Tax time red flags + The new richest company in the world

Hi everyone,

After the drenching some parts of Australia have had this week, I hope you’ve managed to stay dry. In stark contrast, our youngest daughter Georgie, has been sweltering in London. The Brits seem to melt when it gets to the low 30°C.

Speaking of Georgie, if you love food and wine, she produces a wonderful newsletter on Substack called Zhuzh, which I’d thoroughly recommend. She is by far the best writer in our family and this week’s newsletter on her recent travels through France is a beautiful read for any foodie.

Back to the most important issues affecting your money ...

In this week’s newsletter:

• Aussie households stay in the bunker. Is the RBA worried?

• New financial year price changes.

• Another cracking year for superannuation returns.

• A snapshot of our superannuation system.

• Don’t be too quick getting you tax return in.

• Interest rate cuts and a drop in listings push property values higher.

• The rise of the ‘rentvestor’ ... a new way of getting into property.

• The new ‘world’s most valuable company‘.

Aussie households remain in the bunker

While the economic focus has been on the recent good inflation figures persuading the RBA to cut rates again at their board meeting this month, I reckon this week’s retail sales figures will provide another motivation.

The May retail trade figures show Australian households are keeping a tight rein on the purse strings. Seasonally adjusted retail sales increased just 0.2 per cent in May, well below what was expected and down to 3.3 per cent for the year.

That is barely keeping up with inflation. Is it any wonder so many retailers and hospitality businesses are closing as real sales are flat, while costs like wages, energy and superannuation are rising?

Clothing (+2.9 per cent) and department stores (+2.6 per cent) were the strongest retail areas, but they were coming off similar-sized falls in April.

Elsewhere food retailing (-0.4 per cent) fell for the second consecutive month, while spending at liquor stores was down 1.3 per cent in the month and 2.8 per cent through the year. Household goods and eating out was flat while other retailing fell by 0.2 per cent.

Around the nation, West Australians were the big spenders with retail sales rising 0.7 per cent in May. The rest of the states ranged between a 0.1 and 0.2 per cent increase.

NSW stands out as especially weak. Nominal retail spending is 0.1 per cent lower per person for the year. The NSW consumer accounts for 1 to 7 per cent of Australia’s domestic demand, so NSW spending is key input to our growth outlook.

New Financial Year price changes

The start of a new financial year always seems to bring a hit to household budgets. It’s a good reminder to make sure you are on the best deal for every major household bill.

The big changes for me in this new financial year include:

Electricity price changes

Prices rose on 1 July for households on the default offer, along with other plans. But the price hike depends on where you live.

The biggest increase of 9.1 per cent will impact customers on standing offers in NSW’s ‘essential distribution zone’. An additional $228 will be added to average bills.

The Australian Energy Regulator (AER) has confirmed other changes to the Default Market Offer - coming into effect on 1 July. These include:

• $155 (8.6 per cent) to $1,965 in NSW Ausgrid distribution network (Sydney/Newcastle/Hunter Valley region).

• $188 (8.5 per cent) to $2,411 in NSW Endeavour distribution network (Wollongong/Lithgow, down to Ulladulla).

• $228 (9.1 per cent) to $2,741 in NSW Essential distribution network (rest of NSW).

• $77 (3.7 per cent) to $2,143 in QLD’s Energex distribution network (SE QLD).

• $71 (3.2 per cent) to $2,301 in South Australia’s SA Power Networks distribution network (South Australia)

The picture is mixed in Victoria, with the Essential Services Commission (ESC) confirming the Victorian Default Offer (VDO) would drop by $26 in one distribution zone, while increasing by between $4 and $90 in others.

The changes will affect the 807,882 households on standing offers, but those people are already paying too much for their energy. The good news is those people have the power to look for better deals, a move that could save some households hundreds of dollars.

Electricity rebate

All households will receive a one-off $150 electricity rebate from 1 July. The rebate will automatically be applied to your electricity account from 1 July and broken into two $75 payments over the next two quarterly bills.

Just make sure you’re on a competitive offer or else that rebate could be swallowed up quickly!

