Jacqueline Barton

Welcome to the 2024 Tax Planning Guide. This comprehensive resource from *Orbit offers practical advice on optimising your tax strategy, from claiming home office expenses, to leveraging investment opportunities and government incentives.

Home office expenses

If you have been working from home, you may have expenses you can claim a tax deduction for. The ATO allows you to claim using a “Revised Fixed Rate Method” an amount of $0.67 per work hour for the 2024 year.

This amount covers most expenses from working from home, and you need to keep a detailed record of how you calculated the number of hours you are claiming. You can also claim expenses using an “Actual Cost” method – so please keep all invoice and receipts during the entire year to prove all claims.

Superannuation contributions

While you might not be flush with cash now and able to put large amounts into superannuation, it’s important that you are aware of what is possible to maximise your super balance and possibly reduce your tax at the same time.

Deductible super cap

The tax-deductible super contribution limit (or “cap”) is $27,500 for all individuals under age 75. Individuals need to pass a work test if over age 67.
To save tax, consider making the maximum tax-deductible super contribution this year before 30 June 2024.

The advantage of this strategy is that superannuation contributions are taxed at between 15% to 30% compared to typical personal income tax rates of between 34.5% and 47%.

Carried forward contributions

Carry-forward contributions are not a new type of contribution, they are simply new rules that allow super fund members to use any of their unused concessional contributions cap on a rolling basis for five years.

This means if you don’t use the full amount of your concessional contribution cap ($25,000 from 2019 to 2021, and $27,500 for 2021 and 2023), you may qualify to carry-forward the unused amount and take advantage of it up to five years later.

Carry-forward contributions are calculated on a rolling basis over five years, but any amount not used after five years expires. These carry-forward rules only relate to concessional contributions into super, not non-concessional contributions, as they have different caps.

After this year any unused 2019 concessional contributions cap will be lost forever – so now is the time to carefully consider this!

Spouse super contributions

You can make super contributions on behalf of your spouse (married or de facto), provided you meet eligibility criteria, and your super fund allows it. This is known as contribution splitting.

Doing this not only helps to boost your spouse’s retirement savings, but it can also help you save tax if your spouse has limited income.
You may be eligible for a tax offset of up to $540 on super contributions of up to $3,000 that you make on behalf of your spouse if your spouse’s income is $37,000 p.a. or less.

The offset gradually reduces for income above $37,000 p.a. and completely phases out at $40,000 p.a. and above. Additional tax on super contributions by high income earners.

The income threshold at which the additional 15% (‘Division 293’) tax is payable on super $250,000 p.a. Where you are required to pay this additional tax, making super contributions within the cap is still a tax effective strategy.

With super contributions taxed at a maximum of 30% and investment earnings in super taxed at a maximum of 15%, both these tax points are more favourable when compared to the highest marginal tax rate of 47% (including the Medicare levy).

10 ways to reduce your tax

1. Government co-contribution to your super
If you are on a lower income and earn at least 10% of your income from employment or carrying on a business and make a “non-concessional contribution” to super, you may be eligible for a Government co-contribution of up to $500.

In 2024, the maximum co-contribution is available if you contribute $1,000 and earn $43,445 or less. A lower amount may be received if you contribute less than $1,000 and/or earn between $43,445 and $58,445.

2. Ownership of investments
A longer-term tax planning strategy can be reviewing the ownership of your investments. Any change of ownership needs to be carefully planned due to capital gains tax and stamp duty implications. Please seek advice from your Accountant prior to making any changes.

Investments may be owned by a Family Trust, which has the key advantage of providing flexibility in distributing income on an annual basis and an ability for up to $416 per year to be distributed to children or grandchildren tax-free.

3. Property depreciation report
If you have an investment property, a Property Depreciation Report (prepared by a Quantity Surveyor) will allow you to claim depreciation and capital works deductions on capital items within the property and on the property itself.

The cost of this report is generally recouped several times over by the tax savings in the first year of property ownership.

4. Motor vehicle log book
Ensure that you have kept an accurate and complete Motor Vehicle Logbook for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2024. You should make a record of your odometer reading as at 30 June 2024 and keep all receipts/invoices for your motor vehicle expenses. Once prepared, a logbook can generally be used for a 5-year period.

