IN THIS ISSUE
- Victorian Stage 4 Restrictions
- Paul Nicol & Patrick Malcolm Rank In Australia’s Top 100 Advisers
- Client Culture Results
- Client Profile – Colin & Anne Brush – Clients Since 2011
- Upcoming Webinars
- Share Market Update And Outlook
- Staff Profile – Introducing Niv Maharaj
- Greater Flexibility To Make Superannuation Contributions – Two Extra Years
- Rebuilding Super
- Sustainable Investment Funds Surpass US$1 Trillion
- GFM Webinars
- New Financial Year
Victorian Stage 4 Restrictions
By Paul Nicol
As you are aware, Victoria entered Stage 4 restrictions for six weeks commencing 11.59 pm on Wednesday, 5 August. At the onset of COVID–19, GFM developed an immediate, short and medium-term plan for the business in a lockdown scenario, ensuring the continuity of our business with no significant disruption if we reached this worst-case scenario.
From Thursday, 6 August, our office transitioned to all our staff working from home. Until then, we had the vast majority of our team based at home with a small core working in the office, observing strict social distancing protocols to ensure everyone’s safety. These staff seamlessly transitioned to working from home to ensure it is business as usual. There will be no disruption with your ability to make contact or for us to assist with any query you might have.
But most importantly, we’re here for you. These are challenging times, and the isolation of the next six weeks will be difficult for some. Please do not hesitate to reach out if you want to have a chat or if there is anything that is concerning you. We love speaking with our clients, and we are here to support you through this time.
We greatly miss the face to face interaction with our clients, and we look forward to catching up with you in the usual manner when it is safe to do so.
Please look after yourself over the next six weeks and make sure you stay in touch with the vulnerable and your loved ones.
PAUL NICOL & PATRICK MALCOLM RANK IN AUSTRALIA’S TOP 100 ADVISERS
By Mai Davies
We are thrilled that our Managing Partner Paul Nicol and our Senior Partner Patrick Malcolm have made the prestigious list of Australia’s Top 100 Financial Advisers. The list was published on 26 June 2020, in “The Australian”, which is produced in conjunction with respected US financial investment publication Barron’s.
Barron’s is a 96–year old American financial newsweekly published by Dow Jones. It has been rating the top financial advisers in America since 2004. Its overall goal in publishing these rankings is to shine a spotlight on the best advisers, aiming to raise standards in the industry. The thinking is that the bottom one per cent of financial advisers garner an outsized amount of attention in the press. On the one hand, this is understandable; malfeasance and professional misbehaviour should be called out. On the other, this does little to get consumers the help they need most – in locating quality advisers who can help them with their long–term investing and financial goals. The rankings are part of an effort to remedy that.
Advisers fill out a survey about their practice. Barron’s then apply their formula to that data to generate a ranking. The formula features three major categories of data: Assets, Revenue and Quality of practice. The quality of practice component includes such things as the length of time an adviser has been in the industry; their regulatory record; the certifications and designations owned by an adviser and their team; charitable and philanthropic work; client retention and other factors.
Again, the goal is to shine a light on the best advisers, thereby raising standards in the industry.
Positioning in this year’s Top 100 list was again very competitive with the inclusion of larger firms, many of whom run multi- office practices. Paul is ranked 40 and has now featured in each of the four years this prestigious list has been published. Patrick is ranked 97, which is a testament to his hard work and his strong reputation in the industry.
This industry endorsement of Paul and Patrick is a clear acknowledgement of the transparent and professional approach that underpins the way GFM does business. As they would both attest, our business is a team effort, and this recognition is also a strong reflection on all staff. As a privately owned firm with no institutional alignment, our advice always has and will continue to be a client-centric approach, putting the best interests of our clients first.
We are incredibly proud of Paul and Patrick and thrilled that GFM was able to feature two advisers in the list.
Client Culture Results
By Mai Davies
At GFM, we are committed to ensuring your client experience with us is as positive and successful as possible. We wanted to ‘check-in’ with our clients and ask what we are doing well and more importantly, what we could be doing better. This feedback helps us improve our service to you.
We engaged an independent Melbourne–based client experience firm, Client Culture, to ask a question on our behalf via email, which we think highlights what our clients think of our service and their level of trust in us:
“How likely are you to recommend GFM Wealth Advisory to a friend or colleague?”
If you participated in the survey, thank you. Your assistance is much appreciated. We are incredibly pleased with the positive and constructive feedback received and wanted to share the results with you.
In response to the specific question – on a scale of 0 to 10, how likely are you to recommend GFM Wealth Advisory to a friend or colleague? – the average response from all clients was a very pleasing 9.4 from a response rate of 63%.
Although this score is an average across all scores and the individual results did vary, we’d like to think that this result suggests we continue to be on the right track in providing a high–quality service. As you know, we are passionate about doing our very best. With this goal in mind, we are pleased that the survey has provided valuable insights which will help us continue to improve and refine our service. We will be in touch with some of our clients to get an understanding of their feedback.
