Leenane Templeton – Newcastle Business Accountants, Business Advisors & Financial Planners

Tag: superannuation

  • The Role of a Corporate Trustee in SMSFs: Why It Matters

    The Role of a Corporate Trustee in SMSFs: Why It Matters

    When setting up a Self-Managed Super Fund (SMSF), choosing the right trustee structure is critical. You can opt for individual trustees or a corporate trustee, but the latter often offers unique benefits that make managing your fund easier and more effective.

    What Is a Corporate Trustee?

    A corporate trustee is a company appointed to act as the legal trustee of your SMSF. In this setup, SMSF members become directors of the company, creating a clear separation between the fund’s assets and personal assets.

    Why Choose a Corporate Trustee?

    1. Simplified Administration: Changes to fund membership are easier to manage with a corporate trustee. Adding or removing members does not require updates to asset titles, saving time and costs.
    2. Enhanced Asset Protection: A corporate trustee ensures a clear distinction between SMSF assets and personal assets, reducing the risk of disputes or confusion.
    3. Improved Compliance and Continuity: A company’s perpetual existence ensures the fund’s continuity if a member passes away or becomes incapacitated. Corporate trustees also simplify compliance with SMSF regulations.
    4. Efficient Decision-Making: Directors of the corporate trustee can act quickly and cohesively to make decisions that align with the SMSF’s goals.

    Considerations

    While corporate trustees offer significant advantages, they come with additional costs, including ASIC registration and annual fees. However, these expenses are often outweighed by the long-term benefits, especially for larger or growing funds.

    Opting for a corporate trustee can provide your SMSF with flexibility, protection, and efficiency.

    This structure is particularly beneficial as your fund grows or your circumstances change.

    If you’re setting up an SMSF or considering switching from individual trustees, it’s wise to consult with a financial advisor or SMSF specialist to ensure you make the best choice for your retirement goals. We may be able to assist you by putting you together with someone who can help.

    By understanding the role and benefits of a corporate trustee, you’re taking an important step toward ensuring the success and compliance of your SMSF. It’s about making your fund work smarter, not harder, for your financial future.

    The Pension Phase of Your SMSF: Simplifying the Transition

    As you approach retirement, your Self-Managed Super Fund (SMSF) can transition from the accumulation phase into the pension phase. This shift is a significant milestone and can offer tax benefits and a steady income stream for your retirement years.

    Let’s explore what this transition entails and how it supports your fiscal goals.

    Understanding the Transition to Pension Mode

    When you retire, your SMSF can start paying you a pension, turning your accumulated super savings into a reliable income stream. To make this transition, your SMSF must meet specific conditions of release, such as reaching the preservation age and officially retiring from the workforce.

    Once these conditions are met, your fund can move into pension mode. In this phase, your SMSF’s income is used to pay you a regular pension while enjoying significant tax advantages. For instance, earnings on assets supporting your pension become tax-free, allowing your fund to work more efficiently.

    Minimum Pension Requirements

    The Australian Tax Office (ATO) sets minimum pension withdrawal rates based on your age. Ensuring your SMSF meets these requirements annually is essential to maintain its tax-free status in pension mode. Failing to withdraw the minimum amount could result in your fund losing its tax concessions.

    Strategic Considerations for Your SMSF

    1. Asset Allocation: Ensure your SMSF’s investments align with your income needs. As you retire, a more conservative investment strategy may help protect your capital while providing consistent returns.
    2. Documentation: Update your SMSF’s trust deed and ensure all documentation complies with pension phase requirements. Proper records are vital to meet ATO regulations.
    3. Estate Planning: Review your SMSF’s binding death benefit nominations to ensure your retirement savings are distributed according to your wishes.

    Professional Guidance is Key

    Transitioning your SMSF to pension mode involves important decisions and compliance requirements. A licensed SMSF accountant or advisor can guide you through this process, ensuring your fund operates smoothly and takes full advantage of tax benefits. By planning carefully, you can enjoy a financially secure and stress-free retirement.

    If you’re considering the next steps for your SMSF, feel free to reach out for tailored advice. Together, we can ensure your retirement years are as rewarding as you’ve envisioned.

    Looking for more information on SMSFs? Visit our dedicated SMSF website: https://self-managedsuperfund.com.au/

    Disclaimer
    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • The Pros and Cons of Insurance within Superannuation

    The Pros and Cons of Insurance within Superannuation

    Insurance within superannuation is a valuable option that many Australians use to help protect their financial security. While there are clear benefits, it’s important to consider both the pros and cons to decide whether holding insurance within superannuation is the right choice for you.

    What Is Insurance within Superannuation?
    Insurance within superannuation is typically offered in the form of life insurance, total and permanent disability (TPD) insurance, and income protection insurance. Instead of holding insurance separately, it’s managed through your super fund, with premiums deducted from your superannuation balance.
    Let’s explore the advantages and drawbacks of this approach.

    Pros of Insurance within Superannuation

    1 – Affordable Premiums
    • Convenient Deductions: Since premiums are deducted directly from your super balance, it doesn’t impact your take-home income. This can make insurance more affordable, especially for younger individuals or those on a budget.
    • Group Discounts: Super funds often negotiate group insurance policies, meaning members can access more favourable premiums than they might be able to obtain individually.

