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

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).

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.

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

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.

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.

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.

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 components in place –

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

Structure use an SMSF and the SuperBenefit administration service where ALL is taken care of,

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 with the client advisors in unison.

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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Basics about Super – Tips to tidy up your Super and how to PLAN for a better retirement!

Basics about Super – Tips to tidy up your Super and how to PLAN for a better retirement!

Basics about Super – Tips to tidy up your Super and how to PLAN for a better retirement!

Most of us are pushed for time to think about our super or know how to plan for a better retirement – but it is not hard and the satisfaction you get knowing you have set in place some strategies is worth the small time and effort. Here are some basics to get a good start –

1. Stocktake where you are at

Studies show that most people spend more time planning the next holiday than ever spent on preparing for retirement – but it is not hard at all!

Consider if you are a –

  • Woman and want to retire at the age of 65, then you need to plan to be living the life of a retired lady for, on average, nearly 24 years – possibly as long as your time in the workforce, or time spent rearing children
  • Man, life expectancy is closer to 21 years at age 65.  (Sourced from ASFA)

This means if the plan is retiring at the age of 60 – you will need to finance 26 years (male) to 29 years (female) of your life in leisure!

The principle of planning is to answer 5 questions –

  1. Where you are now?
  2. Want to have what kind of lifestyle?
  3. Cost of this lifestyle?
  4. How much is needed to fund this lifestyle?
  5. What to do NOW?

Take a moment to plan with the 5 Easy Steps To Plan Your Retirement a simple step-by-step plan to know where you want to be and what to do to get there.

2. Consolidate all Super accounts

Do you have several super accounts? You may save fees and multiple insurance costs. Note the ATO is tidying-up your member accounts under new compulsory transfer laws that were introduced from July 2013, and the super account thresholds for the ATO were changed again from January 2016 (increased to $4,000), then changed again from January 2017 (increased to $6,000). If you’re not sure how many super funds you currently have, then locating these accounts is not too hard. Call or email for a free How-To guide.

3. Ensure TFN – Tax File Number is with your super fund or SMSF

Ensure that your super fund has your tax file number (TFN). If not, your concessional (before-tax, employer and salary sacrifice) contributions are hit with penalty tax, you won’t be permitted to make non-concessional (after-tax) contributions, and lastly, you’ll also be excluded from the co-contribution scheme! Get it checked! Call the super fund, or check your statement!

4. Co-Contribution may be available for you

You can receive a tax-free super contribution from the federal government when you make a non-concessional (after-tax) contribution to your super account or SMSF bank account, subject to you satisfying a work test, an income test and an age test, and lodge the year’s tax return.

2017 – 2018 year: If you earn $36,813 or less, the government pays $0.50 (50 cents) for every dollar you contribute to your super fund in after-tax dollars, up to a maximum of $500 a year (but as your income rises above the $36,813 the amount is scaled back until it comes to zero at $51,813)

2016 – 2017 year: If you earn $36,021 or less, the government pays $0.50 (50 cents) for every dollar you contribute to your super fund in after-tax dollars, up to a maximum of $500 a year (but as your income rises above the $36,021 the amount is scaled back until it comes to zero at $51,021)

Here is an example – make a $1000 non-concessional contribution and if your income is less than $36,813 for the 2017-2018 year (or $36,021 for the 2016-2017 year), then your super fund account receives a $500 tax-free contribution from the Government. If you make a $600 contribution, the Government pays $300 into your super fund / SMSF bank account.

5. Make extra Salary Sacrifice out of your pay (as well as the regular Employer super contributions)

If you are paying more than 15 cents in the dollar tax, then sending some of your pay to super may have more tax advantages. You may have a benefit in making before-tax (Non-Concessional) contributions if you want to offset a large capital gains tax bill. However, your level of income will generally determine whether you make after-tax or before-tax contributions.

Some cautions – if you want to top-up super (in addition to the compulsory employer super contributions – Superannuation Guarantee (SG)), people on a high income, need to watch the contributions caps. If you exceed the concessional contributions cap, you could be hit with penalty tax, or have to withdraw your excess contributions and be taxed at your marginal tax rate. Since 1 July 2017, if your adjusted taxable income is greater than $250,000, your concessional contributions are hit with an extra 15% of tax, which means concessional contributions of very high income-earners are hit with 30% tax. From 1 July 2012 until 30 June 2017, your concessional contributions are hit with extra tax, if your adjusted taxable come is greater than $300,000 a year.

6. Make after tax contributions to top up super

Another way to contribute to super is with after-tax savings (Non-Concessional contributions), such as an inheritance or win. The maximum, annual cap is $100,000 for the 2017/2018 year. If you’re under the age of 65, you can bring forward up to a further two years’ worth of non-concessional contributions (max $300,000). Note – from 1 July 2017, if your total superannuation balance is greater than $1.6 million, you cannot make non-concessional contributions. And if you are a small business owner you may be eligible for a $1.445 million after-tax contribution limit for the 2017/2018 year (indexed), which is a lifetime contribution limit, in addition to the non-concessional contributions cap. The CGT exemption permits personal contributions resulting from the disposal of qualifying small business assets. Best to be safe and seek independent advice because the rules that apply to this exemption are complicated.

7. Over 65 YO? To contribute need to pass the work test

If under the age of 65 can make super contributions regardless of whether they are working. But if you are aged 65 or over, then you must work 40 hours in a 30-day period during the financial year in which you plan to make the contribution.

8. Getting advice to avoid mistakes

Making major tax and investment decisions is not easy with all the complications of the tax and super laws – so consider getting independent advice – the cost can be nothing compared to thousands in penalties and taxes if you get it wrong! Ask us for no-obligation referals.

