Below is a list of financial matters to consider before the end of the financial year. Do these today and reduce the stress in the last weeks of June.

1. Capital gains tax – it is time to look at your investments to see if you have any capital gains this year. If so then first see if you have any carried forward losses from the previous years which you can use to off set the gains. If not, then take a look at your investments to see if there are any shares you would look to sell to off set these gains. Be careful not to sell a quality share just to book the loss. Finally do not look to sell and buy back the same shares just to book the loss, the ATO will disallow these type of trades. 
2. Concessional Contributions – these are the payments your employer makes to super and any salary sacrifice contributions you make. First make sure you have not exceeded your caps. If under age 50 it is $25,000 per annum, if over age 50 it is $50,000 per annum. Please note there are rules if you are over age 65 so make sure you check with your adviser first. If you have gone over your caps get it sorted before 30/06/2012. If you have not, think about making more deductible contributions to help reduce your taxable income and therefore the amount of tax you pay.
3. Non Concessional Contributions - these are the payments you make from your after tax income. First make sure you have not exceeded your caps. You can make a maximum of $150,000 pa or $450,000 in a three year period. If you have gone over your caps get it sorted before 30/06/2012. If you have not, think about making more non-deductible contributions to increase your super balance in preparation for retirement.
4. Co-Contribution - is a government initiative to help eligible individuals boost their super savings for the future. If you are a low or middle-income earner, you can take advantage of the super co-contribution payment by making eligible personal super contributions to your super fund or retirement savings account (RSA). The government will then match up to $1,000 of your personal super contributions. If you’re eligible, all you need to do is make personal super contributions to your super fund or retirement savings account and lodge an income tax return. The maximum super co-contribution payable, and the way we work out this amount depends on the income year in which you made your eligible personal super contributions, and whether your total income falls between the super co-contribution incomes thresholds for that year.
5. Prepay Interest – if you have an investment loan you may consider prepaying the interest of the 2013 tax year. This will bring forward this expense into the 2012 tax year giving you a larger tax refund. This strategy is best for individuals on high incomes who want to reduce the amount of tax they pay. Note that this strategy only defers tax.
6. Salary Sacrifice – it is time to speak with your employer and review your salary sacrifice strategy. If you are over age 50 and have been salary sacrificing up to your age based limit of $50,000 pa, then you need to reduce this back to $25,000 pa in line with the new caps as per the May budget of $25,000 for everyone.

Always make sure you speak to your adviser first before acting on any of the above ideas. It is important that you act in your own best interest and speaking with your adviser will give you peace of mind that you have not made a mistake.

For more information please contact us on 07 4771 4577. 

I will not be commenting on all aspects of the budget, my comments will be limited to issues which affect your investments and/or superannuation.

1. Superannuation Concessional Contributions – if you are over the age of 50 then your concessional contributions amounts have been reduced from $50,000 pa to $25,000pa. Concessional contributions are those made by an employer and made by salary sacrifice. As such if you are over age 50 and currently salary sacrificing into super you need to review this ASAP. Excess contributions are taxed at the highest marginal rate plus penalties. 
2. ASIC Fees – the fees which financial planners pay to the ASIC have been increased. Anyone who is in business knows that when a fee is increased to the provider of a service such as financial planning then the clients will either pay more or receive less service. You can expect to be paying more for financial advice in the future. 
3. Reduction of concessional tax – contributions to superannuation are tax at 15%, this has now been increased to 30% for individuals who earn over $300,000. This is a major disincentive for high income earners to contribute into superannuation. An interesting note is that politicians who earn over $300,000 such as Penny Wong do not pay this due to the way the government super is set up. Lucky them. 
4. Self Managed Super Funds (SMSF) Audits – the ASIC will be increasing their crack down on SMSF by increasing the regulation around the auditors of SMSF. This will increase the cost of having your fund audited each year. 
5. Eligible Termination Payments (ETPs) – these will now be taxed differently and the ETP tax offset will be wound back. The offset will apply to an income of $180,000 including the ETP, everything over this will be taxed at the top marginal rate. 

There are also a number of changes in regard to your personal and business tax return but I will leave these for your accountant to explain to you.

