Australians should use their tax return to reduce debt rather than spending it frivolously, the nation’s largest credit union says.

Credit Union Australia (CUA) acting chief executive Rob Nicholls said consumers should repay existing debt in the current economic climate or invest the tax return for future growth.

“While those shoes or new pair of jeans may be a `must have’ today, there are better ways to spend a tax return that could provide you with an endless shoe or jeans collection in years to come,” Mr Nicholls said.

There were obvious ways for Australians to use their tax return including to reduce debt, Mr Nicholls said.

“It’s amazing how peacefully you will sleep when you don’t have a $5,000 credit card debt hanging over your head,” he said.

Recent data from the Reserve Bank of Australia (RBA) confirm consumers have increased their restraint with spending and subsequent levels of debt.

The total balances outstanding on credit and charge cards fell one per cent in March, while the average balance on a credit card, $3119 in March, grew by one per cent over the past year, RBA data revealed.

This was the slowest annual rate of growth in credit card balances since records started 14 years ago.

Repay any interest free loans, particularly those offering 12-month interest free terms when buying furniture or whitegoods, Mr Nicholls said.

“Some people are unaware that once this term has expired a large interest rate is usually applied to the loan, which can end up costing an individual much more than the original cost of the item,” he said.

Mr Nicholls said consumers should open an online savings or cash management account to take advantage of the higher interest rates on offer.

“Such accounts are great because they allow you access to your funds whenever you like,” he said.

Buy only essential items and avoid spending the tax return on conspicuous consumption, Mr Nicholls said.
“Tax returns can come in handy for necessities such as dentist bills, school or uniform fees, a car registration or car service,” he said.

“Alternately you could use it to start your Christmas shopping early.”

AAP

The recent drop in variable home loan interest rates can see some customers saving up to $100 each month on mortgage payments ( dependant upon loan balance & interest rate) however there are other ways to maximise savings!

1.  Advance repay- use the savings to pay off debts sooner by making additional repayments on the mortgage or other debts.

2. Consolidate - amalgamate debts into one simple & easy loan facility. This could potentially reduce monthly repayments.

3. Budget - establish a budget for each pay period to plan on how to use your money. While ensuring savings for holdiadys or christmas.

4. Make it regular - set up a Direct Debit payment that co-insides a day after your pay period. This helps to ensure no late fees.

5. Plan & Research major purchases - investigate and compare prices on major purchases. The Internet may help you research.

6. Buy Pre-loved - purchasing preloved or second hand can save a great amount on money. For example according to www.buyingadvice.com a new vehicle will depreciate by 15-20% in the first year alone!

7. Invest in high interest savings

8. Use rewards card - use store rewards casrd to save money on groceries or petrol.

Mtge & Finance Brief Oct 2008

Chartered Accountant and registered tax agent Jo Kelab of australianbiz.com.au says income taxs laws on the provision of fringe benefits to employees, their associates and clients are complex, especially at Christmas.

Holding a Christmas party is fraught with tax requirements, so its best to run any ideas past your accountant. Again, it all get back to the planning. “Christmas parties consitute ‘entertainment benefits’ and as such are subject to fringe benefit tax (FBT) unless specifically exempt, or they are subject to the ‘minor benefits’ exemption,” explains Kaleb.

A minor benefit is one that is provided to an employee or their associate on an ‘infrequent’ or ‘irregular’ basis, which is not a reward for services, and the cost is less than $300 per benefit inclusive of GST”

He says holding the Christmas party on the business premises on a working day is usually the most tax effective, because expenses such as food & drink are exempt from FBT for employees with no dollar limit, but no tax deduction or GST credit can be claimed.

“Alternatively, Christmas parties held off the business premises are exempmt from FBT where the cost for the employee and their assocaite is each less than $300 inclusive of GST, bit no tax deduction or GST credit can be claimed.”

In regards to gifts, Kaleb says that non enterainment gifts provided to employees are usually exempt from FBT where the total value is less than $300 inclusive of GST. A tax deduction and GST credit can also be claimed. These include flowers, wine, perfumes, gift vouchers and hampers.”