We are conscious that the majority of the survey responses was very positive, and we do not take this support and positive feedback for granted. We always welcome constructive feedback. All our advisors are available to discuss any questions, or opportunities for improvement, at any time. Also, it is important to us that we have a process in place to ensure we ‘check-in’ with each client. For this reason, we would like to repeat the short one question survey from time to time.
It goes without saying that if at any time you have any queries about the survey, please don’t hesitate to get in touch.
Colin & Anne Brush:
CLIENTS OF GFM SINCE 2011
By Paul Nicol
Colin has kindly written the article below on their family, working life, travels, and their experiences with GFM Wealth Advisory since 2011. We much appreciate Colin’s contribution to Trade Secrets.
Anne and I were introduced to GFM in November 2011 after a chat with a neighbour who was a GFM client. We were just starting to make some progress into securing our financial position but lacked the structure needed to consolidate and enhance our financial security towards retirement. After an obligation free first meeting discussing our financial position, we have not looked back!
I have been working in the office for a family company Burton Industries, which has been operating in the Cool Room Building industry for 42 years! Anne has been employed as a sales assistant with Coles for the past 19 years. Before Coles, Anne was employed by “The Clothing Company” for 25–odd years in between having our three children. We have been married for 42 years and have two sons and a daughter, as well as a daughter–in–law and two grandchildren. We are blessed to have them as part of our life.
Travel and exploring new leisure–time activities are foremost in our mind, as well as ensuring that we have the freedom of choice that a secure financial position will give us. The current situation caused by COVID–19 has put our travel plans on hold for the time being.
Our significant trips have been a 28–day tour of the western part of Canada, including a cruise to Alaska, and a 21–day trip along the Rhine (which became a magical mystery tour when the rivers dried up because of the drought in Europe the previous winter). In 2000, Anne also travelled throughout England and Europe, as well as returning to visit her extended family in her hometown of Belvedere, in Sicily, after 36 years in Australia. A cruise to the South Pacific islands was another one of our travel highlights.
Family is an integral part of our life, and we always try to catch up with everyone as often as possible. Apart from family, I am very involved with the Norwood Sporting Club, comprising football (AFL), cricket, netball, golf, and angling clubs and enjoy watching Collingwood with my sons whenever possible. Anne keeps her mind active with lots of trivia quizzes and her social skills alive with a weekly bingo game. Sadly, her love of tennis has been overshadowed by her injured knees.
We are both approaching retirement age and now understand the value of high–quality financial advice.
From the outset, we were very impressed with the professional but friendly and courteous, approach and attitude of all the staff at GFM and we felt a great sense of relief when Paul Nicol constructed a financial plan with a focus on retirement which gave us a clear pathway to financial security in retirement. We have always felt assured that Paul and GFM have our financial health as their priority.
The GFM seminars, lunches, the Movie Night and Client Dinners conveys the sense of how much the GFM staff enjoys their work at GFM and their client-first approach business model.
To date, our expectations have been matched and exceeded, and we have felt educated by GFM in our dealings and the obligations required to meet our financial goals. They are continually working with us and reviewing our portfolio and our goals, offering tips and advice along the way. Both Anne and I have commented to each other, more than once, how we leave our Review Meetings feeling buoyed and confident that we have done ourselves a huge favour by becoming a client of GFM.
This is one of the main reasons that we have had no hesitation in recommending GFM to several friends and family. We have been confident that they will be treated in the same manner that we have experienced.
By Mai Davies
As we are in Stage Four Lockdown in Victoria at present, we would be delighted if you would join us for our upcoming webinars.
These are challenging times, and the isolation may be trying for some. We are here to support you and play our role in the broader community in this time, so we encourage you to pass on the webinar invites to family, friends or colleagues who may wish to join.
Wednesday 26 August at 10.30 am– Meet The Manager – Stewart Investors – An Update on the Stewart Investors Worldwide Sustainability Fund
Our Senior Partner Patrick Malcolm will host our special guest Nick Edgerton who is an Investment Analyst with Stewart Investors.
Nick is responsible for generating investment ideas for the Sustainability Funds across all sectors in emerging and developed markets. He joined Stewart in 2010. Nick completed an economics degree at Sydney’s Macquarie University and then a post-graduate degree in ecological economics. He has worked in academia, had a spell in Government, before moving on to consulting work around sustainable issues, then finally to funds management.
Nick will reflect on recent market events, provide an update on the Stewart Investors Worldwide Sustainability portfolio, as well as answering questions from webinar attendees.
Invitations were sent to clients in the second week of August. If you would like to attend this webinar and have not yet registered, please call Mai on 9809 1221 or email email@example.com
Thursday 10 September at 10.30 am – Meet The Manager – Ellerston Asian Investments Fund – An Update on the Asian share markets.
Paul Nicol, our Managing Partner, will host our special guest Mary Manning who is the Portfolio Manager of Ellerston Asian Investments (ASX Code: EAI).
Mary will provide an Outlook on the Asian Share Market, discuss the rise of Asian mega-caps and touch on US-China relations. This will be a terrific opportunity to look “under the bonnet” of Ellerston’s investment process and stock positions.
