NEWS – Caution sounded on proposed early release of super for crime victims, as well as hardship cases

NEWS – Caution sounded on proposed early release of super for crime victims, as well as hardship cases

NEWS – Caution sounded on proposed early release of super for crime victims, as well as hardship cases

The government has been told to tread carefully with its plans for allowing victims of crime to access perpetrators’ superannuation as compensation, as the proposals could have unintended consequences, one lawyer has warned.

Speaking to SMSF Adviser’s sister title, Nest Egg, Dwyer Lawyers principal Dr Terry Dwyer, said that while he isn’t necessarily against the proposal, he wants to “sound a note of caution” about the potential consequences. Mr Dwyer said any moves to allow early access to superannuation should be carefully considered as they can weaken confidence in the superannuation system, give people an incentive to shift assets offshore and, in the case of early access for victims of crime, could impact the perpetrator’s family or beneficiaries.

Treasury recently announced that it will review the current rules governing early release arrangements for super on the grounds of financial hardship, or as compensation for victims of crime. In a statement made last week, Minister for Revenue and Financial Services Kelly O’Dwyer said it was time to review the current arrangements as they relate to severe financial hardship and compassionate grounds to ensure they remain fit for purpose. “This review is one of a range of measures the government is progressing to ensure that the rules governing superannuation serve the interests of consumers.”

Commenting on the review, Mr Dwyer said that it’s an “emotional issue” and that “obviously nobody wants to defend people who are convicted criminals”. “I understand and I have some sympathy for it [the proposal and review] but I think they have to be very, very careful that they don’t jeopardise the ability of accused persons to defend themselves as innocent, or they don’t adversely affect the rights of innocent third parties.”

He expressed concern that asset seizures outside of the profits of crime could inadvertently impact innocent family members who may be beneficiaries. In terms of superannuation, he added: “In one sense you can say it’s the property of the member of the fund but in a real legal sense it’s not; superannuation funds are trusts and the trust monies are always held by the trustee and also for persons other than the immediate member.

“So, if you forfeit a member’s interest, then you’re also stripping their spouse and children of their potential benefits too, so it operates as a sort of stripping away of the contingent rights of other prospective beneficiaries.

“We have heard of sexually transmitted debt – why should women and children be punished for the sins of their husbands and fathers by losing reversionary benefits – or vice versa?”

As for the “really clever criminals”, they may just shift their assets offshore altogether, he added. Read more from Lucy Dean at SMSF Advisor.

What are your Thoughts? Comment below!

Want to learn more, know the options and what we need to retire on, the super system in Australia and what is self-managed super? To get the answers, see our FREE slides Super & SMSF for Business owners.

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MASTERCLASS Investment – What is ROE – Return on Equity – and what is good return on equity?

MASTERCLASS Investment – What is ROE - Return on Equity – and what is good return on equity?

Investment – What is ROE – Return on Equity – and what is good return on equity?

An important and often-used ratio that investors like to look at is the Return on Equity (ROE) of a company especially when compared to it’s industry average.

What is return on equity?

From the Balance Sheet, we have learned that Equity is the value of the Assets less Liabilities. And from the Profit and Loss we found that the Return is the net Profit – sales less cost of sales, less overhead expenses.

ROE is then the Return divided by EquityROE = Return/Equity

A business that has a high return on equity is a business that is capable of generating cash well. For the most part, the higher a company’s return on equity compared to its industry, the better. Also, there is a good chance the business that has a good history of ROE may continue to do so. This favours investors who will want to back a good company, and can help drive share price up – and hence returns for the investor.

As an example, a business with $5 mill in profit and equity (shareholder worth/equity) of  $100 mill has a ROE of 5/100 which is 5%. And the higher the Return the better.

What is a good return on equity?

Next, ROE needs to be considered alongside other factors. These include the industry the firm operates in – some industries can produce higher ROE than others. It is also important to consider the debt the company carries as this can inflate ROE but also increase the riskiness of the company.

A high ROE – and looking for a return better than money in the bank – say 10% and over, suggests a company may be generating superior profits from its operations (its equity), while a low ROE may suggest a company is producing a sub-par return from its operations.