An alternative (with no logbook needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.

5. Sacrifice your salary to super
If your annual income is $45,000 or more, salary sacrifice can be a great way to boost your superannuation and pay less tax.

By putting pre-tax salary into super rather than having it taxed as normal income at your marginal rate you may save tax. This can be especially beneficial for earing their retirement age.

6. Prepay expenses and interest
Expenses relating to investment activities can be prepaid before 30 June 2024. You can prepay up to 12 months of interest before 30 June on a loan for a property or share investment and claim a tax deduction this financial year. Also, other expenses in relation to your investments can be prepaid before 30 June, including rental property repairs, memberships, subscriptions, and journals.

7. Insurance premiums
Possibly your greatest financial asset is your ability to earn an income. Income Protection Insurance generally replaces up to 75% of your salary if you are unable to work due to sickness or an accident. The insurance premium is normally tax deductible, plus you get the benefit of protecting your family’s lifestyle if you cannot work due to sickness or an accident. It’s a small price to pay for peace of mind. Like rental property interest, income protection premiums can also be pre-paid for 12 months to increase your deductions.

8. Work related expenses
Don’t forget to keep any receipts for work-related expenses such as uniforms, training courses and learning materials, as these may be tax-deductible.

9. Realise capital losses
Tax is normally payable on any capital gains. You should consider selling any non-performing investments you hold before 30 June 2024 to crystallise a capital loss and reduce or even eliminate any potential capital gains tax liability. Unused capital losses can be carried forward to offset future capital gains.

10. Defer investment income and capital gains
If practical, arrange for the receipt of Investment Income (e.g. interest on term deposits) and the Contract Date for the sale of Capital Gains assets, to occur after 30 June 2024.

The Contract Date (not the Settlement Date) is generally the key date for working out when a sale or purchase occurred.

One of the most important steps you can take on the road to financial security is to prepare a sustainable budget beforehand. This will help give you the foundation you need to build an effective financial plan that is realistic, achievable and tailored to your own individual circumstances.

The importance of budgeting

Budgets are a vital aspect of financial planning because they identify the capacity you have for saving and investing. By taking a closer look at your income and outgoings, it’s easier to identify surplus cashflow that could be used to reduce debt, save for the future and bring your financial goals one step closer.

To get started, request a budget planner from your Financial Adviser or alternatively, you can search online, visit your bank or find a personal finance app that includes one.

Once you’ve got your budget planner, you should block out some time for the task, and be prepared to look honestly at your spending patterns. Budgeting needn’t be complex, and revolves around two straightforward questions:

What’s coming in?

Firstly, list all forms of income. As well as salaries, consider other forms of income such as interest on bank accounts, share dividends, child support, Centrelink payments or rental income from investment properties.

What’s going out?

Start with all the regular outgoings such as bills, home loan payments, travel expenses and groceries. Then consider any annual or occasional expenses like holidays, birthday gifts, restaurant meals or vehicle servicing.

If you have more money coming in than going out, the surplus can be used for investment or savings purposes. That’s a great position to be in, and the next step is to talk to an Infocus Financial Adviser who will help you make the most of it.

If you are only just covering your outgoings, or have more money going out than coming in, it’s time to look at ways to boost your income or cut back on your spending.

Balancing the budget

Taking on a part-time job or renting out a spare room to a student are two ways you could give your household income a boost – but you may find it is easier to save money than it is to make more.

Most of us spend money on things that are ‘nice-to-have’ rather than ‘must-have’, so there are some simple savings to be made. Small changes can make a big difference to our disposable income over time. For example, if you stop buying a coffee on the way to work each day, you could potentially save $1,300 per year.

Putting your savings to good use

Once you’ve isolated some savings, it’s time to put this surplus cash to work for your financial future. Here are some tips for successful saving:

• Find a savings account that offers a high rate of interest on your money.
• Ensure that interest is calculated daily on your account, not monthly or yearly.
• Set up an automatic direct debit from your transaction account into your savings account.

