If you have any topics you wish to know more about or something you would like us to write about, please contact us at admin@veritassolutions.com.au
Staff and Office Updates
A quick reminder about our COVID-safe environment. Our building has hand sanitiser near the lifts and in our reception area for your safety and convenience. We request that if you have an appointment booked but are unwell that you please reschedule until a later date. If you prefer not to meet in person, phone or skype appointments are available.
It is with regret that we announce that our receptionist, Claire, will be leaving our employment in a few days. We wish her all the best with her future endeavours.
Jessica Jalkanen will be taking maternity leave from the end of November until mid-next year. Please note that any email queries you would normally direct to Jess, can be sent to admin@veritassolutions.com.au and they will be passed on to the most appropriate person.
JobKeeper Extension
The original JobKeeper stimulus of $1,500 per fortnight per employee/business owner was set to end on 28th September 2020. The government have recognised that economic recovery is set to take quite some time. To assist, they have extended the payment until 28th March 2021.
You are entitled to the JobKeeper extension until January if your GST turnover has declined by 30% in the September 2020 quarter relative to the same period in 2019 and you already satisfied the original decline in turnover test. You are entitled to the JobKeeper extension until March if your December 2020 quarter turnover has declined by 30% compared to 2019. There are alternative tests available if your business was not operating in the previous year.
For payments from 28th September onwards, there are two rates, Tier 1 and Tier 2.
- JobKeeper fortnights from 28/9/20 to 3/1/21, Tier 1 is $1,200 per fortnight and Tier 2 is $750 per fortnight.
- JobKeeper fortnights from 4/1/21 to 28/3/21, Tier 1 is $1,000 per fortnight and Tier 2 is $650
An employer is entitled to the Tier 1 rate for an eligible employee or business participant if they satisfy the 80 hour threshold. There are 2 steps to satisfying the 80 hour threshold:
- Determine the individual’s reference period (for employees – the 28 days that finish on the last day of the pay period that ended before 1 March 2020 or 1 July 2020. For eligible business participants – the month of February 2020)
- The apply the 80 hour test – your employees total number of hours of work, leave & public holidays was 80 hours or more, or your work as an eligible business participant was 80 hours or more
If you are not entitled to the Tier 1 rate then you will be entitled to the Tier 2 rate. Before you can claim a payment from 28th September 2020, you must notify the ATO whether the Tier 1 or Tier 2 rate applies to each of your eligible employees or business participants.
If you have any questions or need any assistance with JobKeeper, please contact one of our accountants.
The Cost of Not Listening
Listening well doesn’t involve passive acceptance or not speaking up. Among other things, it requires the psychological effort of checking bias and physical factors such as collaborative spaces.
Poor listening skills can lead to the loss of customers or employees. To listen well is to acknowledge the multiple situational, psychological and physical drivers at play. Active listening is not just about listening without speaking up, but asking the right questions and engaging with the answers.
There are many ways to improve your listening skills. Two things stand out when trying to help managers become better communicators with staff who can feel they are not being heard or being brushed off.
Firstly, the likelihood that the first thing a person says is what they mean is about a one in nine chance because we speak at about 125 words a minute but think at about 900. Secondly, it is important to seek further detail by saying “what else?”, or “tell me more”.
Embrace the silence and allow the speaker to gather their thoughts. It may help to get to the heart of the matter. By doing this, managers can increase their listening productivity immediately.
Real listeners will check their own biases about the conversation or the speaker at the door, and attempt to moderate their own mood and interest levels before engaging.
Thereafter, it’s about the practicalities: a good space to speak and listen in, and eliminating the distractions of technology.
Good habits include resisting the temptation to express agreement or disagreeing too early, having empathy, and ultimately drawing out the specifics of the conversation.
Active listening shouldn’t have to equate to passive acceptance, whether by a student or business leader. Answering a question is one thing; engaging with it takes it to the next level.
Tips for active listening
- When in a meeting, turn off all your devices to avoid distractions.
