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What is the cost of complacency when it comes to your Superannuation?

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Many Australians, in particularly the younger ones, are so totally disengaged when it comes to Superannuation that they are not aware of what super fund they belong to, how many accounts they have with different super funds and how their super is invested.

Do you fall into this category?
Disengagement with super is highlighted by the fact that in 2017/18 the Australian Taxation Office was holding around $17.5bn of lost superannuation. This was spread over $6.2milion separated accounts, with the largest single account being $2.2m for a New South Wales individual.

Even if you don’t have any lost super and know how much you have, there are other things you need to be aware of that can have a significant impact on just how much you will have in super when you reach retirement.

Things like, how your super is invested, and the amount of fees you are paying can seriously impact how comfortable your retirement will be.

For many Australians, their compulsory superannuation contributions are being paid to a super fund nominated by their employer and is being invested in accordance with the funds’ default investment option. The super fund selected, and the investment option may be totally inappropriate for an individual member of the fund.

When we talk of investing money, we must take into account what is referred to as our “risk profile”. That is, are we someone who doesn’t like to take unnecessary risks with our money and therefore may be a conservative investor, or are we someone you is prepared to take considerable risk to see our super nest egg grow and therefore be a “growth focused” investor, or do we sit somewhere in the middle ground and are a “balanced” investor.

Many default superannuation funds have a balance investment of option as their default. But what is a balanced fund for one super fund may mean something entirely different for another super fund.

Being a member of a default balanced fund may be fine for someone who is willing to take some, but not a lot of risk in the manner in which their super is invested, but it may be totally inappropriate for a member who is approaching retirement and may feel more comfortable with a less risky approach to their investments, or for a younger member who has many years to ride out the ups and downs of the investment markets in exchange for a potentially higher return.

Selecting an appropriate investment option for their super becomes an important consideration for members of superannuation funds. An additional 1% or 2% annual investment return on superannuation savings can make a difference of hundreds of thousands of dollars for a young superannuation fund member, over their working life.

Another aspect of super that cannot be ignored is the fees being charged by super funds to manage your money. While fees for many super funds have been reducing over recent years, there are still many super funds that are charging fees in excess of those offered by their peers.

Just as an additional 1% or 2% of additional investment return can have a positive impact of a superannuation balance, paying higher fees than necessary can have a significant negative impact on superannuation savings over the course of a working life.

As a member of a super fund, you need to be aware of what is happening with your super.

Here are some questions to consider:

1. How many super fund accounts do I have? If more than one, should I consolidate them into one fund? This can save on fees – but check that you are not losing valuable insurance cover first.

2. Do I have any lost super? This can be checked by logging in to your MyGov account or asking your existing known super fund to check for you.

3. What fees am I paying for my super? In particular, am I paying fees for services I don’t need?

4. How is my super invested? Is it appropriate for my life stage and my own attitude to risk?

5. How has my super fund performed over time? Don’t simply keep chasing last year’s best performing fund but look to a super fund that provides consistent returns over a longer period and charges a fair fee for the services they provide.

For many people, analysing the appropriateness of their super fund will not be an easy task. However, help from a suitably qualified financial adviser to ensure you are, or get you back on the right track may be money well spent.

 

Source: Peter Kelly | Centrepoint Alliance

2016 Federal Budget breakdown

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In brief, here are 3 key areas handed down by Scott Morrison in the Federal Budget;

Health, welfare and aged care

Renting family home – when a person enters residential aged care and rents their former home, the house and rent will be included for assets and income testing when determining entitlement for an age and service pension. This will only apply to new residents entering residential aged care from 1 January 2017.

Disability Support Pension (DSP) – recipients will have their eligibility reassessed over the next three year to determine their continued eligibility.

Child and Adult Public Dental Scheme – will be available to children and adults covered by a concession card.

Medical Benefits Schedule – fees frozen under the previous budget are to be extended for a further two years.

My Aged Care contact centre – additional funding has been provided to support services provided by the My Aged Care contact centre.

 

Taxation

Personal tax rate – the income threshold at which the 37 per cent tax rate cuts in will increase from $80,000 to $87,000. This is due to apply from 1 July 2016.

Company tax rate – the company tax rate is currently 28.5 per cent for companies with turnover of less than $2,000,000, and 30 per cent for larger companies.

The budget proposes to progressively reduce the company tax rate to 25 per cent by 2026-27, and commencing from 1 July 2016 for companies with turnover of less than $2,000,000, their tax rate will reduce by 1 per cent to 27.5 per cent.

Small business – a small business is defined as one with annual turnover of less than $2,000,000. A number of concessions are available to businesses that fall within this definition, including a lower rate of company tax rate and simplified depreciation rules.

From 1 July 2016, the definition of a small business will be extended to businesses with a turnover of less than $10,000,000. However, for purposes of accessing the small business capital gains tax concessions, the current turnover threshold of $2,000,000 will be retained.