As you can see from the above changes if you are in your fifties and looking to save for retirement this budget has not done you any favours. It has limited the amount you can get into super tax effectively and looked to increase your costs.

For more information please contact us on 07 4771 4577. 

Below is a link to a story run by the ABC, I recommend that anyone even thinking about buying property in a foreign country read this story. It is a hard fact of life but we often buy the dream and rarely check the facts.

ABC: Aussies lured by dirt cheap US housing market.

I have been approached by spruikers and seen a number of advertisements looking to sell houses in the United States to Australian investors. I cannot understand why anyone would take on this risk.

Lets take a look at this type of investment.

The first thing you need to know is that the Global Financial Crisis started with the US housing crisis. During early 2000 the US housing market was booming due to low interest rates loans and loose lending practices. You may have heard of NINJA Loans (No Income No Job or Assets) this was a term they used for lending in America. As we approached 2006 these lenders started to default on they loans. In America if you default on your home loan you walk away and it is the banks problem.

As more and more people defaulted the investors who owned these mortgage back securities started to realise that their investment was no longer safe and exited the investments. With the price of these investments falling the large banks of America who owned these securities started to fold. You may remember Leman Brothers who went bankrupt and banks such as Fred Mac and Fanny Mae who the government had to bail out.

The banks going broke sent the financial system into free fall and caused what we now know to be the GFC.

To stop this crisis the Government purchased all of these toxic mortgage backed securities, took ownership of the physical properties and are now selling them to real estate agents who are flogging these poor performing assets to international investors who do not know better.

It sounds clever owing a property in another country and buying a house for $64,000. But you must ask yourself, why the Americans are not buying them if the deal is so good.

These US houses are the ones the Americans do not want and many Australians are losing they hard earned money on.

You should never buy an investment you do not understand. Especially in a foreign country. It is a recipe for failure.

The fall out form the GFC is continuing to hit investors as their fear and lack of understanding for the stock market pushes them toward high risk investments such as these properties in America.

Right now the very cause of the GFC is now being sold to unsuspecting, unsophisticated investors and there are now laws in place to protect these investors.

In the meantime the Australian Stock Market has performed well over the past putting on 16% since the lows in August 2011.

All investors need financial advice from an independent qualified and regulated adviser. The advice will cost you less then the commission you will pay to the slick salesman and produce you are far better result over the long-term.

If you know someone who may be looking to purchase a property as described above please pass on this article, you will save them thousands of dollars.

For more information please contact us on 07 4771 4577. 

If you are like me and sick of paying large coporations high fees for the perviliage of looking after your superannuation then a Self Managed Super Fund could be for you.

There are a couple of key point to consider first before rushing in.

1. Do you have at least $150,000 in superannuation combined with spouse?
2. Do you want more flexiability in yor investment choices?
3. Do you want to have more control over your future?

If you have answered Yes to the above questions then a SMSF maybe for you.  Please keep in mind that running a SMSF is not for the faint hearted. There are severe penalities if you breach the requirenments set out in the legislation. So before you start it is a good idea to seek professional advice. Your Financial Planner generally his best skilled to assist you.

According to the Australian Taxation Office, there are four key steps:

1. Establish the trust
2. Elect to be a regulated fund, obtain a tax file number and an Australian business number
3. Prepare an investment strategy
4. Open a bank account

The Trust Deed

The trust deed sets out such matters as the details of the trustees, how they are appointed, their powers and the conditions for contributions and benefit payments. You must make sure the trust deed is dated and properly executed.

All SMSFs must have trustees and in turn all members of the fund must be appointed trustees. Anybody aged over 18 can be a trustee as long as they have not been convicted for an offence involving dishonesty or are un-discharged bankrupts.

As a trustee, you are legally responsible for the actions of the fund. Your responsibilities include filing an annual tax return, lodging member contributions statements and appointing an approved auditor to complete the annual audit.

Elect to be a Regulated Fund

If you wish to access the benefits of being a super fund such as the tax rate of 15% and being able to accept employer contributions then you need to elect to be regulated by the Superannuation Industry (Supervision) Act (SISA) in order to receive concessional tax treatment.

