Financial Planning

June 25, 2021

admin In Economy, Financial Advice, Financial Planning, Investments, Latest Updates, Money

Bonds, inflation and your investments

The recent sharp rise in bond rates may not be a big topic of conversation around the Sunday barbecue, but it has set pulses racing on financial markets amid talk of inflation and what that might mean for investors.

US 10-year government bond yields touched 1.61 per cent in early March after starting the year at 0.9 per cent.ⁱ Australian 10-year bonds followed suit, jumping from 0.97 per cent at the start of the year to a recent high of 1.81 per cent.ⁱⁱ

That may not seem like much, but to bond watchers it’s significant. Rates have since settled a little lower, but the market is still jittery.

Why are bond yields rising?

Bond yields have been rising due to concerns that global economic growth, and inflation, may bounce back faster and higher than previously expected.

While a return to more ‘normal’ business activity after the pandemic is a good thing, there are fears that massive government stimulus and central bank bond-buying programs may reinflate national economies too quickly.

The risk of inflation

Despite short-term interest rates languishing close to zero, a sharp rise in long-term interest rates indicates investors are readjusting their expectations of future inflation. Australia’s inflation rate currently sits at 0.9 per cent, half the long bond yield.

To quash inflation fears, Reserve Bank of Australia (RBA) Governor Philip Lowe recently repeated his intention to keep interest rates low until 2024. The RBA cut official rates to a record low of 0.1 per cent last year and launched a $200 billion program to buy government bonds with the aim of keeping yields on these bonds at record lows.ⁱⁱⁱ

Governor Lowe said inflation (currently 0.9 per cent) would not be anywhere near the RBA’s target of between 2 and 3 per cent until annual wages growth rises above 3 per cent from 1.4 per cent now. This would require unemployment to fall closer to 4 per cent from the current 6.4 per cent.

In other words, there’s some arm wrestling going on between central banks and the market over whose view of inflation and interest rates will prevail, with no clear winner.

What does this mean for investors?

Bond prices have been falling because investors are concerned that rising inflation will erode the value of the yields on their existing bond holdings, so they sell.

For income investors, falling bond prices could mean capital losses as the value of their existing bond holdings is eroded by rising rates, but healthier income in future.

The prospect of higher interest rates also has implications for other investments.

Shares shaken but not stirred

In recent years, low-interest rates have sent investors flocking to shares for their dividend yields and capital growth. In 2020, US shares led the charge with the tech-heavy Nasdaq index up 43.6%.^iv

It’s these high growth stocks that are most sensitive to rate change. As the debate over inflation raged, the so-called FAANG stocks – Facebook, Amazon, Apple, Netflix and Google – fell nearly 17 per cent from mid to late February and remain volatile.^v

That doesn’t mean all shares are vulnerable. Instead, market analysts expect a shift to ‘value’ stocks. These include traditional industrial companies and banks which were sold off during the pandemic but stand to gain from economic recovery.

Property market resilient

Against expectations, the Australian residential property market has also performed strongly despite the pandemic, fuelled by low-interest rates.

National housing values rose 4 per cent in the year to February, while total returns including rental yields rose 7.6 per cent. But averages hide a patchy performance, with Darwin leading the pack (up 13.8 per cent) and Melbourne dragging up the rear (down 1.3 per cent).^vi

There are concerns that ultra-low interest rates risk fuelling a house price bubble and worsening housing affordability. In answer to these fears, Governor Lowe said he was prepared to tighten lending standards quickly if the market gets out of hand.

Only time will tell who wins the tussle between those who think inflation is a threat and those who think it’s under control. As always, patient investors with a well-diversified portfolio are best placed to weather any short-term market fluctuations.