Ways to calculate return on equity – caution

Generally, financial sites and reports calculate return on common equity by taking the income available to the common stock holders for the most recent twelve months and dividing it by the average shareholder equity for the most recent five quarters. Some analysts will actually “annualize” the recent quarter by simply taking the current income and multiplying it by four. The theory is that this will equal the annual income of the business. In many cases, this can lead to disastrous and grossly incorrect results. For example, looking at a retail company, fifty-percent or more of the store’s income and revenue can be generated in the second quarter during the traditional Christmas shopping period. An investor should be cautious not to annualize the earnings for seasonal businesses such as these.

See our slides SMSF & Shares Overview to get a quick educational overview and learn to easily understand Company Financial Statements – how to find healthy companies, what Tools and Ratios to use, work on examples,

and also includes how to get better investment outcomes.

If you have questions, call 0407 361 596

 

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Basics about Super – Retirement – What is a “comfortable” retirement?

Basics about Super – Retirement – What is a “comfortable” retirement?

Basics about Super – Retirement – What is a “comfortable” retirement?

How much do you really need for a comfortable retirement?

What is a comfortable amount for a “comfortable retirement”? Recent research shows that the annual value of Age Pensions paid to those entitled to maximum benefits, only amounts to just over half of what a retired single needs to live a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA), regularly publishes their calculated annual budget (based in CPI) needed by Australians to fund a comfortable standard of living, and found that to have a comfortable retirement lifestyle, retirees aged around 65 years, who live in their own home, require over $43,000 a year and for couples, over $60,000.

For those around 85 year old, who live in their own home, require over $39,000 a year and for couples, over $55,000.

They explain what is a comfortable lifestyle – a “comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as: household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally, international holiday travel.”

They also have a modest lifestyle – and they define as – “A modest retirement lifestyle is considered better than the Age Pension, but still only able to afford fairly basic activities.”

To learn more go to our How much do you need to retire?

What are your thoughts? Start or continue the conversation here!

Call for FREE education, when we will Connect you to speak to an advisor about your specific situation. SuperBenefit works with SMSF trustees to ensure administration is compliant. A call is FREE. If you have any questions, why not give us a call – it’s FREE!

No obligation. 0407 361 596, Paul.

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MASTERCLASS SMSF – Franked income Australia and how it works in Super to advantage!

MASTERCLASS SMSF – Franked income Australia and how it works in Super to advantage!

SMSF – Franked income Australia and how it works in Super to advantage!

Franked income, such as franked dividends and in some cases trust distributions, can offer significant advantages when managing your self-managed super fund (SMSF)s tax liability in Australia.  It is another example of the benefit of taking control of your super with an SMSF.

Australian companies and trusts give franking or tax credits, also known as imputation credits or franked dividends, for the Australian income tax they have paid. These are passed on to investors when the company or trust pays franked dividends or distributions or income. Since the Australian company tax rate is 30% currently, the tax credit attached to most fully franked dividends is 30%.

Once in an investor’s hands, the ‘tax credits’ or franked income, are used to reduce the amount of income tax payable by the investor, or if the credits exceed their total tax bill, the credits will be refunded to the investor by the Australian Taxation Office (ATO) on lodgement of their tax return.

In an SMSF, franked income is beneficial, because the maximum rate of tax paid by a self managed fund on investment income is 15% when in the accumulation phase and 0% when in pension phase. Therefore, when an SMSF receives a fully franked dividend, the franking credit will not only offset tax payable on the dividend income itself, it will either offset tax payable on the SMSF’s other income (including concessional contributions) or may be refunded by the ATO.

For example: SMSF receives:

$560       Dividend received in cash

$240       Franking credit with distribution

$800       Total “Distribution” (dividend + franking credit)

$500       Interest Income to SMSF (bank etc)

$1300    Total Taxable Income

$195       Tax payable on Income $1300, at 15% in SMSF

$240       Less these Franking credits above (tax already paid)

-$45        Net refund from ATO (240credit-195due)

As can be seen, the Franking Credit more than covers the tax due, resulting in a refund.

If Pension phase was running in the SMSF, the $195 would not be due at all, and the FULL $240 would be returned to the fund.