Unincorporated small business tax discount – currently receive a 5 per cent discount on the tax they pay. The budget included a proposal that will see this discount progressively increase to 16 per cent over the coming years. The discount will increase to 8 per cent from 1 July 2016.

 

Financial year Discount
2016-17 8 %
2017-18 to 2024-25 10 %
2025-26 13 %
2026-27 and future years 16 %

The maximum discount remains capped at $1,000.

Medicare levy surcharge and private health insurance rebate thresholds – effective from 1 July 2018, the indexation of the income threshold will be frozen for a period of three years.

 

Superannuation

This year’s announcements are probably the most significant since the superannuation reforms that took effect from 1 July 2007. Except for a couple of notable exceptions, the proposed budget changes will take effect from 1 July 2017, subject to being legislated.

Concessional superannuation contributions – Concessional contributions caps of $30,000, and $35,000 for people aged over 49 will continue for the 2015-16 and 2016-17 financial years.  From 1 July 2017 the concessional contribution cap will reduce to $25,000 for all.

People with less than $500,000 in super who have not utilised all their full concessional contribution cap ($25,000) in a financial year will be able to carry forward any unused cap and make additional contributions in following years.
Unused concessional contribution amounts can be carried forward for up to five years.

Low income superannuation tax offset – Low income earners (people earning less than $37,000) currently receive a Low Income Superannuation Contribution (LISC) from the government of up to $500 to compensate for the 15 per cent tax paid on their superannuation guarantee contributions.

The current LISC is due to cease from 1 July 2017, but will be replaced with a new non-refundable tax offset of up to $500.

Low income spouses – from 1 July 2017, the current low income spouse superannuation tax offset of up to $540 will be enhanced with the income threshold for the spouse for whom a contribution is made, being increased from $10,800 to $37,000.

Contributions for older Australians – Superannuation contributions can only be made by people aged between 65 and 74 if they meet a ‘work test’ in the financial year in which contributions are made. The work test requires they be gainfully employed, or self-employed for a period of at least 40 hours, worked within a period of 30 consecutive days.

The intention is to remove the work test requirement thereby enabling older Australians to contribute to superannuation without having to meet the work test. This is due to apply from 1 July 2017. However, there is no change to allow people over the age of 74 to make or receive contributions to super, other than mandated employer contributions.

Tax deductibility of super contributions – currently a person may only claim a tax deduction for personal super contributions if they derive less than 10 per cent of their assessable income (+ reportable fringe benefits and reportable superannuation contributions) from employment.

The budget proposes that anyone under the age of 75 will be able to make tax deductible personal contributions, irrespective of their age or work status. This change is proposed to take effect from 1 July 2017.

However, consideration needs to be given to the concessional contribution cap, and any employer contributions that may also be made. Furthermore, a tax deduction for personal contributions cannot create a carried forward tax loss.

Non-concessional contribution lifetime limit – current limit is $180,000 per annum. The budget has proposed replacing the current non-concessional cap with a lifetime limit of $500,000.

Even though legislation has not been introduced, it is proposed this change will take effect from 3 May 2016. And, to complicate matters even further, any non-concessional contributions made since 1 July 2007 will be assessed against the lifetime cap.

Extension of tax on super contributions for high income earners – Australians earning more than $300,000 currently pay an additional 15 per cent tax on their concessional superannuation contributions, bringing the total tax rate to 30 per cent. This is referred to as ‘Division 293 tax’.

Effective from 1 July 2017, the threshold will be reduced from $300,000 to $250,000.

Super pension limitations – Money transferred to the pension phase of superannuation is concessionally taxed. That is, a superannuation fund pays no tax on the income it earns on investments that are supporting pension payments.

In the budget, the government announced restrictions will be placed on the amount that can be held in the pension phase of superannuation. The proposed limit is $1,600,000. Amounts in excess of this will need to either be withdrawn from super, or may be retained in an accumulation account with investment earnings being taxed at 15 per cent.

This proposal is retrospective in that people already drawing income from a pension that has a value of more than $1,600,000 as at 1 July 2017, will need to transfer the excess over $1,600,000 back to an accumulation account.

Anti-detriment payments – An anti-detriment payment is an additional benefit that may be paid from a superannuation fund on the death of a member, where the benefit is paid as a lump sum to an eligible dependent beneficiary. It is proposed that anti-detriment payments be abolished from 1 July 2017.

Transition to retirement pensions – It was expected that the budget would introduce restrictions on the use of pre-retirement, or transition to retirement (TTR) pensions. The approach the government has taken on TTR pensions was not as expected.

From 1 July 2017, the investment earnings derived by a super fund that is paying a TTR pension will not be tax exempt to the super fund. Investment earnings of the super fund will be taxed in the super fund at a rate of 15 per cent, instead of the current 0 per cent.

 

Conclusion

The initiatives announced in the budget are subject to successfully passing through parliament and with an election looming, the success of any of these making it through the legislative process is uncertain at this stage.