If you would like to discuss your overall investment strategy, please reach out to the Sherlock Wealth team here to help look at what’s right for you.

i Trading economics, viewed 11 March 2021, https://tradingeconomics.com/united-states/government-bond-yield

ii Trading economics, viewed 11 March 2021, https://tradingeconomics.com/australia/government-bond-yield

iii https://www.reuters.com/article/us-oecd-economy-idUSKBN2B112G

iv https://www.smh.com.au/politics/federal/growth-prospects-for-australia-and-world-upgraded-by-oecd-20210309-p57973.html

v https://rba.gov.au/speeches/2021/sp-gov-2021-03-10.html

vi https://www.washingtonpost.com/business/2020/12/31/stock-market-record-2020/

vii https://www.corelogic.com.au/sites/default/files/2021-03/210301_CoreLogic_HVI.pdf

June 23, 2021

admin In Financial Advice, Financial Planning, Latest Updates, Money

How to bounce back from the pink recession

While all Australians have been affected in some way by the global pandemic, women have borne the brunt of its impacts. Here are why – and some tips of what women can do to recover financially.

June 17, 2021

admin In Financial Advice, Financial Planning, Latest Updates, Money, Superannuation, Tax

Salary packaging – worth the sacrifice

The principle of ‘salary sacrificing’ may not sound very appealing. After all, who in their right mind would voluntarily give up their hard-earned cash. But it can have real financial benefits for some in terms of reducing your taxable income, which could see you pay less at tax time.

As we nudge ever closer to the end of the financial year, it’s worth taking a look at salary sacrificing to see if it’s a worthwhile strategy to put into place for you.

A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. In essence, a salary sacrifice arrangement is when you agree to receive less income before tax, in return for your employer providing you with benefits of similar value. You’re basically using your pre-tax salary to buy something you would normally purchase with your after-tax pay.

How does salary sacrifice work?

The main benefit of salary sacrificing is that it reduces your pre-tax income, and therefore the amount of tax you must pay. For example, if you’re on a $100,000 income, you may agree to only receive $75,000 as income in return for a $25,000 car as a benefit.

Doing this would reduce your taxable income to $75,000 which could lower your tax bill because you’re essentially earning less as far as the tax office is concerned.^*

This arrangement must be set up in advance with your employer before you commence the work that you’ll be paid for and it’s advisable that the details of the agreement are outlined in writing.

What can you salary sacrifice?

According to the Australian Tax Office (ATO), there’s no restriction on the types of benefits you can sacrifice, as long as the benefits form part of your remuneration. What you can salary sacrifice may also depend on what your employer offers.

The types of benefits provided in a salary sacrifice arrangement include fringe benefits, exempt benefits and superannuation.

Fringe benefits can include:

cars
property (including goods, real property like land and buildings, shares or bonds)
expense payments (loan repayments, school fees, childcare costs, home phone costs)

Your employer pays fringe benefit tax (FBT) on these benefits.

Exempt benefits include work-related items such as:

portable electronic devices and computer software
protective clothing
tools of the trade

Your employer typically does not have to pay fringe benefits tax on these.

Superannuation

You can also ask your employer to pay part of your pre-tax salary into your superannuation account. This is on top of the contributions your employer is already paying you under the Superannuation Guarantee, which should be no less than 9.5% of your gross (before tax) annual salary, though this may rise in the near future.

Salary sacrificed super contributions are classified as employer super contributions rather than employee contributions. These contributions are called concessional contributions and are taxed at 15 per cent. For most people, this will be lower than their marginal tax rate.

There is a limit as to how much extra you can contribute to your super per year at the 15 per cent tax rate. The combined total of your employer and any salary sacrificed concessional contributions cannot exceed $25,000 in a single financial year. If you exceed the cap, you could be charged additional tax on any excess salary sacrifice contributions.

Most employers allow employees to salary sacrifice in super, but not all employers will allow salary sacrificing for other benefits.

Is salary sacrifice worth it?

Salary sacrifice is generally most effective for middle to high-income earners, while there is little to no tax saving for people who are already in a low tax bracket.

If you are a middle to high-income earner, then it may be worth considering salary sacrifice to reduce your taxable income and to take advantage of some of those benefits.