    2 – Automatic Coverage
    • Easy Access: Many super funds offer automatic cover, so members are protected without needing to arrange insurance separately. This can be particularly helpful for those who may not otherwise prioritise or afford personal insurance.
    • No Medical Underwriting: Typically, members don’t need to undergo medical underwriting to qualify for default coverage, making it accessible to people who may face challenges securing private insurance due to health issues.

    3 – Tax Advantages
    • Tax-Effective Contributions: Super contributions used to pay for insurance premiums are generally taxed at a lower rate than income, meaning paying premiums from your super could be more tax-efficient than paying out-of-pocket for standalone insurance.

    Cons of Insurance within Superannuation

    1 – Reduction in Retirement Savings
    • Depleting Super Balance: While having insurance within super can be convenient, the regular deduction of premiums reduces your super balance over time, potentially impacting your retirement savings.
    • Compounding Impact: Even small premium deductions can significantly impact when compounded over decades, especially for younger members.

    2 – Limited Coverage
    • Lower Benefit Caps: The insurance coverage provided within super funds may not be as comprehensive or customisable as standalone policies. For example, the benefit amounts for life or TPD insurance may be capped, which may not be sufficient for those with higher coverage needs.
    • Income Protection Limits: Income protection insurance within super often has limitations, such as shorter benefit periods and a restricted level of income replacement, which may not fully cover your financial needs if you cannot work long-term.

    3 – Complexity in the Claims Process
    • Potential Delays: Since superannuation involves trustee management, the claims process can be slower and may involve more complex documentation than private insurance claims.
    • Eligibility Issues: Some super funds’ insurance policies may not cover all health conditions or disabilities, which could limit access to benefits if you experience a specific medical issue.
    Insurance within superannuation can be a practical and cost-effective way to access coverage. However, it’s essential to assess your personal situation and financial goals.

    A chat with one of our LT financial advisors can provide insight into whether keeping insurance within super or switching to a standalone policy will best serve your needs.

    Disclaimer
    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Superannuation for Young Professionals: Start Early, Retire Comfortably

    Superannuation for Young Professionals: Start Early, Retire Comfortably

    As a young professional, planning for retirement is a distant priority.

    However, starting early with your superannuation contributions can significantly impact your financial future.

    Prioritising superannuation now sets the foundation for a more comfortable retirement.

    Benefits of Early Contributions

    1. Maximising Compound Interest
      One of the most compelling reasons to start contributing to your superannuation early is the power of compound interest. Compound interest means earning returns on your initial contributions and the interest accumulating over time. The earlier you start, the more time your money has to grow. For example, contributing $5,000 annually from age 25 could result in a substantially larger super balance at retirement than starting the same contributions at age 35.
    2. Taking Advantage of Employer Contributions
      In Australia, employers must make superannuation contributions on your behalf, known as the Superannuation Guarantee (SG).
      Starting your contributions early ensures you maximise these employer contributions throughout your career. Additionally, you can boost your super by making voluntary contributions, further enhancing your retirement savings.
    3. Tax Benefits
      Superannuation contributions are generally taxed at a lower rate than regular income, providing significant tax advantages.
      Concessional (before-tax) contributions, including salary sacrifice arrangements, are taxed at 15%, which is often lower than most individuals’ marginal tax rates.
      This tax efficiency helps your super grow faster.

    The Power of Compound Interest
    Compound interest can significantly increase your superannuation balance over time. The longer your money is invested, the more interest you earn on both your contributions and the accumulated interest.
    For instance, if you start with a $10,000 balance and earn a 7% annual return, your balance could grow to over $76,000 in 30 years, assuming no additional contributions. This exponential growth underscores the importance of starting early.

    Smart Investment Choices

    1. Understanding Investment Options
      Most superannuation funds offer various investment options, ranging from conservative to high-growth portfolios. As a young professional, you have a longer investment horizon, allowing you to potentially take on more risk for higher returns. Growth or high-growth investment options typically invest more in equities, which, while more volatile, have historically provided higher returns over the long term.
    2. Reviewing and Adjusting Your Investments
      Regularly reviewing your investment choices and adjusting them as needed is crucial. Life circumstances, risk tolerance, and market conditions can change, and your superannuation strategy should adapt accordingly. Many super funds offer tools and advice to help you make informed investment decisions.

    Integrating Superannuation into Your Financial Plan

    1. Setting Financial Goals
      Incorporating superannuation into your broader financial plan involves setting clear retirement goals. Determine how much you aim to have in your super by the time you retire and develop a strategy to achieve that target. Use online calculators and tools provided by super funds to estimate your future super balance based on different contribution levels.
    2. Regular Contributions and Budgeting
      Consistently contributing to your super is key to building a substantial retirement fund. Consider setting up a budget that includes regular voluntary super contributions. Even small, consistent contributions can make a significant difference over time.
    3. Seeking Professional Advice
      Consulting with a financial advisor can provide personalised guidance tailored to your financial situation.

    They can help you develop a comprehensive retirement plan, optimise your super contributions, and make informed investment decisions.

    Starting early with your superannuation contributions could set you on the path to a more secure retirement. The benefits of compound interest, tax advantages, and strategic investment choices make it a smart financial move for young professionals.