If you would like to attend this webinar, please save the date, and an invitation will be sent shortly.
Share Market Update and Outlook
By Nicola Beswick
Let’s cut to the chase – providing an update on investment markets at this point with any prediction as to how things will play out is almost impossible. The sudden and violent impact of COVID–19 has been clear for all to see, with lockdowns, rising unemployment rates and growing budget deficits putting significant strain on the domestic and global economy. But, what comes next in the short term is an unknown.
The optimist would say that economies were closed down by governments and can open just as fast when restrictions are rolled back. With coronavirus subdued (optimists also think a COVID–19 vaccine will be developed shortly), we’re near to a V-shaped recovery – one boosted by massive doses of monetary and fiscal stimulus.
The pessimist would say that closing down economies has done long–term damage to profitability, balance sheets (business, household and government), confidence and behaviour. In many major economies, coronavirus is far from beaten. Lockdowns are easing, but before infection rates have been managed, new outbreaks (like in Victoria and States in the US) loom. A vaccine will not be developed soon; neither will there be an antiviral agent.Government stimulus has been akin to life support, protecting cash flow but not profitability or balance sheets. Once support ends any economic recovery will be anaemic.
So, who is going to be right?
At this point, the data being released is incapable of answering the question of whether the optimist or the pessimist is right.
What we do know is the recent surge in COVID–19 cases and the drastic measures required to contain the outbreak in VIC, creates a highly uncertain near–term economic and equity market outlook even with ongoing Federal and State fiscal support and an unwavering commitment by the RBA.
Daily New Confirmed Cases Per Day
Source: Worldometer, MWM Research, August 2020
Some spillover effects from the lockdown in VIC can be expected via border controls, business shutdowns and deteriorating confidence. It is now possible that 3rd Quarter GDP will show little improvement with unemployment rising above 10% towards the end of the year. While we are confident that economic activity can rebound once social containment policies are removed, the path forward has become bumpier and much less certain.
Australian equities have not been immune to the effects of COVID–19 (despite our much lower infection rates) with company earnings and share prices taking a material hit, despite the equity market rallying from its lows in mid to late March. Australian Shares as represented by the S&P/ASX 200 Accumulation Index fell –7.68% in Financial Year 2019–20.
ASX200 Price Index during FY20
Source: MWM Research
Australian equities have rallied strongly since late March. While the market will continue to take its lead from the direction of offshore markets, Australia is more “old” world than “new” world. It does not have the allocation towards structural growth sectors that can continue to propel it higher if the majority of market cap is under earnings pressure. We think a pause in economic momentum alters the near–term risk-reward outlook and given limited valuation cushion, we are cautious about the Australian share market.
The following chart shows the estimated aggregated earnings per share of Australian equities (as represented by the S&P/ASX 100 Index) against the corresponding index performance since the start of the 2020 calendar year. The decline in earnings is evident.
Aggregated Earnings per Share versus Price Index (S&P/ASX 100)
A flow-on effect of a share price and earnings downturn is the subsequent impact on dividends, as companies retain earnings, reduce payout ratios and raise capital to shore up balance sheets. Since the downturn, many companies have cut, deferred or cancelled their dividends, with a recent spike of downgrades again occurring at the time of writing:
Source: MWM Research
While the earnings for Australian equities have collectively fallen, different segments of the market are affected to varying degrees. For example, a company like Qantas has seen its revenues fall to almost zero. At the same time, Woolworths, with toilet paper selling like hotcakes (and other grocery items in high demand), should experience revenue growth.
The US economy experienced a historic slowdown through April with, at one point, 95% of Americans under stay–at–home orders. The fiscal and monetary response, however, has been equally extraordinary. The US Federal Reserve cut interest rates to zero, announced unlimited quantitative easing, and committed to buying investment grade and high yield corporate bonds. The fiscal stimulus packages included forgivable loans to small businesses and unemployment benefits equal to wage income for the median worker who loses their job. This is the most significant fiscal thrust since World War II, and more stimulus appears to be on the way.
With this as a backdrop, the US market seemingly has absolute faith in the Fed’s ability to reflate markets…irrespective of whether companies are profitable or not.
The following chart shows the estimated aggregated earnings per share of US equities (as represented by the S&P 500) against the corresponding index performance since the start of the 2020 calendar year.
S&P 500: Change in 2020 Q2 EPS v Change in Price
During the March quarter, earnings on the S&P 500 Index (solid line LHS) fell from US$37.45 per share to US$22.50 per share…a 40% reduction. Yet, the S&P 500 Index (dotted line RHS) rose almost 20%. As a consequence, US equities forward price to earnings appears extremely expensive on a historical basis.
Performance disparities in the US share market have been extreme as investors try and pick a few winners. Just six “FAAANM” stocks – Facebook, Apple, Alphabet, Amazon, Netflix, and Microsoft – have appreciated 263.82% over the past five years versus the rest of the US equity market (S&P 500 Index without the FAAANMs) appreciating only 35.68%. The FAANM stocks account for about one–third of the S&P 500 Index’s return over the past five years.