Before you do, make sure you talk to us so we can help ensure it is an appropriate strategy for your circumstances.

^*Note: This example illustrates how salary sacrifice arrangements can work and does not constitute advice. You should not act solely on the information in this example.

Source for all information in this article: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Salary-sacrifice-arrangements/

June 4, 2021

admin In Financial Advice, Financial Planning, Retirement, Superannuation

Making life easier for retirees

Halving of pension minimums for FY2022

On the 29th of May, the federal government announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year to 30 June 2022.

Age	Reduced percentage factor for 2019/20, 2020/21 and 2021/22	Normal percentage factor
Under 65	2%	4%
65–74	2.50%	5%
75–79	3%	6%
80–84	3.50%	7%
85–89	4.50%	9%
90–94	5.50%	11%
95 or more	7%	14%

The government says their aim is to make life easier for retirees by giving them more flexibility and choice in their retirement. This extension builds on the additional flexibility announced in the 2021-22 Budget.

There is no action that needs to be taken until the new financial year.

For existing clients, we will be reaching out to those of you affected by this change. In the meantime, if you wish to discuss please do not hesitate to contact us.

May 6, 2021

admin In Divorce, Financial Advice, Financial Planning, Investments, Self Managed Superannuation, Superannuation

Making a super split

Separation and divorce can be a challenging time, often made all the more difficult when you have to divide your assets. So how do you go about decoupling your superannuation?

In years gone by, superannuation was not treated as matrimonial property, so divorce settlements typically saw the woman keeping the house as she generally had the children and the man keeping his super. In a sense, neither party won. She ended up with a house but no money for her retirement while he had nowhere to live but money for his later years.

To remedy this situation, since 2002 super can be included when valuing a couple’s combined assets for a divorce settlement. After all, these days super is probably your second largest asset after your family home.

While super is counted in the calculation of the total property, that does not mean it is mandatory to split the super – the choice is yours.

Unlike the early 2000s, both partners are likely to have superannuation these days although traditionally women will still tend to have lower balances.ⁱ On average, women retire with just over half the super balance of men and 23 per cent of women retire with no super at all.

As a result, many divorcing couples may end up splitting super along with their other property.

How to split your super

If you decide to split your super, then you have three avenues, but keep in mind that all require legal advice.

The three ways to split your super are:

A formal written agreement that both you and your partner instruct a lawyer stating you have sought independent advice,
A consent order, or
A court order.

A court order is the last resort if you can’t agree on a property settlement.

You can split your super as you choose both in terms of the amount and the timing. You can split it as a percentage or as an agreed figure and you can choose to split it immediately or at some time in the future. Much will depend on each of your life stages.

But whatever you decide, you MUST comply with the superannuation laws. Money received from your partner’s super must be kept in super unless you satisfy a condition of release. You also need to be mindful of taxable and non-taxable components and divide them equally.

How does it work?

Say the superannuation balances of a couple is $500,000 with John having $400,000 and Susie $100,000. If the property settlement on divorce was decided as a straight 50:50 split and it included the super, then John would need to give $150,000 of his super to Susie.

Susie would nominate a fund and the money would be transferred.

If you have a binding financial agreement or a court order, this transfer of assets from one fund to another will not trigger a CGT event. But if you don’t have such an agreement, then John would trigger a CGT event on the $150,000 he transferred. Susie, meanwhile, would have the advantage of resetting the cost base on her received $150,000. So, a win for Susie, but not for John.

If John happened to be in the pension phase but Susie was still too young, the money that is transferred from his super to Susie will be treated according to his situation. As a result, Susie would be able to access the money before she reached preservation age.

What about SMSFs?

If you have a self-managed super fund, the situation could get a little more complicated as you have to deal with the issue of trusteeship.

If there are only two members/trustees in the fund and Susie chose to leave, then John would either have to find a new trustee within six months or change to a corporate trustee where he could be the sole director.

