The Rental Crisis in Victoria has Reached a Critical Point!

By The Property Couch August 14, 2023 in Free Resources, Property Investment

The Rental Crisis in Victoria has Reached a Critical Point!

In a compelling interview with Channel 7 News, Ben explores the pressing concerns surrounding the current rental landscape and the implications it has on future investors.

Watch the full Channel 7 segment here as they dive deep into the details of the proposed measures by the Andrews Government, shedding light on their potential impact on both landlords and tenants alike. Stay informed and engaged as we navigate through the intricacies of these significant proposals.

Tune in to stay updated on the latest market developments and gain valuable insights for making informed financial decisions.

Australian Housing Market Mid Year Update 2023

By The Property Couch July 21, 2023 in Free Resources, Videos

Hey there, we’re excited to share this mini property market update with you!

Back in February on Episode 429, we discussed our market outlook for 2023. Now, midway through the year, it’s time for a refresh!

So, let’s dive into the data and explore where the property market is heading and where potential opportunities lie.

Here are some of the data that Ben covered in this video (and yes, you can expect lots of graphs & screen shares 😉)

Starting with the macro data, we look at the Consumer Price Index, which shows past inflation trends. We’ve had highs in the past with soaring interest rates, but the good news is that inflation is trending lower now.
As we examine the cash rate history, we notice patterns related to inflation trends. The recent sharp increases are contextualised, and we find that we’re getting closer to a more normalised rate range of 3 to 4%, signaling the tightening cycle may soon end.
Now, let’s delve into the long-term perspective on property. Stay tuned as he shares his insights on where the property market is heading and the potential opportunities that may arise.
And heaps more!

Excited to share this valuable information with you. Let’s get started! 📊🏡

FREE RESOURCES:

Further Knowledge Building:

If you are considering or are in a position to invest in property, we’d highly recommend you continue to build your knowledge and understanding of the market by watching a Property Investment Masterclass that Bryce and Ben have made available. Combined, there are over 50 years of property investment experience. Our goal is to simplify the information down to key takeaways and proven processes that we know work to help you build a property portfolio that can help you retire on $2,000 a week.

Check out our Masterclass here >

Need professional help with your property journey?

If you’ve taken the time to watch our video and find yourself in need of professional assistance to kickstart or refine your property journey, we’d love to help!
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Empower Wealth offers a complimentary and no-obligation initial consultation (more info here). This includes: Property Investment Advisors, Buyer’s Agents, Mortgage Brokers, Financial Planners and Tax Accountants.

Our process begins with this free consultation, during which we assess your current situation and discuss potential opportunities. There’s no obligation involved at this stage. If you’re already doing a great job working towards your goals, we’ll simply shake your hand and congratulate you. However, if we see potential in assisting you with your financial journey, we’ll let you know.

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Raw Transcript:

Please note that this transcript is auto-generated and may contain a few typos and incorrect translations. For a smooth and insightful experience, we recommend watching the video while reading this.

Hello, Ben Kingsley here. I’m really pleased to be able to present this effectively, mini property market update in July. Earlier at the start of the year, in February, Bryce and myself on our very, very popular podcast, The Property Couch, I delivered a market outlook in terms of where we saw the market hitting over the course of 2023, and obviously I thought a midyear update would be important.

So I put together this little mini property outlook update for anyone who is interested in the property space. Now, back in February, we prosecuted the idea that the cash rate would only get to around 3.6% to 3.85%. Now we know at current time of recording the cash rate is currently sitting at 4.1%, so it’s important that we now look at where to from here if we think that interest rates still have a little bit of a way to go in terms of maybe one or two more rate rises.

I’m really pleased to be able to take a look at the data and share my narrative in my interpretation of that particular data. In terms of where I see the property market hitting and where I see some opportunities in that property market. So what are we waiting for? Let’s jump straight in to the story now. Of course, when you’re doing these sort of property updates, it’s very important to start with the macro data.

So we’re going to do a little bit of a look at most of the macro data that I’m talking about here. And so you can see here

I’m starting with the Consumer Price Index, which is the consumer price inflation story. And it’s really clear that when you study this and you start to get familiar with it, you can see that obviously during the eighties and obviously into the early nineties, we had very, very high inflation and that obviously caused very, very high interest rates for.

So I’ll get to in a moment. But the other thing we also saw here is we saw this stubborn story around inflation hanging around for longer. So you can see that in the quarterly seasonally adjusted numbers. And that’s that wage price spiral that I talk about when I do my economic and RBI updates each month. So we obviously want to try and avoid that.

And that’s what Governor Stevens and now our new governor who starts on the island in September, Michelle Bullock, is going to be focusing in on in terms of what that story looks like. Now, looking at today’s story here, we know how it started. It was obviously, you know, in terms of Russia invading Ukraine, etc.. And so we saw this big spark in terms of supply shocks and now it’s still hanging around in regards to obviously that localized demand or service led inflation that we’ve got coming through.

So the good news story is that it is trending lower, but we don’t want it hanging around for too long. We want to be able to get down to that lower inflation story. Now, I mentioned this earlier around what it sort of means for the cash rate. So it’s a blunt instrument instrument, I should say, that we’ve got in regards to how we measure that so we can see here’s the story of the cash rate coming down off those record high levels that our parents will talk about in terms of the interest rates they had to pay when they were growing up.

But when you start putting that story next to each other, you can start to see a little pattern emerging around that particular story. So I want to sort of come in here and show you what I mean by that. So you can see here is that sort of improving inflation story through the early nineties, and that’s that number coming down through here as well.

And the other thing I want to sort of focus in on and obviously as inflation has grown, we start to see this sort of story playing out as well in terms of this higher and sharper, you know, cash rate movement that we’ve currently seen. But when we start to put it into context, we can see that we’ve had interest rates or the cash rate around this area before.

And in fact, you know, this was sort of more our more normalized rate levels that we did enjoy once we really did improve productivity and we got rid of that inflation story and we didn’t have that wage price spiral experience that we had in the sort of late eighties, early nineties when we reset the economy and focus on productivity.

So this is obviously the story that we’ve got through here. But now we’re hopefully seeing more normalized rates sitting around net sort of 3 to 4% range. So we’re getting very, very, very, very close to that, that tightening cycle coming to an end. Now, this is probably a nice little time to segue way into the story around what happens over the long term when we talk about property.

So if you feel like you need to pause this video and study this in more detail, a quick explanation is really simple. We’re looking at around 43 years of data across all of our capital cities, and you can start to see, you know, that long term returns that we’ve enjoyed in the property market, even though we’ve had periods of higher inflation, we’ve had periods of higher cash rates and so forth.

So making that connection and understanding, you know, moving away from the recency bias, bias that we all feel when we’re actually making these types of decisions is really nicely spelled out when we compare and say that long term price trend across the market and across all capital cities. So, yes, property prices don’t always keep going up. But if you think about that longer term trend, you can see there that that has been the trend in regards to property prices across the country.

All right. So we’ve now talked about the inflation and the cash rate story. Let’s start to think about what’s happening with the consumer. And it’s very clear that when you start taking money away from the consumer and you start to slow the economy down, that sentiment is going to obviously adjust. And we can see that here. In terms of the optimism line, which is above 100, we have below that line and we’re sort of down in areas that we haven’t been down for a long time.

So a consumer sentiment is definitely challenged at the moment and it does feel like the economy will slow and we’re going to borderline, you know, sort of test the boundaries of a potential recession depending on how long interest rates have to remain higher for longer. So let’s move into the other important story here. And while we probably aren’t in that sort of more dire situation around sort of going into a recession at the moment is because of this unemployment story or more importantly, the actual high employment that we currently have across the nation.