The US markets have generally outperformed overseas markets. However, if you exclude the FAAANM stocks from US indexes, the US equity markets have performed about in line with overseas’ markets, and any difference is from currency moves.
The US election will become a more significant focus for markets if the Democrat nominee, Joe Biden, takes a decisive lead. Biden plans to reverse President Donald Trump’s 2017 corporate tax cuts at least partially. This could deliver a hit to earnings per share in 2021, another concern on top of already fragile US corporate earnings and expensive valuations.
After being the first country to enter the COVID–19 crisis, China has emerged from the shutdown. The recovery in China has continued through the second quarter of 2020, with the services sector starting to catch up to the manufacturing sector. Construction activity has seen significant improvement in the last month, and there remains a large pipeline of infrastructure projects to be started.
As can be seen in the graph below, China is a couple of months ahead of the rest of the world, and its patterns indicate that activity is picking up, overcoming the collateral damage first caused by widespread shutdowns, where GDP dived in the first quarter with a fall of –9.8%.
Economic Activity Tracker: China
Source: Goldman Sachs
The Chinese Government has also announced further stimulus measures, including coupons to households to encourage spending, and the People’s Bank of China is making monetary policy more accommodative. However, the stimulus does not match that of 2015/16 or the financial crisis of 2007/08, and the Government appears worried about excessive debt levels. While geopolitical risks are rising, we think the rhetoric between the US and China is at this stage unlikely to see the Phase One trade deal dissolved in the short term.
China seems well-positioned for a strong rebound through the second half of 2020 and into 2021 as stimulus kicks in and the global economy recovers. Asia and emerging market equities appear inexpensive compared to the US and Australian share markets.
The Australian real estate investment trust index (AREITs) fell –21.33% last Financial Year, as the closures of retail malls and office buildings, and people working from home due to the COVID–19 pandemic had a profound impact on returns for the sector.
The experience of the last few months has provoked some challenging questions about AREITs going forward – will remote working become the norm? Is this the end of the office building as we know it? How will the economic slowdown impact retail malls and shopping centres? Will the downturn lead into a fully-fledged structural demise?
There is no doubt COVID–19 has illuminated the desire for greater flexibility and accelerated its acceptance. Feedback from institutional office landlords in a recent tenant survey indicated that employees wanted to work from home more often but also maintain an office presence.
Due to the shift to working from home, the expectation is that tenants will take stock of their existing space obligations, reconcile the working from home trend with a moderated outlook for business expansion and employment cuts and decide to downsize their office floorplate.
Recent data support this view with leasing volumes and enquiry levels having fallen through the floor (pardon the pun) as cost-conscious corporates focus on expenses. Where lease negotiations are progressing, anecdotal evidence suggests tenants are requesting higher incentives and lower rents.
But as perverse as it sounds, as COVID restrictions unwind, the requirements of social distancing may require more office space per person, plus sneeze shields, hand sanitiser stations and single direction walkways. Analysis by diversified AREIT and office landlord Mirvac Group indicated that if an existing tenant operating at a density of 1 person per 10sqm were increased to 1 per 14sqm while permitting 20% of staff to work from home permanently, an additional 12% of office space would be required.
In the immediate term, the office sector faces declining tenant demand and downward pressure on market rents and values. For these reasons, we are cautious of the outlook for office property. The longer-term case for office buildings remains intact, albeit with some adaptation.
The future of shopping Centres is again in the spotlight due to COVID–19. With the Australian retail sector already going through a period of transformation due to changing consumer habits impacting the performance of traditional bricks and mortar retailers, COVID–19 is now a double whammy.
GPT Group, one of the largest owners, managers and developers of retail property in Australia, has announced that the value of properties it holds has fallen 8.8 per cent, or $476.7 million, since 31 December, a flow-on effect of the steep drop in retail trade figures during the period and the continuing uncertainty in consumer sentiment.
It is now becoming evident that retailers who fail to adapt to the changing landscape of retail by improving their online platforms will not survive. The changing retail landscape presents an opportunity for these shopping hubs to become mixed-used precincts providing space for example for things like childcare, gyms, medical centres, leisure concepts (restaurants and entertainment) or residential developments.
Apart from the retail property owners that are well advanced with the transformation, the short–term outlook for retail property is bleak.
INTRODUCING NIV MAHARAJ
By Witi Suma
It is with great pleasure that we introduce a new member to our team, Niv Maharaj. Niv joined GFM in March this year, having attained many years of experience in banking and wealth management as a client services administrator, supporting financial advisers. At GFM, she holds the position of SMSF Administrator and is primarily responsible for the preparation of paperwork required to administer our clients’ superannuation, investments and insurances. With her years of experience in financial services and her strong customer focus, Niv is an asset to the SMSF Team.
Here’s a quick Q & A with Niv:
Q. Your family?
A. My husband and I have been married for ten years. We have a beautiful and amazing five–year old daughter, Saanvi – whom we adore. Most of our focus revolves around spending as much time with her as we possibly can while she grows up.
