Not as polished as our normal blog posts but this podcast transcript might provide so important information to help you through the current challenges:
Welcome back to another Financial Autonomy episode. My name is Paul Benson. Coming to you live from my home office, like a good proportion of you guys no doubt. Today’s episode, COVID 19 plus Money. Need to knows. Let’s dive in.
So let’s go through some key things. I should probably at the outset just mention this is an Australia specific episode. Most of the people in the Financial Autonomy community are in Australia but apologies to those outside Australia particularly, I know we have a few Kiwis that listen to us. I’m sorry, this one is not much use to you, but I hope you guys are doing okay there over the ditch.
The first specific thing that’s come out of COVID 19 in relation to your money were special provisions to access your superannuation. So the rules there are; you can access your super up to a lump sum of $10,000 in the current financial year. So that is up until 30 June and then potentially do it again in the new financial year. I understand at the moment, that’s only available up until the end of September but these things are being recalibrated progressively over time as is needed. So I guess a couple of things there is some of the headlines say you can get $20,000 out of super. Well, yes, that’s correct but you can’t get it all out in a lump sum. Initially it’s 10 and then perhaps another 10 in the new year. It does require that your income has dropped, and you need to be able to show that.
The way to access your super. A lot of people ring their super fund and ask – how do I get this done? Super funds are swamped and you end up spending an hour on hold. The actual process is you go to the ATO and in fact, better still, you go to your myGov site and then through myGov, there’s a way that you can apply for early access. Actually what happens is the ATO needs to grant authority to the super fund to release your money. So it needs to go through the ATO through myGov. You submit, here’s the situation, my income’s dropped, I’m in financial hardship. I need to get $10,000 out. It could be less too. $10,000 is the maximum. Then the ATO either accepts or declines that. You’d imagine there’s not too many they’re going to decline. Then they send a release authorisation to the super fund and the super fund then pays you the money.
So to get this done, there’s no reason for you to contact your super fund. Your super fund can’t help you anyway because they can’t just make a decision on releasing money. The authorisation needs to come from the ATO. That’s the mechanism of how that works.
It’s worth just highlighting that, if you are in financial difficulty and this is the only way to get things resolved, then certainly go for it. It is good under those circumstances. If you can avoid it, it would be good too because what’s happening when you’re taking money out of super is your fund is selling down your assets, your units in the different funds. So you might be in a balanced fund or a growth fund or something along those lines. For you to get $10,000 out, they’ve got to sell that down. Now, as you’re probably aware, share markets are down at the moment, they’ve been improving a bit just recently. They’re not at their lows but they’re certainly a fair way from where they were even just at the start of 2020. Things have moved pretty rapidly. So it’s a pretty terrible time to be selling and it’s a pretty good time to be a buyer. We might talk about that a little bit later but not a great time to be selling. If you don’t need to access your super, if you have got access to other savings or redraw or offset monies, that sort of stuff, give some thought to accessing that first because it’s certainly not a wonderful time to be withdrawing from superannuation.
The next element that I’m getting a few questions on is tenants, rental evictions, all that sort of thing. Within the Financial Autonomy community, we’ve got landlords, property investors and we’ve also got tenants. So we’re getting questions on both sides of the fence on this one. Most of the announcements to date have been around commercial tenancies. It hasn’t been a lot on residential tenancies.
There is this six-month moratorium on evictions. That does only apply to people who can’t pay their rent due to the impact of COVID 19 so landlords don’t need to feel that they are totally stuck. If they have a tenant who just isn’t paying because they don’t want to or is trashing the joint or there’s some other reason why you want to evict them, you are still allowed to evict people for those circumstances. But there is this moratorium if it’s just simply that someone’s lost their job as a consequence of COVID19 and therefore they can’t pay their rent. At this point, it’s not clear whether if you give the tenant a period of time without paying their rent or they pay half rent or something like that, it’s not clear then whether the tenant needs to catch that up again down the road. That probably is the outcome. Certainly on the commercial side, what they’ve outlined, there is a need to catch it up down the road.