Assets within an SMSF can also prove an issue, particularly if a sizeable proportion of the fund was tied up in a single asset such as commercial premises. How easy would it be to sell the premises? What if the property was John’s business premises and the means by which John was in a position to pay Susie child support? These are questions that need addressing.

If you are in the process of divorce or considering it, please reach out to the Sherlock Wealth team here to help you plan your finances before and after the event.

i https://www.afr.com/companies/financial-services/women-less-than-equal-in-retirement-20201203-p56khb#

April 22, 2021

admin In Financial Advice, Financial Planning, Self Managed Superannuation

Should you include your children in your SMSF?

Almost anyone can set up an SMSF together. SMSF’s can have up to four members. There is a proposal to increase this to six but at the time of writing this legislation has not passed.

Usually, members are all in the same family, although it is possible to set up an SMSF with other people.

So is it a good idea to add your adult children to your fund? Here are a few thoughts that might help you decide.

The benefits of adding your children to your SMSF

Larger investment pool and greater diversity

By adding your children to your SMSF you increase the amount you can invest. This means that you can diversify the SMSF portfolio even more, potentially including assets that typically have a higher minimum investment level such as property.

Passing down assets may be easier

Rigorous estate planning is essential for any SMSF, but with a careful strategy, adding your children to your fund could help pass down wealth smoothly. Their understanding of money management may also be improved by having oversight of your finances from an early stage.

Lower costs

By adding more people to your super fund, you may be able to reduce the average running costs of the account and avoid paying multiple fees.

Potential downsides of adding your children to your SMSF

Differing priorities

It could be difficult to figure out exactly how to structure your SMSF since the investment horizon, strategies and risk appetite could differ quite dramatically between you and your children.

Family dynamics

Before you get wrapped up in each other’s finances, it’s important that you have a clear, open and trusted relationship with your children and their partners. Have a transparent conversation about what being part of the SMSF means, and make sure they know what is expected of them when it comes to decision-making and the practicalities of tax time.

To understand what the right structure is for you and your family, please reach out to the Sherlock Wealth team to discuss your unique situation here

Any advice is general in nature only and has been prepared without considering your needs, objectives or financial situation. Before acting on it you should consider its appropriateness for you, having regard to those factors

Source: TAL

April 6, 2021

admin In Financial Advice, Financial Planning, Investments, Self Managed Superannuation

Is an SMSF right for you?

As anyone who has joined the weekend crowd at Bunnings knows, Australians love to DIY. And that same can-do spirit helps explain why 1.1 million Aussies choose to take control of their retirement savings with a self-managed superannuation fund (SMSF).

As well as control, investment choice is a key reason for having an SMSF. As an example, these are the only type of super fund that allow you to invest in direct property, including your small business premises.

Other reasons people give are dissatisfaction with their existing fund, more flexibility to manage tax and greater flexibility in estate planning.

What type of person has an SMSF?

If you think SMSFs are only for wealthy older folk, think again.

The average age of people establishing an SMSF is currently between 35 and 44. They’re also dedicated. The majority of SMSF trustees say they spend 1 to 5 hours a month monitoring their fund.^i,ii

But an SMSF is not for everyone. There has been ongoing debate about how much you need in your fund to make it cost-effective and whether the returns are competitive with mainstream super funds.

So is an SMSF right for you? Here are some things to consider.

The cost of control

Running an SMSF comes with the responsibility to comply with superannuation regulations, which costs time and money.

There are set-up costs and ongoing administration and investment costs. These vary enormously depending on whether you do a lot of the administration and investment yourself or outsource to professionals.

A recent survey by Rice Warner of more than 100,000 SMSFs found that annual compliance costs ranged from $1,189 to $2,738. These are underlying costs that can’t be avoided, such as the annual ASIC fee, ATO supervisory levy, audit fee, financial statement and tax return.ⁱⁱⁱ

If trustees decide they don’t want any involvement in the administration of their fund, the cost of full administration ranges from $1,514 to $3,359.

