Spring 2021

It’s September and spring is here, providing a welcome lift in spirits. After some spectacular performances by our athletes at the recent Tokyo Olympics and Paralympics, hopefully you are inspired to achieve some personal goals of your own.

August provided mixed economic news, with central banks, business and consumers remaining cautious. In a widely-reported speech, US Federal Reserve chair, Jerome Powell said there remained “much ground to cover” before he would consider lifting interest rates, sending stocks higher and bond yields lower.

In Australia, shares and shareholders were boosted by a positive company reporting season. According to CommSec, of the ASX200 companies that have reported so far, 84% reported a profit in the year to June, 73% lifted profits and dividends were up 70% to $34 billion. One of the COVID “winners” is the construction sector. While the value of construction rose 0.4% overall in the year to June, the value of residential building was up 8.9% and renovations rose 24.5%, the strongest in 21 years. One of the COVID “losers”, retail trade was down 3.1% in the year to June.

While unemployment fell from 4.9% to 4.6% in July, full-time jobs and hours worked were lower due to the impact of lockdowns. The Westpac-Melbourne Institute index of consumer sentiment fell 4.4% in August while the NAB business confidence index fell 18.5 points in July, the second biggest monthly decline since the GFC. Wages grew 1.7% in the year to June, well below the 3% the Reserve Bank wants before it considers lifting interest rates.

Iron ore prices fell 18% in August, while the Aussie dollar finished the month weaker at US73.2c.

Future proofing your career with professional development

“The only thing that is constant is change” – so said the ancient Greek philosopher Heraclitus and it continues to ring true today.

Industries are changing, continuing to evolve in response to challenges (such as the COVID-19 pandemic), technological disruptors and customer expectations. As a result, there is a greater need for the workforce to continue to adapt and develop. We need to be agile to stay on top of these changes, continue developing and learning, which will work towards future proofing our careers.

While some industries have formal professional development programs, there are many ways to foster your own development for those who don’t have formal pathways. Here is how you can take the lead to future proof your career.

Enrol in a course

Some workplaces offer both in-person and online courses, for example LinkedIn Learning, so take advantage of what’s on offer. You can also seek out professional courses relevant to your industry to upskill, keeping you abreast of the changing environment – not to mention that further education is a great additional to your CV as it showcases your engagement within the industry and your proactive approach to your career.

Attend webinars or seminars

While COVID restrictions have halted many in-person seminars, there are plenty of online webinars you can attend, some which are specifically on the topic of future proofing your career. While there are a number of free webinars you can attend, others may be offered by organisations to their members. Paid membership to these organisations be they industry groups, or groups centred around a common goal, can be a worthwhile investment assisting with not only educational sessions but networking opportunities.

Not only are webinars accessible from your office or living room, they tend to be more budget-friendly than seminars. However, seminars offer face-to-face learning and networking opportunities, so they are great to utilise where possible.

Pick up a book or listen to podcasts

It doesn’t get easier than picking up a book to arm yourself with new knowledge. There is a wealth of information out there, some which will be general advice discussing trends and management styles, others that will be tailored to your industry.

If you don’t have much time to read, opt for an audio book to listen to in the car or during exercise. Podcasts are also excellent ways of getting helpful information in a format that is convenient and can be tapped in and out of. As they are regularly created, you’re likely to get more up-to-date information this way.

Enlist the help of a mentor

It’s clear that a mentor can help you stay on top of your industry or explore new opportunities by providing support and guidance. A 2019 survey showed that while 76% of people thought mentors are important, only 37% actually have one.ⁱ

The study also found that 61% of mentor-mentee relationships developed naturally, with 25% happening after someone offered to mentor, and 14% when someone asked for a mentor. This means that there’s likely to already be someone in your life who could be your mentor. Think about who is dynamic in facing industry changes and don’t be shy to ask if they’re open to mentoring you.

Join peer groups

An extension of having a mentor, peer groups provide you with the support of others who are also dedicated to professional and personal growth. If you are someone who thrives on peer support, it will be invaluable to be part of a group of people rather than going it alone.

You can give each other feedback, check in on each other’s goals and share helpful experiences and resources such as great books or webinars. This is also a fantastic way to make real-life connections – you might even meet someone who helps you land a new job or open doors to a new industry. Online tools such as Meetup can help you find a group near you and keep an eye on industry meetups as well.

Life is full of change, but rather than feeling overwhelmed, embrace it. By furthering your education, you’ll future proof your career and feel more empowered tackling the changes you face.

i https://online.olivet.edu/research-statistics-on-professional-mentors

Tax Alert September 2021

Although smaller businesses are now enjoying a lower corporate tax rate, their quarterly super bills have gone up, following the latest indexed rise in the Super Guarantee rate.

Here’s a roundup of some of the other key developments when it comes to the world of tax.

SME tax rate drops

With business conditions remaining tough, small and medium companies will welcome the lower corporate tax rate applying from 1 July 2021. Businesses with a turnover under $50 million are now only up for tax of 25 per cent.

This reduction was part of legislation passed back in 2018 to gradually reduce the corporate tax rate from 27.5 per cent to 25 per cent.

More small companies are eligible for this lower rate as the turnover threshold to access a range of tax concessions has been lifted from $10 million to $50 million.

Reminder on SG increase

If you are an employer, don’t forget the Superannuation Guarantee (SG) rate increased by 0.5 per cent on 1 July 2021, making the annual rate 10 per cent.

When paying SG contributions for the July to September quarter for your employees, check your calculations are based on the new, higher rate to ensure you don’t run into problems with the ATO.