So again, this is a mini update, so I’m not going to spend too much time on this. But just look at that unemployment rate line here where we’re saying, you know, the unemployment rate is in the threes, very, very solid in that particular area. So as someone who’s studying the macro story here and trying to make an interpretation around the property market, this obviously is a really good story because obviously means that there’s slightly less risk of seeing, you know, for sales or mortgage and position sales because we do have a fairly strong economy and we obviously have strong employment now.

So I’m looking then at forward indicators to give me a bit of a read on that. And you can see let me go down and take a look at the job vacancies and we can see in terms of these job vacancies that we’ve got this particular story playing out for us. So if you start to then take a look at those medium to longer term trends where we currently sit right now.

So we are definitely above that trend line in terms of what’s going on here. So we still have a fairly strong, robust job vacancy markets and that is also the reason why we’re still seeing those interest rate increases because, you know, we’ve heard from the governor and also the government of the day talking about the fact that, you know, through this mechanism of slowing the economy down, it is going to increase the unemployment rate and they are forecasting the unemployment rate will settle in the fours so that round that mid fall level.

So what we do need to see these job vacancy rate numbers coming down because obviously with more people arriving in the country, we’re still saying, you know, these job numbers are strong and those people who are arriving also getting gainful employment fairly quickly. The other big interesting part of, you know, the narrative that we’re hearing out in the marketplace and how that affects sentiment is this story around this fixed rate cliff.

So we’ve had these stories in the past which have amounted to nothing such as the interest only conversion in two principal and interest loans. Well, this is another one of these test cases that we’re going through right now. And we can really see that we’ve just passed the peak in terms of a significant number of fixed rate mortgages moving into variable mortgages.

And you can see, however, that we’ve still got this bulk of traffic that is coming through. Now, why is that materially important for context? Well, if you think about the typical average mortgage, 580,000, if you’re going from a really competitive two year fixed sorry, fixed rate of 2% and you’re moving to a 6.15 variable rate, as an example, we’re talking about 1350 dollars in additional repayments.

So that naturally gets a lot of click clickbait and a lot of news stories around that fear mongering about what’s going to happen. And so that’s why I’m trying to correlate that to the employment story to see whether these people are going to be able to maintain their property story in terms of being able to meet those repayments.

Now, as part of that story, we’ve also learned a lot about the household and how they’re consuming. So this is a really nice graph to sort of give you a sense of the consumption and the disposable income. So when we take away when we increase interest rates, we take away disposable income. And so we can see that consumption, that spending coming down.

But what we’re also seeing here, which is just as important, is that savings ratio is also falling considerably. And I do expect that to come down even further as we see more and more of these households having to pay higher mortgage repayments. But obviously we got to that level on the back of being stuck at home in lockdowns and not being able to have mobility and and also doing any of our spending that we would regularly do.

So that’s the story that we want to see, continue to keep tracking as we slow the economy down. And once we get to that peak, hopefully we’ll see interest rates pause and then ultimately I will see a downturn in terms at an interest rate. Now the next chart is a really important one. Also, when I start to think about how households are going to respond now I’m on record as saying do what ever you can.

If you are in a difficult position, do whatever you can to be able to trade through this period because it is only going to be a moment in time. So what am I looking for in terms of seeing people being able to do that? Well, with heaps of jobs available in terms of what’s happening out in the marketplace, you can see that a lot of people are taking on multiple jobs.

So you can see the dip, obviously that we saw through the first lockdown and the first wave of the pandemic and then that further dip. And these are consequences of lockdowns in places like Melbourne and Victoria and those type of things. But the trend is really meaningful in terms of people doing multiple jobs. So, you know, if you’re talking about the gig economy or doing some type of work like Uber driving or whatever, we’re going to see a lot more of that.

People taking those second jobs to be able to cover the mortgage as we go through this transition period to get inflation lower. So that is a good sign for me because I’m looking at the jobs are there. I’m seeing that the unemployment rate is still staying low and I’m seeing people do whatever they can to maintain those properties.

So we’re not necessarily going to see a glut of properties coming onto the market, but I’m highly attuned to that particular story when it comes to what’s going to be happening with property now on the on the supply and demand side or the demand side here. We also know this big story which is being made more political every day around this population story coming in.

A little fact that everyone needs to understand is any person coming through the country or numbers of population that are coming to the country are net positive when it comes to job creation. So if you hear any narrative from the Liberal Party or whatever saying, you know, it’s taking people’s jobs, blah, blah, blah, it’s not true. Okay, So ultimately you want to understand that.

But what we are seeing here is a significant number in excess of a million people over a couple of years that are going to be arriving to work and migrate into this country and settling to the great Australian dream. So that is going to obviously put upward pressure on supply because this is a demand led story in terms of that population growth.

So let’s let’s go a little bit deeper into that story and now looking look at those dwelling approvals so we can see here what’s really important for me to be studying and and what I am laboring on in my economic and RBA updates is this idea that we can say this is the decade average you can see in houses and units.

So through the homebuilder program and incentive we got a massive spike of homebuilding and that’s occurred. There’s obviously been some unintended consequences of that in terms of supply chain shortages, which has led to some of those builders collapsing. So it’s not a great story for some of those people who were getting their first home or or building their new dream home.

So you can see that coming down. You can see how volatile the unit market approval numbers are when you’ve got significant medium and high density approvals coming through. But there really is a construction lag that’s going on here that we’re also seeing play out in the numbers. So that says to me that supply is not going to arrive quickly, even though demand is continuing to improve.

Moving down on that, let’s take a closer look and start to think about where is this tracking so through our good friends at CoreLogic, we’ve got access to obviously these new listings at a national level. And so I’m I’m definitely following this little uptick that we’re seeing here with high interest. And Bryce and I will do a further update on the marketplace hopefully in August where we can get a sense of the listings coming for the for the spring selling season.

Because at the moment you can see it’s clearly below the long term five year average and it’s clearly below the activity we saw in 2022. So that in itself with these new listings is what’s keeping supply down and demand high and why property prices are continuing to grow at the moment. Now let’s look at total listings. So just remembering that this is new listings.

So we’ve seen a lift here, but what we also want to then look at as well, what does it mean for the overall supply? And we can still see that that has made a very limited dent in regards to our overall total listings of properties. And so when we’re talking about the potential risk in the marketplace in terms of, you know, mortgagee in possession sales or people for selling, we are definitely not seeing any of that.

And we’re also listening and reviewing the data being released by the big four banks in terms of their distressed or in arrears mortgage holders as well. And you know, we’ve seen some comments recently that there has been a slight uptick, but again, certainly below long term averages. So we’re not seeing any stress levels in the marketplace at the moment.

Let’s take a dive now and separate that in to the state and capital city markets. And so again, you feel like you need to pause this, to study this and a little bit more detail do so, but you can start to see those trends. Also remembering this is a year on year equivalent. So you might be wondering, well, Melbourne’s not as high as I expected it to be, but you’ve also got to remember that Melbourne’s had a very, very low supply of listings for several years now.

So that’s why that percentage number is a little bit lower than we would normally see compared to those other more active markets. Obviously Brisbane, Adelaide, Sydney had very, very strong performances during the COVID with record low interest rates, whereas Melbourne was continue to be shut down and obviously that impacted the confidence in the sentiment of the Melbourne market as well.

But that just gives you some idea in terms of new listings and total listings. So study that to get a more sense of the market. You know, again when we did our economic and I’m sorry, a property update and predictions for 2023, we did say that we thought that the worst was behind us in 2022 and we thought property prices would start to move because we didn’t expect interest rates to go above that 3.6 to 3.8.