There is an even wider range of ongoing investment fees, depending on the type of investments you hold. Fees tend to be highest for funds with investment property because of the higher management, accounting and auditing costs.

By comparison, the same report estimated annual fees for industry funds range from $445 to $6,861 for one member and $505 to $7,055 for two members. Fees for retail funds were similar. Fees for SMSFs are the same whether the fund has one or two members.

Size matters

As a general principle, the higher your SMSF account balance, the more cost-effective it is to run.

According to the Rice Warner survey:

Funds with $200,000 or more in assets are cost-competitive with both industry and retail super funds, even if they fully outsource their administration.
Funds with a balance of $100,000 to $200,000 may be competitive if they use one of the cheaper service providers or do some of the administration themselves.
Funds with $500,000 or more are generally the cheapest alternative.

Returns also tend to be better for funds with more than $500,000 in assets.

Even though SMSFs with a balance of under $100,000 are more expensive than industry or retail funds, they may be appropriate if you expect your balance to grow to a competitive size fairly soon.

Increased responsibility

While SMSFs offer more control, that doesn’t mean you can do as you like. Every member of your fund has legal responsibility for ensuring it complies with all the relevant rules and regulations, even if you outsource some functions.

SMSFs are regulated by the ATO which monitors the sector with an eagle eye and hands out penalties for rule breakers. And there are lots of rules.

The most important rule is the sole purpose test, which dictates that you must run your fund with the sole purpose of providing retirement benefits for members. Fund assets must be kept separate from your personal assets and you can’t just dip into your retirement savings early when you’re short of cash.

Don’t overlook insurance

If you considering rolling the balance of an existing super fund into an SMSF, it could mean losing your life insurance cover. To ensure you are not left with inadequate insurance you may need to arrange new policies.

If you would like to discuss your superannuation options and whether an SMSF may be suitable for you, please reach out to the Sherlock Wealth team to discuss your unique situation here

i https://www.smsfassociation.com/media-release/survey-sheds-new-insights-on-why-individuals-set-up-smsfs?at_context=50383

ii https://www.smsfassociation.com/media-release/survey-sheds-new-insights-on-why-individuals-set-up-smsfs?at_context=50383

iii https://www.ricewarner.com/wp-content/uploads/2020/11/Cost-of-Operating-SMSFs-2020_23.11.20.pdf

March 11, 2021

admin In Financial Advice, Financial Planning, Latest Updates, Lifestyle, Money, Retirement

How much do I need for retirement?

How much do you need to save to make sure you have enough to last throughout retirement? It very much depends on what your living costs will be after leaving work. Find out more about how to budget for the retirement income you’ll need for the lifestyle you’re planning for.

When you plan to retire will often be determined by whether you can afford to stop working and still have enough income to maintain your lifestyle. Figures from the Australian Bureau of Statistics [1] show the majority of men (36%) and women (22%) chose to retire at the time when they became eligible to draw on their superannuation and/or the age pension. And their average age at retirement was 63.5 years.

If you’re planning to delay retirement until your super balance reaches an amount you can comfortably live on, just how do you determine what that target should be? There are a number of factors that will affect how far your money will go, including your life expectancy, how your money is invested and other choices you make for managing your income. But one of the most important steps to planning for a secure financial future in retirement is to be realistic about your living costs.

How your living costs might change

As you stop working and have more time to yourself, your routine will change and you might save on some costs as a result. Spending on transport could fall as you no longer have to commute. If buying lunch and takeaway coffees have been a daily habit while working, you could also make significant savings by leaving these out of your retirement routine. Other living expenses, such as buying groceries and clothes and paying household bills are likely to be much the same before and after retirement.

Thinking about how you’ll spend time in retirement and where you’re planning to live will also give you clues about how your spending might go up or down. If a few trips overseas are on the cards, you’ll need to allow for these occasional costs in your overall budget. But if you’re planning to limit travel to domestic holidays only, then you won’t need to allow for these expenses in your financial plan.