    By integrating superannuation into your overall financial planning and making regular contributions, you can maximise your retirement savings and enjoy financial peace of mind in your later years.

    Prioritise your superannuation today, and watch your wealth grow for a prosperous future.

    Disclaimer
    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Choosing The Right Super Fund For Your Needs

    Choosing The Right Super Fund For Your Needs

    Selecting the right superannuation fund is a crucial decision that can significantly impact your financial future in retirement.

    With numerous options available, it’s essential to understand the key factors to consider when making this important choice.

    Let’s examine the factors that should guide your decision-making process to ensure you choose a superannuation fund that aligns with your needs and goals.

    Investment Performance
    One of the primary considerations when choosing a superannuation fund is its investment performance. Look for funds that have consistently delivered strong returns over the long term, considering factors such as risk-adjusted performance and investment strategy. Review historical performance data and compare it to relevant benchmarks to assess the fund’s track record.

    Fees and Costs
    Fees and costs can significantly impact the growth of your superannuation savings over time. Consider the fund’s management fees, administration fees, and any other charges associated with investing in the fund. Look for funds that offer competitive fees while providing value for their services. Keep in mind that even seemingly small differences in fees can have a substantial impact on your retirement savings over time.

    Investment Options
    Evaluate the investment options available within the superannuation fund to ensure they align with your risk tolerance and investment objectives. Look for diversified investment options, including cash, bonds, equities, and alternative investments. Consider whether the fund offers pre-mixed investment options or the flexibility to build your investment portfolio according to your preferences.

    Insurance Coverage
    Many superannuation funds offer insurance coverage, including life insurance, total and permanent disability (TPD) insurance, and income protection insurance. Assess the insurance offerings each fund provides, including the coverage level, premiums, and any exclusions or limitations. Choose a fund that offers appropriate insurance coverage to protect yourself and your loved ones in the event of unforeseen circumstances.

    Member Services and Support
    Consider the level of member services and support offered by the superannuation fund, including online account management, educational resources, and access to financial advice. Evaluate the fund’s customer service reputation and responsiveness to member inquiries or concerns. Opt for a fund that prioritises member satisfaction and provides resources to help you make informed decisions about your retirement savings.

    Choosing the right superannuation fund is a critical step in planning for your financial future in retirement.

    By considering factors such as investment performance, fees and costs, investment options, insurance coverage, and member services, you can make an informed decision that aligns with your needs and goals.

    Remember to regularly review your superannuation fund’s performance and reassess your choices as your circumstances change to ensure you stay on track to achieve your retirement objectives. Speak with a financial advisor.

    Disclaimer
    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • What Does Payday Super Actually Mean?

    What Does Payday Super Actually Mean?

    There’s been a lot of buzz around superannuation since the 2023-24 Federal Budget was announced. One such buzz involves the concept of ‘payday super’.

    Payday super has been introduced by the government to avoid the discrepancies that those in lower-paid, casual and insecure work often encounter with their superannuation compared to others in more secure positions due to less-frequently paid super.

    Employers are currently required to pay the superannuation guarantee of 10.5% on top of employee wages every quarter, even if workers are paid more frequently in fortnightly or monthly pay cycles.

    The idea behind payday super is that rather than employers pay their employees their superannuation quarterly, they will be expected to pay it to employees when their pay cycles are run (on ‘payday’). This reform is to come into effect from July 2026.

    Aligning the payment of superannuation with wages and salaries will increase retirement incomes through greater compounding returns.

    For example – a 25-year-old on an average income who currently receives their super quarterly and their wages fortnightly could be up to $6000 or 1.5% better off at retirement.

    More frequent super payments could also help employers by making payrolls smoother with fewer liabilities building up on their books and making it harder for employees to be exploited by disreputable employers.

    Unpaid super is a critical issue afflicting the current superannuation system, with an estimated $5 billion missing from Australian employees.

    Currently, Australian employees are vulnerable to exploitation if their employer fails to make the required superannuation contributions.

    These workers often rely on ATO intervention to recover lost super. However, the ATO is only able to recover up to 15% of owed superannuation generally.

    Another issue that this may lead to some form of an amendment, is the gender gap in superannuation.

    Women are often victims of this exploitation of unpaid or missing super due to gaps in employment that may occur, affecting how their superannuation compounds and/or stagnates. This could be from taking time off work for caregiving reasons, the overall pay from their job or even just taking maternity leave.

    It is believed that women will likely earn $135,000 less than their male counterparts over their working lives as a result. Payday super could potentially lead to further action regarding the retirement outcomes for women who take time out of the workforce, such as paying super on paid parental leave.

    Some employers may face cashflow issues when paying superannuation at the same time as payroll. However, three years of notice has been given to those who may have these issues to adjust their cashflow practices and make arrangements. To avoid compliance issues with the requirements to be instated in 2026, it’s best to update payroll systems beforehand.

    Not sure where to start? Speak with your trusted business adviser today. We’re here to help with the complexities that can arise with payroll.

  • Binding Death Nominations Are An Important Part Of Your Estate Planning

    Binding Death Nominations Are An Important Part Of Your Estate Planning

    You must make a binding death benefit nomination to maintain control and certainty over who will inherit your superannuation assets after you pass away.