And we did see that supply and demand imbalance starting to appear. And guess what? We were right. So February, March was obviously the period where we saw the bottom of most of those property markets. And we’re now starting to see price growth in a lot of those particular markets, with obviously exception to the Darwins and also the Hobart markets as well.

But that just gives you some idea. Now the question is obviously if interest rates and inflation remain stickier for longer, will we see a pause or a lull in the market? And I’ve got more to say about that in my closing statements. So again, let’s now break those quartiles down and start to study the market and in terms of what’s happening in different markets.

So it’s really clear that classically our two biggest centers, Sydney and Melbourne, are price recovery is always led by the 75% quartile market. They are less affected by these interest rate stories are generally speaking, higher incomes, not as as, you know, higher mortgages, but also higher incomes in those particular marketplaces. So it doesn’t affect those borrowers as much as the more vulnerable borrowers and those people who have got really high mortgages but low incomes.

So we’re seeing that in terms of where the price performance is coming from. Interestingly, Brisbane, Adelaide and even Perth for that matter, the price performance is coming from the bottom quartile of the market and I suspect that that is definitely a blend of those particular markets with first home buyers are competing with investors. We know through obviously our own business activities that those three markets are the hottest markets at those entry level price points and we expect that that’s obviously artificially putting pressure on that lower end of the market in terms of price performance and capital growth over that particular period.

Then you obviously go on say Hobart, Darwin and the ACT again, Hobart, Darwin and the ACT being led by that higher end of the market. So that’s obviously a good sign if things are stabilizing in those particular markets as well. Let’s move down now and have a look at the that the auction clearance right? So what I’m doing now is I’m going even granular and more time sensitive data.

What you’re looking at here is the three months and but what I’m getting down here is this is the week ending the 16th of July. So I’m recording that this week in terms of the performance. So what am I always looking for? I’m looking for leading indicators here. So I look at the auction clearance rates as part of those leading indicators and you can see the clear differential between clearance rates this year versus last year.

But you can also see the stock levels are lower this year to last year as well. So that’s feeding into higher demand, lower supply, and that’s putting pressure on prices on the upward side as well. So that’s exactly what we’re seeing here. I don’t read a lot into Brisbane, Adelaide, Perth markets given you can see the small volumes that are at play here.

But certainly our two leading capital city markets have a significant size of auction activity and that gives me a good indication in terms of where the market’s at, in terms of buyer sentiment and buy demand. Right. So what does that meant? Well, based on that data from this week, we’re seeing Sydney Point three up, Melbourne Point one for the week, Brisbane up 0.4, Adelaide point to Perth, Point to an and capital cities combined point to Sydney’s again having pretty strong price performance.

A 1.4%, Melbourne Point five. Brisbane 1.1. Adelaide point six, Perth Point six as well. So some pretty strong numbers. And so again, are we seeing, you know, a dip? Is this going to be a dead cat bounce or ultimately are prices going to continue to keep growing through that period? Now the best way to study that is I like to bring this chart up here and and again, I encourage you to pause so you can study this in more detail.

But the areas that I’m looking at as is this particular story here. So I’m looking at new listings compared to last year. So I can say there’s been a little spike in Sydney. We can also see in Melbourne terms that that that the supply of new listings is still in insufficient compared to last year. We can say Brisbane, Adelaide and so you can start to see those new listings and title changes.

They are still challenged markets. This is the commentary that I’ve been making around Hobart in regards to look at the oversupply of listings that they’ve got and that’s why it’s the most underperforming market in the country at the moment. And then obviously you can get a bit of a story around, you know, the ACT and Darwin and the combined capital.

So I look at that from a supply side and then sort of starting to see where that demand story fits into that particular thing. So in closing, again, it was a mini update. We’ll be doing a further update with Bryce on the podcast in August where we can get some more sensitivity around some of those trend lines that are occurring.

But in the short term, here are the headwinds, right? So there’s still potential for a couple more rate increases and that’s obviously affecting sentiment. And it’s also on the back of inflation remaining stickier. And so that for a lot of people is a means by which they are putting their they’re sitting on their hands and doing nothing. And that to me is an opportunity.

So I’ll explain that in a moment. We might see increase in supply. So there will be some people, if interest rates continue to go, we’re seeing the fixed rates that there’s definitely some investors who were overcommitted or not willing to change the law style elements that they’ve introduced into their household. So you will see a few of those investment properties are coming onto the market.

And there’s also no doubt that there will be some overstretched owner occupiers who have bought in that sort of low interest rate environment as part of that particular story as well. And so, you know, the way in which I look at that is I as I effectively say that that there’s going to be some risk in that side.

But I’m not seeing any material risk in the data. And I will continue to keep an eye on that and some sensitivity around that. Now, we we might also say in terms of the pace of those price increases, we might see that stalling. So we might see another lull coming into the market, which is really if I’m thinking about investors or or buyers who want to come into the market, it’s actually a good thing because what it’s giving you is, is the time you missed the bottom of the market.

It was February, right? So is it now going to be a situation where you’ve just got this extra window of time to be able to come into the market? Because there’s no doubt we’re going to see, you know, the employment story start to wane a little bit. But we still have this, you know, situation where supply is going to be materially and on the supply side for the market.

So what am I saying there? There’s some short term buying opportunities. You bet there are. Rental demand remains very strong. So we’re going to see improve rents. We’re going to see potential slightly higher interest rates, which effectively could reopen that buying window. So I call it the timing window before we potentially see this next rush. So, you know, we’ve been talking about there’s a lot of pent up demand out there.

We know that people are sitting on their hands and not doing anything about things. They’re waiting for that time. But the smart money says that, well, if there is going to be this rush, do you want to be competing against everyone else who comes into the market? So probably undersupply we are talking about years, not months in terms of that being resolved.

I continue to keep talking about market sentiment will improve. We see it in the short term data. So when we had that pause in May and the pause last month, you can immediately see activity. You know, we’ve got research platforms, so we see more activity on those research platforms. When people think this is, you know, the worst of it’s behind us.

Well, once there is more confidence around the tightening cycle being finished and done, we believe that that will start to move that sentiment story. And then finally, the sentiment story is going to obviously be charged up further with a significant amount of demand when the first cut in the cash rate to more normalized levels is going to kick in.

So the economists will respect that. Economists are talking about that rate cut happening around, you know, sort of my Bill Evans is my summer in March and in terms of where that happened. So I’m just calling it first half of next year where we will start to see potential easing of the cash rate. Now, even if we don’t see a easing of the cash rate in the cash rate lanes that, you know, sort of 4.6 or whatever it might land, that that’s still remembering quite comfortable.

You only need to go back to what we were looking at earlier in terms of those long term cash rates and exactly what happened to the long term performance of property. And that’s where I want to close it. I want to talk about the long term rewards. So what we are talking about there is the short term, but you know, those buying opportunities with this lull in the market could also be available to you.

But the long term rewards are going to be driven by the normalizing of interest rates. So they will come off this peak cycle. We’re obviously got strong population growth and lower inflation and obviously property is an awesome inflation hedge. And then obviously we have seen, you know, wage price growth and happening. Right. So wage growth, I should say, not wage prospect, but wage growth improving over time.

So that is obviously increasing borrowing power for that next uplift of of demand that we also expect to see. So so don’t lose sight of the long term story is always my long is my message and my final message which has been consistent from the day I’ve been advising people from effectively 2004 to this day is the best time to invest in property is when you can comfortably afford it.

In other words, you’ve done your cash flows, you feel like you’ve got good job security, you’ve got some buffers in there. That’s the best time to invest because the long term returns are going to be significant in terms of how they improve your overall financial position, whether you’re buying for owner occupier purposes or also whether you’re adding a couple of investment properties to also supplement your super in retirement.

