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Archives for March 2019

Single Touch Payroll: Are You Prepared?

Single Touch Payroll is an Australian Government initiative designed to make it simpler for employers to report payroll information to the Australian Taxation Office (ATO).  It was introduced to employers in 2017 and has been compulsory for employers with more than 20 employees (as at 1 April 2018) since 1 July 2018.  New legislation was recently passed in Parliament and it will now be compulsory for all employers from 1 July 2019.

For many small employers, this is going to change to the way they currently report to the ATO.  It is important to keep in mind this is just a change to the way employers will be reporting and will not affect the way which employers currently pay PAYG withholdings or superannuation.  Employers will need to start sending their payroll information to the ATO each time they pay employees.  Because of these changes, employers will not have to provide employees with a yearly PAYG summary like in previous years.  Employees will be able to access their wages information with balances through their My Gov accounts and this information will be there for them when lodging their tax returns.

If you are currently using our recommended software partner Xero for your payroll then the transition will be seamless and we can help you set this up.  If you are not using Xero, it is imperative you check with your current software provider as to what measures you will need to take to ensure you are compliant.  This may mean changing software if your current provider is no longer able to support the changes. We can help you sort this out.

Once you have opted in and set up the system it should be as easy as a click of a button each pay run to ensure the ATO is updated.  Should you wish to opt in before the end of this financial year you do not need to redo all the previous pay runs from the year.  The first time you report it will send year to date figures for the current financial year to the ATO for the current employees.  If you have had employees who have left during the year prior to you opting in don’t worry the software will pick them up when the end of year processing is completed in June.  It is important to note that once you have opted in you cannot opt back out and wait until it is compulsory.  You will need to report on every pay run from that point on.

Handled correctly the change to single touch payroll should be relatively painless.  Employers who are still trying to use a manual system for payroll will feel the change the most.  Remember to speak with an expert regarding your setup to ensure you remain compliant and that your payroll is correct.  Advisers will be able to offer the best and most cost-effective product that suits the needs of your business.  This is one of the biggest changes in payroll for quite a while and it will see a number of employers having to upgrade and update systems to ensure they are compliant.  It should be seen as a positive thing, it provides the perfect opportunity to review their entire systems and processes to become more efficient.  As always remember to ask for advice if you are not sure, the end of the financial year will come quickly and it is essential that you are prepared for these changes.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into account. If you would like more tailored financial, business or bookkeeping advice please contact us today. One of our staff would be delighted to speak with you.

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Protecting Your Loved Ones From Potential Financial Mistreatment

What I really enjoy about being an adviser is the opportunity to resolve client puzzles. Each situation is unique and the solutions are an opportunity to make a real difference to a family’s life.
Recently, I was asked by a client how to protect their child with special needs from potential future financial mistreatment. This was an opportunity for me to dust off my knowledge of trusts and more specifically, special disability trust.

The purpose of a special disability trust

A trust is a legal obligation that details how you want property or assets held for the benefit of a beneficiary administered and managed.

Special disability trusts are primarily established to assist succession planning by parents and family members, for the care and accommodation needs of a child or adult with a severe disability. The name ‘special disability trust’ relates to the social security treatment of the trust, not the actual disability.

The legal requirements for setting up a special disability trust

The first step is to make sure that the special needs person qualifies for a special disability trust. They need to meet the definition of severe disability as detailed in the Social Security Act 1991. The individual will have to go through a process where they are interviewed and assessed by social security. Centrelink has a special division that makes an assessment regarding whether they meet the criteria under section 1209M of the Social Security Act.

The Social Security Act recognises that people with special needs work and positively contribute to our society. If the special needs person is working, the act states that a condition of a disability restricts them from working more than 7 hours a week for a wage that is at or above the relevant minimum wage.

The trust deed must comply with certain conditions, and incorporate compulsory clauses as defined in the model trust deed as laid out by the Department of Social Services.

Anyone except the special needs person or the settlor can be a trustee of a special disability trust. There are two types of trustees and they both must be Australian residents (must be assessed by the Department of Social Services).

  1. Independent (corporate) trustee – does not have any relationship with the special needs individual and has to be a professional person or a lawyer.
  2. Individual trustee – A minimum of two trustees are required to ensure the special needs individual’s interests are protected.

The trust can either be activated while you are alive – this gives the special needs individual more independence or set up as part of a will – to protect the special needs individual.

The special disability trust can only have one beneficiary (the special needs individual) and the beneficiary can only have one trust. There are two main restrictions placed on the beneficiary, their living situation and gifting.

