“Tax need not be Tricky!” by Tina Zawila

June is just around the corner and it will be tax-time before we know it!  Steve and I will be presenting our annual Tax and Property Seminar tonight, providing tips and information on how to minimise tax and create wealth.

Tax has been the talk of the town in Gladstone for some time now, and it still surprises us how little is really known and understood about tax in the “non-accountant/tax agent” community. 

So in this article, I just wanted to clear up a couple of common ‘tax myths’ that we have to explain regularly:

1. You cannot get a tax refund if you haven’t prepaid any tax.  I know this seems obvious, but we are often asked to explain why there isn’t a refund due on a tax return, when the fact is no tax was deducted from (low) wages income, or where a new business owner has not paid any income tax instalments throughout the year.  Which brings me to Myth #2…
   
   
2. You cannot get more tax back than the amount you have paid.  Tax refunds arise when your actual tax liability (calculated when preparing your tax return) is less than the amount you have paid during the year.  Therefore, you cannot receive a refund greater than the amount of tax you paid during the year, regardless of the amount of deductions claimed.  Speaking of deductions…let’s move onto Myth #3…
   
   
3. $1 Spent on a Tax Deduction ≠ $1 Tax Refund.  If you spend $1 on a tax deductible expense, you will get a tax benefit equal to your ‘average rate of tax’.  So if that’s say 25%, then if you spend $1 you will get a tax benefit of 25 cents.  If your taxable income is below the threshold and you don’t pay tax at all, then you will not get any tax benefit. 

These are my “top 3” myths, but there are many more.  If you want more information, advice and suggestions to minimise tax, make sure you call us today on 4972 1300 to reserve a seat at tonight’s tax seminar or to book an appointment with one of our tax professionals.

“Revitalise Local Business” by Steve Marsten

We recently attended a seminar for buying a Business here in Gladstone. Many people were concerned that buying a business in this recessionary climate might not be a good idea. However as we have pointed out, when the economy is down the “business market” is down and at its best buying price. It’s exactly the same as the stock market – and we all want to buy a good share when the market is down. Bargains are now available for those who have some cash to invest and have the energy to re-energise a local business.

On thinking about investing what many don’t seem to realise is Gladstone has the capacity to rebuild its own economic strength. It means though that the locals need to invest in the community. I hear all about the buy local campaign, however many people still take their shopping dollars out of town.

We believe Gladstone has the critical mass of population and needs a sustained commitment from everyone including business to business sales, to revive itself.

There are plenty of studies that have shown by buying off an independent local-owned business rather then a nationally-owned business, it keeps significantly more money here in the city. If everyone did this - that is purchased off local business owners, it allows these owners to employ more and hence the money stays in the city longer – usually for 4-5 times longer. So when you think about it - if I spend $1 at my locally owned convenience store and they pay wages and the business owners and their employees spend that money locally, then suddenly $1 is worth closer to $5 within the community.

 Another point to remember is that when the local business community is doing well then Non-profit organisations also tend to do well. It’s been shown that local small business tends to support 250% more than nationally owned business franchises to their local non for profit community.

Our Community of Gladstone could be quite unique if everyone thought twice about how they are currently spending their money. The next sale that we want to carry out online or in Rockhampton or in Brisbane – consider asking a local if they can at least meet the price or can they get the product or service in. Encourage local prosperity! Let’s stop talking about it and actually act on it.

At Sothertons - we source from local suppliers first and we encourage our clients to do the same. Call us on 4972 1300 and speak to our experienced Business Advisors.

“The Struggle is Real” by Tina Zawila

I recently received Worrells (Solvency and Forensic Accountants) Insolvency Report for 2014-15 and I have to say it made for interesting reading.  The report aims to build a snapshot of the Australian Insolvency Market, it’s emerging trends and the drivers that influence the marketplace.

Generally, when most of us think of “bankruptcy” or “insolvency” we think of “big businesses that have gone under”, however, the reality is many individuals face personal insolvency, and most of these were “non-business related”. 

In 2014-15 there were just over 24,000 non-business related personal insolvency administrations and only 4,700 business related debts.   This is an 84/16 split.

So clearly, it’s not just failed businesses that are leading to personal insolvency. 

One of the main causes of personal insolvency is reported as “non-business related unemployment/loss of income”.   The report also noted that many people attributed “excessive use of credit” as the cause of their insolvency.