It’s really important that you understand that message and you don’t get overwhelmed by the recency bias and also by the negativity that’s happening in the market. So if you see an opportunity there, I hope you take advantage of it. I’ve always said that again since we started the podcast that knowledge is empowering, but only if you act on it.

And that message also remains true. So I’ve got some value out of this particular presentation. I look forward to working with Bryce and giving you a further update as we look at more and more data over the coming weeks and sharing that that outlook for the second half of the year when we get on the property couch If you haven’t heard of the property cash before, it’s Australia’s number one Property Finance and Money Manager podcast.

You can find it all you good podcast players. And if you’re watching this on any of our YouTube channels, great. There’s obviously other educational content on there as well, so I hope you can check it out. We’ve got obviously the power wealth community. We’ve got the more community for money management and looking after your finances. And also we have the property couch, which is our educational platform that we get all of our messages out on.

So thanks again for watching. Hope you got some value. And again, remember, knowledge is empowering, but only if you act on it.

RBA Cash Rate July 2023: The Close Rate Call

By The Property Couch June 28, 2023 in Free Resources, Videos

Note: If you’re a regular listener of Ben’s RBA releases, you may have noticed that this update is relatively concise. We’ve mentioned on the podcast that Ben won’t be providing a detailed economic breakdown for this release due to personal reasons. However, rest assured that we will resume our regular programming for the August 2023 release. 😊

Before delving into this month’s RBA Release, it is crucial to acknowledge the current climate of uncertainty, which has led some Australians to make rash decisions relating to their finances. We have seen some members of our community considering delaying their wedding plans, selling their cars, and even selling their properties.

While some of those decisions are well-considered, we are concerned that others might be jumping the gun a bit too soon.

There is no doubt that the stress level when it comes to money is at an all-time high, and we are seeing a similar trend of uncertainty, like at the start of COVID. Back then, to help our community better understand their cash flow, we built this tool called MoneySTRETCH, which lets you know how long your money will last if there’s a change in your circumstances. It really helped our community then.

What is MoneySTRETCH?

In a nutshell, this tool lets you know how long your money will last if there’s a change in your circumstances.

For example, if interest rates go 2% or 3% higher, you can enter the expected repayment value to see the impact on your current and future financial position – down to the exact cent and month! Can you last another 36 months at your current spending level if interest rates are at 9% as another example.

And yes, it can pretty much cater to other questions such as:

Can I even afford anything anymore? Should I take up a second job? Should I start a family this year? Maybe I should push back our wedding. Should I quit this job that I love and get a higher-paying job? Do I have to sell off my car? Should I sell off my property?

Now that we are facing another round of uncertainty, we thought we would share this tool with a wider community and hopefully help others in making better and more informed financial decisions.

If you would like to know more, click here to find out how Money Stretch can empower you to make more informed financial decisions.

Free Mortgage Review

Alternatively, if you would like to book a free and no-obligation consultation with us to review your finances and potentially, chase down a better deal and save more interest, simply fill in the form below to get in touch for a Free Mortgage Review.

Or Click here to learn more about our mortgage team.

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Now, let’s get into the RBA announcement.

Transcript:

Ben Kingsley here with an important message for all of us mortgage holders.

Today the RBA board met and they kept the cash rate on hold at 4.10%. Now that said, inflation is still a little bit of a problem so we may be still to see higher interest rates in the short term. Why am I bringing this up as a message? Well it’s really important because at the moment our mortgage costs have been higher than they have been for many many years.

It’s too often I see households which don’t take action. They just accept the current status quo and pay the higher interest rates and pay those higher repayments to their lenders.

Well, I’m here to tell you that if you do ask the question, there are potentially thousands of dollars in interest savings available to you. By way of example, just in the last 12 months alone, our award-winning mortgage broking team has saved over $3.5 million in interest costs.

So again, you’ve got to ask the question.

Now, what I am saying in terms of what’s happening from a competitive environment in the mortgage space is number one; there are still cashback offers available in the space. Now, what does that mean? Well, it means you could be reversing maybe one or two interest rate rises with several thousands of dollars in cash back.

In addition to that, we’re seeing super competitive interest rates. So we do know in the industry, we call it a loyalty tax. So if you’ve been with the land for, say, two or three years, you’re often paying higher interest rates than new customers pay for that exact same bank product. So it’s really important that you continue to keep shopping around.

And finally, one of the latest developments in this space is around refinancing – if you’re trapped in mortgage prison. So you may have gone back to your current lender and they said, look, there’s nothing we can do. And you’re thinking you can’t move because maybe six months ago you spoke to another lender and they said no. Well, there are recent developments around how servicing calculators can be worked around to allow you to refinance from your existing lender. We call that mortgage prison into a new, cheaper line. So even that is worth asking the question from your broker.

Now, if you don’t have a broker or if you’re not happy with your broker, we are definitely putting our hands up here at Empower Wealth, which is our award-winning mortgage brokerage team.

And we are saying to you, let us be that. Ask the question through us. Our services are completely free of charge to you. So what are you waiting for? You’ve got everything to gain and very little to lose. Let us do all the work for you in terms of hunting down a better deal. And if we can’t get a better deal, you haven’t lost anything other than just asking the question.

So if you’re interested in asking the question, all you need to do is fill in your details below and we’ll be in contact with you shortly.

Let’s go out there and chase down a better deal. That money is worth more to you than it is to the bank. Let’s go on and hunt, and find that money for you.

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Money Stretch: Empowering Households to Make Informed Financial Decisions

By Ben Kingsley June 26, 2023 in Free Resources, Videos

Ben Kingsley here, and in this MoneySTRETCH tutorial video, I’m introducing you to MoneySTRETCH. Now, MoneySTRETCH is one of our money management tools, that’s an interactive tool inside the web or desktop version of the Moorr platform, and we do recommend you use Chrome to access that. This tool is solving for the biggest problem that most households have, and that is:

How much money do we have and how much will it last if there’s a change in our circumstances?

Think about that. What happens if we decide to have a child and we go down to one income? What is going to be the impact in terms of: are we still going to have positive cash flow or are we going to have negative cash flow? What about interest rates going up? How is that going to impact us in terms of the money flows?

A lot of households make big decisions around money when they aren’t fully informed. And so, the idea with MoneySTRETCH is to provide you with a tool that allows you to make more informed decisions, as opposed to making irrational or emotional decisions.

So, what are we waiting for? Let’s go through to the demonstration screen now.

Here we are in the web or desktop version of the Moorr platform, and we’re at the home page. So, we can see a summary of the household situation. Now, to make this example really interesting, with regards to MoneySTRETCH, I’ve actually put this household in a little bit of financial stress, and this would be playing through in an emotional context. Because even though they’ve got very healthy household income coming in, you can see here that based on their forward projections of the next 12 months of spending, they’ve got $5,253 in the negative. Now, of course, they do have a cash flow buffer, but what would be going through their mind is: how many months are we going to be able to survive? Because they would be seeing that cash savings buffer starting to diminish. And this is an important point because ultimately what I what I did was I put an investment property in there, but in this particular example, interest rates have gone up and they may keep going up. So, we’re going to play around with that scenario to ensure that the household can get some comfort around their current spending habits and what they can potentially look to save and see a line of sight on that information. So, let’s round out explaining a little bit more about their situation.

So, we can see here how the money’s flowing into the household, the tax payable. You can pause this and have a longer or more in-depth look at that. But you can see here there’s $438 per month that they’re going backwards.