    Contrary to what you may think, your will does not automatically control the payment of your death benefits. If you do not make a binding death benefit nomination, your super trustee will decide who your super passes onto.

    Familiarise yourself with the death benefit nomination rules, so your super assets are paid on your terms after you are gone.

    Binding And Non-Binding Death Benefit Nominations
    You can make a binding or non-binding death benefit nomination depending on your super fund. A binding death benefit nomination provides the greatest certainty as the legal document binds the trustee to pay your death benefits to the beneficiaries you have nominated.

    Some super funds do not offer binding nominations, so individuals make non-binding nominations instead. Non-binding nominations act as a guide to your trustee that they will take into consideration but are not obliged to follow. Your trustee may pay your death benefit to an individual you did not nominate if they feel they are more appropriate.

    Lapsing And Non-Lapsing Nominations
    Understanding your fund’s options for lapsing and non-lapsing nominations will help you keep your nominations up-to-date and binding. Lapsing nominations typically expire after three years and must be renewed. If your binding nomination lapses without renewal, it will be considered a non-binding nomination upon your death. Non-lapsing nominations are permanent unless you change them.

    Changing Death Benefit Nominations
    Life circumstances like divorce, marriage or the death of a nominated individual may trigger you to change your nominations.

    You can amend, cancel or replace your death benefit nomination at any time, provided the nomination is validly concluded. Remember that a power of attorney can renew lapsed binding nominations if you are mentally incapacitated or unable to sign.

    Eligible Beneficiaries
    You cannot pay your superannuation death benefits to just anyone, as there are strict eligibility requirements. You may only nominate your dependents or personal legal representative.

    Dependents are strictly defined by law. According to the legislation, dependents include
    • Your spouse, whom you are legally married to, in a registered relationship with or live with on a genuine domestic basis
    • Your child (including adopted and foster children) or your spouse’s child
    • Anyone in an interdependent relationship with you at the date of your death
    • Other persons who the trustee deems were financially dependent on you at the date of your death
    You can also have your superannuation death benefit paid directly into your estate.

    Validity Requirements
    Whether you are making a new binding death benefit nomination, replacing an old one or cancelling altogether, you must meet these requirements to make your nomination valid:
    • Nominate eligible beneficiaries
    • Clearly allocate your benefits amongst your beneficiaries
    • Allocate 100 per cent of your death benefits
    • Sign and date your nomination in the presence of two witnesses who are legally adults and not nominated to receive your death benefits
    Ensure your witnesses sign and date the notice in your presence.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Self-Employed Individuals & Super

    Self-Employed Individuals & Super

    Superannuation may not be the first thing that springs to mind as a self-employed individual, but just like how looking after your tax and business expenses benefits you, superannuation is an important subject to consider.

    While you don’t need to pay super to yourself, it might help you feel more secure about your finances during retirement. You can make regular or lump sum payments can usually claim a tax deduction on contributions, and may be able to save tax.

    Contributions you make to your super will only be taxed at 15%. Depending on which tax bracket you fit into, this might be a concession compared to your usual tax rates. Additionally, investing in your super will most likely yield a higher return than if you put your money into a bank savings account.

    You may be able to contribute to your pre-existing super fund after becoming self-employed. All you need to do is provide the fund with your tax file number (TFN) so that your contributions can be added to the fund. Alternatively, you can choose a new fund.

    There are two ways you can contribute to the fund which are dependent on how you receive income:

    • Wage: Make regular transfers to the super fund from your pre-tax income (such as by salary-sacrificing).
    • Income from business revenue: Transfer lump sum amounts when there is sufficient cash flow from your business.

    If you make contributions to the super fund from your pre-tax income, then you can claim tax deductions for them. Your overall taxable income is reduced as well. Ensure you complete a ‘Notice of intent to claim’ to receive this deduction.

    There are limits to the amount of money you can contribute to your super every financial year:
    • Up to $27,500 in concessional contributions (from pre-tax income, so you can claim a deduction)
    • Up to $110,000 in non-concessional contributions (from after-tax income)

    For example, employers contribute a minimum of 10.5% of an employee’s earnings to their super (since July 2022) – if you are not sure how much to contribute, this could be a starting point.

    For Example – How Your Concessional Contribution Can Work

    You claim a tax deduction for your superannuation contribution above what your employer paid, up to the limit (currently $27,500), and will receive a refund of your marginal tax rate. In this example, we’ll say that it’s 34%.

    But, your fund pays 15% tax. So if you put $10,000 into your fund, you should receive a tax refund of $3,400 (34%) cash into your pocket. However, the fund pays $1,500 (15%) in tax, which comes from your contribution.

    This 15% will go up to 30% when your adjusted income is above $250,000, but your savings will be 47% instead of 34%.

    If you are a low to middle-income earner, then you may meet the eligibility criteria to receive government super contributions. The government will determine how much you are entitled to when you lodge your tax return. If you’re eligible, the government will pay the co-contribution directly to your fund.

    Although it may be challenging to make super contributions when self-employed, consider starting off the process so that when you are in your retirement period, you have some financial security.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • What Happens To A Loved One’s Superannuation In The Event Of Dementia?