The higher SG rate may also increase your Workcover premiums and payroll tax liability.

Tax status of COVID-19 grants

If your business is taking advantage of the financial support provided by state and territory governments during pandemic lockdowns, it’s essential to check the strict tax rules covering these grants.

Most of these financial supports have been given a concessional tax status and are classed as non-assessable non-exempt (NANE) income, but only grants paid in the 2020-21 and 2021-22 financial years currently qualify.

For the grant to qualify for NANE income tax status, your business’s aggregated turnover for the current year must be under $50 million. You are also required to be carrying on a business in the current financial year and the grant program must be declared an eligible grant through a legislative instrument.

Continuation of full expensing and loss carry-back

In more good news, eligible business taxpayers who took advantage of the government’s full expensing and loss carry-back measures in the past financial year will be able to use them again this financial year.

The temporary full expensing regime was introduced to help businesses with an aggregate annual turnover of under $5 billion to cope with the financial challenges of the pandemic. Eligible businesses can deduct the full cost of any eligible depreciable assets purchased after 6 October 2020.

Similarly, eligible companies will also be able to carry-back tax losses from the current income year (2021-22) to offset previously taxed profits going as far back as 2018-19 when they lodge their business tax return.

FBT exemption for retraining and reskilling

The ATO is reminding employers that if they provide training or education to employees who are made redundant, or soon to be redundant, the cost is exempt from fringe benefits tax (FBT).

Eligible employers using the exemption are not required to include the retraining in their FBT returns, or in the reportable fringe benefits listed in the employee’s Single Touch Payroll reporting or payment summary.

You are, however, required to keep a detailed record of all the training and education provided if you intend claiming this exemption.

Changes to SuperStream

And finally, a reminder that from 1 October 2021, self-managed super funds (SMSFs) will only be able to roll member benefits into and out of their fund using SuperStream. Some electronic release authorities will also need to be processed using SuperStream.

SMSF trustees need to ensure their fund will be ready to meet the new requirements by checking the details recorded with the ATO are up-to-date for both the fund and its members.

Trustees should also check they have provided the ATO with details of the fund’s ABN and unique bank account for super payments.

Frankly Speaking: Tax benefits of shares

Australian shares are popular investments with self-funded retirees and anyone who depends on income from their investments, due in part to the favourable tax treatment of franked dividends.

After falling off in the early days of the COVID pandemic, share prices and dividends bounced back strongly in the year to June 2021.

Investors who depend on income from their shares also have more certainty now that the Labor Party has dropped its opposition to cash refunds of excess franking credits, a policy that attracted fierce resistance from retirees at the last federal election.

The hunt for yield

In a low interest rate environment, dividend yields on Australian shares compare favourably with near-zero interest rates on bank term deposits and historically low yields on government bonds.

Over the past 40 years, the dividend yield on Australian shares has averaged just over four per cent and many stocks pay more, (dividend yield is the sum of dividends over the past 12 months divided by the current share price). In fact, dividends account for roughly half the total return from Australian shares over the past 20 years.ⁱ

These dividend yields are even more attractive when the tax benefits of franking credits are included, especially for investors in retirement phase.

What are franking credits?

Franking credits represent tax a company has already paid in Australia on any profits it distributes to shareholders by way of dividends. The company tax rate in Australia is currently 30 per cent, or 25 per cent for companies with turnover of less than $50 million.

Shareholders can then use these franking credits, also known as imputation credits, to offset their tax liability on other income, including salary, at the end of the financial year. People who pay no tax, such as investors in retirement phase, can claim a full tax refund from the ATO.

If your marginal tax rate is less than the company tax rate of 30 per cent, you may be eligible to receive a refund of the difference between the franking credit and your tax payable.

This is one reason SMSFs are so attracted to shares in Australian companies that pay fully franked dividends. Super funds pay a top income tax rate of 15% and no tax on the earnings or income of investments supporting a retirement pension.

Am I eligible for a tax refund?

You may be eligible for a refund of excess franking credits if all the following apply:

• You receive franked dividends on or after 1 July 2000 either directly or through a trust or partnership
• Your basic tax liability is less than your franking credits, after taking into account any other tax offsets you are entitled to.
• You meet the ATO’s anti-avoidance rules, designed to ensure everyone pays their fair share of tax.

You will also need to keep dividend statements from companies that paid franked dividends to support your claims.

So how does franking work?

Franking credits have different impacts depending on your marginal tax rate and whether your share investments are held inside or outside super.

Say you own shares in a company which pays a fully franked dividend of $700. Your dividend statement says there is a franking credit of $300, which represents tax the company has already paid. This means the dividend before company tax was deducted would have been $1,000 ($700 + $300).

In your annual tax return, you must declare the full $1,000 in your taxable income. The after-tax value of the dividend will then depend on your marginal tax rate.

If you hold the shares in an SMSF tax-free pension account, you will receive a total dividend payment of $1,000, $700 dividend plus a full cash refund of the attached franking credits.

If you hold the shares in an SMSF accumulation account (with 15% tax), you will receive $850, $700 dividend plus a $150 cash refund of franking credits.

If you hold the shares in your own name there will be some tax to pay on your dividend income, but significantly less than you would otherwise have paid without franking credits.

If you would like to discuss the taxation of share dividends and the role they play in your overall investment strategy, please give us a call.

i https://www.bt.com.au/personal/smsf/manage-your-smsf/investment-insights/the-search-for-dividend-yield-in-a-low-growth-environment.html