Let’s now go into the financial tools. You’ll see MoneySTRETCH, and this takes us into this sandpit area. And again, this is all about an interactive self-assessment tool that’s designed to help with those cash flow questions that you might have. Really easy to use. Now, what you would normally do in your financial area is you would also go and make sure that you’ve done the right job with your bills and spending. So I cannot stress enough to be really understanding of your essential versus your discretionary, meaning your needs versus your wants. And so you can see here you’ve got the opportunity with each expense item to go through and say, “Okay, well, what is essential versus discretionary?” And there’s only a bit of paid television in here that is considered discretionary. It’s usually in the spending area.

Naturally, bills are a fixed cost, and in a lot of cases, they are essential. But we can see here in regards to the groceries and other items, you can see that this couple have been quite honest about what their minimum requirements are in their spending around essential and what are ultimately some of those discretionary items. And if we come down to the bottom here, we can see a summary of those values where we can see that our essential spending across both our bills and our spending, and if we were renting, we would have a grand total of $6,176 versus discretionary spending, which is almost a thousand dollars a month. So we can see that sort of coming through in those numbers. So again, we go across into MoneySTRETCH.

Now, to bring that data across, if you are a regular user of the platform, you simply click on this button here, and that will reset your information on this particular page, and that just gives us a calibration in terms of what’s happening here. So what you can see, if I quickly just go down to the bottom, there’s that $438 that has been brought through in regards to this particular situation. So it’s been brought through, and here we now start to see some lines.

To start, this is telling us our baseline.

So baseline money available is this red line. You’ll start to see money available with current spending, so that line will start appearing. But obviously, the baseline scenario is we are doing our current spending, so that’s our essential and discretionary spending that we’re doing. But this would be money available without essential spending. So, sorry, with just essential spending. So taking out the complete discretionary spending, this is what their story would look like. So we saw that it was around a $5,000 shortfall per month, $438, but if we were to go back and be honest about what sort of discretionary spending we were going to do, there’s every chance that we could stabilize this situation, and we wouldn’t make an irrational decision around selling a property because we just felt a little bit panicked about the current situation. So that is the worst thing you can do. It’s a wealth destroyer. So you want to be able to do everything, and how you do that is you make the invisible visible.

Coming back up into MoneySTRETCH again, you can see here that we’ll reset that data because I didn’t save it. So we’ve imported that data again, and that’s our baseline. And then you can see here with obviously no change. So what I’m doing there is I’m showing you there’s been no change to the current situation. Now, what you will be able to see, if I can set the screen, well, let’s say there’s an example that we’re going to drop 20% of our salary and go down to four days a week. Now, just by doing that, I’m almost there, so go down to 80%, so 0.8. You can start to see that if that was the case and we lost a lot of that income all of a sudden, now the money available in current spending would see us run out of that buffer inside 34 months. So this is set, almost just inside that three-year period. And you can see here that the insights that you’re getting is that you would have 34 months of money available if nothing else was to change in your household. If you obviously continue to just use only essential spending, you can see here that there’s clearly ample money available in excess of three years of buffer, and there are really no problems there in regards to that particular story. And again, in terms of the baseline or the no change, that’s what our situation will be. So what we’re showing you is if you didn’t go back to 0.8 for one job, that would be the scenario which we were tracking before. This is now the scenario assuming that you’re only doing your essential spending, and this is your scenario saying that actually, we’re not changing our lifestyle. We really love it.

This is how much money we’re going to have available and effectively, that’s The Power of Buying Time.

So what you’re trying to do here is buy time, and that’s giving you some comfort around the time where interest rates might settle down, they might start coming back, the economy might be in a bit better shape. And so all of a sudden, you know you’re out, you’re out past any sort of concern that you might have had around your current financial situation. Now let me reset the spending back to $400 again, and you can see those lines have rejoined. Now let’s start to think about what is also plausible and what’s possible around mortgages. So if the mortgage is going to keep going up, you can start having a look at that. So you can see there’s my property investment costs, and there’s my total loan repayments. Let’s say my total loan repayments go up by another $500.

I’m going to go in here and reset that loan to move that up to $7,900, and let’s say my investment loans go up another $300. So I’ll set that to $1,759. And when I start doing those settings, you can start to see a changing story. So there was our baseline or the no change. Unfortunately, when banks put up our interest rates, we have to pay them. So that tells you the story.

This then tells you the story of if we keep spending at the same level in terms of availability, and this tells us our story about the essential or available spending. The more you play around with, ‘Okay, well, what if?’ You know, what if my repayments go up? You know, rather than just $500, what if they were to… And I’ll put that back. What if they were to go up another $1,000 a month? And, you know, same here again, I bring that back down and I change this to… This one going up, you know, I’ll even be more exaggerative and say that’s going to say that that’s gone up by $2,000 a month. So we now start to see where we currently sit, you know, in terms of the insights on the charts. But you’re also getting this nice little summary here.

So if you keep spending at the same level that you do, you’ve got 28 months of runway effectively.

That’s now starting to creep down in terms of if you were to start to look at some of that discretionary spending that you’re doing, you’re still very comfortable in terms of having three years, 36 months of available spending as well. That’s where you can start to look at money in, money out. Then you can also, you know, come down here and you can start to unpack this particular story here around your spending, in terms of your bill payments and also your spending. So we’ve made a mirror copy of what you have in your true financials area, and we’ve made that copy in here in this sandpit. And then you can start playing around with, ‘Well, well, honey, or well, hubby, what if we change this or change that?’ And we can start having a play around with that, and you can see how that then impacts these particular targets around where… And if you hover over them, they will give you those calculations in real time as well. So it really is a phenomenal tool to be able to play around and have a look and stress test cash flow forecasting by yourself and get instant responses.

As part of that, you’ll also see in terms of if you then wanted to make these changes and make them permanent as to your budgets for your next 12 months or whatever it is you’re looking to do, you can then also publish those changes. So any changes that you make in here, so let’s say I wanted to change that to $1,000, I drop that extra discretionary spending on entertainment, and if you publish that result, that would effectively move that information over into your bills or spending area, depending on any changes that you want to make. If you don’t want to make any changes, that’s completely fine. You don’t have to. You’ve got the confidence to know that you’ve got plenty of runway in terms of your current situation, even if interest rates were to go up significantly and your repayments were to go up significantly, any other costs. So you can have a good play around in here in terms of what that looks like.

That just gives you the screen summary. Let’s close out this tutorial.

That’s our introductory video into the MoneySTRETCH tool. It really is a super interactive tool to help you look at cash flows, to model certain types of scenarios. You can spend 10 minutes in there or you can spend 10 hours in there in terms of looking at all of those options. And it really is about stress-testing those household cash flows and those savings buffers because time is a valuable commodity. And so if we’ve got enough of that money to be able to buy that time, we are less panicked and less emotional about decisions that we make.

Now, in that particular example, I intentionally put stress into the household, $5,000 dollars falling in backward.

A lot of households we’ve seen would make irrational decisions and snap decisions about selling investment properties or doing silly things that they could have avoided to do if they had measured that money and understood the time that they had available to themselves.

So please check out that tool and take an opportunity to check out some of our other great tools. We have a full money management system inside there called MoneySMARTS. It is fantastic, super easy to operate, 10 minutes a month to get a really good gauge in terms of how you’re trapping that surplus. You’ve also got WealthSpeed and Wealth Clock that give you this real-time audit, this moment in time ordered, in terms of how quickly your wealth is growing and really starts to change behavior and getting some actions around being able to create that lifestyle by design. So thanks very much for watching this intro video.

There are a lot of other tutorials that you can check out on this page, so please make sure you look for them as part of the Moorr platform. And remember, knowledge is empowering, but only if you act on it.

Thank you.