Kaleb recommends keeping these tips in mind:

• Non Entertainment gifts given to clients and suppliers do not fall within the FBT rules as they are not provided to employees. Generally a tax deduction and GST credit can be claimed for these gifts, provided they are not excessive or overly valuable
• The provision of entertainment gifts has different tax implications ( examples include threatre tickets, passes to attend musical, live play, movie, tickets to a sporting event or providing a holiday) Where the cost for the employee and their associate is less than $300 each GST inlcusive, there is no FBT, no tax deduction is allowed and no GST redit can be claimed
• However, if the cost for the employee and their associate is each $300 or more GST inclusive, a tax deduction and GST credit can be claimed, but FBT is payable. The cost of any entertainment gifts provided to clients is not subject to FBT and no tax deductions olr GST credit can be claimed.

Please note: This is not an attempt to scare anyone, more to alude to opportunities to protect your business moving forward in times of financial market flux.

Your banking arrangements have been fantastic over the last 7 years, You’ve made all your payments on time. The Bank has given you most of what you have wanted when you generally wanted it.
When things are good there is little to be worried about from yours or the banks perspective. But for the last 12 months things are not so good!

The Banks and other lending institutions haven’t been able to get money/capital the way they use to. If they are, the cost of obtaining it is going up.
What does this mean going forward?
Well … we all know that:
Interest rates, Fuel and Food have all moved up.  The RBA is suggesting that there is a need for 100,000 jobs to be lost over the coming period. With the reduction in confidence and the slowing of the economy, small business is going to come under some great pressures if it hasn’t already. Debtors starting to stretch – Creditors starting to push.

This being the case, banks are likely to take a position that they ‘need to conserve our reserves’. They are doing what is important for their business and that is reasonable! But the implications for your business may be profound. If not today it will be in 6 to 12 months time.

Consider this:   All your savings, house, super and perhaps one or two other things that you have forgotten, along with Credit Cards, home loan, Business loan, Business account are all with the one Institution. You have met all your payments since Adam was a boy. But the bank changes their approach or assessment of your business. Because the Banks need to conserve their reserves! 

What happens then, the relationship you thought you had along with the good payment history doesn’t count for much. Your effectively left financially hamstrung

What would happen if they used your savings to cover some of the house debt or credit card, because the mortgage I signed has an ‘All Monies’ Clause which allows surplus funds to be utilised to cover other debts. (Usually if you are in default). Or the credit card is behind but everything else is up to date, you could be considered in default on all your borrowings. Guess what happens then?! You’re in a little trouble with not that many options to fix the problem. If you think taking to another bank, you need to think again. They are under the same pressures.

When you are most likely to need some flexibility or assistance from your ‘banking relationship’ there is a strong possiblity your that your bank is not going to be prepared to help you.

Is this the time to consider finance and banking options for you & your business?

Is it time to be protecting your financial flexibility before it’s too late?
Talk with Finance Know how obligation free to determine some options. There are various opportunities that you may not have considered.

By Nick Gardner | September 01, 2008

Take steps to make sure you could survive if you lost your job
Work out a budget and build up an emergency fund

BATTEN down the hatches. Australia could be heading for recession and that means tough times ahead.

The Reserve Bank (RBA) is forecasting 100,000 jobs to vanish in Australia in the next 12 months, taking unemployment to more than five per cent.

New South Wales is set to be hard hit because it relies on “service” sectors, such as retail and financial services, which traditionally get hammered in a recession. States like Queensland and Western Australia have mining to help prop up the finances.

Savanth Sebastian, Commsec economist, says: “The worst-affected will be Victoria and NSW, where there are big retail sectors. We recently saw the worst retail sales data in 12 years and it’s the country’s biggest employer, so it doesn’t look good.

Plan ahead: Work out a personal budget
Rainy day: Put aside an emergency savings fund”The RBA’s goal was to slow the economy gently, but with data looking so bleak, it looks like we could be heading for a hard landing — particularly in retail which, with two quarters of negative growth behind it, is already technically in recession.”

If the worst should happen and you lose your job, it is important to choose the right redundancy package.