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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Masterclass SMSF – More on when an SMSF member dies, death and superannuation – what are the tax consequences?

Masterclass SMSF – More on when an SMSF member dies, death and superannuation – what are the tax consequences?

SMSF – More on when an SMSF member dies, death and superannuation – what are the tax consequences?

In our post last month on this topic, we looked at WHO can get super money if there are no dependants when a member dies. This time we look at the tax consequences. Now even though there may be no dependants as defined by the SIS Act, there are a range of people who can receive a payout from the estate as they may not need to qualify as what are called ‘death benefits dependants’ under section 302-195 of ITAA97.

The effect of this is that anyone who receives death benefits from the SMSF or via the estate who is classed under the Tax Act as a death benefits dependant, will receive the payout tax free.

A death benefits dependant for the Tax Act purposes includes:

  • your spouse or former spouse;
  • a child aged less than 18;
  • any other person with whom you had an interdependency relationship with just prior to death; or
  • any other person who was a dependant of you (i.e. relied on you for financial maintenance) just before you died.

However, any payouts to non-dependant nieces and nephews via the estate will be dependent on the tax components of the payout.

Non-dependants pay:

  1. 0% tax on the ‘tax free’ component of the superannuation lump sum payout and
  2. 15% tax on the taxable component of the payout
  3. 30% tax if the taxable component has an ‘untaxed element’ (usually this is where insurance proceeds form part of the death benefit) Note that the Medicare levy is applied if paid out directly from the SMSF, but not if paid via the estate.

As you can see, SMSF estate planning is a complex area and careful planning is required. It requires interpretation and analysis of multiple legal Acts (SIS Act, Tax Act etc), as well as the Trust Deed, personal wills, tax structures and your Binding Death Benefit Nominations.

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

SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need for a better result. 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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NEWS – ATO may soften on proposed event-based reporting SMSF rules

NEWS – ATO may soften on proposed event-based reporting SMSF rules

NEWS – ATO may soften on proposed event-based reporting SMSF rules

Controversial and laborious event-based reporting rules for Australia’s army of DIY super fund operators may be softened by the tax office in coming weeks.

Under current plans the Australian Taxation Office wants all SMSFs (self-managed super funds) to report much more regularly to Canberra.
At present most SMSFs need only deal with the tax office once a year at “tax time”.
But the ATO ultimately wants funds reporting “event-based” activity on a monthly basis.
The new reporting rules are set to begin on a quarterly basis under a two-year phase-in, starting on July 1 next year.
The new reporting regime has the potential to affect a lot more fund operators than this year’s changes in pension tax rules.
The majority of funds will not be affected by the tax rule changes around a $1.6 million individual balance cap introduced on July 1.
But almost any fund could be caught in a new web of bureaucracy planned by the ATO.
The SMSF Association, which represents professionals in the sector, is lobbying Canberra to make an exemption in reporting requirements for SMSFs with less than $1m in individual assets.
Such an exemption would make a lot of sense in the current framework which already effectively exempts this group from the extra tax potentially loaded on funds that breach the new balance cap.
Jordan George, head of policy at the SMSF Association says: “We are expecting to hear where the ATO has got to on the issue in the next fortnight.”
ATO Assistant Commission Kasey McFarlane recently told an industry conference the idea of the exemption for funds with less than $1m was currently under consideration.
The “event — based” reporting requirements centre on major movements of money inside SMSFs such as starting a pension or lump sum activities.
SMSF operators will be expected to report key events to the ATO within 10 days of the formalised reporting period. Until July 2020 this will be 10 days after the end of each quarter.
There are fears within the SMSF sector that the application of new reporting rules, coming so quickly off the back of a complex regime change around tax rules, will reduce the attraction of DIY funds, which have been enjoying strong growth in recent years.
The key changes under the tax rules were a reduction in the amount that could be contributed on both a pre-tax and after-tax basis to superannuation fund and the imposition of the $1.6m balance cap on super funds which will require tax to be paid on earnings on amounts above this level.
SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need for a better result. A call is FREE.
If you have any questions, why not give us a call – it’s FREE! No obligation. 0407 361 596, Paul
Posted in News & Stats, Pensions / Income Streams, Retirement Planning, SMSF Info, Superannuation General | Tagged , , , , , , , , | Leave a comment

MASTERCLASS Investment – Cash and Accrual Accounting – What is the difference?

MASTERCLASS Investment – Cash and Accrual Accounting – What is the difference?

Investment – Cash and Accrual Accounting – What is the difference?

Cash and Accrual accounting are the 2 ways companies report on their financial statements. And when planning for SMSF investing, understanding them is a foundation to reading the financials of a company.

Cash accounting records receipts are recorded during the period they are actually paid/received, and expenses are recorded in the period in which they are actually paid.

Accrual accounting records sales/revenue and expenses when they are incurred/billed.

When used – Small Businesses often use cash accounting because it is simpler and more straightforward, and it provides a clear picture of how much money the business actually has on hand. Companies, however, are required to use accrual accounting under generally accepted accounting principles (GAAP).

As an example,

Consider company X who orders some computers from company Y in Oct, but pays in Nov

By accrual the sale is recorded in Oct by company Y

By cash the sale is recorded in Nov when ACTUALLY received

Another example,

If company Y needs to pay their supplier for the computers, they may have ordered in Aug  and received early sept, but paid late Sept.

By accrual the Expense is recorded in Aug

By cash the sale is recorded in Sept – when ACTUALLY paid

One drawback of cash accounting is that it doesn’t provide an accurate picture of sales yet to be received (accounts receivable) nor expenses to be paid (liabilities or accounts payable) that have been incurred but not paid for, so the business might appear to be better off than it really is.

In all accrual accounting gives the BEST picture of a business.

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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