The Social Security Act stipulates that the beneficiary is not able to reside permanently outside of Australia – the reasonable primary care and needs for the beneficiary must be met in Australia.

There is also a gifting concession available and the contribution made must be unconditional (you can’t get it back), and without the expectation of receiving any payment or benefit in return (if gifted by you). The beneficiary is only able to give money that they received as an inheritance within 3 years of receipt into the trust. Also, a gifting concession, that does not impact any Centrelink benefits is available for the first $500,000 of gifts contributed to the trust.

The social security implications of a special disability trust

There is no limit to the dollar value of assets that can be held in a special disability trust, however, there is an asset test exemption (for Centrelink benefits) of up to $669,750 (indexed 1 July each year) available to the beneficiary. Another advantage is no income is assessed under the social security income test for the beneficiary. The special needs individual can also have their primary residence in the special disability trust, which is also exempt.

Centrelink has also added a limit of $11,750 to ‘discretionary expenses’ for beneficiaries to improve their level of health, wellbeing, recreation and independence.

Further information about special disability trusts can be found on the Department of Veteran’s Affairs site and the Department of Social Services site.

In conclusion, the aim of establishing a special disability trust is to provide protection and to ensure that those we love have a secure financial future.

Please note this article provides general advice and information only, it has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, please contact us today, one of our advisers would be delighted to speak with you.

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Do You Know What You’re Really Covered For?

If I had a dollar for every time someone told me, “Yes, I have insurance, it’s in my super fund”, I’d be one rich lady! Whilst I’m not disagreeing that you may indeed have cover, my problem lies with the quality of cover.

Industry and retail funds are required by law to offer default insurance within your superannuation account. However, there are no rules around the benefits they offer within these policies and what most people don’t realise is they may not be covered at all.

Here are a few fun facts you should know about insurance held inside your super:

Policy indexation

Most policies within these funds decrease as you get older. They usually start tapering off at around age 40. This is usually the time when you need cover most because you have a mortgage to repay and kids to put through school. Policy indexation is important to ensure cover keeps in line with the time value of money.

Guaranteed renewability

Industry and retail fund policies are not guaranteed to renew. Most policies have a hidden clause which states that the cover can be cancelled at the decision of the trustees for any reason at any time. You could think you’re fully protected, then the unthinkable happens and you find out you weren’t protected.

Tax on benefits

Regardless of the superannuation fund, you will always pay tax on Total & Permanent Disablement (TPD) benefits. The implication of this means you may think you’re going to receive a $500,000 benefit but what you actually receive will be far less.

Underwriting on claim

When you opened your superannuation account, you are offered default cover, meaning you never have to answer a long list of personal medical questions. You may not realise there are serious implications to not doing this. Say for instance you’re diagnosed with diabetes at age 25. Then two years later you change superannuation providers and you’re offered default cover within that fund. Fast forward to another two years and you’ve had to take an extended time off work due to complications of your diabetes. You try to claim on your income protection/salary continuance only to be denied the claim. This is because two years prior to you taking out this new policy, you had already been diagnosed and this is technically a “pre-existing condition” in the eyes of the claims assessor.

There are many more reasons why you shouldn’t rely on default cover within your superannuation. To be certain you know what you’re covered for, be sure to come and see us for a full insurance review. We’ll prepare a detailed analysis of your current cover compared to other policies on the market you’ll know exactly what you’re covered for.

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored advice, please contact us today, one of our advisers would be delighted to speak with you.

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10 Tips For First Home Buyers

If you are looking to buy your first home, here are some things to consider to improve your chances of finding the right property, securing the funding, and realising your dreams.

Watch your spending

Due to recent pressure from Australian Prudential Regulation Authority (APRA), and the fallout from the banking royal commission, lenders are under increased pressure to tighten credit eligibility guidelines and ensure stricter adherence to responsible lending practices. The lender will need to assess that an applicant can more easily afford to service the debt by applying actual living expenses, as opposed to the Household Expenditure Measure used until recently.

The lender will scrutinise your usual living expenses, check your spending habits and financial discipline by obtaining your transaction account(s) and credit card statements.

You could be jeopardising your chances of getting approval for a home loan if you are overspending on discretionary items such as entertainment or holidays. There have been recent headlines in the Australian Financial Review about lenders reviewing spending patterns on Netflix, Afterpay and Uber Eats. Set a budget and minimise your discretionary spending. Most importantly, make sure you have the discipline to stick to it!

