NEWS – Is Transition to Retirement still Viable?

NEWS – Is Transition to Retirement still Viable?

NEWS – Is Transition to Retirement still Viable?

Professional Planner’s writer Alexandra Cain writes about whether the Transition to Retirement strategy is still viable – You could almost feel the wave of disappointment go through the financial planning community after the May 2016 federal budget, when the Coalition Government changed the transition-to-retirement rules.

Before the changes, TTRs were a popular strategy to help pre-retirees build wealth. And they can still work for some clients who truly are transitioning out of the workforce.

Tim Howard, who looks after technical advice at BT Financial Group, says he expects TTRs to be a lot less popular after July 1 this year, when the changes come into force.

“Fewer TTRs are being started now,” Howard says. “But if your client already has one in place, there might be merit in retaining it. It can still be worthwhile if you are benefiting from the drawdown, reducing your working hours and supplementing your income with the TTR strategy. Using the drawdown to accelerate debt repayments may be a reason to continue a TTR.”

Andrew Yee, director, superannuation, with HLB Mann Judd, agrees that TTRs can still make sense if a client is transitioning from full-time employment to part-time work and needs a pension payment from their super fund to supplement their income.

“It can work if their personal income and tax position remain the same,” Yee says. “But now the super fund will pay tax on income from assets paying the TTR pension.”

Let’s say the client is older than 60, salary-sacrificing employer super contributions into their fund and drawing a TTR pension from the fund to replace income lost through dropping down from full-time to part-time work.

Yee explains: “As they are over 60, their pension payments are still tax free post-July 1. But the income in the fund on assets paying the TTR pension will be taxable. There will be a lesser tax benefit but overall they are likely to be better off financially. [However,] you need to do the numbers beforehand.”

He says if someone under age 60 had mainly tax free-component super benefits in their fund, their pension payments would also be mainly tax free. So they could end up in a similar position to someone older than 60.

In some circumstances, however, it could make sense for the fund to return to accumulation stage.

“If you are between 55 and 60 years of age, it could be the case that the tax on income from the pension, combined with the earnings tax within the fund, outweighs the benefit of retaining the TTR,” says David Reed, from The Retirement Advice Centre.

Interested to know what self-managed super (SMSF) is all about, and if it is for you? See the slides SMSF Roadmap Overview.

If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and see how our Super-Connector Service assists you to find the right expert to answer your question – it’s FREE also! No obligation. 0407 361 596, Paul.

Also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

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CASE STUDY – Alex – Wanted to use SMSF to purchase property and take control

CASE STUDY – John & Lyn – To use SMSF to take control and work towards property in super

Alex – Wanted to use SMSF to purchase property and take control

Alex is a keen property investor with many years’ experience and had also researched Self-Managed Super funds (SMSF) as a way to take control of his retirement savings and how to purchase property in super. He already had several investment properties and he knew the changes to super since 2007 now allowed more investment possibilities, such as borrowing for property and diversifying into shares and other assets .

(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 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 – Alex was a professional who managed his own investments and wealth himself. He had about $85,000 when he pooled all his super funds together, and was paying off their own home, having a young family still with them. There were also several investment properties.

WANT to have – Alex wanted to be self-sufficient and comfortable as much as possible and not rely on the Government Pension, which is becoming a concern around the world for all Governments and citizens, due to ageing populations.

COST of that lifestyle Estimated in today’s values, an annual income to retire that he desired would be at least $75-90,000 in today’s money. That would be close to the ASFA definition of “Comfortable” and allow meals out and occasional trips overseas.

NEED invested to return the costTo 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. $1.5 – 1,800,000 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 met with Paul the Administration Manager at SuperBenefit who supplied FAQ sheets, a Checklist of what was required, diagrams how Borrowing worked with SMSF, 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 their superfunds signed Alex could organise for his employer to start paying his super to his new SMSF. (This was a challenge as they were behind in their obligations).

Alex liked best of all that the SuperBenefit Programme handled all the set up and 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 investment property experts, and 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.

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)

They now had the components in place –

Strategy to take control of the retirement plan, and build super

Structure use an SMSF using 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 SMSF – Latest Changes to Pensions and Superannuation

Masterclass SMSF – Latest Changes to Pensions and Superannuation

SMSF – Latest Changes to Pensions & Superannuation

The 2016 Australian Government Budget handed down in May issued the most changes to pensions and superannuation seen in years, as part of the broader reform agenda to improve the sustainability and equity of our super system.