Tax rules are changing

The thresholds to avoid paying the Medicare Levy Surcharge at tax time are increasing from $97,000 to $101,000 for singles, and from $194,000 to $202,000 for couples from 1 July.

The average salary in Australia is around $100,000, meaning a lot of regular families will continue to fall over the threshold. To avoid the surcharge, look at taking out private health insurance - but it has to be at least basic hospital cover.

Superannuation guarantee increasing

The super guarantee was increased from 11.5 per cent to 12 per cent on 1 July. The 12 per cent rate will need to be applied for all salary and wages paid to eligible workers on and after 1 July. Superannuation will also be paid on government-funded Parental Leave Pay.

Minimum pay increase

The Fair Work Ombudsman has announced a 3.5 per cent increase to the National Minimum Wage and minimum award wages, which will be applied from the first full pay period starting on or after 1 July.

NBN Co to increase wholesale prices

Average wholesale prices are forecast to increase by between $0 and $1.71 per month. In the same way that Australians compare their insurance and energy, they should shop around for the best internet deals.

You may find an array of perks and incentives to switch. Consider speed, as there is usually a premium for faster downloads.

Another cracking year for superannuation

Speaking of changes to the compulsory superannuation contributions, super funds have delivered a third straight year of strong returns with shares rallying in the final quarter to push full year returns into double digits.

Leading superannuation research house SuperRatings estimates that the median balanced option returned 1.4 per cent over the month of June, bringing the return for the financial year to 30 June 2025 to an estimated 10.1 per cent.

Since the bottom of the GFC in 2008/09, super funds have delivered positive returns in 14 out of the past 16 years, showing the success funds have achieved in growing members’ balances.

But this last 12 months has been a rollercoaster. In the first seven months to 31 January, we saw super funds delivering a return of 8 per cent. Following Liberation Day, this was estimated to have fallen as low as 0.8 per cent before rebounding to finish the year at 10.1 per cent.

Once again it reinforces the fact that you shouldn’t panic when there are hiccups in the markets.

The median growth option returned an estimated 1.5 per cent over the month, while capital stable options, which hold more traditionally defensive assets such as cash and bonds, returned 0.9 per cent.

Accumulation returns to 30 June 2025

Pension returns also ended the financial year strongly, with the median balanced pension option up an estimated 1.6 per cent over June. The median growth option also rose by 1.6 per cent, while the median capital stable option is estimated to deliver a 1 per cent return for the month.

The chart below shows that the average annual return since the inception of the superannuation system is 7.2 per cent, with the typical balanced fund exceeding its long-term return objective of CPI plus 3 per cent.

Fund returns shrugged off significant disruption over the year including US tariff announcements, escalating geopolitical tensions in the Middle East, China’s rising AI capabilities and lingering uncertainty around the trajectory of inflation, to deliver the strongest result since the 2021 COVID rebound.

In global markets, technology stocks continued to deliver, although returns were less concentrated in the Magnificent Seven than previous years, driven by broad, ongoing investment in AI and a positive outlook for cryptocurrency - which also fuelled growth in supporting infrastructure such as electricity generation and supply. More locally, the financial sector, driven by bank shares, also continued to outperform, with CBA shares in particular driving growth.

Superannuation snapshot

How good has the compulsory superannuation system been for Australia? It was a genius move by then Federal Treasurer, Paul Keating, to introduce it as a national savings scheme back in the early 1990s.

As the contribution went up to 12 per cent on July 1, this snapshot provides a great rundown on just how important superannuation has become for working Australians and the nation as a whole. It is the envy of the world.

Don’t be too quick getting your tax return in

I know a lot of people are hanging out for a potential tax refund but don’t be too quick. Chartered Accountants Australia and NZ is encouraging Australians to keep calm and take time lodging their tax return to avoid making costly mistakes.

It takes a few weeks for the ATO to pre-fill tax returns with information from employers, banks, health funds, government agencies and other third parties. If you rush to lodge your tax return before the information is pre-filled, you have a higher chance of making a mistake and you may forget to include some amounts.