    What Happens To A Loved One’s Superannuation In The Event Of Dementia?

    Superannuation can be confusing at the best of times for the average Australian. However, for those experiencing the effects of mental impairment (such as dementia), or living with those affected by it, access to their superannuation can become a financial issue of great magnitude.

    Dementia is not a specific disease, but rather a term that describes symptoms associated with more than 100 different diseases characterised by the impairment of brain function. The most common type of dementia that is often encountered is Alzheimer’s disease.

    It occurs more frequently in the elder demographic than in the younger population but is indiscriminate in who it affects. However, with an increasing number of people looking at accessing their superannuation, and a rise in the number of Australians impacted by Alzheimer’s disease or other forms of dementia, it’s best to be prepared with the knowledge of what you must do.

    When it comes to your superannuation, if your circumstances mark you as an eligible applicant, you may be able to claim a lump sum from your superannuation fund’s total and permanent disability (TPD) insurance.

    You may be under the assumption that to access the benefits from TPD, you need to have suffered an accident, a workplace injury or a critical terminal illness. However, you can claim for TPD and monthly income protection benefits from your super fund if you have any type of long-term illness that affects your ability to do your job (including young-onset Alzheimer’s or dementia).

    You should get total and permanent disablement from your life insurance provider for a broad range of early-onset Alzheimer’s disease or dementia-related symptoms, including significant permanent impairment, loss of independence, cognitive decline, and other mental health effects.

    Your life insurance provider will consider several factors when deciding whether you’re eligible to make a claim, including:

    • Whether your claim can be supported by a doctor or medical specialist.
    • Whether you’re receiving any treatment for dementia or Alzheimer’s disease, and the frequency of this treatment.
    • Whether your early-onset Alzheimer’s disease can be considered permanent.
    • How your capacity to work has been impaired or will be impaired by your symptoms as your disease progresses.
    • Whether you may be able to take on an adjusted job role or work in a new career.

    If you successfully claim TPD insurance for early-onset Alzheimer’s or dementia, you should be given early access to your super. This money will be paid in a lump sum and will cover your day-to-day costs for the rest of your life. The amount of money you receive will depend on your specific circumstances

    What About If An SMSF Trustee Is Affected By Dementia/ Alzheimer’s?

    In the case of an SMSF, legally, the loss of mental capacity for a trustee of an SMSF means that they can no longer make decisions as a trustee of the fund. The critical period for an SMSF is the time prior to diagnosis when the trustee may be making or not making decisions that would be in the best interest of the members of the fund.

    There are four options that the trustees of this SMSF have:

    • They can retain the SMSF and appoint additional trustees to the fund who share trustee responsibility as they age (which would typically occur with adult children joining the fund).

    • The trustees of the SMSF can appoint an individual to take on trustee responsibility on his behalf under an enduring power of attorney.

    • The trustees of the SMSF can close the SMSF and rollover the fund to a public offer fund, with all ongoing administration and compliance of the fund reverting to a third-party trustee.

    • The SMSF trustee can convert the fund into a Small APRA Fund (SAF). A SAF offers the flexibility of an SMSF, without trustee responsibilities as an independent trustee is appointed to manage the trustee responsibilities on an individual fund basis and on an agreed fee basis.

    It is most important to remember that if you have not appointed someone as your enduring power of attorney and you do lose mental capacity, then it is too late and you will need to apply to the court. It is always important to seek advice about appointing someone as your enduring power of attorney.

  • Superannuation Strategies To Employ Before The EOFY

    Superannuation Strategies To Employ Before The EOFY

    With superannuation being the key to a comfortable retirement, here are some of the strategies to consider that could help with streamlining your finances (while also taking into account some considerable tax breaks).

    Concessional Contributions
    Also known as the before-tax contributions, these are the funds that go into your super account from your income before tax. These can include
    • Employer contributions
    • Salary sacrifice payments
    • Personal contributions (which can be claimed as a tax deduction).

    The concessional contributions cap is $27,500 for all ages for the 2021-22 financial year. Your cap may be higher if you did not use the full amount of your cap in previous years. This is called the carry-forward of unused concessional contributions.

    Bear in mind that if your combined income and concessional contributions are more than $250,000 in total, you may have to pay extra tax. This is something to consider if you are looking to make personal contributions for the sake of the tax deduction.

    Non-Concessional Contributions

    Before-tax contributions are not the only way to top up your super account. Non-concessional contributions are made into your super fund from after-tax income. They include contributions made by you or your employer on your behalf from aftertax income, contributions made by your spouse to your super fund, or personal contributions not claimed as an income tax deduction.

    For the 2021-22 financial year, the non-concessional contributions cap is being increased to $110,000. If you contribute more than this, you may have to pay extra tax on this.

    Your own cap may be different from others though, as it could be:
    • Higher, if you are able to use the bring-forward arrangements
    • Nil, if your total super balance is greater than or equal to the general transfer balance cap ($1.7 million from 2021-22)

    Changes Coming Into Effect 1 July 2022

    Though the recent Budget announcements for superannuation only covered the reduction to the minimum annual drawdown amounts for superannuation pensions and annuities, that doesn’t mean that there aren’t other changes still to come into effect from last year’s announcements. Be mindful of the following when planning your superannuation strategies for next year:


    • Bring-forward non-concessional cap extended to anybody under 75 (subject to Total Superannuation Balance


    • Work test requirements were abolished for 67-74-yearolds in respect of making or receiving personal and salary sacrificed contributions.


