Against a backdrop of ongoing uncertainty, it’s easy to forget the end of financial year (EOFY) is fast approaching. And with the stark reality of a global recession now upon us, it’s a good idea for taxpayers to brush up on any pending changes that could generate much-needed income.
Notwithstanding the COVID-19 global pandemic, the couple of months leading into EOFY are traditionally spent assessing new taxation and superannuation laws and tweaking financial strategies accordingly.
This year, people have a focus on the impact the coronavirus has had, and continues to have, on their investments. But just because the environment is different, it’s equally — if not more — important to look at a financial strategy holistically and take advantage of any forthcoming changes.
WFH: The new deduction focus
With a large proportion of Australian taxpayers working from home amid lockdown restrictions, it will be important to look at the associated running costs of a home office and what can and can’t be claimed.
While the Australian Taxation Office (ATO) simplified the deduction methodology for running costs, it nonetheless remains easy to miscalculate. For example, many will mistakenly calculate a typical full-time working week as 40 hours over 10 weeks, equalling 400 hours; however, this doesn’t account for leave loading or long weekends.
People working from home will be able to claim a deduction for the additional running expenses incurred, including electricity expenses associated with heating; cooling and lighting the area from which you are working; cleaning costs for a dedicated work area; phone and internet expenses; computer consumables (for example, printer paper and ink) and stationery; and home office equipment, including computers, printers, phones, furniture and furnishings.
Interest prepayment
Advisers and accountants also need to look at prepaying interest on investment loans if clients are in a position to do so. Financial institutions and lenders are affording people a “repayment holiday” where they don’t need to pay anything for a particular amount of time. With interest rates now at the lowest we’re ever likely to see, prepaying interest should, in the very least, be a consideration, along with finding the right balance with cash-flow needs.
Early access to super
Taxpayers looking to access their super early due to financial hardship stemming from the pandemic will need to apply to the ATO this financial year and will not be able to apply in July for the previous financial year.
If required for next financial year, it needs to be done in the first three months of next financial year — July, August or September. But it is important for advisers to educate clients appropriately, and together determine whether they really need to access that $10,000 or if there’s an alternative income stream available. In most instances, it should be seen as a last resort.
Super changes from 1 July 2020
From 1 July 2020, Australians under the age of 67 will be eligible to make voluntary super contributions without needing to meet the “work test”. Currently, the work test, which required 40 hours of gainful employment within a 30 consecutive-day period in the financial year, applies to a contributor once they reach age 65.
While this increased ability to contribute doesn’t start until next financial year, it can have an impact on planning this year, particularly with the legislation currently before Parliament to extend the bring-forward contribution opportunity (allowing a single contribution of up to $300,000) through to the year a person turns 67.
Even though not law, at the time of writing (anticipated to pass Parliament in June 2020), triggering the bring-forward for someone turning 65 this financial year will mean the loss of future years of contributions without the need to satisfy the work test.
Also, since 1 July 2019, additional contribution eligibility criteria allow someone who has not been gainfully employed, either full-time or part-time, to still make a voluntary super contribution where all of the following requirements are satisfied:
Once used, the work test exemption opportunity cannot be used in a subsequent financial year. However, if you do qualify to use it, but choose not to contribute in that particular year, it may remain available for another year.
Ultimately, it’s critically important for clients to maintain contact with their financial adviser during this time, as they can provide any necessary assurance on changes as outlined. Having consistent and direct, two-way communication between the adviser and client will go some way in providing comfort at a time when people are justifiably concerned about their current income level and retirement savings.
The ability for advisers to distil complex information and concepts to clients, and construct appropriate financial strategies accordingly, will underpin the true value of advice during such unique and challenging times.
Bryan Ashenden, head of financial literacy and advocacy, BT
Get breaking news
Login
iscover
Newsletter
You are not authorised to post comments.
Comments will undergo moderation before they get published.