Some of the key elements are outlined here, from 2 main tranches of draft legislation in September –

Clearer Definition of the Objective of Super

“To provide income in retirement to substitute or supplement the Age Pension” and includes smoothing over an individual’s life, management of the risks of retirement, alleviate fiscal pressures on Government, and simplicity and efficiency.

Spouse Contributions

Entitled to tax offset up to max $540 per year for contributions to their spouse’s super whose assessable income is less than $40,000 (currently $13,800).

Reduced tax on contributions for low income earners – new LISTO

Those on income less than $37,000 will have up to $500 paid to cover the 15% employer/concessional contributions tax paid by the super fund.

Pension “Total Balance” cap of $1.6 Million

This is the maximum amount that can be transferred into a Tax-Free income stream for use when eligible for retirement, as from 30 June 2017, and no further contributions will generally be possible to that portion.  Super in excess will remain in accumulation phase, at 15% tax.

Concessional Contribution Caps

From 1 July 2017 the max will be $25,000 down from $30,000 and $35,000 for over 50’s, currently.

Non-Concessional Cap

This is after tax contributions from personal funds – the lower max will be $100,000 for 1 July 2017 with a bring-forward rule of 3 years at one time [$300,000) at once if under 65 and TOTAL super balance is under $1.6 million.

Other Measures

There are also catch-up provisions for those who have not had the full concessional contributions made say due to interrupted work patterns.

Interested to know what self-managed super (SMSF) is all about, and if it is for you? See the slides SMSF Roadmap Overview.

If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and see how our Super-Connector Service assists you to find the right expert to answer your question – it’s FREE also! No obligation. 0407 361 596, Paul.

Also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

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NEWS – Putting the sale of a business into super – Watch the contribution caps!

NEWS – Putting the sale of a business into super – Watch the contribution caps!

NEWS – Putting the sale of a business into super – Watch the contribution caps!

If you have or will have proceeds from the sale of a business and want  to put them into super, be mindful and watch the contributions caps! An article in Money Management explains more

Small business owners who are planning on selling their business or business assets and using the proceeds towards superannuation free of capital gains tax (CGT) need to be aware of the recent changes to concessional and non-concessional caps, the SMSF Association said.

The association warned that even though the small business CGT cap rules had not been changed recently, such a move could have huge impact on their superannuation.

In general, the small business CGT cap allowed the capital earned on the sale of any small business asset up to $500,000 per taxpayer to be contributed to superannuation free of CGT or in case of the assets that had been held for more than 15 years the threshold would rise to $1.415 million for the 2016/17 financial year.

SMSF Association head of technical, Peter Hogan, said that once this tax-free contribution was placed in an SMSF using the CGT cap, these amounts counted as part of a member’s total superannuation account and were assessed accordingly in terms of eligibility for catch-up concessional contributions.

“So, although the small business CGT cap has been left alone by the legislation, small business owners need to carefully assess the impact of making such a contribution on the sale of a business or business asset,” he said.

“Ideally, any small business contribution should be made after any other contribution, especially where the small business CGT contribution will push account balances over the various account thresholds.”

He also encouraged small business owners to get advice from an SMSF specialist on how to maximize, in these circumstances, their retirement savings and the tax effectiveness of their SMSF.

What are your Thoughts? Comment below!

Want to know the options and what we need to retire on, the super system in Australia and what is self-managed super? See our FREE slides Super & SMSF for Business owners

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. No obligation. 0407 361 596, Paul

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MASTERCLASS Investment – Company Financial Health – Key ways to analyse it

MASTERCLASS Investment – Company Financial Health – Key ways to analyse it

Investment – Company Financial Health – Key ways to analyse it

To understand company financial health helps investors (either those buying shares in listed and other companies, or business owners in their own companies) to be confident that the investment is worthwhile or going as expected, or improving or the reverse (and it’s time to exit!).

Generally, company financial health can be summarised in 4 main areas – liquidity, solvency, operating efficiency  and profitability.

And out of the 4 main areas, possibly the best measurement of a company’s health is the level of its profitability.

Investors and business owners search for one key measurement that can be obtained by looking at a company’s financial statements for evaluating a stock or their business, but one is really not enough. To efficiently evaluate the financial health and long-term sustainability of a company, a number of financial ratios must be considered, the same as blood pressure doesn’t tell if there is diabetes or cancer – other tests reveal different elements.

There are a multitude of financial ratios that can be used to gauge a company’s overall financial health and determine the likelihood of the company continuing as a viable business. Single numbers such as total debt or net profit are less meaningful than financial ratios that connect and compare the various numbers on a company’s balance sheet and income statement. The general trend of financial ratios, whether they are improving or declining over time, is the most important consideration, as well as comparisons to the ratios of general businesses in your industry.