What are you waiting for? Jump in to Moorr today and see how far your money can go 🙂

Bonus Episode with Julia: Maximise Your Returns: Mastering End-of-Year Tax Planning, HECS Hacks, Super Strategies, and More

By The Property Couch May 22, 2023 in Free Resources, Podcast

In our final episode before the end of the financial year, Ben and Julia will be exploring the latest tax updates from across Australia, including:

Important Changes to HECS/HELP Debt – Changes you MUST ACT on quickly! Each year your HECS debt and other student loans are indexed for inflation on the 1^st of June. This year the indexation is increasing by 82% to 7.1% from 3.9%. That’s why you need to act.
Superannuation Contributions before 30 June: A comprehensive guide for maximizing your retirement savings and navigating the complexities of tax-deductible contributions.
General Tax Return Insight: Timing is crucial when it comes to maximizing your benefits. Learn how to optimize your deductions for the best tax outcome.
End-of-Year Tax Strategies for Property Investors: Stay ahead of the tax game! To maximize deductions within the new guidelines, it’s crucial to consult with a tax professional. They can provide valuable insights and help you make informed decisions. Don’t leave potential deductions on the table.
Reminder about Working from Home Expenses: Track your expenses, maximize your deductions! If you’re claiming home office expenses or other mixed-use expenses, like laptops and phones, maintaining a detailed diary is essential.

Tune in now for an informative and essential episode where Ben and Julia break down the latest tax updates to help you stay ahead of the curve.

Watch the video now:

Important Changes to HECS/HELP Debt – changes you MUST ACT on quickl

This is top of the list because you need to act before 1st June 2023. Each year your HECS debt and other student loans is indexed for inflation on the 1st June. This year the indexing is expected to be around 7%.

So, if you have any spare cash that is a very good return on your money.

Don’t think that the amount your employer deducted from your pay over the last year has reduced your debt. That won’t happen until you lodge your tax return.

If this is likely to be your last year of having a HECS debt paying it down right now will effectively give you a 7% discount because you will only have to wait 2 months and you will get your money back in your tax refund. During the year your employer would have deducted HECS from your pay but if you can beg or borrow the amount before 1st June to pay off your debt now then when you lodge your tax return no repayment will be triggered so all that HECS deducted during the year will be refunded to you.

If you do not pay all your HECS debt off, then the ATO will still take some HECS out of your refund when you lodge your tax return. But at least you have made 7% on the money you did pay and that will compound. The uplift factor is likely to be significant next year too. A lower balance will save you money every year.

To find out whether you are getting close to paying off your HECS debt this year have a look on MYGOV for the amount and here to work out how much you are likely to have to pay if you wait until you lodge your tax return. https://www.ato.gov.au/Rates/HELP,-TSL-and-SFSS-repayment-thresholds-and-rates/#HELPandTSLrepaymentthresholdsandrates201

Superannuation Contributions before 30 June

If you want to make a superannuation contribution and claim it in your 2023 tax return, you best get a wriggle on. The contribution has to be safely in the superannuation fund by the 30th June. This post addresses the practicalities of making the contribution and dealing with the $27,500 cap.

Measuring the $27,500 cap:

If your employer is also making contributions, then making your own, when you want to go all the way up to your cap is tricky. The cap includes contributions made by your employer. Your payslip may tell you how much super your employer has put aside for you, year to date. That is not really relevant, it is the date that they actually put it into the superannuation fund that matters. As employers have up to 28 days, after the end of the quarter, to contribute, the June contribution could be paid into the fund either side of the 30th June. From your employer’s point of view, they get a tax deduction in the year they actually make the contribution. So, if they are having a good year, they will make it early, possibly giving you 5 quarters of contributions in one year. If they are having a bad year, they may be cash strapped and not make the contribution until the last minute i.e. 28th July and they may have done that last year.
In short, ignore your payslip, log into your superannuation account to find the year to date contributions it has received for you. Then ask your employer whether they are going to make any more contributions, actually into the fund, for you, before 30th June. If they are, add this to the balance already showing in the superannuation fund. Then deduct that total from $27,500 to get the amount you are allowed to contribute without going over your cap.

Catch Up Contributions:

2020 was the first financial year where you are allowed to contribute over and above your cap if you had not used up the full cap in a previous year. The first year that you can look to for an unused cap is the 2018-2019 financial year and you can only look back 5 years, once we get that far away from 2018-2019. The cap up until the 2021-2022 year was $25,000 from 2021-2022 it is $27,500. Warning – you can only qualify to take advantage of this if your superannuation balance at 1st July 2019 was under $500,000.

What if you go over and you have no Unused Cap Saved?

This will be fine as long as you have not fully used up your non tax deductible contributions cap of $110,000 per year. You can still put the money into the superannuation fund and if when it all settles after 30th June, you find you are over the $27,500 you simply notify your superannuation fund that you will not be claiming that excess as a tax deduction. The up side of this is there will be no contributions tax payable on that excess and no penalty. You just won’t get a tax deduction for that excess and it is now locked away in the fund until retirement. If you are close to retirement anyway, that might not be a bad thing.

How to actually make a super contribution for yourself:

The best way is to electronically transfer the funds with the right code. This code not only makes sure the contribution goes against your account; it also describes what sort of contribution it is. You need to contact your fund to get that code. They all seem to have different terminology in their call centres, so it is important to make the following things clear to them.

You are making the contribution for yourself; it is not an employer contribution.
and
• You are going to claim the contribution as a tax deduction in your personal tax return, so you need them to send out the form for your Accountant to complete.

Getting Around Div 293:

If your adjusted taxable income is above $250,000 the ATO will send you a bill for another 15% tax on your concessional superannuation contributions, that is super contributions that your employer has made and ones you have made for yourself that were taxed at 15% rather than your marginal tax rate. 

The definition of superannuation contributions that will be added back are those that are treated concessionally, that is the key.  Now odds are if you are on more than $250,000 a year you are already using up your $27,500 maximum concessional contributions cap through the employer superannuation guarantee. 

So, if you were to make a further superannuation contribution for yourself and claim a tax deduction for it the ATO would pick this up and make you pay a top up tax to bring the tax paid on the contribution up to the maximum tax rate.  You can pay this top up tax direct or it can be paid by your superannuation fund.  As these contributions over the $27,500 cap are no longer concessionally taxed they no longer added back.

For example, if say you were earning $280,000 in taxable income you could put $30,000 into super and claim a tax deduction for it in your tax return bringing your taxable income down to $250,000 so no Div 293 on the $27,500 your employer contributed.  The $30,000 is still tax deductible in your tax return but it is not added back because it does not received concessional treatment in the super fund because the top up tax is triggered. 

The top up tax just means you end up paying the tax that you would have paid had you taken the amount as wages but you have saved $4,125 in Div 293 tax.  The only downside is you have more money locked away in super until you retire. 

Careful – Make sure that you have not used up all of your non concessional cap.  Seek advice if you have been making contributions for superannuation that you have not been claiming a tax deduction for.

Important to Note:

You should get advice to make sure it is appropriate for you to make a contribution. For example, you need to be under 75 years of age. Note if you are between 67 and 74 years of age you need to meet a work test of 40 hours within 30 days, in the year you are making the contribution. You may qualify for an exemption from the work test if your super balance at the end of the previous financial year was under $300,000 and you satisfied the work test in that year.

With all these strategies it is imperative that your superannuation fund receives the contribution well before 30th June 2023. Some funds have close off dates a couple of days before hand and some of the processing methods can delay your contribution by up to 2 weeks.

The rules are inconsistent and complex so it is important to get advice on your particular circumstances.