    • The SG rate is set to increase to 10.5% (up from the current 10%), as applicable to an employee’s (and some contractors’) ordinary time earnings.


    • $450 per month income threshold abolished for SG contributions – those earning below this amount may now be eligible for the superannuation guarantee.


    • Reduction to age 60 (down from 65) for the home downsizer contribution scheme


    • Increase to voluntary contribution release amounts under the first home super saver scheme from $30,000 to $50,000

    For help with you superannuation or financial planning please contact our team of LT advisors.

  • Why do I need tax and compliance planning for my business?

    Why do I need tax and compliance planning for my business?

    This time of year many clients take the opportunity to have a proactive tax and compliance planning strategy before the end of the financial year in order to maximise tax opportunities and minimise risk.

    The LT team help clients through this period and ensure that they maximise the tax opportunities whilst keeping compliant. Taxation planning is a difficult process and time and expertise is needed to review the current situation and look at ways to reduce tax exposure and minimise risk.

    Example of areas within tax and compliance planning includes:

    1 – FINANCIAL STATEMENTS AND BUSINESS REVIEW
    • Review year to date results, and profit projections to 30 June
    • Review other family member income
    • Any capital gains / losses or investment income?

    2 – CONSIDERATION OF TAX PLANNING STRATEGIES
    Review key super and tax changes before and after 30 June
    • Superannuation – $25,000 for everyone – surplus cash for “top up” before 30 June
    • Bring forward deductions?
    • Defer income? Is cash available prior to 30 June for these strategies?
    • Temporary Full Expensing for Asset Purchases – entities with turnover under $50m can deduct the total business portion of asset purchases (both new and second hand) and have these purchased and installed ready to use by 30 June 2021.
    • Set up a “corporate beneficiaries” to cap tax at 30% or 26% depending on your circumstances.

    TAX COMPLIANCE ISSUES FOR 2021
    • Discretionary and Unit Trusts – Trust Distribution Resolutions need to be signed by 30 June 2021 to avoid penalty tax and review the most appropriate beneficiaries to receive the income.
    • Dividend Planning – Resolving to pay dividends and executing Dividend Resolutions to ensuring they are effectively paid under tax and corporations law.
    • Division 7A – To ensure compliance with loans out of companies and ensuring appropriate loan agreements are in place. Review also any Unpaid Present Entitlements (UPE) and considering whether they need to be made Division 7A compliant.

    3 – RECORD KEEPING
    • Computer data files – reconciled properly? Is bookkeeping working properly?
    • Motor Vehicle Log Books – Have these been kept? Essential in case of a tax audit

    HOW WE CAN HELP YOU

    Our tax team will work together with you to take care of issues that can have an impact on your future finances. We are highly experienced in tax planning and compliance and can provide a wide range of tax advice for your needs.

    Contact our team today.

  • How are super death benefits taxed?

    How are super death benefits taxed?

    When it comes to how the super death benefit is paid out, there are specific tax implications involved which affect the amount a nominated beneficiary will receive.

    In a situation where super is paid out after an individual has passed, it is generally split up into two components; taxable and tax-free. The tax-free portion of a super death benefit is tax exempt and can include payments of after-tax contributions and government co-contributions.

    While the taxed component is primarily made of employer contributions, personal contributions (when a tax deduction is claimed) and salary sacrificed contributions. Upon receiving a super death benefit, the amount of tax you as the beneficiary will be required to pay will depend upon your age and a number of considerations.

    These include:

    • The deceased individual’s age at the time of their passing
    • If the superfund has already paid all tax owing on the taxable component
    • Whether the income stream is account-based or a capped defined benefit income stream
    • Whether you are the dependant of the deceased individual (i.e., you rely on their financial support)
    • If it is paid out in one payment or as an income stream

    The Australian Tax Office (ATO) does not require you to pay any tax on the taxable component of a super death benefit you receive when you are a dependant of the deceased individual and receive the payment as a lump sum. However, varying rates may apply (depending upon the above considerations) if you accept the balance of the benefit as an income stream.

    In cases, where you are not a dependant of the deceased individual, you will receive the balance of the benefit in one payment. The taxable component of the amount will be taxed at your marginal tax rate. However, you may have this rate reduced providing you are eligible for tax offsets.

    For more information about superannuation and your personal finances please call our wealth management team.

     

     

     

     

     

  • What can you tell your employees about super?

    What can you tell your employees about super?

    It’s a common question asked by employees: “what should I do about my super?” If you are an employer or manager and feel confident of your knowledge of superannuation and investment, it can be tempting to give an answer. However, just about anything helpful you have to say will likely fall within the definition of giving financial product advice, and that could land you in very hot water.

    The boundaries

    Financial product advice is a recommendation or statement of opinion that:

    • is intended to influence a person or persons in making a decision in relation to a financial product or class of products; or
    • could reasonably be regarded as being intended to have such an influence.