Check your credit rating

A key part of your success in obtaining a home loan will be your credit score. A lender will lodge an enquiry on your credit file to check your credit history, and to confirm if you have had any history of late payments or defaults with other providers.

Credit reporting agencies such as Experian, Equifax and Illion (previously known as Dunn & Bradstreet) obtain information from banks, credit providers and utility companies to calculate a credit score. Your credit rating is based on the amount of credit you have borrowed, the number of applications you have previously made, if you have any overdue or unpaid debts, and if you have any history of bankruptcy or insolvency agreements.

Lenders use your credit rating to determine if you are suitable for a loan. Understanding what makes up and affects your credit rating is important for any homebuyer. You can obtain your own credit rating – including any defaults listed against your name by registering online. There can be mistakes on your report – if you pick up on them you can request they get altered. This could be the difference between a loan application being approved or declined!

The Australian Securities and Investments Commission (ASIC) MoneySmart website provides links to the credit reporting agencies which offer an online credit score check.

Reduce your credit and store card limits and minimise other debt

If you have larger credit card limits or other debt, you may not be able to borrow as much, or be eligible for a home loan approval. Reduce your credit card limits and decrease/pay off any existing debts you may have before you apply for a home loan, especially high-interest debts such as credit cards and store cards.

Due to credit policy changes in line with the tightening of responsible lending guidelines, lenders have increased the assessment rate on the servicing of existing credit card limits when reviewing a loan application. This may affect your eligibility for approval on a home loan at the required amount. Reducing debt or lowering your existing card limits will increase the likelihood of your loan being approved.

Higher deposit, better outcome

If you’ve saved less than 20% of the purchase price, there are a limited number of lenders who can offer a loan. Deposits of less than 20% may require Lenders Mortgage Insurance (LMI) to qualify for the loan, and the rate offered and fees may be higher to offset the increased risk to the credit provider.

While some lenders offer lower deposit loans, if you have saved a deposit of 20% or more, you may be eligible for a loan with a wider range of lenders with reduced rates/fees, and you will save the cost of an LMI premium.

Be aware of purchase costs and your eligibility for first home buyer grants and/or stamp duty concessions in your state

Buying a home incurs costs in addition to the purchase price. Allow for property inspection fees, loan application costs, mortgage registration fees and stamp duty. Loan establishment costs, mortgage registration and stamp duty can be covered via the lender if you qualify for the amount required. You may be eligible for the First Home Owners Grant (FHOG) or stamp duty exemptions/concessions. If you’re eligible, you’ll save thousands of dollars. Check online with your state revenue office to see if you qualify.

Check the features and options available with the lender

The interest rate is not the only thing to consider with a home loan. Make sure you understand the fees payable, product features/options available and how they work to suit your needs.
Some loan products include redraw facilities, offsets via linked transaction accounts, the ability to split the loan into several accounts on a fixed or variable rate, and greater repayment flexibility.

Be wary of discounted first home buyer specials

Lenders may offer a special discounted introductory rate for first home buyers. Check the terms and conditions carefully as the initial rate may default to a much higher rate at the expiry of the introductory period. These products may also incur higher establishment costs and ongoing fees.

Know the market in your target area

Thoroughly research the property market where you want to buy. Get an understanding of the average prices, supply/demand, local facilities, market activity/trends and recent auction results. This will ensure that your market knowledge will increase, and that your target area has what you need in terms of both lifestyle now and future growth opportunity.
Often the difference between getting value or paying a premium price is the buyer’s level of market knowledge.

Get pre-approval

Obtain a pre-approval from your lender. This will ensure that you know your borrowing capacity in advance, and you can negotiate your purchase price.
Typically, there’s no cooling-off period at auctions, once you’ve made an accepted bid that’s it. Bidders without finance approval can find themselves in deep water if they sign a sale contract. You cannot make the contract subject to any conditions such as obtaining finance unless the seller agrees to the provision.

Get advice

You can get advice with any stage of the home buying process.

Buyers’ agents can assist in locating, evaluating and negotiating the purchase on behalf of the buyer.

A conveyancer will ensure that the buyer is meeting their legal obligations during the purchase and make certain that the title transfers smoothly.

A mortgage broker can review the thousands of products available to source the most appropriate loan solution for your needs, and assist with the finance process from application right through to settlement.

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored advice please contact us today, or refer your family and friends, for a confidential, cost and obligation free discussion about your lending needs.

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