Next we look at one main ratio of each main area of company financial health

Liquidity

Liquidity is a key factor in assessing a company’s basic financial health. Liquidity is the amount of cash and easily-convertible-to-cash assets a company owns to manage its short-term (current, in 12 months) debt obligations.

The two most common metrics used to measure liquidity are the current ratio and the quick ratio which takes out inventory. Generally, a current or quick ratio lower than 1.0 is a danger signal, as it indicates current liabilities exceed current assets. Two is the preferred level for plenty of buffer.

Solvency

Similar to liquidity is solvency, a company’s ability to meet its debt obligations on an ongoing basis, not just over the short term. Solvency ratios calculate a company’s long-term debt in relation to its assets or equity.

The debt-to-equity (D/E) ratio is generally a solid indicator of a company’s long-term sustainability, because it provides a measurement of debt against stockholders’ equity, and is therefore also a measure of investor interest and confidence in a company. A lower D/E ratio means more of a company’s operations are being financed by shareholders and is low by creditors. This is positive for a company since shareholders do not charge interest on the financing they provide.

D/E ratios calculations vary widely between industries, but regardless of the specific nature of a business, a downward trend over time in the D/E ratio is a good indicator a company is on increasingly solid financial ground.

Operating Efficiency

A company’s operating efficiency is key to its financial success. Its operating margin/profit is the best indicator of its operating efficiency. This shows a company’s basic operational profit margin after deducting the variable costs of producing and marketing the company’s products or services; but is also an indication of how well the company’s management controls costs.

Profitability

While liquidity, basic solvency and operating efficiency are all important factors to consider in evaluating a company, the bottom line remains in the company’s bottom line: its net profitability!. Companies can survive for years without being profitable, operating on the goodwill of creditors, loans and investors, but to survive in the long run, a company must eventually attain and maintain profitability.

The best metric for evaluating profitability is net margin, the ratio of profits to total sales/revenues. It is important to consider the net margin ratio because a simple dollar figure of profit is inadequate to assess the company’s financial health. A company might have a net profit figure of a hundred million dollars, but if that dollar figure represents a net margin of only 1% or less, then even the slightest increase in operating costs or marketplace competition could plunge the company into the red and possible difficulty. A larger net margin, especially compared to industry peers, means a greater margin of financial safety, and also indicates a company is in a better financial position to commit capital to growth and expansion.

Want to learn the core issues of share investing?

Our slides SMSF & Shares Overview gives a quick session to 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 – New Asset Test Levels and taper rate that could reduce the pension received

Pensions – Centrelink – New Asset Test Levels and taper rate that could reduce the pension received

Centrelink – New Asset Test Levels and taper rate that could reduce the pension received

If you receive or are about to receive an Australian Government pension, there are new asset test levels and taper rates from the start of next year 2017 you need to know about, which could reduce the pension received, as explained at the Humans Services website.

From the first of January 2017, the assets test free area will increase, which means you can own more assets before your pension is affected.

The new asset test free area will increase to:

  • $250,000 for a single homeowner
  • $375,000 for a homeowner couple
  • $450,000 for a single non-homeowner, and
  • $575,000 for a non-homeowner couple

This means some may get more in your pension.

At the same time, on the other hand, the taper rate for pensioners will also increase. This will see a reduction in payments for some, while others may have their pensions cancelled.

The family home is still exempt from the assets test.

Asset limits for allowances will also increase. There will be no reduction or cancellation of allowances as a result of this change.

Read more about the asset test limits.

How the change will work

At present, for every $1000 of assets you own above the assets test free area, your pension is reduced by $1.50 per fortnight.

From the first of January 2017, this doubles, to $3.00 per fortnight per $1000.

If your payment is cancelled on the 1st January 2017 as a result of this change, you’ll automatically get a Low Income Health Care Card. If you’re over age pension age, you’ll also get a Commonwealth Seniors Health Card. In this instance, you’ll not have to meet the usual income test requirements for these cards.

Pension Bonus Scheme

If you’re registered for the Pension Bonus Scheme, your bonus depends on the rate of Age Pension you’ll receive when you claim it. This rate may be different before and after 1 January 2017. You may wish to consider this if you have flexibility as to when to claim.

Read more about the Pension Bonus Scheme.

Aged Care Fees

This change may affect your government subsidised aged care fees. This is because your income, including your pension, affects your fees. If your pension is reduced or cancelled, we’ll send you a letter. You’ll receive a separate letter if your aged care fees change.

Read more about aged care means test assessments.

To read more and see a video or transcript explaining the changes, go to this Humans Services website page.