Paul Bilson, of Woodwood Nhill Financial Planning, said: “See a planner, as the tax differences in the choices can be significant. The maximum tax-free portion of any redundancy payout is $7350, plus $3676 for each completed year of service. So, if you had 10 years of service, you’d be entitled to $44,110 tax-free. Anything above that would be taxable.”

By placing redundancy funds into superannuation, you may save tax; but, if you are under 55, you cannot access the funds, which is obviously not ideal if you will need the money for shorter-term purposes, such as mortgage repayments.

It is advisable to keep money free until you have found another job. Remember, however, that you may be entitled to extra payments in the redundancy package, such as long service leave and holidays.

Mr Bilson says: “A good place to hold the funds is in the redraw facility of your home loan. It is decreasing the term of the loan and saving you interest, while still being accessible as needed”.

If you are approaching retirement, superannuation may become accessible, which may help to meet income needs. But some staff super plans will not allow you to keep the super with the company once you leave, so you may have to roll it over into another fund or the company super fund might send it to a different fund — and that means you could lose any insurance you have through the existing super scheme.

You might also be entitled to Centrelink benefits, but there is usually a waiting period, which is assessed on how much holiday you are entitled to.

So, if the storm clouds are gathering, what can you do to protect yourself?

Here we run through some handy tips for coping with an economic slowdown.

Build an emergency fund

The most essential weapon in your armoury against hard times. Start saving. Even a few bucks a month into a savings account will mount up surprisingly quickly. Set up a direct debit from your transaction account so its taken straight from your take-home pay each month and hopefully you will not notice it too much.

Pay off high interest debts

Credit cards and personal loans are an expensive liability, with rates averaging almost 20 per cent. If you cannot afford to clear the debt, switch to a card with a lower rate of interest.

Some cards have zero per cent balance transfer deals and you can often switch from card to card for a long period, extending the time you pay no interest, which in turn makes your repayments go further. Try and clear the card in this time.

Also, try asking your bank for a lower rate. You would be surprised at how often this works. Or, when you apply for a zero-rate card from another bank, ask your own bank to match or beat the zero per cent period. When they realise you are serious about leaving, they listen — and they’re often prepared to bargain.

Set a budget

By noting down your income and outgoings each month, it is much easier to see areas where you could cut back and use that money to pay down your debts.

Get insurance through super

While you might not be able to insure your mortgage repayments against losing your job, you can — and should — protect them against accident or sickness preventing you from working.

And while there are policies available on the open market, there are often policies available through your super fund at a significantly reduced price.

Check with your super fund manager for details and switch policies, if necessary, to get insurance.

Reduce your mortgage

This is most people’s biggest expense and biggest worry.

If you can build up a fund — maybe an offset account against the mortgage — it can buy you valuable time, allowing you to take “payment holidays” and skip a few months’ payments, until you get back on your feet.

It’s a crucial buffer to build into your finances. In addition, any money you have set against your mortgage is earning the best rate of interest, tax-free.

That’s because you are saving interest on the offset account balance at the same rate as the mortgage rate. Based on a rate of 9.5 per cent, that is equivalent to a gross return of about 12 per cent for a basic rate taxpayer.

Don’t buy whitegoods

It’s s classic pre-recession advice. Don’t go buying big consumer items because, when the economic downturn hits — as it already is — retailers become more desperate for business and are prepared to bargain.

But you have to be brave, throw aside any coyness and be prepared to ask for daring discounts.

If you don’t get what you want, shop around. Remember, retailers of all kinds have big margins to play with, so the right shop will give you a big discount. Playing one off against the other is a good tactic.

Sell your property

If  you’re looking to move, but have been holding out for a better price, be realistic and take a reasonable offer and move on.

Property prices never fare well in economic downturns because fewer people can afford the costs involved in moving and decorating.

Property prices have already shown signs that they are moving downwards and have been edging down in southern and western Sydney for some time. But the pace and scale of the falls will be much more severe, the worse the downturn becomes.

Across Sydney, prices are just about holding up, but experts say prices could fall by an average of 10 per cent or more in the next year, with the most bearish pundits predicting property price falls of 30 per cent, if recession bites.

So move now and make the most of cheaper furniture and whitegoods in the shops next year.