The ‘Concessional Catch-up Rule’ (catch-up rule) was introduced by the government a couple of years ago and provides individuals with superannuation balances less than $500,000 greater flexibility when making concessional contributions. From 1 July 2018, individuals have been able to accumulate unused concessional caps and utilise the difference in future financial years.

Concessional contributions are a valuable retirement planning tool that can enable Australian’s to build a retirement nest egg whilst also receiving valuable tax concessions in the process.

Why make concessional contributions?

Concessional contributions are a great way to reduce tax, as these contributions are those which are either sourced from pre-tax monies (before tax is paid at your marginal tax rate (MTR)), or voluntary contributions for which you intend to make a tax deduction claim. In both situations, the result is that rather than being taxed at your MTR, which could be up to 47% including Medicare levy, you are instead taxed at either 15% or 30% for high income earners. This means that so long as your MTR is lower than the applicable superannuation tax rate, there is a tax benefit to be had.

The introduction of the catch-up rule is great news for those with low superannuation balances with plans to boost their savings in preparation for retirement. However, there is also room for creativity in its use, where strategies can be devised to assist in the minimisation of large tax bills in future years.

In order to be eligible to utilise the Concessional Catch-up Rule, you must satisfy the following criteria

• Be eligible to make concessional contributions: it is a requirement that you be eligible to contribute to superannuation in order to utilize this rule.
• Have a Total Super Balance (TSB) of less than $500,000 at the end of the preceding financial year: in order to be eligible, you must have a TSB less than $500,000 as of 30 June of the previous financial year. Your TSB is the total sum of all funds held within the superannuation environment and includes those held in accumulation, pension, defined benefit and those funds in transit due to a rollover between funds.
• Have unused concessional caps from the past 5 financial years: it is unlikely for anyone to meet this criterion at this moment, as due to the recent nature of this legislation you have only been able to accumulate unused caps from 1 July 2018 onwards. This means that at the time of writing, only 2 financial years are readily available to be brought forward.

The following table illustrates how the accumulation of unused caps can play out going into the future:

Tax planning strategies utilising the catch-up rule

The introduction of the carry forward rule has opened the doors to some creative tax planning strategies, as eligible individuals can take advantage of unused concessional caps to reduce tax payable. We can see this being exceptionally valuable going forward for those with an investment property, business asset sale or share portfolio with a large unrealised capital gain tax (CGT) liability. Essentially, if an investor knows that they will generate a large capital gain and consequently incur a large tax bill, the catch-up rule could be used to their advantage.

If you would like to discuss how this could be applicable to you or if you are interested in discussing your broader financial goals & objectives, please contact one of our advisers for a no obligation discussion.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

If you’ve been made redundant, it’s important to take action so you can protect the lifestyle you’ve worked hard to achieve. Depending on the size of your redundancy payout and your current savings, you may want to reduce your spending to help see you through until you secure another position.

Making the most of your money

You could consider depositing your redundancy payout into an online savings account to give you the potential to earn extra interest while you determine what to do with your redundancy payment in the long term. If you have a home loan, you may also consider placing the redundancy payout in your mortgage offset account to reduce the ongoing interest cost on your loan.

Watch your budget

It may take some time to find a new job, therefore, it is a good idea to plan how your finances will see you through to re-employment. Online budgeting tools can be very useful in helping you understand what you spend and can help to identify areas where you can cut back.

Bad debt

Some people use part of their redundancy payment to pay off debts like their personal loans, car loans or credit cards. If you do put some money towards your debts, you may want to pay off those with higher interest rates first such as credit cards. Paying off these high interest accruing debts will assist with your ongoing cash flows.

Managing mortgage repayments

Keeping up your mortgage repayments when you’ve lost your income is often a priority. Contact your lender to talk through your options if you’re concerned that you may be out of work for some time and are worried about paying your mortgage. Delaying or restructuring your repayments, extending your loan term or switching to an interest only loan may be options to help you manage your financial situation through this period.