However, most of the initiatives announced do make sense despite what some commentators might have said. Certainly, a number of measures are on the harsh side, but we will have to live with those.

The key message at this point is to keep calm. With most of the announcements, we have over a year to digest the implications and develop alternative strategies, where appropriate.

 

Source:  Treasurer Scott Morrison budget speech

Financial Planning is about much more than retirement

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retirement-3Many people may think financial planning is all about retirement. It’s not. Financial planning is about making the most of what you have – at every stage in life. Whether it’s investing, superannuation or minimising tax; whatever your stage in life, financial planning can make a difference.

 

If you are interested in investing, there are several things you need to consider. For example, how long do you have to invest and how comfortable are you with fluctuations in the value of your investments? We can help you determine your time horizon and risk profile and then recommend the most suitable type of investments to help you realise your goals.

 

What about your super? Is it working as hard as you are? Your risk profile can also be applied to your superannuation investments. It’s a long-term investment, but it’s important to make sure it’s invested in the right way.

 

Limits to the amount of super you can contribute each year ($25,000 in concessional contributions for people under 60 and $35,000 for those aged 60 and over) means the earlier you start, the better. Contributing more to super will not only boost your super balance, it could even reduce the amount of tax you pay!

 

Everybody’s different – different needs, different goals and different circumstances, however, professional financial advice can help you at every stage of your life.

 

We can provide guidance on:

 

  •           Investments, shares, gearing and insurance
  •          Tax-effective superannuation strategies
  •           Centrelink and aged care strategies
  •          Estate planning strategies, and
  •          Portfolio administration.

 

To start planning for a successful financial future, call us today to make an appointment.

 

Source I IOOF

Becoming Money Smart

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Smart-Money-300x300Results from a recent survey on financial literacy in Australia revealed that one in every three people find dealing with money stressful, even when things are going well.

If this sounds a little like you, you’re not alone. Financial matters can sometimes seem overwhelming and it may be difficult to know where to begin.

The key to overcoming this stress is to boost your financial IQ so you can make informed judgements and effective decisions regarding the use and management of your money.

A great place to start is by visiting the MoneySmart website (www.moneysmart.gov.au). Run by the Australian Securities and Investments Commission (ASIC), the MoneySmart website offers free, independent information to help everyday Australians make smart choices about their personal finances.

The website provides tips on managing and investing money, borrowing and saving, superannuation and retirement; plus the latest consumer finance news and scams to avoid. There are also handy calculators

to check your financial health status and forecast your financial position based on a variety of scenarios.

Taking control of your finances doesn’t mean you have to go at it alone though. As your financial adviser, we can provide you with guidance to help you set your financial goals and reach them sooner. This may involve providing advice on how to:

  • Manage debt
  • Create a savings plan
  • Invest for wealth
  • Achieve tax savings
  • Make the most of your super, and
  • Plan for your retirement.

Why not take the next step in your financial health by speaking to us so we can help you further.

Source | IOOF

Death and Taxes!

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Two things in life are certain: death and taxes

DeathNTaxesWhen someone passes away, although there are no official death duties, beneficiaries often inherit tax liabilities as well as assets. But there are ways to minimise these potential tax liabilities, reducing the effect of at least one of life’s certainties.

First steps

The first step in minimising any tax liabilities is to appoint a legal personal representative (LPR) for the deceased. They will need to obtain a new tax file number for the estate and then file a ‘date of death’ tax return. This will be for the period from death until the end of the financial year and every financial year after that until the administration of the estate is finalised.

Tax on inherited assets

Inherited assets which were purchased before 20 September 1985 are not subject to tax. Nevertheless, if the asset is sold in the future, the beneficiary will be taxed on the increase of value between the date of death and the date it was sold. This could be a substantial sum if the beneficiary is on a high marginal tax rate.

One way around this is to have the estate sell the asset at time of death. This means the asset will incur capital gains tax, but the tax-free threshold will apply, minimising the tax debt.

If the asset was the family home of the departed, it could be exempt from capital gains tax if it becomes the primary residence of a beneficiary or if it is sold within two years of the date of death.

Tax on superannuation death benefits

Dependants of the deceased will receive the superannuation death benefit free of tax. But adult children do not automatically qualify for this tax concession.

They need to prove to the Australian Taxation Office that their relationship with the deceased involved financial dependency.

Tax on invested income

After a person passes away, their assets will continue to earn investment income. This income will need to be declared in the tax returns the legal personal representative files each financial year until the assets are disbursed.

One way to gain tax advantages is to set up a Testamentary Trust when creating the Will. This will not only provide beneficiaries greater flexibility in distributing capital and income, but may protect the asset from legal proceedings, such as marital breakdown or bankruptcy. Income generated by the trust can be allocated among the beneficiaries in a tax-effective manner.

Getting advice

Although there is some level of inevitability in death and taxes, the taxes incurred after someone passes away can be minimised. To find out more on how to minimise tax liabilities on inherited assets, talk to your adviser.