Searching out the savings

There are plenty of other ways to cut your outgoings. Keep the following tips in mind and you’ll soon see your weekly or monthly outgoings drop.

• Look around for a better home loan rate or have a mortgage broker search for you.
• Investigate whether solar power could save you money on hot water or electricity.
• Shop around when your insurance is up for renewal and ask about multi-policy discounts.
• Change to energy-efficient globes that last longer and are better for the environment.
• Try the supermarket-own grocery brands that provide great savings every week.
• Wrap up warm in winter with a jumper, rather than turning the heating up high.
• Dry clothes on a line not in a machine and look for more efficient models for white goods.
• Find out if you are paying bank fees and look around for fee-free options.

Keeping your cards under control

It’s also a good idea to look at the way you are using loans and credit cards and ask yourself if you’re paying more in interest than you need to. Here are some tips for reducing exposure to interest:

• Pay off credit cards each month (if you can) or as much as you can afford.
• Consolidate multiple loans into a single loan with a lower interest rate.
• Switch credit card debt to an interest-free balance transfer deal.
• Switch your spending to a debit card and only spend what you can afford.
• Don’t buy things on credit, if you can’t afford to buy them in cash.

A strategy for success

In essence, good budgeting comes down to common sense and discipline. So it’s important to be realistic about your spending, and not set yourself targets that you can’t reach.

For instance, you are better off switching your weekly cinema trip to a day when entry is cheaper, than it is to decide not to go at all. Similarly, planning to live on baked beans is not practical, no matter how much money you might save.

Above all, remember that budgeting is all about bringing the best out in your situation. Small sacrifices you make now could lead to a brighter financial future down the track.

In this month’s update, we provide a snapshot of economic occurrences both nationally and from around the globe.

Key points:

• Recent inflation numbers suggesting that inflation remains ‘sticky’.
• Central Bank interest rate increases are back on the table but still less likely than cuts.
• US economic growth softens in the March quarter.

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact the team.

The Big Picture

If March was the month that central banks started to cut rates – or at least foreshadow cuts – April witnessed at least the US Federal Reserve (Fed) and the Reserve Bank of Australia (RBA), talking of pushing the timing of cuts back – and even introducing the chance of more interest rate increases. Market pricing moved the first Fed interest rate cut from June out to September at the start of the month. Even September is now looking uncertain unless clear new economic data come to hand that is sufficient to support the Fed to cut interest rates. One rate cut in December is becoming the dominant call priced into money markets.

By and large, new inflation data in the US and Australia were lower than in the previous month/quarter. So, what was the problem? The key word is ‘stickiness’.

Late last year there was lots of optimism of inflation rates making serious progress towards central bank inflation rate target zones.

We have done quite a bit of research into the reasons for this stickiness. In the US, we found that by far the main problem is with the ‘shelter’ component which comprises about 33% of the broad Consumer Price Index (CPI). Official US data of CPI excluding shelter makes it clear that the inflation problem has been solved in everything except shelter. This shelter excluded index was in the target zone (of 2% or less) for each month from May 2023 to February 2024. The latest reading of 2.3% can reasonably be accounted for by a slight blip in oil prices as a result of the ongoing Middle East conflict.

The US shelter index is based on actual rents plus ‘owner equivalent rents’ (OER) which provides a proxy for the cost of home ownership. Not only does the US use a rolling 12-month window to calculate the annual window, individual rental ‘prices’ are typically held constant over the term of the lease – say 12-months or more. This method of calculating inflation has the effect of locking in any big change for two years or more.

Rents however seem impervious to fed rate policy. Shelter inflation is largely due to the supply-demand imbalance during a period of strong immigration and dislocations through the reaction to the pandemic. The ‘formula’ for calculating shelter inflation means that it is highly unlikely that the shelter component will reach 2% by the end of the year – even if ‘underlying shelter’ inflation was fully solved in early 2023!

If the Fed cuts interest rates, it is not likely that shelter inflation will alter its course. Wages and input prices in the US are behaving quite well.