Review your employee benefits

You may need to make decisions about your life insurance and super contributions. Your super may be affected in ways you may not have anticipated after you leave your employer:

• You may lose some or all of your insurance cover when you are made redundant. So, check to see if insurance continuation options are available if it looks like you’ll lose your cover when you leave your current role.
• You may not be able to claim against your salary continuance, income protection or Total and Permanent Disability (TPD) policy if you are injured or ill while you’re out of work. If you’re made redundant, check with your insurer to find out how your policy is affected.
• You may lose your employee benefits or any fee discounts.
• Your super contributions from your employer will cease.

Seek professional financial advice

You may also want to consider seeking financial advice to help you make informed financial decisions in times of redundancy so you can continue to reach for your long-term financial goals.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

The federal government has introduced a wide range of stimulus measures in the aftermath of COVID-19, but one group that appears to be overlooked is self-funded retirees. However, if they know the way the system works, there is still one strategy that may be well worth pursuing. That is to apply for a Commonwealth Seniors Health Card (CSHC).

The criteria are simple. You must be of age pension age but not eligible to claim an age pension, and you must pass an income test. There is no asset test. The income test is $55,808 per annum for a single and $89,290 per annum combined for a couple. Thanks to the changes in the deeming rates, a couple with almost $4 million in financial assets could be eligible for the CSHC and all the benefits that go with it. These are the amounts you can have across all your financial assets, such as superannuation, bank accounts, shares, and managed funds.

The obvious question is whether the CSHC is worth having. It varies somewhat from state to state, but one benefit to all holders is that medicines listed on the Pharmaceutical Benefits Scheme (PBS) are supplied at the concessional rate. Once you reach the PBS safety net, you will usually be supplied further PBS prescriptions without charge for the remainder of the calendar year. It may also be possible to save on your medical consultations, if your doctors are happy to bulk bill. Also, depending on where you live, there could be a regional travel card and rebate on your energy costs.

It’s been a tough year for retirees, with dividends slashed or suspended, stock markets around the world up and down, and rents vanishing if you are a landlord. This is why any assistance you can get is worth going for. Depending on your situation, the CSHC could be worth over $6,000 to you.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

We are hurtling towards the end of another financial year. What better time to get your house in order?! Super still remains a low-tax savings environment designed to fund your retirement.

Here is a useful 10-step super checklist that will help you maximise your entitlements:

Do a “Lost Super” search

With more than $17 billion in lost super, there’s a chance a few of these dollars might be yours. Google ‘superseeker’ and it will take you to the ATOs Super search tool. Simply enter your name, date of birth and tax file number in the search filters and you’re set.

Consolidate your super funds

Make sure you have undertaken step 1 and have a flick through your past statements. Use this opportunity to consolidate your funds into one account to make life simple. Ensure you’re not missing out on any insurance or other benefits before you close any accounts. Rolling over existing accounts into one account is a simple process with many superannuation funds providing this service for you.

Salary sacrifice

You’ve probably heard the term before but what does it actually mean? Salary sacrificing is when you ask your employer to redirect a portion of your pay as a contribution to super. By ‘sacrificing’ some of your before-tax salary into your super, you are taxed at the concessional tax rate of 15%. These before-tax contributions reduce your taxable income so you pay less tax at a marginal tax rate.

Non-concessional contribution

If you’ve recently sold an asset, received an inheritance or received a bonus from work, then a non-concessional or after-tax contribution might be worth considering. It is referred to as a ‘non-concessional’ contribution because you don’t receive a tax deduction. Non-concessional contributions are the simplest way to add to your super as you simply deposit your personal money into your super fund.

Co-contribution

If you earned less than $38,564 during the 2019/20 financial year and make a non-concessional contribution of $1,000 towards your super, the government will also contribute $500. That’s a guaranteed 50% return on your money!

Spousal contribution

If your spouse earns less than $10,800 and you make a $3,000 non-concessional contribution to their super, you may be eligible for a tax rebate of up to $540.

Super splitting

If you or your partner take time off work or reduce working hours to look after the kids, keep the super contributions rolling by splitting. It allows the working spouse to have up to 85% of their super contributions placed into the account of the non-working spouse. It helps keep a couple’s accounts evenly balanced and is simple to implement.

