Start saving for the Christmas period early

By October 16, 2019 Money

If shopping centres aren’t even putting up their Christmas decorations yet, then the holiday period may seem to be a concern of the distant future. However, the season has a tendency to creep up on people and can often come with financial burdens. Planning your holiday expenses early can cut out one of the biggest stresses of the season and allow you to focus on enjoying the festivities and spending time with your loved ones.

Less than 20% of Australians start saving for the Christmas period two to three months in advance. Those who don’t set aside enough time to save often turn to using a credit card. Over a quarter of Australians rely on credit cards to cover the costs of the holiday season, which can result in post-Christmas debt. If you need to use a credit card, consider setting a spending cap to help you stick to your budget and reduce the risk of debt.

On average, Australians are spending $1325 each during the festive season. This includes gifts, decorations, travel, parties, food and drinks. In 2018, the average Australian spent $573 on Christmas gifts alone, with 15% of millennials splurging over $1000 on gifts. Despite this, 56% of Aussies start their shopping without a budget, and 39% do not keep track of their expenses.

If you’re worried you’re going to be tempted to dip into your savings, it can be a good idea to set up a Christmas saver account. This is typically done at the start of the year and is offered by some banks. You can make deposits throughout the year, but can only withdraw from the account when the festive season arrives, usually around 1 December. While interest is offered on these account savings, it should be noted that you can generally find better interest rates with other savings accounts such as a bonus saver or online savings account.

Alternatively, you can manually set aside an amount weekly or fortnightly in the months leading up to the holiday period. Setting up an excel sheet can help keep track of this, and can also be used to categorise different budgets for various needs (gifts, travel, food etc.). This can help you plan ahead and estimate how much you will need to cover the cost of the holidays, saving you from the bite of unexpected expenses and keeping you in control of your finances.

If you’ve left things a little late, it can help to cut out a few luxuries to save some extra money. Whether it’s having a cheap night in, or skipping a coffee run every now and then, a little can go a long way.

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Knowing when to cut a product

By October 16, 2019 Business

Businesses looking to improve their profitability may need to consider cutting under-performing products and services. How a product contributes to growth strategy, brand management and production efforts can help you determine whether you should discontinue it. Underperforming products can drain the company’s resources and finances that could be used to profit elsewhere. It might be time to discontinue if a product fits the following scenarios:

  • Low profitability.
  • Stagnant or declining sales volume or market share.
  • Maintaining your market share is too costly.
  • Risk of technological elimination.
  • Poor fit with business’s strengths or declared mission.

When deciding whether to discontinue a product, there are a few ways you can examine your services and make the decision that is best for your business.

80/20 rule:
A commonly used marketing and business rule states that businesses should focus their attention on the 20% of the products that generate 80% of revenue. Using this principle, companies should compile a shortlist of the products and services that bring in the most profit and scrutinise the products that fall short of this mark. The 80/20 rule can provide a solid framework for your sales and marketing objectives, identifying areas in which you could successfully cut with minimal loss.

Trial run:
Making the right cuts can be difficult and you may not see the value of a product until it is gone. For this reason, businesses can consider doing a trial run for the product in question. Try going a week to a month (no longer) removing all promotion and marketing for a product. This can help the business to visualise what it would look like without that service and see if there are any clients who miss it.

Harvesting is a strategy used to generate the most money out of a product whilst it last. By cutting the costs associated with the business or increasing the price of the product without increasing production or operation costs, the business can continue to generate revenue on a failing service. Once the product ceases to provide a positive cash-flow, it can then be discontinued.

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Super law changes to NALI and LRBA

By October 16, 2019 Super

Integrity measures included in Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 have now been enacted with an effective date of 1 July 2018. There have been amendments made to non-arm’s length income (NALI) provisions and Limited recourse borrowing arrangement (LRBA) amounts will now be included in total superannuation balance (TSB) calculations. The bill passed both houses on 19 September and reached assent on 2 October 2019.

NALI provision amendments:
The definition of NALI has been expanded. From the 2018-19 income year onwards, the ordinary or legal income of a super fund will be NALI and taxed at the top marginal rate. This has been introduced to ensure SMSFs and other complying superannuation entities cannot evade the NALI rules by entering into schemes involving non-arm’s length expenditure, including where expenses are not incurred. Any capital gains from a subsequent disposal of an asset may also be treated as NALI.

LRBA amounts included in TSB calculation:
Where an SMSF has an LBRA that was made under a contract that has been entered into on or after 1 July 2018, the calculation of an individual’s TSB will now include any outstanding LRBA amount attributable to each member’s interest. This will apply if:

  • The LRBA is with an associate of the SMS. In this case, all members of the fund whose interest is supported by the asset purchased with the LRBA must include their portion of the outstanding balance of the LRBA amount in their TSB calculation. Or;
  • A member of the fund met a condition of release with a nil cashing restriction. In this case, the member must include the outstanding LRBA amount attributable to their super interest in their TSB calculation.

This change does not include the refinancing of an LRBA that was made under a contract entered into before 1 July 2018, where the new borrowing is secured by the same asset or assets as the old borrowing and the refinanced amount is the same or less than the existing LRBA.

If you’ve already lodged your 2019 SMSF annual return and are affected by these new measures, you may need to amend your return. Members of an SMSF that has an LRBA affected by this new law, may have an inaccurate TSB. If affected, you will need to calculate your own TSB until March 2020 at the earliest while the ATO systems are being updated.

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GST margin scheme

By October 16, 2019 Tax

The margin scheme is a way of working out the GST you must pay when you sell property as part of your business. The amount of GST normally paid on a property sale is equal to one-eleventh of the total sale price. If the margin scheme is used, the GST is calculated on the difference between the sale price and your purchase price of the property or the property’s value. You can only apply the margin scheme if the sale of the property is taxable.

The margin scheme has been designed by the ATO to help reduce the amount of GST that would normally be payable on sales of new property. It is not an automatic concession and the sale must be eligible for it to be applied.

The margin scheme can be applied to subsequent property sales depending on the original date of purchase and how GST was applied at that time. Property purchases prior to 1 July 2000 are eligible, as the property had not been subject to GST previously. For property purchases after 1 July 2000, the margin scheme may only apply to a subsequent sale when:

  • The original seller of the property wasn’t registered for GST.
  • The property was purchased as an existing residential premises.
  • The original seller sold the property as a GST-free supply and was eligible to use the margin scheme, or;
  • The seller sold the property and applied the margin scheme at that time.

There are limitations to the margin scheme in some situations such as; inheritances, the supplier being a member of a GST group or the property is GST-free (going concern or farmland). In these situations, if the supplier wasn’t eligible to use the margin scheme, the scheme cannot be used when selling the property.

When purchasing a new residential property with the margin scheme being apart of the property transaction, withhold 7% of the contract price, including GST and the market value of non-monetary consideration. This amount will then be paid to the ATO at settlement.

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