Tax Deductible Contributions for Yourself – The maximum amount of concessional contributions for 2023 is $27,500. This includes your employer’s contributions. If you are looking to maximise this you will need to find out how much your employer has already contributed but also how much they intend to do before the 30th June. This is the trap they may not have put your June 2022 contributions into the super fund until July 2022 and the same or a different miss match could happen at the end of this financial year. If you make a contribution for yourself you can claim it as a tax deduction in your tax return effectively increasing your tax refund by the amount of the contribution multiplied by your rate of tax.

If since the 2019 financial year you have at times not used up your full concessional (deductible) contributions cap you can use the unused portion from previous years to increase your cap for this or future years. These carry-forward unused contributions are only available for a period of 5 consecutive financial years. Be mindful if your superannuation balance is over $500,000 at 30 June of the previous financial year you will not eligible to use carry-forward contributions.

For all the details on how to go about this https://www.bantacs.com.au/Jblog/how-to-make-your-own-super-contributions/#more-636

Spouse Contributions

If your spouse’s assessable income is under $37,000 then you can contribute up to $3,000 into superannuation for them and qualify for a tax offset of 18% of the amount contributed, the maximum offset is $540. This tax offset increases your refund by up to $540.

The offset reduces as your spouse’s income goes over $37,000 and no offset is available once your spouse’s income reaches $40,000. Careful the $37,000 is assessable income so no deductions are allowed which is difficult if your spouse has a rental property or sole trader business.

Further, the assessable income is increased by any reportable employer superannuation contributions or fringe benefits. Additional conditions are that your spouse must be under 75 years of age (meet the work test if older than 66), not have made more than $110,000 in non-deductible superannuation contributions and their balance at 1st July 2022 must have been less than $1.7mil.

If the high-income earner has not maxed out their $27,500 consider whether it is better to make a tax-deductible superannuation contribution for the high income earner or claim a tax offset for a spouse contribution for the low income earner.

The Spouse contribution tax offset is only 18% though the contribution does not get taxed going into the fund. Basically, if the high-income earner’s tax rate is above 33% (15% plus 18%) then a normal deductible contribution will give a better outcome.

This is best explained in numbers. Let’s say you have $4,918 in before tax dollars and your taxable income is between $120,000 and $180,000 so your tax bracket including Medicare is 39%. Note for income between $45,000 and $120,000 the tax rate is 34.5% so not much difference and still above the 33%.

Take the $4,918 as normal take home pay it will be taxed at 39%, leaving you $3,000.	$1,918
As above but make a spouse contribution with the $3,000 so receive a $540 tax offset. No tax going into the fund.	$1,378
Put the whole $4,918 into superannuation for yourself taxed at 15%. In the fund’s hands because you are either claiming a tax deduction or Have salary sacrificed the contribution out of before tax dollars.	$738

All the above again but your income is over the $180,000 mark so your tax bracket including Medicare is 47%. In this case it would take $5,660 to give you $3,000 after tax.

Take the $5,660 as normal take home pay it will be taxed at 47%, leaving you $3,000.	$2,660
As above but make a spouse contribution with the $3,000 so receive a $540 tax offset. No tax going into the fund.	$2,120
Put the whole $5,660 into superannuation for yourself taxed at 15% in the funds hands because you are either claiming a tax deduction or have salary sacrificed the contribution out of before tax dollars.	$849
Put the whole $5,660 into superannuation for yourself but taxed at 30% because you adjusted taxable income is over $250,000.	$1,698

Clearly it will always be better to make a tax-deductible contribution for the high income earner than a spouse contribution unless the high income earner is earning less than $45,000 or unless the high income earner has already used up their $27,500 concessional cap.

Government Co Contributions – If your income is below $42,016 and you put $1,000 into super without claiming a tax deduction for it the Government will pay $500 into your superannuation account. Neither of these contributions are taxed going into the fund. If you put in less than $1,000 the Government will contribute 50 cents for every dollar you put in. If your income is above $42,016 the co contribution shades out until your income reaches $57,106 where you will not be entitled to any co contribution at all.

Income for the purposes of this test is your income before tax deductions plus reportable fringe benefits and reportable employer super contributions that have received concessional tax treatment going into the fund. If you are in business, you are entitled to reduce this amount by your business tax deductions.

Other conditions are that you need to be less than 71 years old at 30th June 2023 (work test requirement if over 66 years), must not have made more than $110,000 in non-deductible superannuation contributions and your balance at 1st July 2022 must be less than $1.7mil.

High Income Earners Caught in the Div 293 Trap – If your adjusted taxable income is above $250,000 the ATO will send you a bill for another 15% tax on your concessional superannuation contributions, that is super contributions that your employer has made and ones you have made for yourself that were taxed at 15% rather than your marginal tax rate.

The term $250,000 in adjusted taxable income means that (among other things such as rental property losses) any extra superannuation contributions that you claim a tax deduction for will be added back onto your income so that won’t help you bring your adjusted taxable income down. The definition of superannuation contributions that will be added back are those that are treated concessionally, that is the key.

Now odds are if you are on more than $250,000 a year you are already using up your $27,500 maximum concessional contributions cap through the employer superannuation guarantee. So, if you were to make a further superannuation contribution for yourself and claim a tax deduction for it the ATO would pick this up and make you pay a top up tax to bring the tax paid on the contribution up to the maximum tax rate. You can pay this top up tax direct or it can be paid by your superannuation fund. As these contributions over the $27,500 cap are no longer concessionally taxed they no longer added back.

The $30,000 is still tax deductible in your tax return but it is not added back because it does not receive concessional treatment in the super fund because the top up tax is triggered. The top up tax just means you end up paying the tax that you would have paid had you taken the amount as wages, but you have saved $4,125 ($27,500 x 15%) in Div 293 tax. The only downside is you have more money locked away in super until you retire. Careful – Make sure that you have not used up all of your non concessional cap. Seek advice if you have been making contributions for superannuation that you have not been claiming a tax deduction for as you don’t want this strategy to push you above the non concessional cap.

General Tax Return Insight

General Deductions:

You can only pay a maximum of 12 months in advance.  In the case of interest payments check if the bank will let you do this and that they do treat it as an interest payment not just let it reduce the loan balance. 

If you pay rates, insurance or body corporate fees in advance think carefully about the no more than 12 months in advance rule. If your body corporate fees are already paid up to 31st December 2022 you can’t pay another 12 months’ worth, you need to just pay 6 months extra.

Land tax is treated differently. When you receive land tax assessments in arrears, the amount of land tax is not deductible in the income year in which you pay the arrears. The land tax amounts are deductible in the respective income years to which the liability for the land tax relates.

Be careful, some commercial tenants, for their own tax planning strategy, may want to pay rent in advance. This may suit the tenant but may not suit you the landlord. Unless you can apply the Arthur Murray principle, ie claim that there is a risk that you may have to refund that income. Otherwise, you are stuck with declaring it as income in the year received.

Bringing Forward Tax Deductions and Payments in Advance:

First consider whether you would be better saving the tax deduction for the following year. The tax rates in 2022-2023 and 2023-2024 are going to be the same so a bird in the hand approach is warranted just make sure the deduction you are accelerating doesn’t push you into a lower tax bracket then you expect to be in next year. For example if you are earning $125,000 and you pay for some training course costing $10,000 that will bring your income below $120,000 dropping you from the 39% tax bracket into the 34.5% bracket. A better overall tax outcome would be to claim $5,000 in each year so that the full amount is deducted at 39%.