- Drink a glass of water every half hour. A hydrated brain is a listening brain.
- Take visual notes/mnemonics. Graphics stick better than verbatim notes.
- Be comfortable with silence. Allow people to pause and continue.
- You can direct the conversation if needed. Listening doesn’t mean allowing people to repeat themselves ad nauseam
Super Fund Trustee Responsibilities
Being a super fund trustee and in charge of your own superannuation can be exciting but it comes with a whole host of responsibilities that it is important you understand. The consequences for getting it wrong can be severe. The ATO can impose penalties, direct you to rectify the error and undertake education, disqualify you from being a trustee or director of any super fund in the future, remove the complying status of the fund which has adverse tax consequences or prosecute you which could lead to imprisonment.
You can find a summary of your responsibilities in the SMSF Trustee Declaration that you signed when you became a trustee, but we have summarised some of the duties below.
It is your responsibility, as trustee, to ensure the fund is maintained for the sole purpose of providing retirement benefits for members.
As a trustee, you must:
- act honestly and exercise skill and care in operating the fund while acting in the best interests of the members
- keep records of decisions and ensure that money and assets are kept separate from your personal assets.
- provide access for all members to information and documents as required, and you must take action to protect the fund’s assets
- be aware of the conditions in the legislation and trust deed which allow the super fund to accept contributions from members and pay benefits to members
- not enter a contract that would prevent you from properly performing your duties as a trustee.
The law requires you to have an investment strategy which considers the circumstances of the fund, including investment risks and returns, investment diversity and expected cash flow requirements and the insurance needs of the members.
There are several investment types that, as trustee, you are prohibited from investing the super funds money in. You cannot:
- Give financial assistance to a member or a member’s relative, either directly or indirectly;
- Acquire assets from members or related parties, with the exception of business real property, listed securities, certain in-house assets, acquisitions made under mergers, or acquisitions from another SMSF as a result of a relationship breakdown);
- Borrow money except under limited recourse borrowing arrangements
- Acquire an in-house asset if the total in-house assets of the fund exceed 5% of the total market value of the fund’s assets (in-house assets are loans to or investments in related parties of the fund); or
- Purchase investments that are not made on an arm’s length (commercial) basis.
As trustee, you have a responsibility to maintain records for the appropriate time, appoint an SMSF auditor each year and take action on any suggestions from the audit each year, lodge the super fund tax return by the due date and notify the ATO of any membership, trustee or contact detail changes within 28 days.
If you would like to brush up on your knowledge and understanding, the ATO have free courses available here.
2020 Tax Time Changes
There have been a significant number of changes to the 2020 tax rules and we have summarised the most relevant here:
Net Medical Expenses
From 1 July 2019, there is no longer a tax offset available for net medical expenses for disability aids, attendant care or aged care.
No Deductions for Vacant Land
From 1 July 2019, you can no longer claim a deduction for the cost of holding vacant land (interest, land tax, rates etc), unless the land is used to produce income, or the land is vacant due to an exceptional circumstance in the last 3 years (eg fire, flood or building defects)
CGT changes for foreign investors
The CGT main residence exemption can only be claimed for disposals that occurred before 30 June 2020. From 1 July 2020, foreign residents are no longer entitled to the exemption.
Increased incentives for Affordable Housing
There is an additional 10% CGT discount for Australian resident individuals who provide affordable rental housing to people earning a low to moderate income. This will apply to CGT events occurring on or after 1 January 2021 and the rental must have been provided for a minimum of 3 years.
JobKeeper Payments
For an employee, these will be included on your income statement as salary and wages. For an employer, these payments to the employee are deductible like wages, however this means the income you receive from the ATO will be assessable income.
Working from Home
With many more people working from home due to COVID-19, a lot of people are incurring additional personal expenses such as heating, lighting, equipment. The ATO have released a ‘shortcut method’ for claiming working from home expenses, where you claim 80c for each hour, and this covers all phone, internet and other costs.