Get our FREE Expert Guide – Self-Managed Super and You – it has all the info you need to know, with bonus TIPS and CHECKLISTS  to determine if SMSF is for you and what steps are needed to set up. It also gives you ALL the Aust Tax Office publications about SMSF. Get your copy now – click Free Download top right hand side above. You’ll also get monthly SMSF news, investment teaching and upcoming seminar and workshop briefs! Download your FREE Guide now!

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Masterclass SMSF – Collectables Regulations – Keeping compliant

Masterclass SMSF – Collectables Regulations – Keeping compliant

SMSF – Collectables Regulations – Keeping compliant

Collectables in Self-Managed Super Funds (SMSF) have certain Regulations around them that require you to be aware of new rules about storage and insurance to ensure you are keeping compliant.

The new regulations began in July 2011 with a deadline in July 2016 – the effect has seem more than a 50% drop in the level of collectables held in SMSFs over these 5 years – from $713 mill (0.18%) to $419 mill (0.07%)!.

The Australian Tax Office (ATO) as regulator, as SMSFs explains  –

Definition of collectables and personal use assets

Collectables and personal use assets are:

o      artwork – including paintings, sculptures, drawings, engravings and photographs

o      jewellery

o      antiques

o      artifacts

o      coins, medallions or bank notes    

  • coins and banknotes are collectables if their value exceeds their face value
  • bullion coins are collectables if their value exceeds their face value and they are traded at a price above the spot price of their metal content

o      postage stamps or first-day covers

o      rare folios, manuscripts or books

o      memorabilia

o      wine or spirits

o      motor vehicles and motorcycles

o      recreational boats

o      memberships of sporting or social clubs.

Definition of private residence

A private residence includes all parts of a private dwelling (above or below ground), the land on which the private residence is situated and all other buildings on that land, such as garages or sheds.

Usage

Collectables and personal use assets can’t provide a present day benefit so they can’t be used by members or related parties.

For example, if your SMSF owns a vintage car, related parties can’t drive it for any reason – not even for maintenance purposes or to have restoration work done – because this constitutes use of the asset. However, a person who is not a related party can drive the vehicle for such a purpose.

Display or storage

Collectables and personal use assets must not be stored in the private residence of any related party. If they were acquired before 1 July 2011 you have until 1 July 2016 to meet this requirement.

You can store (but not display) collectables and personal use assets in premises owned by a related party provided it is not their private residence. They can’t be displayed because this means they are being used by the related party. For example, if your SMSF invests in artwork it can’t be hung in the business premises of a related party where it is visible to clients and employees.

Remember to keep a record of the reasons for deciding on where to store the assets.

Insurance

Collectables and personal use assets purchased by the fund must be insured in the name of the fund within seven days of the purchase.

As part of the decision to invest in collectables and personal use assets, you need to consider the availability and cost of insurance. If your fund has made the investment and you find you can’t obtain insurance, contact both your fund’s SMSF auditor and the ATO to try to rectify the situation.

Your fund’s collectables and personal use assets may be insured under separate policies or collectively under the one policy, but it must be in the name of the fund. You can’t, for example, insure the assets as part of a trustee’s home and contents insurance.

If you acquired a collectable or personal use asset prior to 1 July 2011, you must insure it in the name of the fund prior to 1 July 2016 to comply with the rules.

Leasing

You can only lease collectables and personal use assets to an unrelated party and the lease must be on arm’s length terms.

For example, your SMSF can lease artwork to an art gallery provided the gallery is not owned by a related party and the lease is on arm’s length terms.

Selling

Collectables and personal use assets can be sold to a related party provided the sale is at market price as determined by a qualified, independent valuer.

  • A valuer is qualified either through holding formal valuation qualifications or by being considered to have specific knowledge, experience and judgment by their particular professional community.
  • A valuer is independent if they are independent of the interests of the fund. This means the valuer should not be a member of the fund or a related party of the fund (for example, an investment partner).

If your fund acquired the collectable or personal use asset before 1 July 2011 and sells it before 1 July 2016, the transaction does not need to be supported by a valuation determined by a qualified independent valuer. However, the transaction must still take place on arm’s length terms.

Valuations are discussed and explained here – Valuation guidelines for self-managed super funds

Interested to know what self-managed super (SMSF) is all about, and if it is for you? See the slides SMSF Roadmap Overview.

If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and see how our Super-Connector Service assists you to find the right expert to answer your question – it’s FREE also!

No obligation. 0407 361 596, Paul.

Also get your FREE Expert Guide – Self-Managed Super and YouTop right hand side above.

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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