Start with a ballpark estimate

How much travel you plan to be doing is just one of the many daily and one-off costs taken into account in the Retirement Standard estimates for annual expenses. Updated every quarter by the Association of Superannuation Funds of Australia (ASFA), these figures can give you a rough idea of what you can expect to be spending day-to-day in retirement.

There are two estimates available, a higher one for a comfortable lifestyle and a lower amount for a modest lifestyle. As at December 2018, the amount you’d spend as a single person aged around 65 years enjoying a comfortable lifestyle is $43,317 and for a modest lifestyle, the annual budget is $27,648. The estimate for couples is $60,977 and $39,775 for comfortable and modest lifestyles respectively.

To give you an idea of how differences between a modest and comfortable budget might impact on your retirement plans, the annual travel budget is a good place to start. A couple living modestly can expect to spend approximately $2,500, with no allowance for overseas trips. On a comfortable budget, a couple can splash out more than $5,000 each year on travel, with roughly a third going towards international travel.

The cost of lifestyle changes

Although it’s wise to build a budget based on what you expect to be doing in early retirement, your overall plan should also take into account the potential for lifestyle changes as you age. Travelling for longer periods, dining out and entertainment and taking part in sports and hobbies could taper off as you grow older. Health and aged care costs, on the other hand, could make up a larger share of your budget in the later years of retirement.

A plan to see you through retirement

Your expenses are just one side of the whole budget planning process. Taking a good look at all your retirement income options is just as important to figure out how much you’ll need and when you’ll be ready to take that step. From the age pension to the equity in your home to retirement income products such as annuities and account-based pensions, there are all sorts of ways to support yourself financially towards having the lifestyle you want.

The Sherlock Wealth Team can support you in exploring these opportunities to manage your income for your whole retirement so you can make better choices for a secure financial future. Reach out to the Sherlock Wealth team to discuss your unique situation here

Source: Money and Life
(Financial Planning Association of Australia)

October 11, 2020

admin In Financial Advice, Financial Planning, Latest Updates

The Value of Financial Advice

Do the benefits really outweigh the costs?

The value of financial advice goes beyond dollars and cents – it can simplify your life and give you a sense of security and peace of mind about your current and future financial position.

A professional financial adviser can thoroughly consider your circumstances, and then develop strategies to help you reach your goals. These may include funding your children’s education, helping with tax planning, having enough money to live comfortably after retiring, insurance, estate planning and so on, all of which requires specific knowledge and experience.

You may seek financial advice to help you with a specific circumstance, such as starting a family, buying a house or managing an inheritance; a good planner can empower you to make the most of these situations.

These benefits are supported by recent US-based research. A 2013 study from US investment research giant Morningstar found that financial advice can help retirees boost their investment returns by 1.59% a year, reducing the risk of running out of cash.

This Research shows financial advice is not only good for your finances, it can make you happier and more confident too.

Research shows professional financial advice can help give you greater peace of mind.
Your financial adviser is there to help you reach all of your retirement lifestyle goals, not just look after your investments.
Professional advice can help you confidently navigate each stage of retirement while managing the complexities of constantly changing rules.

Researchers have also shown that people who receive professional financial advice feel happier, are more confident, less stressed and more in control.

That’s because financial advice is about much more than money. Your financial adviser is there to help you reach your goals at every stage of your life while taking care of all the things you may not have thought of — from the complexities of superannuation and Centrelink rules to tax planning and healthcare costs.

So if you haven’t spoken to your adviser lately it’s worth getting in touch with them to make sure you’re making the most of all the benefits that their professional financial advice can bring.

Australians have one of the highest life expectancies in the world, so we’re spending longer in retirement. Over time, our needs are likely to change dramatically.

Financial advisers can play a vital role in helping clients navigate each stage of retirement — from the active, early years spent travelling and pursuing hobbies, to the later, more sedate years with possible health and mobility challenges. By taking care of critical issues ahead of time and monitoring the situation on an ongoing basis, advisers help ensure their clients and their families are protected, whatever the future holds.