Transition to retirement

If you’re aged between 57 and 64 and still working, a Transition to Retirement (TTR) strategy might be right for you. Despite some of their gloss coming off due to the 2017 super changes, a TTR remains a solid strategy that lets you draw tax-effective funds from your super while you’re still working. You can then use your normal income to make concessional contributions to super. The simplest way to think about it is that you’re recycling your retirement benefits to reduce tax and boost super.

Set up a self-managed super fund

For those of you with more than $250,000 in accumulated super, a self-managed super fund might be the way to go. The Australian Tax Office has helpful videos: head to www.ato.gov.au/super/self-managed-super-funds and search for “SMSF videos”. It’s very important to get the right advice before proceeding.

Seek advice from a professional

Financial advice can help you identify and plan to achieve your financial goals so you can enjoy the lifestyle you want. An adviser will help you assess your current circumstances, identify your goals and priorities, and recommend financial strategies and products that will help you reach your goals.

So there you have it: the essential 10-point super checklist to tick-off before 30^th June. If executed consistently every year, it can make a big difference over the long-term. It is never too late to start.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

As more Australians are spending longer in retirement than previous generations, how are we managing our clients’ longevity risk?

As financial planners, we know the risk of clients’ outliving their retirement savings is very real, however, it’s also a risk that clients often prefer not to face up to. For me, the starting point for managing longevity risk is persuading clients to accept the possibility of outliving their money and then providing them with the strategies, portfolios and behavioural skills to set them up for success.

Behaviour changes: We spend much of our time encouraging clients to understand and appreciate that there is a real risk they’ll outlive their money. When there is an understanding of various trade-offs, most clients need to consider that it’s easier for them to make informed decisions and take ownership of their actions.

Portfolio risk: The portfolio needs to be aligned to the client’s risk tolerance. However, in the case of retirees, we need to be cognisant of the impact a loss may have. The desire to generate healthy long-term returns is also important, so the risk/return trade-off takes on a different meaning for a retiree.

Legislative risk: Social security benefits (i.e. Centrelink) can make up a significant portion of a client’s income and can’t be dismissed. Consideration of tax implications on a client’s finances is also fundamental as we know, tax and social security rules change often, so it’s important to be aware of the impact changes have on a strategy and adapt accordingly.

Strategy and products: Using a range of products can make a strategy more robust and flexible for the future. Providing an element of guaranteed income, whilst maintaining access to capital, is nirvana to some clients, particularly if it also provides an uplift in social security benefits.

We approach client’s longevity risk in a number of ways, however, the most effective strategy is regularly talking to our clients about this issue during regular review meetings, revisiting potential outcomes and empowering the client to make smart decisions for the long-term.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

Funding your child’s education expenses and fees can be costly. The money you spend funding your child’s education could be one of your family’s biggest expenses.

Research conducted by The Australian Scholarships Group (ASG) on education costs, provides some context. The research is based on a child starting pre-school today and suggests that opting for the private school from Prep-Year 12, will set you back a $367,569 per child. Even if you decide on a government school for primary years and private for secondary, you will still need to come up with $244,822.

For most families, the time when kids are starting out at school comes when household budgets are already stretched with mortgage repayments, bills and living expenses. This means that some forward planning is required to make sure you have enough money to give you, and your children, the full array of options for education.

Here are 5 tips…

1. Planning is important – have the discussion with your partner, do your research and estimate how much it is going to cost you.

• Open up a dialogue with your partner about what you want your kids’ education to look like. Is it through Private or Government schooling? Do one of you want to send them to the school you attended as a child? Does your child have any special needs? The sooner you have these conversations the better.
• All schools have websites. Check out those that you’re interested in. Most should include information about fees and advise you whether there is a waiting list.
• There is a heap of great resources out there to help you on your way. The ASIC Money Smart website and the Australian Scholarship Group’s online calculator are a couple to try out.

2. Start saving early!

• Like any other long-term savings goal – the sooner you start, the better! The best time to start saving is when your child is born or possibly even earlier. Make a budget and decide how much you can put aside each week. Look to increase the amount each year to ensure you’re keeping pace with inflation.

