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Welcome to our Personal Finance Blog
Money bewilders most of us. How to spend it, save it, invest it, and how to best protect the person who makes it.
These questions we all face daily — a puzzle we all attempt to understand and solve just about every day. Yet despite money's centrality to our lives and businesses, it's something we all grapple with, and mostly in private.
- Money is the 'Lord Voldemort' of topics; feared by most and mentioned by a few. It's oddly uncomfortable to discuss socially and rarely even with our partners, parents, and children.
Perhaps that's because managing our money and life's risks inevitably involves the fusion of both the emotional and practical aspects of our decision-making processes. The most difficult of questions are those with both economic and emotional answers.
Our educational Personal Finance Blog is for people who want to grow and remain wealthy. And while the journey toward wealth is clearly marked, you still have to be looking in the right direction.
At Sapience, we're all about The How.
ATO revises advice fee tax deductible rules
The Australian Taxation Office (ATO) has confirmed financial advice fees for tax related guidance are deductible where the advice is provided by a Qualified Tax Relevant Provider (QTRP). The ATO released guidance stating, ‘fees for financial advice an individual incurs may be deductible under section 25-5 to the extent that the advice related to the managing their ‘tax affairs’.
- It added that, ‘it takes the view that tax (financial) advice is included within the meaning of 'tax affairs’.
- An individual must be able to identify the payment was for advice to assist them, in managing their tax affairs. For example, fees for advice in relation to salary sacrifice arrangements will be advise that assists an individual in managing their ‘tax affairs’.
Not all advice provided by a financial adviser will be considered to be tax (financial) advice.
Where an advisor merely provides factual information about a financial product that does not involve the application or interpretation of taxation laws to the clients personal circumstances, that advice will not be for managing the individuals tax affairs.
This new guidance does not change the ATO's current stance that other fees, being those related to initial advice, are capital in nature and cannot be deducted, and that ongoing advice fees are deductible.
TD 2024/7.
Payday Super changes pending
From the 1st of July 2026, employers will be required to pay their employees super with every pay cycle, as opposed to quarterly. Under the changes proposed in the Payday Super scheme,
- an individual’s superannuation guarantee (SG) contributions must be received by the Superfund within seven (7) days of their wage or salary being paid.
If an employer fails to pay on time, they will be liable to pay an SG charge. Under the new laws, the SG charge will be modified to ensure employees a fully compensated for any delay in their SG payment. The SG charge will be tax deductible to the business, but any penalties applied on top, will not Find more information here.
From the 1st July 2024 the Minimum Wage increases
The Fair Work Commission has announced a 3.75% increase to the National Minimum Wage and minimum award wages. The increase applies from the first full pay period starting on or after 1 July 2024.
The contribution caps are indexed to wage growth based on the prior year December quarter’s average weekly ordinary times earnings (AWOTE).
Find out more information at Fair Work Ombudsman.
The Government intends to introduce a new tax on people who have more than $3m in their Superannuation.
While it hasn’t yet been passed, legislation is already in Parliament to introduce this new tax and a Senate Committee has recommended it is passed. If it is, the new tax will be called “Division 296 tax” and will come in from 1 July 2025.
- Once the Division 296 tax is in effect, any earnings on superannuation balances exceeding $3million in a financial year will be subject to an additional 15% tax, making the total tax on this portion of earnings 30%.
From 1 July 2025 a new additional tax will apply to those who have a total superannuation balance (TSB) of greater than $3 million. Consequently, we often get asked the question, 'Should a client not have more than $3 million in superannuation?'
SMSF Members may Suffer under Division 296
Taxation of unrealised gains under Division 296 is of particular concern for SMSFs because they commonly hold illiquid assets like property.
- Thus, members with balances close to the $3m threshold (or with investments in assets with the potential for steep increases in value) may attract a liability under the proposed Division 296 tax.
- Individual members are liable for Div 296 tax costs, not the fund itself – although members can release funds from their superannuation interests or use external funds.
- Important: This creates additional issues for SMSFs that run very low cash balances and/or who are not managing their SMSF liquidity
SMSF Association (SMSFA) chief executive has said, taxing unrealised gains contained within the bill was “a tax on market movements and changes in asset values, not income, - an alarming precedent as it represents a fundamental change in how tax policy is implemented in Australia”.
Consequently, some SMSF members are forced to sell large, illiquid assets to fund a Division 296 liability because the member has insufficient funds outside superannuation to pay the tax.
Naturally, it is not a ‘one size fits all’ answer and it depends on many factors and assumptions. But in reality, Division 296 tax will force many people who, up until now, may have not yet taken a sufficient interest in the basics of investing in super - to change how they see their financial future and cultivate a closer relationship with a financial adviser.
You can track the passage of this Bill through Parliament, at https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r7133
Pay your employees’ super on time, and save your business money.
If you pay super late it means you miss out on the tax deduction.
- To put this in perspective, if you operate as a company (25% tax rate), every $1,000 of late super will cost you $250 in real cash come tax time.
- In addition to that, the ATO will impose interest and penalties to late super.
To avoid paying super late, we recommend that super is paid at each pay cycle. This means you’ll never be late and also avoids the need to find a big lump sum at end of quarter.
- Note: From 1 July, 2026, paying your employees’ super with each pay cycle will be mandatory. Get a head start on this change, and put this system in place sooner rather than later.
Consider paying any June quarter super before 30 June* (instead of when it’s due, in July) as thuis can bring forward the tax benefit a whole year.
From 1 July 2024 the amount you can contribute to your superannuation will increase.
The amount you can contribute to superannuation will increase on 1 July 2024 from $27,500 to $30,000 for concessional super contributions and from $110,000 to $120,000 for non-concessional contributions.
The contribution caps are indexed to wage growth based on the prior year December quarter’s average weekly ordinary times earnings (AWOTE).
- For those with the disposable income to contribute, superannuation can be very attractive with a 15% tax rate on concessional super contributions and potentially tax-free withdrawals when you retire.
- For business owners who might have had an exceptional year or sold their business, it’s an opportunity to get more into super but caution is needed with the timing of contributions to maximise outcomes.
- If you know you will have a capital gains tax liability in a particular year, you may be able to use ‘catch up’ contributions to make a larger than usual contribution and use the tax deduction to help offset your capital gain tax bill.
- This strategy is dependant upon you meeting the eligibility criteria to make catch-up contributions and you lodge a Notice of Intent to Claim (or vary) a deduction for personal super contributions, with your super fund.
- Six Significant Changes Small Business Owners will face from 1 July 2023
- New Directors Penalty Notices (DPN's)
- New ATO checklist for Trust Distributions
- High Court Rules on SMSF Binding Death Benefit Nominations
- Age for Super Downsizer Scheme to drop to 55
- New rules about when to pay Super
- Stapled Super and New Employees