Because financial advice is all about creating a personalised plan designed for your individual needs, the cost of your advice will depend on your circumstances. However, your adviser is obliged to clearly outline all of the costs upfront, then get your written approval before going ahead, so you will know exactly what each service will cost ahead of time. Some of the fees you may be charged include a statement of advice fee, an implementation fee and ongoing advice fees.

So, if you’re weighing up the costs and benefits when it comes to securing your financial future — and your peace of mind — meeting with an adviser could be one of the best investments you ever make.

Why not schedule a meeting with a Financial Adviser today?

Reach out to the Sherlock Wealth team to discuss your unique situation here.

Disclaimer

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication. You should read the Product Disclosure Statement (PDS) before making a decision about a product.

August 24, 2020

admin In Financial Advice, Financial Planning, Tax

Paying taxes and maximising tax deductions

Tax planning can feel stressful at the best of times. However, when it’s tax time, paying close attention to allowable deductions may lower the tax you need to pay on your tax return. Here are some allowable deductions you may wish to consider when preparing your next return.

While every person’s financial circumstances are unique, it can be helpful to be aware of some of the different deductions that may apply when you are next doing your tax planning.

Tax agent costs

Hiring a registered tax agent to lodge your tax return is a great way of organising your finances, however, sometimes it can be expensive. The good news is that you may be able to deduct any fee you incur for your agent to prepare or lodge your tax return in the next financial year.

Charitable contributions

When you next make a donation, check if the organisation is a deductible gift recipient (DGR) and the amount is over $2. If so, then you may be able to claim any donations you have made as a tax deduction. To qualify, the donations must have been made with nothing received or expected to be received in return and be recorded with a receipt.

Insurance premiums for income protection

Generally, premiums paid by Australian resident individuals for income protection insurance under a policy they own may be claimed as a tax deduction to the extent that the premiums are paid for benefits that are designed to replace the individual’s lost income. If you claim on your income protection policy, any income replacement benefits received are generally assessable as income and liable for income tax just like your regular income.

Education and training

If you are completing any courses that relate to your current job, lead to formal qualifications, improve your skills or knowledge and are likely to lead to increased income, then these course fees may be deductible. Any other costs associated with undertaking the course may also be deductible such as textbooks, student service fees and travel between home or work and the place of education.

COVID-19 Working From Home

With many people’s working arrangements changing due to COVID-19, the ATO has created a shortcut method to help calculate deductions when working from home. You can claim your working from home expenses for the period between 1 March 2020 to 30 June 2020 in the 2019-20 income year and 1 July 2020 to 30 September 2020 in the 2020-21 income year if certain conditions are met. The deduction which can be claimed is 80 cents for every hour you worked in the 1 March – 30 June 2020 period and applies to electricity expenses, cleaning expenses, internet costs and computer consumables.

Miscellaneous items

Certain job-specific purchases can be valid tax deductions. For example, if your job requires you to spend time outside on a daily basis then you may be able to claim a deduction for sunscreen costs. You may be able to claim a deduction for a handbag or satchel you buy to carry items for work purposes such as laptops, tablets or work papers. The amount of the deduction depends on the extent you use the bag for work purposes. You can find out more information on the ATO website.

Your life is unique and so are your personal finances which is why your tax planning is so important. There is no one-size-fits-all approach, so you should take into consideration your individual circumstances when preparing and lodging your tax return and seek expert advice.

Speak with Sherlock Wealth for help with information on tax planning and preparation to help plan for your financial goals and future. If you’re looking for guidance with financial planning, get in touch here.

NOTE: All information refers to Australian resident individual taxpayers and has been informed by the Australian Tax Office website.

Information was correct at the time of writing (July 2020) but may be subject to change.

Information provided in respect of taxation law is given in good faith and for the general information purposes of Australian tax residents only. It is believed to be accurate as at July 2020 but may be subject to change. As the application of tax law depends on each person’s individual circumstances, you should always seek advice from a qualified tax professional.