As trustees, you have 60 days to lodge your election with the Tax Office. You do this by completing an application form to register for the new tax system superannuation entity.

On submitting this form, you will be issued with a tax file number and an Australian business number. Once you have elected to be regulated, then the decision cannot be reversed without winding up the fund.

Investment Strategy

This involves formulating a strategy that takes into account risk, return, diversification, liquidity, cash flow, asset allocation and the ability to discharge existing and prospective liabilities. Your licensed financial adviser will be able to steer you in the right direction.

Open a bank account

You must keep your superannuation assets separate from your personal assets so the fund will need its own bank account.  Note that this account can only be used for superannuation investments and expenses. You cannot short-term borrow from this account. If you do happen to accidently withdraw money from this account you have 30 days to correct the mistake or you will face penalties.

We recommend that your Financial Adviser assist with every step of setting up and running the SMSF. In the long-term the rewards will speak for themselves but it is important that you get it right and stay on the right side of the ATO when running the fund.

Once the fund is step up your will also need to;

1. Prepare Annual Statements
2. Lodge annual tax return
3. Have the fund audited once a year

Again by having a professional assist you with these matters will provide the assurance that no mistakes have been made. 

For more information please contact us on 07 4771 4577.

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“Fail to plan is a plan to fail”… good advice given to me years ago. Advice, which I have always followed and which has served me well.

The fact is, most people fail to plan, and as they approach retirement, they make bad decisions in a rush to fix past mistakes.

The 5 Most Common Mistakes 

1. Not getting a second opinion on your superannuation. Just stick it into the employer fund or an industry fund. Your superfund might charge excessive fees, have limited investment and insurance choices or have no adviser to provide you with crucial information about how much and when to invest or how to best structure your investments.  

If you do not hear from your super fund then they are not looking after you.

2. Not having a plan. No financial plan means financial decisions are random, flavour of the month and generally lead to loss of money. While living for the moment and making decisions on the fly may feel good, a lifetime of doing so often results in insufficient savings and an overleveraged lifestyle. It could mean being destitute in retirement.

You can start by identifying where you would like to be financially in retirement and then set small goals. Baby steps.

3. Refusing to scale back. Empty nesters tend to ramp up their spending once the home is paid off and the kids have left. Instead of slowing down and saving, they spend more and save less. That's a mistake, as situations can change unexpectedly and you may not be able to work for another 5-10 years. By not making changes to your lifestyle now, you will likely find it more difficult to scale back your spending when you have no income and have no choice but to cut back.

You can trim back now without too much pain by eating out fewer times a week and socking that money away in savings.

4. Sacrificing your retirement to pay for the kid’s financial problems. Paying their way through University, buying them a car or giving them a house deposit. These activities will leave you short in retirement and reduce the time you have to save for retirement. It is natural to feel guilty about not being able to help your kids more, however, the best gift to your children is to secure your own retirement so you will not need to lean on them later on. You need to find some middle ground regards paying for your children’s lifestyle.

Children need to stand on their own two feet financially; best they start sooner rather than later.

5. Thinking you'll live forever. Many couples' retirement dreams "go up in smoke" when a spouse dies unexpectedly, with the surviving spouse forced to sell the family home, the kids change schools because the family was unprepared for the sudden death of a parent.

To avoid the "double shock" of grieving for a loved one and dealing with a new financial reality, buy term life insurance on both spouses, create wills, and make sure both spouses are informed and ready to make financial decisions in case one dies.

You know that you can buy this through your superannuation to help reduce the impact on your take household cash flow.

Plan to succeed. Take the time to review your financial affairs at least once a year.

Don’t just seek advice make sure you act on it as well.

Planning for retirement can only improve your life. 

For more information please contact us on 07 4771 4577.

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Bonds are very popular right now for investors looking for higher income and capital security.

Over the past 4 years in a falling market, bonds have outperformed direct equities and are therefore seen as a better alternative.

Unfortunately, investors mistakenly think bonds are risk free like term deposits... they are not.

The only guarantee a bond has over equity is the income; the risk of the Bond is directly related to the underlying company. The underlying company is the company, which issues the bond such as NAB, QBE, etc. 

Bonds level of security will range from senior secured debt – senior debt – subordinated debt – hybrids.