The main rule dictating whether your SMSF is entitled to use the franking credits it receives is known as the 45 day holding rule. This rule generally requires your SMSF to hold an investment for at least 45 days (not counting the day of acquisition or disposal) to be eligible for a tax offset or refund of the franking credit.

However the benefits of franking credits should not be the driver of you investment decisions, other factors must also be considered, so discuss with your advisor!

Want to learn the core issues of share investing?

See our slides SMSF & Shares Overview to get a quick session where you can learn to easily understand Company Financial Statements, how to find healthy companies, what Tools and Ratios to use, work on examples, and also includes how to get better investment outcomes.

If you have questions, call 0407 361 596

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CASE STUDY – Brian the engineer who wanted to invest super in property later

CASE STUDY – Brian the engineer who wanted to invest super in property later on

Brian the engineer who wanted to invest super in property later on

Brian and his wife  had investment property experience, but wanted to invest their super in property, when they had enough.

(There are 5 easy steps to planning anything – start where you are at, decide what lifestyle you want to have, what that lifestyle state/position will cost in money (to maintain or the living costs) what you need invested to meet that cost of having what you want, and what action we need to take now to get there. (Get the FREE Resource: 5 Easy Steps to Plan your Retirement).

1. WHERE they were at – Brian and his wife were busy with their careers. They had no children, but on the side, ran property development and renovation on a small scale in their spare time. They had been concerned years ago about what they would need to be able to retire “comfortably” – and after Brian did the engineering assessment on an insurance claim for one of our network advisors, he had a meeting with the advisor to discuss their plans for the future, and what the possibilities were.

2. WANT to have – The aim was to be self-sufficient and comfortable in retirement, hopefully without Government support.

3. COST of that lifestyle Estimated in today’s values, the annual income to retire that he desired would be at least $80,000 in today’s money. That would be well over the ASFA definition of “Comfortable” and allow meals out and occasional trips overseas.

4. NEED – how much you need invested to cover the income requiredTo be safe, if a conservative investment return of 5% is used, (one 20th of 100%) this means at least 20 times the income goal – which rounded to approx. $1,600,000 of income-producing assets other than the family home.

5. NOW what to do After meeting the advisor who explained the Pros and Cons of SMSF, he then met with Paul the Administration Manager at SuperBenefit who supplied FAQ sheets, a Checklist of what was required, and a detailed list of what would be included in the service. Once the Trust Deed was prepared and executed, bank account formed and applications to superfunds signed, it was a simple matter to start paying super to the new SMSF.

What was liked best of all – that the SuperBenefit Programme made it easy – SuperBenefit manages compliance from the  annual documents, storage of records electronically and additionally, had a CONNECT/ASSIST service which provides co-ordination as well as help with who to talk to for advice and other help besides the financial advisor, such as the tax agent or auditor.

There was visible value in our private-client share broker who supplied a list twice a year (after the Australian company reporting seasons) summarising financial data on companies with strong financial health that are likely to perform well. 

It would be the main investment for the build-up to some property later.

There is also peace of mind because any queries or compliance issues, could simply be given to the SuperBenefit administrator, who would CONNECT them to the right advisors as required (Connect/Assist Service).

The advisor had put the components in place –

Strategyto take control of the retirement plan, and build super,

Structure use an SMSF and the SuperBenefit administration service

Support with resources and all compliance taken care of by SuperBenefit, as well as a team of specialist professionals that the SMSF Connect/Assist service provides, working together with the client advisors.

Note – This is a simplified summary of one client – we recommend asking for a FREE consultation and/or seeking further professional advice with our recommended advisors or your own.

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation.

0407 361 596, Paul.

 

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MASTERCLASS Investment – Franking Credits, Franked Dividends, Imputed tax credits – what they mean

MASTERCLASS Investment – Franking Credits, Franked Dividends, Imputed tax credits – what they mean

Investment – Franking Credits, Franked Dividends, Imputed tax credits – what they mean

In Australia and several other countries, if a company pays tax on the profit/earnings and distributes some or all to shareholders as dividends, they are known as Franked Dividends. If the corporation has not paid tax, they are Un-Franked Dividends. This eliminates the double taxation of cash payouts from a corporation to its shareholders who would have to then pay tax on the dividend income also. Another name is that the dividends have Franking Credits or Imputed tax credits and Australia has allowed dividend imputation since 1987. Through the use of franking credits the tax authorities are notified that a company has already paid the required income tax (currently 30%) on the income it distributes as dividends. The shareholder then does not have to pay tax on the dividend income, if their personal tax is under 30% (say it’s 17%, then they will get a credit for the difference, 12%: BUT if their tax is higher, eg 45%, they will need to pay more tax, 15% more on the 30% already paid on the dividend amount) . Finland, Italy, Mexico and New Zealand also have dividend imputation systems.