For Property Investors – It is not just about rushing out and spending some money on your rental property. Improvements will not be deductible at all and plant and equipment purchased now will only qualify for one months depreciation unless it is under $300 per owner of the property. So before you do anything have a read of this https://www.bantacs.com.au/Jblog/year-end-tax-strategies-for-property-investors/#more-991

Businesses Buying Plant and Equipment

Basically, if it is installed ready for use before 30th June 2023 you qualify for immediate write off regardless of the costs. Note the ATO are now letting you choose which piece of equipment you claim an immediate write off for and which you don’t which makes it a lot easier to avoid wasting the tax deduction because it drags you down into such a low tax bracket. From 1st July 2023 the immediate write off amount is only for plant and equipment costing less than $20,000.

If you are thinking of buying energy efficient plant and equipment it is worth waiting until after 1st July 2023 so that you qualify to claim depreciation on 120% of the purchase price. The cap for this sort of expenditure is $100,000 in total but the $100,000 can be made up of multiple items.

Full details are not available yet but examples given in the budget were assets that upgrade to more efficient electrical goods (such as energy-efficient fridges), assets that support electrification (such as heat pumps and electric heating or cooling systems), and demand management assets (such as batteries or thermal energy storage). Certain exclusions will apply such as electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels.

The unlimited plant and equipment immediate write off expires on 30th June 2023. The $20,000 immediate write off and the energy efficient 120% depreciation expire on 30th June 2024.

Housekeeping:

Vehicles – Make sure you take your speedo reading at the 30th June it could come in handy and is absolutely necessary if you are using a log book.

If you start a logbook now even though the 3 months will not be finished by 30th June 2023 you will still be able to use it for your 2023 tax return because it was started in that year.

If you don’t have a log book you can use the 78 cents a kilometre method providing you keep a record for at least a month of the typical kilometres you travelled all year. This method is limited to 5,000 kms per vehicle per owner of the vehicle. Note if the vehicle is a one tonner or other non car type of vehicle you are not entitled to use the kilometre method.

Late Lodgers:

Make sure you get your 2022 tax return in before the 30th June 2023 if you are receiving Centrelink family payments or you will have to refund what you have received.

If you made a superannuation contribution before 30th June 2022 that you intend claiming a tax deduction for make sure your superannuation fund is aware of your intention before 30th June 2023 or you will lose the opportunity to elect to claim it as a tax deduction.

Going Forward:

Allow us to provide you with truly Professional Accounting services. We are not just form fillers. When you have your tax return prepared by a BAN TACS Accountant you will be given tax tips to improve your refund and warnings about traps, directed at your particular circumstances.

Develop a relationship with a BAN TACS Accountant for life because you don’t know what you don’t know. Talk to us about what you are thinking of doing before you do it. Ask about our record keeping spreadsheets to track the tax consequences of what you are doing.

The BAN TACS National Accountants Group has expertise in many different areas of tax and finance. This allows us to provide large firm knowledge and resources while maintaining a small local firm personality.

End of the Year Tax Strategies for Property Investors

Repair, Improvement or Replacement in its Entirety?

This is a fundamental question all property investors need to understand as the tax treatment varies considerably.

With repairs and maintenance, you have to at least incur the expense before the end of this financial year.  This means organising for the work to be done even if you have not paid for it yet.  This is particularly important if your tenants have moved out and you do not intend re letting the property.  If you don’t incur the repairs now you will not be entitled to a tax deduction next year because the property has not earned any rental income in that year. Reference IT 180.

So just what is classed as a repair? Initial repairs are not deductible. If the house needed painting when you bought it then painting it would be an improvement so only depreciated at 2.5%pa. You do not need a quantity surveyors depreciation report to claim the depreciation, you simply need the receipts for the expenses you have incurred.

A repair is not deductible if it is an improvement. An improvement is restoring the property to a condition that is better than the state it was in when you bought it. A repair can become an improvement, if the repair goes beyond just restoring things to their original state, for example replacing a metal roof with tiles is not a repair. But a change is not always an improvement. The ATO says the cost of removing carpets and polishing the existing floorboards is a deductible repair, yet underpinning due to subsidence is considered to be an improvement. Pulling up old floor tiles and replacing them with similar tiles would be a repair as long as the tiles were not in disrepair when you purchased the property.

Take care to perform repairs only when the premises are tenanted or in a period where the property will be tenanted before and after with no private use in the middle. If a property is used only as a rental property during the whole year, then a repair would be fully deductible even though some of the damage may have been done in previous years when the property was used for private purposes.

Don’t replace something in its entirety. For example, replace a worn fence a bit at a time over a few years rather than all at once. Replacing all of the cupboards in a kitchen so they match rather than just the damaged one will mean that none of the expenditure is deductible. Consider just replacing the doors so it is not a replacement in its entirety. On the other hand, replacing a vanity can be deductible as a repair if the pipes from the old vanity are used.

Tree removal is claimable if the trees have become diseased or infested during the time of ownership. Removal is also claimable if the tree is causing damage such as roots interfering with pipes, but not if the damage was present when you purchased the property. If a tree is removed because it may cause damage in the future or you are fed up with the leaf litter that has always happened since you bought the property, then you are making an improvement which is not tax deductible, it will only be useful in your CGT calculation.

As plant and equipment are usually depreciated over many years buying them towards the end of the financial year could mean you only qualify for one month’s depreciation which would be a very small fraction of what you have spent. Don’t forget, unless it is brand new to you, there is no tax deduction. The immediate write off concessions do not apply to items used to produce a passive income.

Plant and Equipment costing $300 or less, per owner, can be written off immediately. A rangehood costing $500 can be written off immediately if the property is owned as joint tenants. Like items must be added together when applying the $300 test so it may be better to buy one set of curtains this year and wait until July before you buy the next set. Items costing under $1,000 per owner, will qualify for depreciation of 18.75% in the first year, regardless of when you purchase them, then 37.5% in following years. A $1,900 hot water system for a property owned by 2 people would qualify as under $1,000.

Another thing to consider is whether you would be better saving the tax deduction for the following year.

In the 2022-2023 and future years there will be no Low to Middle Income Tax Offset so many taxpayers are in for a shock when they lodge there tax return.  There refund could be reduced by as much as $1,500. From 1st July 2024 taxpayers earning over $45,000 but under $200,000 will pay a maximum tax rate of 30% plus Medicare.

Reminder on Working from Home claims

Diaries – To claim home office expenses, laptops, phones, internet, basically any expenses that has a mixture of private and work use you will need to keep a diary for at least one month before 30th June, 2023. In the case of home office the diary has to be for the full year starting from 1st March 2023. The following blog has all the details on how to keep the records you need.

https://www.bantacs.com.au/Jblog/urgent-warning-start-a-diary-of-your-home-office-use-now/#more-1259

There is also a diary spreadsheet available in our shopping section.

https://www.bantacs.com.au/shop-2/home-office-2023-and-ongoing/

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Are you on the hunt for an expert tax accountant? Book a FREE consultation with one of our qualified tax accountants here >>
See the previous Episodes here:
- Ep 1: The Top 5 Tax Rules Every Property Investor Must Understand
- Ep 2: (Part 1) Tax Planning Tips to Maximise your Returns
- Ep 2: (Part 2) Tax Planning Tips to Maximise your Returns
- Ep 3: Your Ultimate Guide To Reducing Tax on Vehicles, Private Insurance & Land
- Ep 4: Navigating Tax Changes in 2023: Updates to Remote Work Claims, Renting And Victoria’s New Tax Grab

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Raw Transcript:

Transcript:

So again, you’ve got to ask the question.

Free Mortgage Review

Important Changes to HECS/HELP Debt – changes you MUST ACT on quickl

Superannuation Contributions before 30 June

General Tax Return Insight

End of the Year Tax Strategies for Property Investors

Reminder on Working from Home claims

Free Stuff Mentioned…

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Free Resources

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