The higher the security level, the lower the interest rate.

Like equities, if the underlying company goes into liquidation then the bondholder is at risk of losing their investment.

Bonds have an inverse relationship to the government cash rate. If interest rates goes up the value of the bond goes down and vice versa. Due to this relationship a bond carries risk of loss of capital if you need to sell before maturity.

The upside of Bonds is that your income is guaranteed. The company must pay the income on the Bonds before any other distributions are made. If the income is not paid, then it accumulates.

Bonds are now available to the retail investor. So if you are looking for security and a rate higher then term-deposits, Bonds maybe for you. 

For more information please contact us on 07 4771 4577.

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By Jason Fittler

Self Managed Super Funds (SMSF) has grown in popularity over the past 10 years and has seen a spike in the last 3-4 years. The main reason for this is the poor performance of industry and retail funds. There are a number of advantages of a SMSF but there are also some pitfalls around them. Let’s look at the pros and cons of a SMSF.

Performance

For most of us apart from our house, our super will be our largest asset. However, unlike our house most people do not really understand their super. Most people gauge the performance of their super based on whether it is going up or down and not relative to a benchmark.

The performance of your super is based on a couple of factors including fee, advice, risk, tax and contributions;

1. Fees – never compare on fees alone. If higher fees come with better advice and results, they add value and are worth paying. On the other hand, if you have lower fees but no advice then you are being ripped off. Industry funds normally charge just over 1.2% in fees, retail funds around 2% and SMSF with an average balance of $500,000 will cost around 1.4%. The difference with a SMSF is as the balance goes up the fee percentage goes down, as many of the costs are a fixed price. Unlike Industry and retail funds where the percentage stays the same. If you run the SMSF yourself, then the costs can be as little as $3,500 per annum.

2. Advice – the more advice you get the more it will cost you. But do not discount advice, getting the right advice on salary sacrifice, concessional and non-concessional contributions, age pensions, account based pensions, transition to retirement pensions, retirement age and when and how to invest will save and make you more money than the fees you are paying.

3. Risk – in general the more risk you take the greater the reward. However, you need to know when to take that risk and when not to. During the GFC a fund sitting in cash has outperformed shares and property. However, since 2009 shares have made 11% pa compared to cash at 5%.

4. Tax – how much tax you pay on your investments determines what return you will receive. Always try to make sure that your investments are held in low tax structure. Super has the lowest tax structure at 15% which makes it the best structure to invest through.

5. Contributions – long-term performance requires a long-term commitment. Regular savings will produce a better result overall. The compounding affect of dollar cost averaging over time will ensure a better return over the long term.

Control

A SMSF gives you control over your money. You get to choose where the money is invested, who will provide you advice and the level of risk you want to take.

You can invest directly in shares, property, cash, managed funds or other direct assets such as gold or paintings etc.

Compliance

If you have your own SMSF then there are a number of statutory reports and meetings, which need to be held every year. The compliance is not overbearing but you do need to make sure that you get the right advice, as any breach is costly.

I always recommend that you employ an Accountant or Financial Adviser who deals with these matters on a daily bases to assist you. Sure it might add another cost but it will be less then what it will cost you if you make a mistake.

Compliance is mostly centred around Financial Statements, Audits and Tax Returns. It also covers how you get money into and out of super.

Work

If you have a SMSF you will be required to put some personal time into administration, discussions with advisers, and decisions on what to invest in and reading advice provided. The more you put in the better the result. If you have no interest in your future then a SMSF will seem like a lot of hard work.

Should You Have a Self-Managed Super Fund?

If you have over $250,000 in super combined with your spouse and earn over $80,000pa then you need to at least speak to someone about a SMSF. First up you will start to save on fees and reduce your tax.

I find that people who want to take control of their future, who are looking for a better return and are prepared to put in more effort for a better return are best suited to a SMSF.

I also find that these people generally have more funds in retirement and are able to retire sooner.

If this sounds like you, give us a call and we will walk you through SMSF and see if it is a fit.

For more information please contact us on 07 4771 4577.

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This is the tax, which will only be paid by big business, yet the government has provided rebates to compensate.