Early Release of Super
Eligible individuals could access $10,000 of super before 30 June 2020 and can access a second $10,000 until 31st December 2020. You do not need to pay tax on these amounts.
If you have any questions about any of the above items, or other changes, please don’t hesitate to contact our office.
Bias and Investments
Many behavioural studies have shown there are several traits and biases that can stop us from making reasonable decisions about everything from what to eat to how to invest. When implementing investment plans, understanding these biases and considering whether they are negatively impacting decisions can be beneficial. In general, people have asymmetric risk profiles and fear losses more than the expectation of gains by at least a 2:1 margin[1]. Interestingly, and perhaps not surprisingly, this ratio increases substantially as people approach retirement.
American psychologist and economist, Daniel Kahneman, who won a Nobel Prize for his work challenging the prevailing assumption of human rationality in modern economic theory has stated, ‘If you have an individual whose objective is to maximise wealth at a certain future point in time, then loss aversion is very bad because loss aversion will cause that individual to miss out on many opportunities.’
This loss avoidance trait stands in contrast to a basic investment principal, that investors need to accept higher risk (and higher potential for near-term losses) in order to achieve higher returns over the long term, particularly during market sell-offs. When faced with losses, rational decision-making can become impaired by the emotional desire to avoid more losses.
There are a wide range of cognitive biases that can impact retirement plans, some are listed below:
Confirmation bias
Confirmation bias is the natural human tendency to seek information that confirms an existing point of view or hypothesis. This can lead to overconfidence if investors keep seeing data that appears to confirm the decisions they have made. This overconfidence can result in a false sense that nothing is likely to go wrong, increasing the risk of being blindsided when something does go wrong.
Information bias
Information bias is the tendency to evaluate information even when it is useless in understanding a problem or issue. Investors are exposed to an array of information daily, and it is difficult to filter through this and focus on the relevant information. In general, investors would make superior investment decisions if they ignored daily share price movements and focused on prices compared to the medium-term prospects for the investments. By ignoring daily share price commentary, investors would overcome a dangerous source of information bias in the investment decision making process.
Loss aversion bias
Loss aversion is the tendency for people to strongly prefer avoiding losses than obtaining gains. The loss aversion effect can lead to poor and irrational investment decisions, where investors refuse to sell loss-making investments in the hope of making their money back. Investors fixated on loss aversion can miss investment opportunities by failing to properly consider the opportunity cost of their investments.
Anchoring bias
Anchoring bias is the tendency to rely too heavily on, or anchor to, a past reference or one piece of information when making an investment decision. For example, if you were asked to forecast a stock’s price in three months’ time, many would start by looking at the price today and then make certain assumptions to arrive at a future price. That’s a form of anchoring bias – starting with a price today and building a sense of value based on that anchor.
How do we try and overcome the biases when building retirement portfolios?
We have a greater focus on absolute rather than relative performance. Our portfolios have been constructed to manage risks, including:
- Market and sequencing risk
- Inflation risk
- Longevity risk
Varying investment strategies can assist in controlling for these risks and they include a yield component (generating a certain level of income from investments that have differing risk return characteristics), a capital growth component (designed to generate long term capital growth, with limited focus on income) and a risk control component (critical for retirement portfolios and is designed to reduce some of the market risks in the yield and capital growth components). It is important to note that the risk control part of the portfolios will not eliminate these risks but aims to mitigate them. Asset allocation and diversification are also important ingredients in managing the overall volatility of the portfolios.
The varying portfolios can assist in managing the risks that impact retirees, however it is important to note that none of these strategies provide a guaranteed outcome. The range of products that offer certainty of income or capital protection such as annuities has increased in recent years, in recognition of Australia’s aging demographics and demand for greater certainty in retirement.
[1] Gachter, Johnson, Herrmann (2010). Individual – level loss aversion in riskless and risky choices. Columbia Business School