Welcome to the first of the Barwon Financial Planing monthly newsletters. Each month we aim to provide you with timely, relevant updates and information about the Australian financial system. This month we focus on the ‘Changes to the tax system’, RBA interest rate cuts and reduction to the deeming rates.

End of Financial Year Update

A challenging year for investors with many twists and turns.

The financial year to 30 June 2019 was a challenging period for investors. Australian and US shares, as well as Australian listed property, still delivered good returns for the year but there were many twists and turns along the way. The global economy continued to grow, but it is currently showing signs of a sharp slowing. Central banks have shifted from threatening to raise interest rates to now promising to cut interest rates. The rapid change in policy direction was most evident in America where the US Federal Reserve (Fed) changed course three times. The Fed has moved over the past year from raising US interest rates to then being on hold and finally to considering cutting interest rates. A marked economic slowdown in Australia, subdued wages growth, falling house prices and construction as well as low inflation has prompted Australia’s Reserve Bank of Australia (RBA) to reduce the official cash rate. Continuing trade tensions between China and the US, and fears that President Trump could target other countries, remain key concerns for the global economy and financial markets.

As noted on some of our previous communication late last year, we are well positioned across all our portfolios. We do not believe (at this time) there is anything sinister within the markets to expect a major correction. If anything, volatility can offer exceptional buying opportunities.

Barwon Financial Planning will continue to follow our process – we progressively sell more expensive assets and buy into assets as they get cheaper. We stay diversified when uncertainty is high, and concentrate positions when things get really attractive. We follow this process because, irrespective of which path markets take over the long term, following this discipline will control the risk in your portfolio and maximise return within those risk limits.

Over the coming week we’ll be updating all clients with their investment ‘rates of returns’ and portfolio balances.

Please let the team know if you have any questions.

Changes to the Tax System

Payment Summaries

You may no longer receive a payment summary from your employer this year.  Many employers are now required to report their employees’ income, tax and super information directly to the ATO each payday, so you can find all your information in one place when you need it.

If you use a registered tax agent (such as Mackenzie & Co. Accountants) to prepare your income tax return, you don’t need to do anything. The ATO will provide agents with a direct link to this information so they are fully equipped to lodge your tax return as usual.

If you lodge your own tax return, you can access your payment summary information (now called an income statement) at any time through ATO online services in myGov. If you don't have a myGov account, creating one is easy, just let us know if you have any questions.

Private Health Insurance Statement

From 1 July 2019, health insurers are no longer required to send their members a private health insurance statement. It is optional for them to send you this information.

If you lodge your tax return online with myTax or a registered tax agent, your health insurance tax information should be pre-filled in your tax return by 20 July.

Personal Income Tax Plan

The Government's Personal Income Tax Plan, as announced in the 2018-19 Federal budget, has been passed by Parliament.

The changes introduced taking effect from the 2018-19 income year include:

·  an increase to the top threshold for the 32.5 percent bracket from $87,000 to $90,000

·  delivering a new low and middle income tax offset (LMITO) for those who are eligible  

There has been a further expansion to the Personal Income Tax Plan, announced in the 2019-2020 budget and it is now law. This means the LMITO has increased from a maximum amount of $530 to $1,080 per annum, and the base amount has increased from $200 to $255.

You don’t have to do anything to receive this offset – when you lodge your income tax return, it will be calculated and applied on your income tax assessment. 

RBA Cuts Cash Rate to New Record Low

The Reserve Bank of Australia (RBA) has cut the official cash rate to a new record low of 1 per cent.
In minutes released from last month’s board meeting – in which the RBA dropped the cash rate for the first time in almost two years – the central bank acknowledged that further cuts to the cash rate were “more likely than not”, with governor Philip Lowe also conceding that the market was not “making any inroads into the economy’s spare capacity”.

The RBA’s usually strong signal to the market prompted observers to predict back-to-back rate cuts in July and August, as part of an aggressive strategy to stimulate the labour market and boost GDP growth.

The RBA’s June cash rate announcement prompted an immediate response from the market, with several lenders, including the big four banks, passing on the reduction to their mortgage customers.

However, despite warnings from both governor Lowe and Commonwealth Treasurer Josh Frydenberg, some lenders opted not to pass on the cut in full, citing margin pressures and considerations for deposit customers.

Here is a table showing how Australia's average mortgage sizes may be affected:

Loan amount examples Likely decrease in repayments

$150,000 $21.45 per month

$250,000 $35.75 per month

$350,000 $50.05 per month

$450,000 $64.35 per month

$550,000 $78.65 per month

$650,000 $92.95 per month

We encourage all mortgage holders to review their current interest rates. If your interest rate starts with a ‘4’, please consider calling your bank or contacting a mortgage broker. We can recommend a number of local mortgage brokers that may be able to assist you.

Government Announces Cuts to Deeming Rates

Effective from 1 July 2019, the lower deeming rate will decrease from 1.75 per cent to 1.0 per cent for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples. The upper deeming rate will be cut from 3.25 per cent to 3.0 per cent for balances over these amounts. 

We have already spoken with many clients who will benefit from these deeming rate changes. It is also very important to update your details with the Department of Human Services to ensure your assets are correctly valued and you are receiving your maximum entitlement. Please contact us if you have any questions. 

As always, thank you for your continued trust and confidence.