3. Structuring things right for tax

• If one member of the couple isn’t working and staying at home to look after young children or working part-time, chances are their marginal tax rate is low. Therefore, holding investments or savings accounts in their name may be of benefit as the assessable income for tax will be much lower.

4. Once you have a little bit of savings behind you, look to get that money working harder for you.

• An investment in blue-chip Aussie shares and managed funds can be a great way to accelerate your savings. Bear in mind that these investments are riskier than leaving your money in the bank and that you won’t get rich overnight. A 7 year plus timeframe is appropriate.
• If both parents are working and earning solid incomes, Investment bonds can be tax-effective for investors with a marginal tax rate higher than 30%, as long as certain rules are followed. Within the bond, your money is pooled with money from other investors and a portion of the pooled funds is then invested in the investment options such as cash, fixed interest, shares, property, infrastructure or a range of diversified investment options, with risk levels ranging from low risk to high risk. The value of the investment bond will rise or fall with the performance of the underlying investments. An investment bond is designed to be held for at least 10 years after which you can withdraw tax-free! You can make additional contributions over the life of the insurance bond. To make the most of the tax benefits, each year you can contribute up to 125% of your previous year’s contribution.

5. Saving via an offset account against your home loan can provide other benefits.

• Another simple, but potentially effective way of saving for education costs is through your home loan. An offset account allows you to make extra repayments into a bank account attached to your home loan. It operates much like a normal bank account with some special features. For example, the amount you have in the offset account effectively reduces the loan balance the bank uses to work out the interest payable on your home loan. For example, if you have a home loan of $300,000 with $100,000 in an offset account, the bank calculates interest based on only $200,000.

My advice is to start early, work out how much you will require for education costs, how much you will need to save to get there and then select the appropriate savings vehicle. Seek the help of a good financial planner to set you on the right path

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

It is a common dilemma for Australians all over the country. Do you use spare money to pay off your mortgage and reduce debt? Or do you invest it somewhere else in the hope of boosting returns and improving your overall net worth?

Making a decision based on numbers alone is relatively straightforward (I’ll show you this soon). However, it is not that simple. For all of us, there are other considerations that come into play, including our emotional response to money and security. Let’s take a look.

If there were a simple answer, it would be this.

It may be worth investing if the ‘after-tax return’ you get on your investment is greater than the interest rate on your mortgage.

Let’s say, for example, that the interest rate on your mortgage is 5 per cent, with your investment returns 7 per cent at after tax and other costs. Financially, you are 2 per cent ahead. You could reinvest this money or even use it to pay down your mortgage – helping you achieve both goals.

Of course, this approach depends on your personal income and the marginal tax rate you pay. In the table below, you can see how much investment return you need for this strategy to make sense. If, for example, you earn the average Australian full-time income of $81,530 (with a marginal tax rate of 32.5 per cent), you need 7.4 per cent pre-tax from investment to achieve an after-tax return of 5 per cent.

Can you see what this table shows us? The higher your income, the more you need to make on your investments in order for this strategy to work.

There are other things you need to consider such as the impact of variable interest rates and the actual return of the investment. But it does give you a general idea of where your money might be better off.

Some other reasons people choose to invest their money instead of paying off their mortgage include diversification and accessibility.

Some people worry about having all their money tied up in their home. What happens if prices fall dramatically? We can’t predict the property market but diversifying investments can offer some protection.

Another consideration is accessibility. You need a lot of money to buy a property. Investing in shares or managed funds, on the other hand, requires much smaller amounts. It’s also generally easier to get your money out when you need it.

Reasons you might pay off your mortgage instead of investing

· Peace of mind: The emotional aspect of investing is just as important as the numbers. If your number one goal is the security that comes from owning the roof over your head, then that’s what you should do.

· Pay less interest while getting a guaranteed return: Additional money you pay into your mortgage reduces the interest you’ll need to pay and the duration of the loan. Plus, it acts as a guaranteed return. If the interest rate is 5 per cent, you’re effectively getting a guaranteed 5 per cent return on any extra money you add to your mortgage.

· Build equity: The more you pay off your loan, the more equity you have in your home. Coupled with capital growth over the long term, you can borrow against this equity in your home to build a larger property portfolio.