Q. Favorite holiday destination?
A. Our usual holiday destinations have typically been Fiji, Thailand, and more recently, India. Our daughter is very excited about the idea of visiting the United States and Hawaii – so we look forward to making that happen, once the travel restrictions ease off, that is!
A. I did play soccer and badminton some years ago. However, those days seem to be behind me now! In my spare time, I love doing yoga and dancing and look forward to any opportunity to relax by watching an old favourite movie. Some of our hobbies are also oriented around our daughter, who loves acting and dancing.
Q. Favorite food/drink?
A. I am a big fan of seafood and wine. Other cuisines such as Italian and Thai are also some favourites. In summer, however, home BBQs are a must.
Q. Your proudest moment?
A. I have had many proud moments, parenthood being one of them. With many sacrifices and tough decisions, I am proud to be able to provide our daughter with the foundation of private education. Watching her embrace our culture and the wealth of knowledge she absorbs around her certainly makes me proud.
Q. What sports do you follow?
A. I don’t follow sports, strictly speaking. However, I do have some passing interest in a few codes. Growing up in Fiji, soccer and rugby union was mandatory viewing. Moving to New Zealand only served to reinforce rugby union further. Having an Indian ancestry means there is some intrinsic interest in cricket. And having lived in Melbourne for ten years means that I am now surrounded by footy fever all the time!
Q. Best part of working at GFM
A. I enjoy being part of this beautifully crafted boutique firm that not only delivers excellent customer service but also supports its employees. Despite the COVID–19 situation, the business adopted wonderfully to its new ways of working. We share the same vision of looking after our clients, and we work well as a team!
Greater Flexibility To Make Superannuation Contributions – Two Extra Years
By James Malliaros
On 29 May 2020, the Government made regulations which increase the age at which contributions can be made without meeting the work test and also on behalf of a spouse. The measures are effective from 1 July 2020.
The Work Test
The work test is met if an individual is gainfully employed for at least 40 hours over a consecutive 30 day period in the financial year. Gainfully employed means employed or self–employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment – unfortunately, voluntary work does not meet the definition of gainfully employed.
The work test will no longer need to be met to make any type of voluntary contribution to superannuation from 1 July 2020, for those aged 65 and 66. As a result, superannuation fund members under age 67 have up to two additional years from the start of the 2020–21 financial year to make additional voluntary contributions, even if they have retired from the workforce. This means the work test requirements will now align with the Age Pension age, which will be 67 from 1 July 2023.
The removal of the work test provides the opportunity for superannuation fund members under the age of 67 to:
- Make non–concessional contributions;
- Make concessional contributions including catch–up contributions
- Implement a re-contribution strategy
- Manage tax, including capital gains tax
- Claim the spouse contribution tax offset or co-contributions (if eligible)
- Make contributions under the small business CGT concessions, and
- Transfer foreign superannuation into an Australian superannuation account.
Non–concessional contributions and the bring-forward rule
From 1 July 2020, members under age 67 can make non– concessional contributions without meeting the work test.
Therefore, those superannuation fund members age 65 and 66 at the time of the contribution can contribute $100,000 per financial year, as long as they:
- Have a total superannuation balance just before the start of the financial year of less than $1.6 million, and
- Are not in the middle of an existing bring-forward period in the Financial Year.
The ‘bring–forward’ rule allows eligible superannuation fund members to use up to three years’ worth of annual non–concessional contributions cap to make up to $300,000 of non–concessional contributions at one time (or any time throughout a three–financial–year period) where their total super balance at prior 30 June is less than $1.4 million. Where a member’s total superannuation balance at 30 June before the start of the financial year is at least $1.4 million but less than $1.5 million, a two–year $200,000 bring–forward period applies instead.
Under current legislation, the ‘bring–forward’ rule can be triggered only by superannuation fund members aged less than 65 at the start of the financial year. However, the proposal to increase the maximum age at which a person can trigger the non–concessional contributions cap ‘bring-forward rule’ from 65 to 67 at the start of the financial year is currently before Parliament and has not yet been legislated.
Although Parliament is not scheduled to sit again until 24 August, this change will likely become law and be backdated to 1 July 2020. However, until the change to the legislation is made, the bring-forward rule remains available only to those aged under 65.
Maximising non–concessional contributions
Superannuation fund members wishing to maximise non–concessional contributions often achieve this by triggering their final bring forward period in the final year possible.
However, the delay in passing the bring–forward legislation creates legislative uncertainty from the start of the 2020–21 financial year, depending on a person’s age and work status. In particular, the uncertainty impacts those superannuation fund members reaching age 67 early in 2020–21 who will not meet the work test or work test exemption.
