The markets… where to from here?
As we approach the end of the financial year various commentators are arguing as to whether the stock market still offers value and whether the geo-political uncertainties (Ukraine, Syria, Iraq, a China slowdown, to name a few) mean that it would be wise to reduce investment risk. Added to this are the domestic uncertainties with the Federal Government unlikely to be able to get much of its budget passed in the Senate. On all of these issues there are potential outcomes that would be badly received by the stock market, though history tells us that reactions to such events are normally short term and not a sound basis on which to make long term investment decisions.
There will always be uncertainties but that isn’t a reason to leave too much money in cash waiting for calmer times and more apparent certainty. The events we know about are to a great extent already reflected in prices, it is the things we don’t know about that can prove more significant. That’s why the GFC hurt so much – very few people saw it coming. An important consideration for any investor should be their timeframe so, for example, a 40 year old investing their superannuation can be much less concerned about market fluctuations than a retiree who is drawing down on their savings. As to where the markets go from here, no-one really knows in the short term but history suggests that in the longer term taking some investment risk will be rewarded with higher returns than can be earned by holding safer and less volatile investments, like cash.
Child care costs have increased dramatically in recent years, placing a strain on family budgets. This month AMP – NATSEM released a comprehensive report on child care affordability in Australia. The report says that over the past five years child care prices grew by 44.2 per cent (or 27.5 per cent in real terms), equivalent to an annual average increase of 7.6 per cent, according to the Australian Bureau of Statistics.
Governments have responded with large increases in financial assistance, mostly in the form of the Child Care Benefit (CCB) and the Child Care Rebate (CCR).
The CCB provides a capped, per hour, subsidy direct to the family or child care centre to offset the cost of care. The payment is means tested and provides maximum benefit to low income families. The payment increases in line with the consumer price index (CPI).
The CCR is not means tested and provides a rebate of 50 per cent of ‘out-of-pocket’ costs. This payment increases with the actual cost of child care.
Where a person lives will also have a big impact on their child care costs, with some daily rates as high as $170 a day.
Overall, 887,000 families use formal child care in Australia, with nearly 1.3 million children attending around 13,000 approved child care centres. Informal care is the most used form of care in Australia. Grandparents provide 23 per cent of all hours of child care and non-resident parents are used for 27 per cent of total hours. Of formal care, Long Day Care easily makes up the most hours used at 30 per cent.
The report says that child care is used mostly by children aged between one and five years of age. Child care usage peaks for three year olds, where 59 per cent of children are in formal child care. Only around
eight per cent of children aged less than one use formal child care, which increases dramatically to 34 per cent by the age of one.
The report says that Long Day Care (LDC) is the most used type of formal child care, with around 630,000 Australian families using this type of care (Figure 3a). LDC mostly caters for children aged five and under who are not yet at primary school. This type of care is generally used (or at least paid for) as a full day of care.
Family Day Care, or home-based care from registered carers, is used by around 109,000 families and mostly caters for younger children yet to attend primary school.
The major form of formal care for school-aged children is before and after school care (Outside School Hours Care—OSHC). This type of care is mostly used by primary school aged children immediately before and after school hours. Before school care is used by 117,000 families, while 241,000 use after school hours care.
Aged care – new rules apply from 1 July 2014
It is not uncommon for adult children to find themselves assisting their parents or relatives make decisions about aged care so it is important to understand that the rules and terminology, which are about to change, are complex.
Aged care reforms are set to commence on 1 July 2014 and will see aged care fees rise for many new residents and recipients of home care as a result of changes to the way in which fees are calculated.
The Department of Social Services (DSS) recently published frequently asked questions on Home Care & Residential Care and their responses on the DSS website provide guidance on how the new rules will operate and be applied. This information can be accessed here.
• Unlike residential aged care, the home care annual income-tested fee cap is pro-rated throughout the year i.e. home care recipients with income-tested fees capped at either $5,000 or $10,000 will be charged a daily equivalent of $13.74 ($5,000/364) or $27.47 ($10,000/364) respectively.
- Income-tested fees will be assessed quarterly by the Department of Human Services.
• There will be three different income-free thresholds when working out income-tested fees, depending on the relationship status of the recipient. The thresholds as at 20 March 2014 are $24,731.20 per annum for singles, $19,172.40 per annum each for couples, and $24,263.20 per annum each for illness separated couples (e.g. one member is in residential aged care).
Residential aged care:
• Accommodation bonds paid by a member of a couple who entered residential aged care under the current rules (pre 1 July 2014) will be included in assessable assets for the member entering care under the new rules after 1 July 2014.
• Current home care recipients moving to residential aged care after 1 July will not be grandfathered under current rules.
- Income and assets will be assessed quarterly by the Department of Human Services using information collected for income support payments. Self-funded retirees are required to notify the Department of Human Services of any changes to their circumstances.
• Residents who are paying a Daily Accommodation Contribution (DAC) will have their daily accommodation costs recalculated quarterly. DACs are paid by residents who have lower means and have part of the aged care costs subsidised by the Government.
• Residents who have paid a lump sum Refundable Accommodation Contribution (RAC) and subsequently their means-tested amount reduces due to lower assets and/or income, may be able to have their RACs refunded if the provider agrees to do so. RACs are paid by residents who have lower means and have part of the aged care costs subsidised by the Government. • Published prices that are listed on the My Aged Care website, are for all rooms in that particular facility and not limited to rooms that are available at that time.
Division 293 Tax for high income earners
The ATO is issuing Division 293 assessments which relate to taxpayers who have been subject to the additional contributions tax of 15% on the non-excessive portion of their concessional contributions. This additional tax is assessed under Division 293 of the Income Tax Assessment Act 1997 and applies only to super members whose adjusted income (including the non-excessive portion of their concessional super contributions) exceeds $300,000. Division 293 tax is imposed on that part of concessional contributions which cause the adjusted income to exceed $300,000.
Super members who have received Division 293 assessments can pay the assessed tax themselves or have their superannuation fund pay the tax for them. If the superannuation fund is to pay the tax the trustee must be provided with a “release authority” which is issued by the ATO. The super member will receive a release authority with their notice of assessment for Division 293 tax. If the taxpayer gives the release authority to the trustee, the trustee has 30 days in which to pay the specified amount to the ATO.
Excess non-concessional contribution refunding
For any excess contributions made after 1 July 2013 that are over the non-concessional contribution (NCC) cap, the government will allow taxpayers to withdraw the excess NCCs and any associated earnings from their superannuation fund.
Earnings withdrawn from the fund will be taxed at the taxpayer’s marginal tax rate. If the taxpayer chooses to leave the excess NCC in their fund they will be taxed on these contributions at the top marginal tax rate.
This newsletter is not advice and provides information only. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.