That also kind of aligns with being on the landlord side. If your tenant can’t pay, it’s all good to ask your bank to freeze your loan repayments for a while, but the interest still accrues on that loan. So the landlord certainly doesn’t get, in any sense, any kind of free ride. So you’d suspect probably the tenants are going to have to make that up. Now I don’t really know quite how that works if they’ve had no income for six months, but hopefully the Job Keeper payment makes it not quite so difficult. In Queensland, there are currently special rental assistance payments. The Queensland government are paying it direct to the property managers and it’s quite interesting, but it is only in Queensland at the moment. It will be interesting to see whether that rolls out more broadly.
Certainly from a tenant point of view, if you’ve still got the normal income, so if you work in a sector where you’re still getting paid, then you definitely need to continue to pay your rent. The provisions are only if your income has dropped and you can demonstrate that. Landlords obviously want to try and be flexible. I mean the reality is if you did have to kick out a tenant or the tenant left or something, it would be a pretty tough time to get a new tenant. So it’s in landlord’s interest to try and keep your tenants where they are and hopefully, you can negotiate even a reduced rent or something like that for a period. If someone’s really in difficulty, obviously it’s going to be case by case and depends on the relationship you’ve had. Generally, landlords want to keep good tenants and so bit of flexibility might be needed, but everyone’s circumstance is a bit different. Depends how much debt you’ve got to be repaid. For retired people, now there’s not many retired people that listen to this podcast, but perhaps it’s relevant to your parents. You know, you might need that rent. That’s what you live off. So it’s certainly challenging and I guess it’s a matter of working together on that front.
Job Keeper Payment
The Job Keeper payment. Now this one is a government initiative and it might help in terms of being able to pay the rent. So it’s $1,500 a fortnight and it’s paid to employers who then need to pass that on to employees. It was good to hear that it also applies to casuals, provided the casual’s been doing work for the employer for more than 12 months. So $1,500 a fortnight, that’s better than the normal New Start or the Job Seeker, they’re calling it now. They’ve bumped that up too. Not quite sure what it used to be, but they’ve bumped that up to I believe $1,100 a fortnight. But even that isn’t as generous as this Job Keeper payment. So if you can get on that, you would want to. It’s something that’s arranged through your employer. Your employer needs to demonstrate that their income has dropped by 30%. So not every employee is going to get it, but then if their income hasn’t dropped then they should be able to keep paying you.
For people in industries that have been affected, as an example, close to home, my wife runs a tourism business and income’s gone to zero because there’s no tourists around at the moment. She’s got a couple of casuals, one of which in particular is just a fantastic person, a fantastic worker. She was very concerned about not having any work for her. Perhaps she finds a job somewhere else. Then when everything returns to normal, she can’t get her back to do hosting work, which she’s so good at. This Job Keeper is fantastic. Now my wife can pay that person and keep her on the books and keep her connected. She’s going to get her to do a bit of social media marketing and just a few bits and pieces to sort of keep her engaged. But frankly, there’s not much work to do. There’s no guests, but at least there’s that connection there and then when things do turn around, they can turn things back on again. So the Job Keeper payment does seem like a really good one. Certainly as an individual, not something you can apply for but if you’re being impacted, you should talk to your employer. It can even be used for people who have already been made redundant or retrenched and as I say, it can also apply to casuals. So talk to your employer or if you work for a bigger employer, maybe the HR department, and see whether you might be entitled to that.
Small Business help
If you’re running a small business, there’s some other government assistance measures. The main one is for people that, when you lodge you usual quarterly BAS, if you withhold some tax related to workers’ wages, then you get a lump sum payment. A minimum $10,000 in the current quarter and then another $10,000 in July. It can be more. Certainly, I know for a lot of small businesses, that’s going to be really, really helpful because almost all of them have had some sort of decline in income. Even if they’re still able to operate, income’s not what it was a couple of months ago. So a couple of little cash injections like that will be really helpful for small business. The main thing there is just get your BAS done, get it lodged. That should sort that out.
