FINANCIAL UPDATE - JANUARY 2020

Welcome to the sixth edition of our monthly newsletter. This month we take a look at a number of key technical changes coming into effect in 2020!

We would like to wish you a happy New year from the Team at Barwon Financial. We hope you are having a great start to the year!

Superannuation

Superannuation Guarantee (SG) and Salary Sacrifice Contributions
There have been small changes in respect to salary sacrifice contributions now being included in an employee’s Ordinary Times Earnings (OTE). From January 1, 2020, employers will now be required to pay SG on the new expanded definition of OTE. Currently, any amount an employee salary sacrifices into super may result in a drop in the SG the employer is required to pay on their behalf. The benefit for employees who are salary sacrificing is that their employer will now be asked to pay their SG on the total OTE, which now includes their salary sacrifice amounts, rather than discounting them.

For Example:
Old Scheme
Gross Salary (1)                                                 $100,000
Salary Sacrifice (2)                                             $15,500
Maximum Required Employer SG                   $8,027.50 ((1 -2) * 9.5%)
 
Ordinary Times Earnings (OTE)
Gross Salary (1)                                                   $100,000
Salary Sacrifice (2)                                               $15,500
New Maximum Required Employer SG            $9,500 (1 * 9.5%)

As you can see for the calculations above, these changes may have a significant impact on the balance being contributed into your superannuation accounts each year. It might be a good time to check how much your employer is paying. If you’re not sure, please let us know.

Insurance for super members

From 1 April 2020, employees under age 25 or those who held a balance less than $6,000 on or after 1 November 2019 will now only to be provided default insurance for ‘MySuper’ and ‘Choice Funds’ if they explicitly opt-in to the policy.

Trustees of super funds must have identified and notified affected members by 1 December 2019, that they will not be provided default insurance unless officially elect to opt-in to the cover by 1 April, 2020. Any cover a member opts-in to keep, will be retained indefinitely unless the account becomes inactive over a 16-month continuous period. At which point, the cover will lapse.

Taxation

Small-to-medium enterprise  (SME) instant asset write off.
The instant asset write off legislation has been extended until 30 June 2020 and has also increased to $30,000. This Bill allows SME’s to claim instant deductions for allowable assets purchased for less than $30,000.

Redundancy.
This Bill increased the age where an individual can receive and concessionally taxed genuine redundancy or early retirement scheme package to their respective age pension qualifying age. Previously, the age the concessions were allowed was capped at 65. The benefit here is that an individual aged over 65 who receives an ETP or redundancy can now access the tax-free component of their payment until they reach their age pension qualifying age.

Taxation of Testamentary Trusts.
The Government has changed legislation which ensures the tax concessions available to minors who are nominated as beneficiaries of a Testamentary Trust is only applicable to the income derived from any assets that were transferred into the Trust from the original deceased estate. Previously, non-testamentary assets that were transferred into the Trust after those included in the deceased estate, also had tax concessions placed on any income derived. Now, this income will be classed as unearned income from the minor and be subject to minor tax rates, resulting in potentially higher tax to be paid. Non-testamentary assets can continue to be transferred into the Trust; just be mindful the income tax concessions will not apply to these respective assets.

Social Security

Changes to the Work Bonus
The Work Bonus acts as an income test exemption to those eligible to be in receipt of a Centrelink Age Pension or DVA pension. From 1 July 2019, self-employed individuals will also be eligible, the income test exemption will increase from $250 to $300 per fortnight and the annual income exemption will increase from $6,500 to $7,800. The benefit from this change is that members of a couple are essentially allowed to earn $50 more each per fortnight, without their Age Pension payment reducing.

If you’re interested in discussing this further, please contact us.