to invest in an ‘amazing’ opportunity. Someone threatens you with immediate arrest or deportation unless you transfer money. New scams are constantly emerging, and scammers are becoming increasingly sophisticated. Our growing reliance on technology has provided them with further opportunities to convince people into giving away their information. Keep yourself informed by visiting scamwatch.gov.au

Government moves on Budget Changes

The Federal Government announced a number of proposed changes to super and SMSFs in this year’s Federal Budget (2021-22). Many of these were lauded as positive for superannuation – expanding contribution opportunities, along with addressing long overdue SMSF issues with legacy pensions and the inequities in the existing residency rules. There was some thought that the introduction of these changes would be deferred until after the Federal election in the first half of next year. However, the Federal Government introduced Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021 into Parliament on 27 October 2021. The Bill includes the following measures: Measure Removing the $450 SG threshold for an employee earning salary and wages. Details The measure will start from 1 July 2022, unless Royal Assent is received after this date, where it will apply from the beginning of the following quarter. Measure Increasing the amount eligible to be released from the First Home Saver Super Scheme (FHSSS) from $30,000 to $50,000. Details This measure will apply to requests made after 1 July 2022 for the Commissioner to make a FHSSS determination.  No change applies to the limit on voluntary concessional and non-concessional contribution in any one financial year that can be released (being $15,000). Measure Reduces the eligible age from 65 to 60 years for an individual to make a downsizer contribution from the proceeds of the sale of their home. Details This measure will apply to downsizer contributions made on or after 1 July 2022.  All other existing qualifying conditions remain to be eligible to make the downsizer contribution. Measure Repeals the ‘work test’ for individuals 67 – 75 years of age for non-concessional contributions (incl. bring forward rule) or salary sacrifice contributions, subject to existing contribution caps. Details Work test will continue to apply to personal deductible contributions.  Shift in application of the ‘work test’ from SIS Regulations to ITAA 1997 for purposes of claiming a tax deduction on personal contributions.  Bring forward rule extended from 67 to 74 years of age, however will be transitioned out as individuals reach age 75 where ordinarily a member in ineligible to make further non-concessional contributions. Measure Provides ‘choice’ in respect to determining ECPI for an income year where a fund has both segregated and unsegregated periods during an income year. Details This measure will apply to the 2021-22 income year and later income years.  The default position will be the current law when the trustee does not make a ‘choice’ – i.e. using the segregated method where the fund is fully in retirement phase for periods of the year. This election will occur before submission of the SMSF Annual Return and is not a formal election (i.e. does not require any ATO submission). There are two budget announcements that impact SMSFs that do not form part of this Bill – these are: Legacy pension conversions – allowing for the conversion of defined benefit pensions and market linked pensions to account based pensions and/or accumulation, within the confines of the member’s transfer balance cap. Changes of the residency rules for SMSFs – removal of active member test and changes to the safe harbour from 2 to 5 years where the absence is temporary.

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