Mistakes can be expensive as not only is tax payable, but tax debt attracts interest of more than 11 per cent and you could also face penalties. 31 October is the date to remember - you must either submit by then, or appoint a registered tax agent, giving you extra time to get your return ready.

The deadline to lodge a return when you have a registered tax agent usually falls on either 31 March or 15 May of the following year, depending on the tax liability of the last return you lodged.

According to Chartered Accountants, there are three golden rules when it comes to tax deductions. These are:

• Golden rule 1: You need to have paid or been charged the expense. If you have been reimbursed for the expense or someone else paid the expense, you cannot claim a deduction.

• Golden rule 2: You need to have proof of the expense. It helps to have copies of tax invoices.

• Golden rule 3: You need to ensure that it is a work expense. The deduction cannot be for expenses that are used for private or capital purposes. You need to apportion expenses to ensure that only the work component is claimed, not the private component.

The ATO has 25 data-matching programs that include information from investment property loans, motor vehicle registries and insurance companies, so it can ensure that people are complying with their tax obligations and detect any fraud.

ATO ‘red flags’

The following may attract the ATO’s attention:

• Taxpayers claiming deductions for higher expenses than others in their line of work or industry.

• Taxpayers claiming deductions for expenses which conflict with third party data.

• Taxpayers not reporting income which conflicts with third party data, including online shared economy platforms.

• Taxpayers who work in an industry that typically receives cash payments.

• Failure to lodge a tax return on time.

• A history of previous non-compliance.

• A failure to substantiate expenses by maintaining adequate records.

Interest rate cuts and drop in listings push property values higher

According to property research giant, Cotality (formerly CoreLogic), Australian housing values rose by 0.6 per cent in June, the fifth straight month of growth.

For the June quarter, values rose 1.4 per cent. Except for regional Tasmania, every capital city and rest-of-state region recorded a rise in values through the quarter.

As I constantly point out, property values overall are determined by supply and demand. Falling interest rates (leading to higher borrowing levels) are fuelling demand but on the supply side there are a smaller number of properties on the market.

It’s producing a classic property squeeze.

Advertised stock levels are tracking 5.8 per cent below the same time a year ago and a whopping 16.7 per cent below the previous five-year average.

Across the individual capital cities, quarterly growth was led by Darwin, followed by Perth (+2.1 per cent) and Brisbane (+2.0 per cent), where values are up a whopping 81.1 per cent and 75.1 per cent respectively since June 2020.

As you can see from this week’s building approvals figures, the pipeline of new homes coming onstream in the future is still below historic averages, meaning the short supply will continue for a while.

The below set of building approvals graphs, put together by IFM Investors, struck me as interesting. The key things for me were:

• The continuing strong renovation market.

• Building approvals have surged in Perth ... more than any other state. So will this wave of new stock put a dampener on Perth’s value boom of the last few years?

Rise of the ‘rentvestor’ ... another way to get into the property market

Recently, I wrote about ‘rentvesting’ as an alternative to buying a first home to live in. It’s a way to get a foot on the property ladder if you’re priced out of your desired location - buying where you can afford, and renting in the area where you want to live.

I was particularly interested, then, to read new research from Ray White on rentvesting.

According to the research, only 55 per cent of millennials aged 25-39 currently own their home. That’s in stark contrast to 70 per cent of baby boomers who owned at the same age back in 1991.

What this tells me is that the traditional path to homeownership - saving a deposit and buying in the city you work in - is out of reach for many. But there are other ways to build wealth through property, and rentvesting is one of them.

What is rentvesting?

Rentvesting allows buyers to purchase an investment property in a more affordable area while continuing to rent in their preferred location - maintaining lifestyle while building equity.

It’s a strategy that Ray White’s Chief Economist and co-author of the research, Nerida Conisbee, says is becoming increasingly popular among young adults.

“Remarkably, over 50 per cent of property investment purchases in the past year were made by millennials and Gen Z, according to Commonwealth Bank data,” says Nerida.

But there’s more to love about rentvesting than just the property purchase price.

