The COVID-19 pandemic has impacted all Australians in ways far beyond those unfortunate 7000 (and counting) who have contracted the illness. The issues of mental health, education and care for the elderly and infirmed have all come to the fore over the past 10 weeks. Similarly, financial planners face a new range of issues that require consideration when guiding clients through this unprecedented environment.
This month’s Industry Insights looks at five new issues for financial planners and their clients to consider in this COVID-19 landscape.
Given the avalanche of discussion in the mainstream and industry press, there is little that can be written about the JobKeeper Payment that is new. Ultimately, the most important thing for planners and their clients is to be informed. Whether a client is an employer, employee or self-employed, they need to understand the rules to ensure they don’t miss out, nor have unrealistic expectations of their entitlements.
Subscribers to wealthdigital can access detailed information about the JobKeeper Payment through our COVID-19 financial support hub.
Keeping records of home office costs
Many clients will have found themselves working from home during the coronavirus pandemic, often for the first time. In amongst the chaos of setting up a space to work, managing kids who are unable to go to school or daycare, and stocking up on toilet paper, few will have considered whether they are eligible for tax deductions on their home office expenses.
Chances are that, even with basic record-keeping, these clients could claim hundreds, and in some cases, thousands, of dollars in home office tax deductions. In most cases, these costs will come from three main sources – running expenses, work-related phone and internet expenses, and the decline in value of office equipment and furnishings.
Those with a meticulous record-keeping system may be able to claim the actual costs of working from home. For most mere mortals, the ATO allows two standard formulae for those working from home during the COVID-19 pandemic:
- An all-encompassing COVID-19 deduction rate of 80 cents per hour. No further costs can be claimed on top of this amount. To use this formula, a client must keep a record of the number of hours worked from home as a result of COVID-19, such as a timesheet, diary note or roster.
- A standard home office deduction rate of 52 cents per. Some additional costs on top of this amount can also be claimed, including phone and internet expenses, stationery and the decline in the value of computer equipment. To use this method, a client need only diarise their home office use for a four week period and extrapolate that out over the period they work from home. Additional costs must be recorded, although phone and internet expenses for up to $50 require little documentation.
Early release of super
For clients who have fallen on particularly hard times due to the pandemic, the option exists for them to access up to $10,000 of their super in 2019/20, and a further $10,000 in 2020/21 (provided they lodge their claim by September 24, 2021).
Eligibility criteria is outlined on wealthdigital’s COVID-19 financial support hub, but largely revolves around being able to claim JobSeeker Payment or a limited number of other payments, or having been made redundant or had duties reduced by 20 per cent or more since January 1, 2020.
There has been much handwringing in parliament and the press about people eroding their retirement savings, and super funds being unable to meet the applications for release. When it comes to the former issue, the reality is fairly straightforward – if the client needs the money now, then they need the money now. To date, the latter issue hasn’t become manifest in a significant way.
As with any withdrawal from super, all issues need to be properly considered, such as loss of insurance and alternative cashflow funding. ASIC is allowing advice on such withdrawals to be provided with minimal paperwork, provided certain conditions are met.
Applications for these withdrawals can be made through MyGov, and planners seeing clients before the end of financial year should have this potential source of money in mind. For clients in significant financial distress, the $20,000 available if applications are made either side of June 30 may be of far greater help than the $10,000 to which they will be limited if they don’t get their first application in on time.
The JobSeeker/JobKeeper crunch
In late September, both the JobKeeper Payment, and the coronavirus supplement for JobSeeker Payment (formerly Newstart Allowance) recipients, are due to cease. For those who have not seen their employment reinstated, this looms as a challenging date.
For those who were on JobKeeper, they stand to see their income drop $750 per week. For those on JobSeeker, the $275 per fortnight coronavirus supplement will disappear, and the standard rate of JobSeeker will apply. The asset test and various waiting periods (such as the liquid assets waiting period and ordinary waiting period) will also resume for new JobSeeker applicants. Accordingly, some JobSeeker claimants will see their benefit end altogether.
Former JobKeeper recipients will not necessarily be immediately eligible for JobSeeker in September either – often due to the operation of these waiting periods or significant asset levels. The upshot of all of this is that clients in financial distress need to be planning ahead for this time when government support will aggressively contract.
One way to manage this September period will be to withdraw $10,000 from super to tide clients over. The catch being that, if the clients wait until the end of September to apply for the withdrawal, it will be too late – withdrawals cease on September 24. Forward planning is essential to manage what looms as a time of significant financial hardship for many Australians.
Clients with young children will have rejoiced at government’s decision on April 2 to ensure child care was free – at least until June 30. For some families, this meant a cost saving of up to, and over, $1000 per week.
Not everything has been smooth sailing in the child care sector though. Some centres have refused to accept children back into care without notes from their parents’ employers declaring them to be essential workers. Other centres have cut back staffing as their revenue was effectively halved by the new funding mechanism.
Most child care agreements have notice periods, commonly 4 weeks, that must be provided in order for a child’s place at a care centre to be cancelled. With all indications suggesting that the standard Child Care Subsidy (CCS) arrangements will be back in place by June 28, parents who have been considering changing provider, or withdrawing their children, have only a short time to provide notice without having to pay for the notice period.
Under normal CCS arrangements, unless a child is present in care on their final day, no CCS is payable to the parents from the last day the child physically attended the care provider’s premises. In the current environment, that may be as long ago as March – and could result in some nasty bill shock if the last care day is at a time when normal CCS arrangements have resumed.
This time is unlike any in living memory – and this is equally true for the planning profession. To help clients through these difficult weeks, months and, potentially, years, planners cannot rely on their old plans and strategies. Nimble thinking and forward planning is as important to helping clients survive this pandemic financially as it is to preserving the population’s health.