    The Corporations Act casts a wide net. Financial product advice can include anything you say about:

    • joining, or making contributions to, a superannuation fund;
    • making additional contributions to a super fund, including by salary sacrifice;
    • rolling accumulated superannuation into or out of a fund; and
    • selecting particular investment or insurance options within a superannuation fund.

    The ability to provide advice is generally restricted to holders of an Australian Financial Services Licence or their representatives. Very few employers, or their staff, fall into this category, and giving financial product advice, even inadvertently, could lead to prosecution.

    What can you talk about?

    You can provide factual information that does not include a recommendation, an opinion, or an intention to influence a person’s decision regarding their super. This allows you to provide information about:

      • employees’ rights and employer obligations;
      • how your employees can tell you what superannuation fund or retirement savings account (RSA) they want their superannuation guarantee contributions paid into; or
      • the employer fund into which you will pay superannuation guarantee contributions if the employee doesn’t nominate a superannuation fund or RSA.

    You can also give your employees the Product Disclosure Statement (PDS) of your default superannuation fund. Just don’t provide any explanation of the material it contains or attempt to recommend the default fund.

    How can you help?

    None of this precludes you from helping your employees. You just need to go about it the right way.

    For example, you can refer employees to a licensed or authorised adviser. Just be sure to disclose any benefit you may gain from making such a referral. Or you can ask a superannuation fund provider to make a presentation to your employees. Take care, though, that you don’t give the impression of either endorsing of disapproving of the fund in question.

    Being asked for advice is recognition that your employees respect your views and knowledge. It can be flattering and you may well know a great deal about superannuation and investment. However, without the necessary authorisation, you need to steer well clear of financial product advice. And it’s not just you who needs to be aware of these restrictions. You need to ensure that your HR staff and line managers are also aware.

    Speak with our business advisors or financial advisors with regards to business and superannuation advice.  We  can also help to speak with your employees about their current financial needs.

    Other interesting articles include:

     

    Call (02) 4926 2300 or email success@leenanetempleton.com.au 

     

     

  • Super in your 50’s – It’s time to push the pedal down

    Super in your 50’s – It’s time to push the pedal down

    If 50 really is the new 40, then life has just begun. The kids are gaining independence or may have left home, and the mortgage could be a thing of the past. Bliss. But galloping towards you is… retirement!.

    How are you tracking?

    According to the Association of Superannuation Funds of Australia (ASFA), a ‘comfortable’ retirement today costs close to $59,000 per year for a couple. If you and your partner are planning to retire at 55, to afford this retirement lifestyle and secure your future, at least into your mid-eighties, you should be looking at having around $1.02 million in super[i]. Over time, inflation will push these figures higher. Leave retirement to age 65 and a couple will need around $79,300 a year[ii] from a nest egg of about $1.08 million[iii].

    Find those numbers a bit daunting? Here are some ways to boost your retirement savings.

    Increase your pre-tax contributions

    You can ask your employer to reduce your take-home pay and make larger contributions to your superannuation fund. If you are self-employed, you can increase your level of tax-deductible contributions. This strategy is commonly known as ‘salary sacrifice’.

    If you are earning between $87,000 and $180,000 per year, any income between those limits is taxed at 39%. Salary sacrifice contributions to your superannuation fund are only taxed at 15%. Sacrificing just $1,000 per month to super will, over the course of a year, see you better off by $2,880 on the tax differences alone. Plus, the earnings on those super contributions will be taxed at only 15%, compared to investment earnings outside of super being taxed at your marginal rate.

    Don’t overdo it though. If your salary sacrifice plus superannuation fund guarantee contributions add up to more than $35,000 this year, the excess is added to your assessable income and taxed at your marginal tax rate. This point will become even more important when the cap reduces to $25,000 per annum from 1 July 2017.

    Retiring slowly

    Once you reach your preservation age[iv] you might start a ‘transition to retirement’ (TTR) pension from your superannuation fund. The idea is to allow people to reduce working hours without reducing their income.

    Keep your money working

    There is a tendency to opt for more secure, but lower-return investments as we approach retirement. However, even at retirement your investment horizon may still be decades. With cash and fixed interest producing some of their lowest returns in history, it may be beneficial to keep a significant portion of your portfolio invested in growth assets.

    Insurance and death benefits

    With the mortgage paid off or much diminished and a growing investment pool, your insurance needs have probably changed. You may be paying for cover you no longer need, premiums may be quite high due to age, and that money might be better applied to boosting your savings. This is a good time to review your insurance cover to ensure it continues to be a match for your changing circumstances.

    It’s also a good idea to check the death benefit nomination with your superannuation fund. By making a binding nomination you can ensure that your death benefit goes to the beneficiaries of your choice, and may mean they receive the money more quickly.

    Get a plan!

    Superannuation fund provides many opportunities for boosting your retirement wealth. However, it is a complex area and strategies that benefit some people may harm others. Good advice is absolutely essential, and the sooner you sit down with a licensed financial advisor, the better your chances of having more when you reach the finishing line.

    More interesting articles:

     

    [i] Sum required to fund an annual income of $59,000 for 30 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.

    [ii] Value of $59,000 today in 10 years at 3% inflation.

    [iii] Sum required to fund an annual income of $79,300 for 20 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.