When these payments were announced, there was a bit of commentary, particularly I saw from some accountants, around how it only applied for businesses that withheld tax. So therefore, that had employees on the books. Some small businesses don’t do that because if it’s just the operator themselves, they probably don’t have themselves as an employee. They just take a share of the profit and therefore they wouldn’t qualify. So I saw some communications from accountants around perhaps adjusting the way you’ve got yourself structured so that you qualify. Subsequently there’s been quite a bit out of the ATO that look like they’re going to be red hot on anything that looks like people are trying to game the system. There was even talk of potential jail for people that try to take advantage. So yeah, very severe warning there. Don’t play the system. Either you’re eligible as you are currently structured or you’re not, but trying to rearrange things now to all of a sudden become eligible – it looks to be very unwise.
Income protection is something that I’ve had quite a few questions on and we’ve had a bit of an increase in inquiries. I talked about that a little bit in the weekly Gaining CHOICE email. By the way, if you’re listening and you’re not getting, Gaining CHOICE, we produce two bits of content here at Financial Autonomy on a weekly basis. It’s the weekly email and this podcast. So if you’re only listening to the podcast, you are kind of only getting half the story. So go to the website, financialautonomy.com.au and do subscribe to the Gaining CHOICE email.
The main thing to understand with income protection insurance is that the qualification for is being unable to work due to illness or injury. Importantly, it’s not unemployment insurance. Income protection won’t help you if you’ve lost your job. That’s hopefully where things like that Job Keeper payment will sort you out. But income protection will help if you can’t work due to illness or injury. In fact, we’ve lodged one claim around mental health claim. Unfortunately, they didn’t quite meet the criteria. But I think mental health issues, anxiety, those types of things in the current circumstances are probably going to crop up. So that may well by relevant claim criteria for income protection.
If you have income protection, typically you’ll have a waiting period, 30 days or 90 days are the most common. You’ll need to get through those periods. But as soon as you’ve got any issues you need to get to the doctor because the waiting period starts from when the doctor says you’re unable to work, not just when you stop work. So do talk to your advisor if you’ve got income protection and just understand where that lies, but you know, keep it in mind. It could become relevant, but it is only if you can’t work due to illness or injury.
Time to buy?
The final point, I guess just thinking about COVID 19 and money and things to know is I’m getting quite a few questions around investing with the share markets down a bit. Should we be buying? Of course it’s impossible to know whether we’re at the bottom of the market. Maybe the bottom of the market was a fortnight ago or it’s still to come in a month or two. Generally, markets hate uncertainty, and the uncertainty seems to be lifting a little bit. So I think that’s why markets have started to stabilise. Let’s hope that continues. But no one’s going to know where the bottom is until you look back in hindsight.
Given that, really if you’re in a position to do some investing, the best approach would be a dollar cost averaging approach, which is where you progressively invest. It could be that you, depending on your budget, but just as an example, let’s say you’ve got $500 a month you could invest, just regularly putting that in. Or even if you’ve got a lump sum, we’re doing a strategy for client at the moment who has got a lump sum and we’re just going to, rather than put it all in on day one, we’re going to do it monthly, over six months, and just try and get an average price over this period. We’re not going to get the bottom, but we’re also, we’re definitely not going to get the top. As long as we can get an average price, we just need to be satisfied with that rather than sort of trying to be greedy and find the absolute bottom, which is just going to be pure luck.
For long-term investors, I think there probably is an opportunity but you need to be comfortable that it is a long-term investment. There’s still quite a bit of uncertainty over the next couple of years. So anything that you put in you need to be quite comfortable that you’re not going to need it back in certainly three years, but ideally five years plus. And as I would suggest rather than going all in on one heap, you think about investing progressively and just getting that average price.
Alright, well look, these seem to be the main issues that are coming up that I’m seeing at the moment. I hope you guys find that useful. Just respond to the Gaining CHOICE email with any thoughts or any other questions you’ve got. But look, stay safe everybody and hope you’re doing well.
Bye for now.