At the end of the day, we all want to sleep easy at night. For some of us that means feeling comfortable with our financial decisions. If your focus is debt reduction, then go with paying down your mortgage. On the other hand, if your goal is long-term wealth creation and the numbers stack up, then look to invest your money at an appropriate level of risk.

Christmas is fast approaching. It will not be long until Santa is saddling up his reindeer and heading to town.

The festive season gives us all a chance to reflect on the year that was, spend valuable time with our loved ones and allow us to re-charge the batteries before doing it all again!  It is also a time that is associated with spending money and a lot of it!

Here are five quick and easy steps to help you put in place your Christmas budget and make this year a debt free Christmas.

1.   Make a list of everyone to whom you would like to give a gift to

This will provide you with focus.

2.   Figure out how much you can afford to spend

This calculation is relatively simple. How much money can you save between now and December 25^th? How much of this are you willing to dedicate towards gifts? This figure must be an amount you save in cold hard cash and not the dreaded credit card.

If the number is low, that is okay. Remember, Christmas is not about financially crippling yourself just so you can feel good about giving someone an expensive gift.

3.   Prioritise

Refer back to your list you made in Step 1.

Now you are going to make it a shorter list. Life is about prioritisation.

Separate your list into three groups – paid gift, made gift and no gift.

Since you now know how much you can afford (Step 2), this will give you a better idea of how many people can be on the paid gift list. Knowing your time available, you can limit your made gift list. The others – no gift.

4.   Allocate accordingly and complete

Paid gift – next to each name on your paid gift list subscribes a monetary amount. Be sure that total does not exceed that number you came up with in Step 2. If you had planned to spend $100 on your partner, stick to it. Do not decide at the last minute that you would really like to get them that iPad they wanted, or those new diamond earrings. Stick to the plan!

Made gift – if you are arty and creative make something. Customized cards or Christmas tree decorations are simple yet effective ideas. If you are good in the kitchen, why not bake something? Christmas puddings, gingerbread and other treats are a good idea for close friends, neighbours and work colleagues.

No gift – sometimes the simple things in life mean the most to some. A personalised handwritten card, email or simply just picking up the phone and having a conversation with a family member or friend are great ways or sharing the festive spirit as well as being cost-effective.

5.   Make it work

Do not spend more than you budgeted. You have a plan now stick to it! Discipline is key. Remember you can have a giving spirit without having a negative bank balance.

Don’t forget the reason for the season.

The above is provided as general advice only. It does not take into your personal circumstances or financial goals. If you would like to discuss further the opportunities involved with budgeting and having a financial plan, call to book an appointment with one of our talented financial advisers today!

There are strategies to ensure your children get the maximum benefits.

Since its inception, many baby boomers have accumulated big super balances. In some cases, their super balances may be approaching, or even exceed, the value of the family home. But unlike the home, which is free of death taxes, super’s 17% death benefit tax applies to adult children. There are, however, strategies to reduce its impact. First, you need to understand;

• Which beneficiaries will be taxed;
• How they will be taxed; and
• What you can do about it.

Basically, no tax is payable on super death benefits directed to your spouse, including de facto, someone financially dependent on you, a child under 18 (or older if a financially dependent student) or someone you have an interdependency relationship with. The rest get taxed.

When your money goes into super, it is broken down into a taxable component and a tax-free component. The taxable component is comprised of all pre-tax contributions (i.e. your employer’s super guarantee, salary sacrifice or any contributions you have claimed a tax deduction on) and the earnings generated on the taxable component. The only proportion that is tax-free is your after-tax non-concessional contributions.

Death benefits tax will only apply to money in the taxable component of super. Tax payable on the taxable component is 15% plus the 2% Medicare levy. The Medicare levy can be avoided if the death benefit is paid through the deceased estate.

One common strategy to minimise the tax is to withdraw an amount from super and recontribute it as a non-concessional contribution. By doing so you, you are converting the taxable component into a tax-free component. The rules are complex so it’s recommended you seek advice. It all comes down to whether you are eligible to take out a lump sum and then whether you are eligible to recontribute it.