The following tables highlight the issues and options for a range of different scenarios for those turning 67 during the 2020–21 financial year and wishing to make non–concessional contributions (NCCs):
|Scenario||Turns age 67 during 2020–21|
Not in existing bring forward period
Does not meet the work test
|Eligibility to Contribute||2020–21: Yes – work test does not apply before turning age 67|
Work test then applies
|Optimal strategy under current legislation||$100,000 NCCs before turning age 67|
|Optimal strategy under proposed legislation||$300,000 NCCs under bring forward rule before turning age 67|
It is important to consider that where a superannuation fund member turns 67 later in 2020–21 and after the bring-forward rule is likely to become law, they have the option to make a $100,000 NCC early in in the financial year. If the new rule then becomes law, they can then make an additional $200,000 NCC before they turn 67 later in the year. The new rules will, therefore, allow superannuation fund members to make an additional $200,000 of NCCs.
Alternatively, where a superannuation fund member turns 67 early in 2020–21 and before the bring-forward rule is likely to become law, they need to consider whether to make $100,000 NCCs before turning 67 under the existing rules or $300,000 NCCs before turning 67 under the proposed rules. However, it is important to note that if the superannuation fund member decides to make $300,000 NCCs under the proposed rules and those rules do not become law, or have a later effective date, they will have excess NCCs for the 2020–21 year.
|Scenario||Turns age 67 during 2020–21|
Not in existing bring forward period
Meets the work test
|Eligibility to Contribute||2020–21: Yes – work test does not apply before turning age 67|
Work test then applies
Can contribute between 67th birthday and 30 June 2021, as already satisfied work test earlier in the same year
|Optimal strategy under current legislation||$100,000 NCC in 2020–21|
$100,000 NCC in 2021– 22 (if still meet the work test)
$100,000 NCCs in 2022– 23 (if still meet the work test)
|Optimal strategy under proposed legislation||$300,000 NCC under bring forward rule in 2020–21|
Under both the current and proposed strategy, the same NCC contribution is made over three years, assuming the work test continues to be met. However, the proposed rules allow $300,000 to be contributed sooner and not subject to any change in the superannuation fund member’s work status.
As they have the whole of 2020–21 to contribute, a $300,000 contribution could be made once the legislation passes or make $100,000 NCCs early in the financial year and a further $200,000 once the legislation passes.
By Anthony Yannakakis
The start of a new Financial Year brings with it new opportunities to maximise your superannuation savings for retirement. There are many different ways to boost your superannuation savings, and below, we outline some of the different ways money can be contributed to superannuation.
Concessional contributions are those that are made into superannuation on a pre-tax basis. This includes your mandated employer contributions, salary sacrifice contributions and any personal contributions made, for which a tax deduction is claimed.
Mandated employer contributions
For most employees, their employer will make super contributions of 9.5% into superannuation on their behalf. Although some employees will have different arrangements depending on their employment contract, 9.5% is the minimum amount an employer must contribute to super. This amount is scheduled to increase to 12% by the 2026 financial year.
Salary sacrifice contributions are where part of your salary is diverted straight to your superannuation account before you pay income tax.
Personal Concessional Contributions
Personal concessional contributions are made on an after-tax basis, for which you can then claim a tax deduction upon lodgement of your individual tax return.
The concessional contribution cap for the 2021 financial year is $25,000, and those under 67 do not have any restrictions to meet this cap. However, if you are between the ages of 67 and 74, you must meet the work test before making any contribution, working 40 hours of paid work over a concessive 30–day period.
Concessional super contributions are taxed at 15% upon entering the superannuation environment and form part of your taxable superannuation component.
The primary advantage of making concessional contributions into superannuation is the difference in the amount of tax paid. Every dollar that is concessionally contributed to superannuation is taxed at 15%, rather than your marginal tax rate, which could be as high as 47%.
The table below shows the extra benefit of making concessional contributions to superannuation at different marginal tax rates:
|Taxable Income;||Marginal Tax Rate||For $1,000 in salary you receive||For $1,000 of Salary Sacrifice, your super fund receives||Extra Benefit|
|$37,001 to $90,000||34.5%||$655||$850||29.77%|
|$90,001 to $180,000||39.0%||$610||$850||39.34%|
|$180,001 to $250,000||47.0%||$530||$850||60.37%|
*Individuals with income above $250,000 per annum for Division 293 tax incur an additional 15% tax on concessional contributions.
Catch Up Concessional Contributions
From 1 July 2018, the Government introduced catch–up concessional contribution legislation. For those who meet eligibility requirements, any unused accrued concessional contribution cap since this date can be used to make additional contribution caps.
Before making a catch–up concessional contribution, it is crucial to understand if you are eligible before contributing. To be eligible, your Total Superannuation Balance must be less than $500,000 at the end of the previous Financial Year. Also, unused concessional contributions can only be carried forward on a rolling five–year basis.
In 2018/19, you made total concessional contributions of $15,000 from your employer, which is $10,000 less than the annual cap amount of $25,000.
In the 2019/20 Financial Year, you did not make any concessional contributions into superannuation.
From 1 July 2020, you are expecting to receive $15,000 of concessional contributions from your employer, which is also $10,000 less than the annual cap amount of $25,000.