Many cite the strength of the US economy as a reason for not cutting yet. The preliminary estimate of US GDP growth for the March quarter (Q1) was 1.6% against an expected 2.4%. The previous two quarters’ growth rates were 1.2% and 0.8% with Q1 growth at 0.4%. There is a clear trend emerging!

While the latest US GDP data could just be a blip, it should at least put the Fed on ‘amber alert’. The June quarter (Q2) is already well underway and monetary policy takes about 12-18 months to work its way through the economy.

US monetary policy did not become ‘restrictive’ until September 2022 – when the Fed funds rate climbed above the ‘neutral rate’ of, say, 3%. That first restrictive hike has only just worked its way fully through the economy and there are 2.25% points of additional hikes still in the pipeline and yet to be fully felt.

US employment data have seemingly held up but it has been well supported by quite a lot of financial stimulus spending by the Biden administration. Even so, there have only been 34,000 new jobs created in US manufacturing since October 2022.

Many reputable commentators are questioning the appropriateness (or accuracy) of US labour data. Each month a very big chunk of new jobs is in the government, health care and social administration sectors. And how many jobs do they need to create to be able to accommodate immigration flows? We are living in a new era for understanding labour movements: work from home (WFH); gig economy; GenZ reluctance to work in the traditional model; early retirement, etc.

We came across an interesting statistic about US interest rates this month. The average interest rate paid across all mortgages is 3.8% but the rate for new loans is 7.1%. Because of the very long fixed-term loans favoured in the US, typically 30 years, they have been cushioned from rate rises much more so than those borrowing in Australia (who typically borrow at a floating interest rate) – so long as they don’t move home!

Australia’s jobs data were all over the place from November through to February – we suspect due to statistical seasonal adjustment procedures that have a more marked impact over the summer student school leaver / holiday period.

Our latest change in total employment over a month was -6,600! However, there were 27,900 new full-time jobs offset by a big loss in part-time employment. The unemployment rate was 3.8%.

Our economic situation can be effectively monitored through changes in retail sales. In March, retail sales fell -0.4% for the month and was up 0.8% for the year. When we allow for inflation, sales (i.e. volumes) fell by -0.8% for the month and -2.8% for the year. If we also allow for population growth of about 2.5%, the volume of sales attributable to the average person has fallen by -4.5% for the year.

The cumulative fall in retail sales (volume) is -4.9% from September 2022 which increases to nearly -10% when we account for population growth. The average person in Australia is consuming about 10% less ‘things’ than they were in September 2022 and this trend in foregone consumption has continued to build month after month.

The average Australian resident is also carrying a mortgage burden far greater than that held in any recent period. Australian consumers are hurting yet some ‘experts’ are calling for rate increases. How much more pain do they want to put on the consumer and, for what?

Our latest CPI data was a bit of a miss at 1.0% for the quarter against an expected 0.8% but we also have a shelter (or household) category that is causing some stickiness. Lower rates would make it more viable for developers to build more houses and apartments to alleviate the rental crisis. Higher interest rates are more likely to exacerbate the rental situation.

Markets – both bonds and equities – have been buffeted by reactions to higher than anticipated inflation data and central bank commentary. However, there have been many strong company earnings’ reports in the US that underpin the S&P 500 valuations.

China produced some mixed economic data. Q1 growth came in at a brisk 5.3% compared to a more modest expectation of 4.6%. However, both monthly retail sales and industrial output missed expectations.

Asset Classes

Australian Equities

While most of the major markets are well up on the year-to-date (y-t-d), the ASX 200 ended April y-t-d up only +1.0%. For the month, the ASX 200 was down -2.9%.

Our analysis of LSEG broker forecasts for Australian listed companies’ earnings is strong, but some expected weak macro data along the way could make share markets jittery.

Most sectors on the ASX 200 – save for Materials (+0.6%) and Utilities (+4.9%) – were in negative territory in April.

The narrative of the RBA governor’s press conference on May 7th could be key in guiding near-term movements in the index.

International Equities

The S&P 500 was down -4.2% on the month but the London FTSE was up +2.4%. China’s Shanghai Composite (+2.1%) and Emerging Markets (+1.6%) also had gains in April.