Why is it appealing?

While affordability is the obvious drawcard, rentvesting offers other advantages.

“Young professionals can live in vibrant inner-city areas with superior amenities, shorter commutes, and dynamic social scenes while building wealth through property investment in growth markets,” says Nerida.

Rentvestors aren’t tied to their mortgage in the way traditional buyers might be. They can move where the work is while still holding property elsewhere.

And while investment loans generally require higher deposits (around 20 per cent) and come with slightly higher interest rates, the tax advantages - such as negative gearing and depreciation - can’t be ignored.

Rentvesting ticks a number of boxes - but not all of them ...

Why it’s not appealing

Before getting too excited about rentvesting as a potential gateway into the property market, it’s important to recognise that it carries inherent risks that require careful management.

“Vacancy periods can severely impact cash flow, particularly for negatively geared properties. Property management responsibilities add complexity and cost, while market volatility can affect both rental income and capital values,” warns Nerida.

It’s also worth noting that investment properties don’t qualify for the principal residence exemption, meaning any profits from the sale are subject to capital gains tax.

The potential stress of simultaneously being a renter and a landlord shouldn’t be underestimated and requires financial backup and emotional resilience to ride the waves... for instance when the rent isn’t being paid on time.

Some people may also struggle with the feeling of not “really” owning, since they don’t live in the property. And of course, there’s always housing insecurity as a renter... you live lease by lease, never knowing when your landlord might sell.

If rentvesting will cause you any of the above financial or emotional stress (that you can’t prepare for and resolve beforehand), then it may not be for you. But, if you're going in with your eyes wide open and have a plan for managing risks and uncertainty, then here are your options.

Which rentvesting strategy suits you?

There are three main approaches to rentvesting, according to Nerida. Which one suits you best depends on your financial goals and the market conditions.

They are:

1. Capital gains strategy - This approach involves buying in suburbs with strong potential for capital growth. “The objective is straightforward: when it comes time to sell, the difference between purchase and sale price helps bridge the gap between your budget and your desired home price,” says Nerida.

2. High rental yield strategy - Focuses on immediate cash flow by purchasing property in suburbs with strong rental returns. “This strategy appeals to investors preferring reliable income streams and those wanting to use additional cash flow to accelerate their savings for future property purchases,” explains Nerida. “High-yield properties typically exist in regional centres, areas with specific employment anchors, or locations where housing demand exceeds supply,” she says.

3. The hybrid approach - A balanced strategy that targets suburbs offering moderate capital growth alongside reasonable rental yields - combining income support and long-term wealth creation. Hybrid markets often exist in established regional centres with diverse economies, growing populations, and reasonable infrastructure. These areas typically offer more predictable returns than extreme capital gains markets while providing better long-term wealth building than pure yield plays,” says Nerida.

Rethinking the road to homeownership

The Australian dream of a house you own and live in, may be just that for many young buyers hoping to enter the market; a dream, and a pipe dream if the desired postcode is in a capital city where low vacancy rates, high population growth and potential interest rate cuts keep prices high.

Rentvesting offers an alternate way to realise that dream - while still providing an opportunity to build long-term wealth.

“For young Australians priced out of their preferred locations, rentvesting can be a viable alternative to indefinite renting or sacrificing lifestyle,” says Nerida.

It’s worth considering.

A new ‘world’s most valuable company’

AI computer chip manufacturer, Nvidia has become the world’s most valuable company with a market capitalisation of $US3.77 trillion - ahead of Microsoft at $US3.66 trillion and Apple at just over $US3 trillion.

The values are mind boggling, but the speed at which they’ve grown is absolutely stunning.

Apple became the first US company to pass the $US1 trillion valuation in 2018. It went up to US$3 trillion by 2022.

But Nvidia was valued at $US360 billion in 2022 and passed $US3 trillion just 18 months later.

If the size of their value is hard to comprehend, think about this:

If a US dollar equals a second of time, 3 trillion seconds is equivalent to 95,064 years - and would take you back to the Ice Age.

Wow. Just wow.

Have a great week, everyone.