The table below shows the concessional contributions you can carry forward into future years:
|Annual Concessional Contribution Cap||$25,000||$25,000||$25,000|
|Total Concessional Contribution Cap including carried forward concessional contributions||$25,000||$35,000||$60,000|
|Concessional Contributions made||$15,000||Nil||$15,000|
|Unused Concessional Contributions that may be carried forward||$10,000||$35,000||$45,000|
Therefore, in this example, you would be able to make additional concessional contributions of $45,000 in the 2020/21 Financial Year.
For those who meet eligibility requirements, the Government will assist you in increasing your retirement savings by making an additional contribution on your behalf at a rate of up to 50 cents for every $1 you contribute, up to a maximum of $500.
To be eligible for the contribution, you must earn less than $53,564 in the 2021 Financial Year with at least 10% of your income from employment activities, be under age 71 and have a total superannuation balance of less than $1.6 million.
The table below shows the Government Co–Contribution that you may be eligible for, based on your total income:
|$39,837 or less||$500.00||$400.00||$250.00||$150.00|
Eligible Spouse Contribution
An eligible spouse contribution is a contribution of up to $3,000 made into superannuation on behalf of your spouse, to be eligible for a personal tax offset.
To be eligible for the maximum tax offset of $540, the receiving spouse’s total income must be less than $37,000. This offset is reduced by $1 for every $1 by which the total of assessable income exceeds $37,000, and no offset is available if the receiving spouse’s income exceeds $40,000. The offset is also reduced if the contribution you make is less than $3,000.
The age limit for spouse contributions was increased to 74 on 1 July. Currently, spouse contributions can only be made if the receiving spouse is under age 70. Additional flexibility will be provided by the removal of the work test for those aged 65 and 66. This would enable spouse contributions to be made for the receiving spouse without the need to satisfy the work test up to age 67. From age 67 to 74, the work test would need to be satisfied by the receiving spouse.
Before making any additional contributions to superannuation, the following must be considered:
- How much has already been contributed to super to ensure you do not breach contribution caps
- The benefit of different types of contributions on your taxable income position
- Understand that your contributions will not be accessible until you meet a condition of release
If you would like to discuss the benefits of making additional contributions into superannuation, please contact your adviser.
Sustainable investment funds surpass US$1 trillion
By Patrick Malcolm
Assets under management in funds that abide by environmental, social and governance (ESG) principles have surpassed US$1 trillion for the first time on record, according to data compiled by Morningstar.
It comes after net inflows of $71.1 billion between April of June this year, driven by growing investor interest in sustainable investment funds in the wake of the coronavirus pandemic.
Investors are increasingly aware of the link between a company’s long-term success and profitability and its sustainability focus. Regarding environmental screening, a growing body of research suggests that superior environmental management usually correlates with high standards of corporate governance which requires attention to more than just short-term financials. There is also increasing evidence that shows a strong link between good sustainability performance and corporate profitability.
According to Investopedia, the earliest recorded instance of ethical investing in America was made by Quakers in the eighteenth century, which restricted members from investing their time or money in the slave trade.
In the 20th century, ethical investing gained traction based more on people’s social views rather than their religious ones. Ethical investments tend to mirror the politics and trends of the time. In the 1960s and 1970s America, ethical investors focused on those companies and organisations that promoted equality and rights for workers and avoided those that supported the Vietnam War or benefited from it. Starting in the 1990s, ethical investments began to focus heavily on environmental issues, with ethical investors moving away from coal and fossil fuel companies toward those that supported clean and sustainable energy. That trend continues today.
When constructing an ethical investment portfolio, the framework around which it is built is often based on the concepts of environmental, social and corporate governance (ESG).
In a report published earlier this month, researcher Morningstar cited three factors contributing to record second-quarter inflows into ESG funds. It said the disruption caused by COVID-19 had “highlighted the importance of building sustainable and resilient business models based on multi-stakeholder considerations.” Morningstar noted that the continued growth in the number of products making up the sustainable fund universe had also acted as a catalyst for ESG investment funds in recent months.
It found that the number of funds that use ESG criteria as a key part of their security-selection process in Europe had jumped up to 2,703 by the end of the second quarter, up from 2,584 at the end of March. Additionally, Morningstar said fund managers were seen to be “greening” their offerings by converting forty traditional funds into sustainable funds over the three months through to the end of June. Thirty of these funds were also renamed.
The repurposing of existing funds into sustainable offerings offered a way for the managers to leverage existing assets when building their sustainable funds business. It means the funds do not have to start from scratch and can accelerate the time frame required to reach scale.
Until recently, the problem with ethical investment was that many funds failed to deliver comparable returns, and too many investors believed that ethical funds were compromised. However, a substantial body of research has emerged to disprove this idea.
Back in 2012, the Royal Bank of Canada conducted a study that collated the results of the most comprehensive pieces of ethical investment research into a single document. The chief finding was that socially responsible investing did not result in lower investment returns.