So it seems that the leading cause of personal insolvency is high levels of debt that cannot be met if you fall on hard times and either lose your job or are forced into a lower-paid position.  Unfortunately in our local community we have seen examples of this recently.

If you find yourself facing difficult financial circumstances, the most important thing to do is to seek advice and support as soon as possible.  You are not alone.  A professional financial advisor can confidentially review your position and advise on the various options available to you. 

Insolvency is a measure of last resort.  The law exists to assist in addressing impossible financial obligations in a way that is fair and transparent.   

Of course, the best cure is prevention.  So take the time to review your personal financial position regularly, avoid increasing your debt position to acquire depreciating assets, and make sure you are living within your means.

If you need help with your personal finances, call our professional team today on 4972 1300.  We are here to help.

Why fiddle with my Super by Steve Marsten

Well I guess it’s budget week and we should throw our two bobs worth in! Overall I think it's a fairly benign budget - all things considered. There was nothing really to grab the reigns of the Nation and reset it to gallop into a bright future anytime soon. Of course there are some interesting elements - they have clearly continued to fiddle yet again, with our much loved super system.

Those nearing retirement have screamed out loudly - Why now? Why us? Why me - Malcolm? 

Frankly it's been a great ride for super from the heady days of Labor bringing in the super guarantee system - one of the greatest policy decisions the country has seen and then this was followed by the retirees friend - John Howard, who sought to allow those that could, while times were good, to stash a good deal of their money into their super for their retirement day.

Self Managed Super Funds (SMSFs) went through the roof and Australians embraced the idea of saving for retirement with a generous and supportive tax system. Baby boomers have much to be thankful for.

So why change now I hear near retirees ask? There are numerous technical reasons however the overriding crux of the matter is this. Forgive me if my data is a little dated but the situation has not changed. In 2009/10 there were about 208,000 SMSFs that had an average taxable income of about $70,500 paying about $10,500 tax each. In 2014 this number has grown to 466,000 funds with an average of $29,000 in taxable income paying just $4,300 per fund. The tax revenue for the government has been falling rapidly and that's not what governments like to see. Regardless of the colour of the Government, if not this one, then the next, they would most certainly have stepped in to temper the revenue loss.

I am all for a government, any government, living within their means, as in my lifetime I have not seen too many. This measure was a correction to fix a revenue leak, however Australia's biggest problem is a spending issue. We simply are living beyond our means and using our children's inheritance to pay for it. This is not just Governments but most households. This policy fiddle will not suit those over 50 however it was always going to be amended. Give one of our experienced accountants a call on 4972 1300, so you can learn how the rest of the budget affects you.

A life without a Credit Card by Tina Zawila

Recently I was speaking to a young couple in their 20’s after they came back from a weekend getaway.  They had flown to their destination and once they arrived they realised that using public transport to get around and see the sights was impractical and expensive, so they decided to hire a car.

One problem.  They didn’t have a credit card that they could use for a security deposit.

Ok, what about using Mum or Dad’s credit card? Nope, the hire company would only accept a credit card in the name of the hirer/driver.

I know, they could have paid the deposit in cash, but they also didn’t want to use all of their holiday cash to pay a security deposit and possibly leave themselves ‘short’ over the weekend.

In the end, it was all ‘too hard’ so they didn’t bother with the hire car.

However, it occurred to me, how common place credit cards are, yet they are one of the biggest financial traps/burdens in our economy.   When you consider the interest rate on a credit card is often around 19.99%, this form of finance is extremely expensive.

According to a report issued by the Reserve Bank of Australia in March 2016, there are over 16 million credit cards in Australia (growing by 3.4% every year), and they net a national debt accruing interest of around $32 billion.  The average credit card has a balance of over $3,000 with two thirds of that balance accruing interest.

When I spoke at a National Youth Week event recently, I strongly encouraged the attendees to steer clear of credit cards, opting instead to use their own money via debit card. 

I honestly believe that our economy needs the next generation to learn to live within their means.  Save for their big ticket purchases, and avoid high interest finance for consumable or depreciating items. 

And as for the 16 million credit cards already in circulation – we all need to reconsider our finance options to reduce the credit card interest burden on our household budget.

If you need financial advice, contact the team at Sothertons on 4972 1300, we would be happy to help you become financially well organised.