    [iv] Depending on your date of birth, your preservation age will be between 55 and 60. It is the age at which you can access your superannuation fund under certain conditions.

  • Super in Your 30’s – Do I have to think about it right now?

    Super in Your 30’s – Do I have to think about it right now?

    If you are in your thirties, chances are life revolves around children and a mortgage. As much as we love our kids, the fact is they cost quite a lot. As for the mortgage, this is the age during which repayments are generally at their highest, relative to income. And on top of that, one parent is often not working, or working only part time. Even if children aren’t a factor, career building is paramount during this decade.

    Are you really expected to think about super fund at a time like this?

    Well, yes, there are a few things you need to pay attention to.

    Short-term plans

    As careers start to hit their strides, the thirties can be a time for earning a good income. If children are not yet in the picture, but are part of the future plan, then it’s an excellent idea to squirrel away and invest any spare cash to prepare for a drop in family income when Junior arrives. Just remember that any savings you want to access before retirement should not be invested in superannuation.

    Long-term comfort

    Don’t be alarmed, but by the time a 35-year-old couple today reaches retirement age in 32 years’ time, the effects of inflation could mean that they will need an income of about $152,000 per year to enjoy a ‘comfortable’ retirement[i]. To support that level of income for up to 30 years in retirement they will want to have built a combined nest egg of about $2.7 million![ii]

    If you are on a 30% or higher marginal tax rate, willing to stash some cash for the long term, and would like to reduce your tax bill, then consider making salary sacrifice (pre-tax) contributions to super fund. For most people super contributions and earnings are taxed at 15%, so savings will grow faster in super fund than outside it. For example, if you’re earning $100,000 per annum, making a contribution of $10,000 from salary to super fund will save you paying $3,900 in income tax for that year – and increase your super balance by $8,500.

    Growing the nest egg

    Even if you can’t make additional contributions right now there is one thing you can do to help achieve a comfortable retirement: ensure your super fund is invested in an appropriate portfolio. With decades to go until retirement, a portfolio with a higher proportion of shares, property and other growth assets is likely to out-perform one that is dominated by cash and fixed interest investments. But be mindful: the higher the return, the higher the associated risk.

    Another option for lower income earners to explore is the co-contribution. If you are eligible, and if you can afford to contribute up to $1,000 to your super fund, you could receive up to $500 from the government. Or to keep your partner’s super humming along while she or he is earning a low income, you can make a spouse contribution on their behalf and gain a tax offset of up to $540.

    Let your super pay for insurance

    For any young family, financial protection is crucial. The loss of or disablement of either parent would be disastrous. In most cases both parents should be covered by life and disability insurance.

    If this insurance is taken out through your superannuation fund the premiums are paid out of your accumulated super balance. While this means that your ultimate retirement benefit will be a bit less than if you took out insurance directly, it doesn’t impact on the current family budget. However, don’t just accept the amount of cover that many funds automatically provide. It may not be adequate for your needs.

    Whether it’s super, insurance, establishing investments or building your career, there’s a lot to think about when you’re thirty-something. It’s an ideal age to start some serious financial planning, so talk to a licensed financial advisor about putting a plan into place so you can have everything now – and in 30 years’ time.

    Call our team today on (02) 4926 2300 to meet with a financial advisor.

    Find out more about:

     

    [i] Value of $59,000 today – the income required to provide a couple with a “comfortable” level of income as calculated by The Association of Superannuation Funds of Australia (ASFA) (June 2016) – in 32 years at 3% inflation.

    [ii] Sum required to fund an annual income of $152,000 for 30 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.

  • Insurance Inside Superannuation

    Insurance Inside Superannuation

    It’s important that you speak with your advisor before deciding whether or not to place your insurance inside superannuation and to check any changes to the rules.  As a brief summary here’s a few pros and cons as to whether you should place insurance inside superannuation or not.

    PROS

    • Insurance inside superannuation is cheaper because of bulk buying power of funds.
    • No medical examinations are required to take out basic cover.
    • Super policies often include total and permanent disablement (TPD) and Income Protection.
    • It is tax effective since the premiums are paid out of contributions made by your employer or from personal contributions that generate either a direct tax deduction (for the self-employed) or are paid from pre-tax income, in the case of salary sacrifice contributions.
    • Premiums can be deducted from super contributions.

    CONS

    • Cover could be less than you want or need.
    • Trauma insurance is not available through your fund.
    • Premiums paid from super contributions mean less money available to invest.
    • Most income protection policies inside super provide for only 2 years’ worth of income protection.
    • You have to be severely disabled to get a payment with TPD.
    • There can be delays in life insurance benefits being paid since these initially go to the fund, which then distributes them to the beneficiaries.  Often a lengthy and frustrating process.
    • Unless you have the option of making a binding beneficiary nomination, you can’t be certain your life insurance payout will go to the people you want it to.
    • Beneficiaries who are not financial dependents will be liable to pay tax on the amount whereas the same benefit paid from a policy held outside super is tax-free no matter who receives it.

    It’s always better to have some life insurance rather than none, but it’s wise to know exactly what your insurance will or won’t pay and in what circumstances.  Ask your super fund about the details of your insurance inside superannuation and remember there is nothing to stop you from taking out cover both through your super and independently if that better meets your needs.