Last month, the CEO of BlackRock, the world’s largest money manager with more than US$7 trillion in assets under management, Larry Fink, said that the idea companies have a greater purpose besides just providing returns for shareholders would soon become even more critical.
“The one thing that is very clear in this COVID world… [is that] stakeholder capitalism is only going to become more and more important… The companies that focus on all their stakeholders — their clients, their employees, the society where they work and operate — are going to be the companies that are going to be the winners for the future,” Fink told CNBC’s “Squawk Box” on July 17.
Fink also said that BlackRock had seen a “surge of interest” among clients looking to invest in areas like renewable energy.
Demand is rising for responsible or ethical investment, as funds flow into the sector, and the product offerings grow with more investment managers joining the trend. We see no reason why this trend won’t continue.
By Mai Davies
Meet the Managers – Magellan (An Update on Global Equities and Global Listed Infrastructure) and Perpetual Equity Investment Company Limited (An Update On The Australian Share Market & Global Opportunities)
We held our first webinar on Thursday, 18 June, on global markets.
We were delighted to see so many clients and guests dialling in to hear from Paul Nicol, our Managing Partner and our special guests Stefan Marcionetti who is the Portfolio Manager of the Magellan Global Trust (MGG), and Gerald Stack, who is the Head of Infrastructure for Magellan.
Paul, Stefan, and Gerald reflected on recent market events and provided an update on their respective portfolios. There were many questions submitted, and Stefan and Gerald covered as many as possible.
Without a doubt, Magellan is one of the most successful Fund Managers in Australia. This was a terrific opportunity for investors with Magellan to look “under the bonnet” of Magellan’s investment process and stock positions and get a real insight into Magellan’s positioning in the current market environment.
We held our second webinar on Wednesday, 29 July, where we provided a share market update.
Clients and guests dialled in to hear from Paul and our special guest Vince Pezzullo who is the Deputy Head of Equities at Perpetual Investments and is the Portfolio Manager of the Perpetual Equity Investment Company Limited (ASX Code: PIC)
Paul and Vince reflected on recent market events, and Vince provided an update of his current views on the market, sector and stock opportunities, lessons from the recent sell-off and what the future holds.
The feedback on both webinars was excellent with attendees very keen for more. It was great to see some of our clients that reside overseas, interstate and in regional areas joining in, where they couldn’t attend a live seminar. We will continue to provide regular webinars beyond these restrictions.
We love holding live events and seeing our clients, but during these times, we are unable to do so. We will return to hosting live events when it is possible and safe to do so.
If you missed these webinars and would like to watch the recording, please visit the link below:
New Financial Year
By Andrew Goldman
We are already the end of the second month of the 2020 Financial Year.
Before we know it, it will be Christmas again, so it seems appropriate we remind clients of some lodgement deadlines are already on the horizon.
Below are some key due dates up to 31 December:
|25 August 2020||Lodge and pay 20 June Qtr activity statement if doing so electronically|
|28 August 2020||Lodge 2020 Taxable payments annual report for certain industries|
|21 September 2020||Lodge and pay 20 August monthly activity statements|
|21 October 2020||Pay annual PAYG instalment|
|Lodge and pay 20 September monthly activity statement|
|28 October 2020||Final date for electing to or opting out of paying GST by instalments|
|Lodge and pay 20 September quarter activity statements|
|31 October 2020||Lodgement of 2020 and prior income tax returns where 2019 or prior returns were overdue as at 30 June 2020|
|Lodgement of 2020 returns where the ATO has notified a lodgement date of 31 October|
|21 November 2020||Lodge and pay 20 October monthly activity statements|
|21 December 2020||Lodge and pay 20 November monthly activity statements|
Over the coming weeks, we will be advising clients affected by the 31 October lodgement due date.
Generally speaking, for those not subject to the 31 October due date, the next tax return lodgement due date falls on 31 March 2021 for companies and super funds with a total income of more than $2 million in the previous year and individuals who had a tax liability of $20,000 or more on their most recently lodged return.
The final tax return due date falls on 15 May 2021 for all taxpayers that did not have an earlier due date.
While it would appear you have plenty of time to prepare for lodgement of your 2020 returns, we encourage you to prepare your documents and make arrangements for the required information well before the due date.
Please note that in cases where your return has been prepared in advance of your effective due date, and you have a tax liability, we can defer lodgement until your due date and thus defer payment. This means that you will benefit from having advanced notice of any tax liability well before lodgement and payment is due and thus be in a better position to budget your cash flow accordingly.
Remember, we can arrange for you to meet with one of our GFM Gruchy accountants either over the telephone or via video conference during the COVID–19 restrictions.
Each year more and more GFM Wealth clients are taking advantage of the efficiencies offered by having their tax returns (both business and personal) prepared by GFM Gruchy Accounting. If you are yet to take advantage, please contact our office for further assistance.
GFM IS NOW ON LINKEDIN
GFM have recently established a company LinkedIn page, and we are posting interesting and informative content regularly. Many of our team are also on LinkedIn, and we invite you to follow GFM and connect with the team. Below is the link to our company page below. Follow us for regular updates.
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