In other countries, corporate dividends are taxed twice, known as double taxation of dividends, which  occurs when both a company and a shareholder pay tax on the same income. The company pays taxes on profits and subsequently distributes a dividend out of its after-tax profits. Shareholders must then pay tax on the dividend received. The double taxation system can cause corporations to prefer to raise debt over equity (shares), and also means companies are more likely to retain their earnings, and can drag down economic growth.

Want to learn the core issues of share investing?

See our slides SMSF & Shares Overview to get a quick session where you can learn to easily understand Company Financial Statements, how to find healthy companies, what Tools and Ratios to use, work on examples, and also includes how to get better investment outcomes.

If you have questions, call 0407 361 596

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Pensions Centrelink – Summary of current asset test age pension changes 2017

Pensions Centrelink – Summary of current asset test age pension changes 2017

Pensions Centrelink – Summary of current asset test age pension changes 2017

The start of January 2017 saw some significant changes to means testing for Social Security pensions (including the Age Pension). Retire Invest wrote a comprehensive summary in their RIAdvice magazine

Uncertainty around income can be unsettling for those receiving a pension or considering retirement. That’s why it’s important to understand if and how you might be impacted by the new rules so that you can review your game plan before they change.

What’s changing?

The Government is making two changes to the assets test which took effect from 1 January 2017. Pensioners need to be aware of how the changes impact their entitlements. For some, the changes will create a cash flow shortfall and may have a significant impact on standard of living.

1.   Increasing the lower assets test threshold

The lower assets test threshold refers to the level of assessable assets that can be owned before pension entitlements are affected (and have been increased). Pension payments are reduced once assets exceed this level. Encouragingly, it is estimated this change will result in around 50,000 part pensioners qualifying for a full pension. Those already on a full pension will be unaffected by this change. Thresholds differ, depending on your relationship and homeownership status.

Here’s how the new 1 July 2017 levels compare to the prior ones:

1jul17 new asset rules

2. Increasing the assets test taper rate

The taper rate is the rate at which pension entitlements reduce where assessable assets exceed the lower threshold. The rate will be increased from $1.50 to $3 per fortnight for every $1,000 in assessable assets above the asset threshold. As a result of this increase the pension for the upper threshold is effectively lowered, meaning the pension cuts off at a lower level of assets. It is estimated that approximately 91,000 part pensioners will no longer qualify for the pension and a further 235,000 will have their part pension reduced. Once again, the upper threshold will depend on an individual’s relationship status, home-ownership status and whether they are asset tested or income tested.

1jul17 new taper rules

Pensioners who lose entitlements as a result of the changes will cease to be eligible for the Pensioner Concession Card (PCC). They will, however, automatically qualify for the Commonwealth Seniors Health Card (CSHC) or if less than pension age, the Health Care Card (HCC).

What about income tested pensioners?

While the changes are more directly relevant for assets tested pensioners, those who have their pension entitlement determined under the income test may not be unaffected. The changes could mean that certain pensioners become asset tested and this could lead to a loss of some or all of their entitlements.

What can be done?

Thankfully, there are a number of potential strategies that could be put in play to reduce the impact of the new rules. Strategies which reduce an individual’s or couple’s assessable assets, like gifting or expenditure on the main residence, may potentially help. As every situation is different, it’s important that your game plan is both appropriate and sustainable for your circumstances. Don’t get caught offside when the rules change, talk to your financial adviser about your game plan.

What are your thoughts? Start or continue the conversation here!

Call for FREE education, or to speak to an advisor about your specific situation. SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need. A call is FREE. If you have any questions, why not give us a call – it’s FREE!

No obligation. 0407 361 596, Paul.

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