Other strategies involve pulling money out of super and into your personal bank account. It is then paid out to the beneficiaries as per the distribution of the Will and there is no tax. This option can be useful especially if you have been diagnosed with a terminal illness. Again, be careful, as there can be tax consequences of pulling large amounts of money out of super and leaving it in your own name.

Given the complexity of the rules, it is vital you get professional advice first.

Please note the above is provided as general advice, it has not taken your personal or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

The 2018-19 Federal Budget handed down last week by the Treasurer, Scott Morrison focused more on minor adjustments rather than sweeping reforms. It was a Budget designed to create short sharp election headlines, but there were also many measures that will improve individuals’ financial position.

Below is a summary of three main areas:

1. Superannuation
2. Taxation
3. Social Security & Aged Care

Superannuation

• Super fund membership
  • The maximum number of members allowed in a Self-Managed Super Fund (SMSF) will increase from 4 to 6.
  • SMSF Trust Deed’s may need to be amended.
  • May appeal to some, i.e. intergenerational wealth planning.
  • From 1 July 2019.

• SMSF three yearly audit cycle:
  • SMSFs that have clear audit reports over 3 consecutive years and have lodged annual reports in a timely manner will be able to move to a three year audit cycle.
  • This will reduce compliance costs for some.
  • The Government has undertaken to consult with industry stakeholders.
  • From 1 July 2019.

• Work test exemption:
  • Individuals between 65 and 74 who have super balances below $300,000 will be able to make voluntary contributions in the first financial year following the year that they last met the work test.
  • The measure will provide individuals with low super balances with some additional flexibility and may assist with small business CGT concessions.
  • From 1 July 2019.

• Other items:
  • Individuals earning over $263,157 from multiple employers will be able to nominate that their wages from certain employers be NOT subject to SG from 1 July 2018. Avoids unintentional breaching of the $25,000 concessional contribution cap.
  • Opt-in arrangements for default insurance inside super applying to accounts with balances below $6,000, under age 25 where account has been inactive for more than 13 months,from 1 July 2019.
  • Fees capped to 3% pa on passive fees on super account balances below $6,000 from 1 July 2019.
  • Inactive super accounts with balances below $6,000 to be transferred to the ATO.

Taxation

The Government will introduce a seven year Personal Income Tax Plan over three stages:

1. Targeted tax relief to low and middle income earners

• Low and Middle Income Tax Offset (LMITO)
• Effective date: 1 July 2018 – 30 June 2022.
• Received as a lump sum on assessment after an individual lodges their tax return.
• The benefit of the offset is in addition to the existing Low Income Tax Offset (LITO).

2. Protecting middle-income earners from bracket creep

• Effective date: 1 July 2018 – 1 July 2022
• Affects those individuals on middle incomes

3. Ensuring Australians pay less tax by making the system simpler

• The 37% tax bracket will be removed entirely.
• Effective date: 1 July 2024

• Other items:
  • Retaining the Medicare Levy at 2%
  • Extension of $20,000 instant asset write-off for small business
    • This measure allows small businesses with a turnover of less than $10m a tax deduction for the purchase of assets worth up to $20,000. It was due to end 30 June 2018. It has been extended for 12 months to 30 June 2019.

Social Security

• Increase to the Pension Work Bonus (PWB)
  • The PWB is an income test concession for Age Pensioners who continue to work.
  • Currently, the first $250 of employment income per fortnight is not counted under the Centrelink income test.
  • From 1 July 2019, the Government proposes to increase this to $300 per fortnight (first increase since 2011).

• Expansion of the Pension Loans Scheme (PLS)
  • From 1 July 2019, the Government proposes to make the PLS available to full and part pensioners as well as self-funded retirees of age pension age.
  • Full rate pensioners will be able to increase their income by up to $11,799 (singles) or $17,787 (couples) per year by unlocking the equity in their home.
  • The current PLS interest rate of 5.25% pa will apply.
  • Only fortnightly pension payments are available (not lump sum amounts).
  • Repayments generally occur from the sale proceeds once the house is sold, however, it can be repaid at any time.

• Improving access to residential and home care
  • The Government proposes creating 14,000 additional high-level home care packages over the next four years.
  • It is also proposing to release 13,500 residential aged care places.