The S&P 500 swirled over sessions during the month as news, which was difficult to interpret, was digested. Towards the end of April, some strong earnings data lifted investor spirits.

Bonds and Interest Rates

In our opinion, investors and traders are finding it difficult to interpret ‘new’ news. There is little doubt that inflation has been easing – at least in general – but the difficult (almost impossible) question is whether it is improving sufficiently quickly that central bankers will be moved to reduce interest rates.

Central bankers seemed to be worried that, if they start cutting interest rates too soon – and inflation returns (whether or not due to the policy change) then they will need to begin the inflation fight again by increasing interest rates, in an environment where they will have lost credibility.

For the reasons stated, we think the central bankers are being overly cautious. But when billionaire, and much revered banker, Jamie Dimon states that rates might have to go to 8% to quell inflation, it is hard for dissenters to be taken seriously.

Nevertheless, for the reasons given in the opening section, we are reasonably confident that the next move for interest rates should be down, not up. However, if interest rates are cut and then a new supply shock happens, like heightened military action or oil price shocks, inflation would come back – but not because of interest rate cuts. Interest rates have almost no impact on wars and oil prices.

There is little chance (as priced in by the fixed interest markets) that either the Fed on May 14st, or the RBA on May 7th will adjust interest rates.

The latest Fed ‘dot-plot’ chart (each dot is the interest rate forecast of a Fed board member) released in March showed three cuts in 2024. With the market now pricing in only one, or possibly two interest rate cuts, it will be interesting to see the Fed’s stance when the dot-plot is refreshed in June.

When analysing interest rate policies, there are two very separate questions. Firstly, what should the central bank do? Secondly, what will the central bank do?

The first question is much easier to answer. And the two answers could imply moves in opposite directions.

We think macro data – particularly in the USA and Australia – will present a much clearer picture over the next quarter or two. By then, all else being equal, that without central bank interest rate policy easing we could be closer to recession.

The ECB and the BoE are expected to cut their interest rates in June after some supportive (softening) inflation data.

Other Assets

Iron ore (+15.6%) and copper (+14.8%) prices jumped out of the gates in April. That backs a recovering China story.

Oil (+1.1%) and gold (3.7%) prices were up but by more modest amounts. The Australian dollar (-0.1%) was flat but the VIX (equity market ‘fear’ index) was well elevated earlier in April but started to retreat in the last week or so to 14.8 – or just above normal.

Regional Review

Australia

The federal budget will be handed down in mid-May. Some fiscal stimulus seems likely but, again, this is the government fighting the RBA and the latter seems uncertain as to what course to plot.

Because immigration has been so strong, the usual statistics do not show the extent of the economic pain that the average person is feeling.

Fortunately for investors, company earnings depend on total revenue and not on revenue per capita. Therefore, the ASX 200 can be resilient when the average consumer is not doing so well.

There were 27,900 new full-time jobs created in the latest month but that was offset by a loss of -34,500 part-time jobs.

The headline CPI inflation rate was expected to come in at 0.8% for the quarter (Q1) or 3.4% for the year. The outcome was 1.0% for Q1 and 3.6% for the year. The market reacted negatively to these data and seemingly encouraged some to call for a return to interest rate rises. The RBA is set to announce its next rate decision on May 7th. It is highly likely that the RBA will hold the interest rate at the current level but the fixed interest market is starting to price in a chance of a rate hike later in the year.

With the pipeline of past interest rate increases building up recessionary pressure, we might even soon see aggregate GDP (rather than per capita GDP) growth in negative territory.

Retail sales for March came in at -0.4% for the month and up +0.8% for the 12 months. When adjusted for inflation, sales volume was down -0.8% for the month and -2.8% for the year. In inflation-adjusted terms, consumers are purchasing -4.9% less than they were in September 2022. If we also account for population growth sales volume would be down by near -10%. There is no demand pressure left for the RBA to quell!

China

Not long after the last People’s Congress had stated a target for growth of 5%, GDP data came in for Q1 at 5.3%, which was well above the 4.6% expected.

However, retail sales came in at 3.1% against an expected 4.6%. Industrial output also missed expectations at 4.5% against an expected 6.0%.

At the end of April, the Purchasing Managers’ Index (PMI) for manufacturing beat expectations at 50.4 when 50.3 had been expected but the index was 50.8 in the previous month (a level below 50 indicates contraction and a level above indicates expansion). The non-manufacturing PMI was 51.2 against an expected 53.0. While these results are not strong, they are solid.

US

On the face of it, US jobs data were again good. There were 303,000 new jobs created against an expected 200,000. The wage growth importantly was only 0.3%. Producer price inflation was below expectations at 0.2% for the month against an expected 0.3%.

However, for the first time since the recovery from lockdowns, GDP growth disappointed; Q1 growth was well under expectations at 0.4%.

Retail sales surprised to the upside for the month. Growth of 0.4% had been expected but the outcome was 0.7%. However, the US statistical agency put a tolerance of ±0.5% on that estimate meaning that 0.7% isn’t statistically significantly different from the expectations. That didn’t stop the market from responding favourably to the sales data!

In our opinion the market started to react quite strongly to very small differences between expectations and outcomes – both up and down.

Europe

The UK just posted its second month of very small but positive GDP growth data. That could signal the end of the so-called ‘technical recession’. The Bank of England (BoE) held its interest rate steady at 4% in April but it is widely expected to start cutting interest rates from June.

EU and Germany inflation are starting to come close to target at 2.4% and 2.2%, respectively. The president of the European Central Bank (ECB) spent much of last year talking of the need to keep interest rates higher for longer. That stance seems to be softening.

The EU posted a gain in GDP in Q1 but the previous quarter was revised down to give two consecutive quarters of negative growth in the second half of 2023.

Rest of the World

Canada’s unemployment rate rose to 6.1% and its jobs’ creation was negative. Analysts are expecting the Bank of Canada to start cutting interest rates soon.

Japan inflation missed at 2.7% against an expected 2.8%. Core CPI was on expectations at 2.6%. Such is the skittishness of markets, the Nikkei opened down 3% following these data. We think the fall was more due to the general uncertainty about whether or not global monetary policy is working.

The US has passed legislation for US military aid to go to the Ukraine, Taiwan and Israel. Australia has also sent aid.

We acknowledge the significant contribution of Dr Ron Bewley and Woodhall Investment Research Pty Ltd in the preparation of this report.

Financial stability is a dream for many, and is often viewed as a cornerstone of a successful relationship. While love and communication are undoubtedly vital, money matters can be a source of tension for couples if not properly addressed. Whether you’re just starting your journey together or have been navigating life’s ups and downs for years, engaging in open and honest dialogues about money can lay the groundwork for a more secure future.

What are our individual financial goals?

Understanding each other’s financial aspirations can help you align your priorities and work towards a common vision for the future. This could include wanting to save for a house, preparing to start a family, or considering when and how you each want to retire. Retirement is a particularly important element as some imagine an entirely different life from their working life, so preparing for what that might look like for you both is essential.

How do we manage our finances together?

Deciding whether to merge finances completely, keep them separate, or adopt a hybrid approach is a decision that couples should make together. Discussing how you’ll handle joint expenses, such as rent or mortgage payments, utilities, and groceries, can help avoid misunderstandings down the road. It also assists both individuals in staying on course with their goals, as they’ll be aware of each other’s financial positions.

Do we have any debts?

Being transparent about any debts you have, such as loans or credit card debt, is crucial. Discuss how you’ll tackle these debts together and come up with a plan for paying them off. Understanding how you both feel about debt is also important. If one partner is strongly averse to debt, while the other heavily relies on leveraging and debt servicing, finding a middle ground or keeping assets separate may be the way forward.Top of Form

What is our approach to budgeting?

Taking the time to create a budget together is an effective way to manage household expenses and work towards achieving your financial goals. This could be tracked manually, using budgeting apps such as Frollo or YNAB, or through setting up automatic transfers. During this process, discussing how you will handle unexpected expenses (medical, house or car repairs etc.) is also important and may involve saving for an emergency fund.

In essence, navigating finances as a couple is about more than just money – it’s about building trust, understanding, and a shared vision for the future.