On 10 July 2011, the Australian Government announced changes to the personal income tax system as part of the plan for a clean energy future. The tax changes will reform the structure of the personal tax system, making it simpler and more transparent.

From 1 July 2012, the Government will deliver tax cuts to low and middle-income individuals by increasing the tax-free threshold and adjusting the first two marginal tax rates over two phases.

First, the tax-free threshold will rise from $6,000 to $18,200, and the maximum value of the Low-income tax offset (LITO) will be reduced from $1,500 to $445. 

The first marginal tax rate will be increased from 15 per cent to 19 per cent, and will apply to that part of taxable income that exceeds $18,200 but does not exceed $37,000. 

The second marginal tax rate will be increased from 30 per cent to 32.5 per cent, and will apply to that part of taxable income that exceeds $37,000 but does not exceed $80,000.

The following rates for 2012-13 apply from 1 July 2012.

From 1 July 2015, the tax-free threshold will rise from $18,200 to $19,400, and the LITO will be reduced from $445 to $300.

The second marginal tax rate will increase from 32.5 per cent to 33 per cent and will apply to that part of taxable income that exceeds $37,000 but does not exceed $80,000.

The following rates for 2015-16 apply from 1 July 2015.

In real terms what does this mean for the average person?

Below is a table of how these changes will affect people with incomes of $37,000pa, $50,000pa, $80,000pa and $100,000pa. 

As you can see from the above table, for the average Australian there will be little of no benefits from the increase in the tax free threshold, this is mainly due to the decrease in the Low Income Rebate and the increase in the tax rate between $37,000 and $80,000 (being increased by 3% over time).

The people who benefit from this will be low-income workers including casual, part time workers, students and people on government’s benefits.

Middle Australia will pay people whose income is between $50,000 to $100,000 and self-funded retirees will not benefit from the tax savings but will pay for the price increases from the carbon tax.

For more information please contact us on 07 4771 4577.

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PS. By the way, Julia Gillard is paid around $470,000, although she will not benefit from these tax cuts her income is so high that she falls into the elite class of people who will not notice the increase cost of living the carbon tax will bring. Lucky her!

Concessional Contributions to super are the contributions made by the employer, through salary sacrifice or by self employed people who intend to claim the deduction. 

Concessional contributions are taxed at 15% inside the super fund and the payer is able to claim a deduction for the payment.

As at the 01/07/2012 these caps will change.  

• For people under age 50 years old the caps will remain at $25,000pa. 
• For those over age 50 years old the cap will reduce from $50,000 to $25,000pa. 

It is important if you are over age 50 and currently salary sacrificing into super, that you review this with your pay office before 01/07/2012.

If you go over the cap, you can expect heavy penalties from the ATO.

There is current legislation being put forward to keep the concessional cap at $50,000 for those over age 50 with a super balance under $500,000. 

Please note, that this has not been passed as of yet so until it is I recommend that you plan for the drop in the contribution caps. 

For more information please contact us on 07 4771 4577.

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Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. 

The official goals usually include relatively stable prices and low unemployment. 

Monetary theory provides insight into how to craft optimal monetary policy. 

It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. 

Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding. 

Contractionary policy increases interest rates to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values.

In Australia the Reserve Bank employs monetary policy to try and maintain our CPI to around 3%. During the GFC interest rates were lowered to 3.75% or 5 bases points below the current level. 

How does this affect the average Australian?

The major effect is an increase or decrease on the interest rate you pay on your home loan. 

The basic idea is that as interest rates are increased your monthly repayments go up leaving you less money for other purchases. As such you reduce your spending. 

As interest rates go down you have more money to spend. Monetary policy is base on the theory that people will spend more if they have more to spend and vice versa.  

It is not a perfect system and is affected by a number of issues; one of the most important is unemployment. Generally if people do not feel secure in the job they will delay any major expenditure or purchase. 

It also is affected by lending practices of the big banks. At present Australian banks have tightened their lending conditions making it harder to obtain a loan. This will restrict who can get a loan regardless of what the interest rate is. 

At present the Government is very keen to see interest rate decline. 

Why? To stay out of a recession, they need the average Australian to start spending once again. The increase in spending means business makes more profits and in turn pays more taxes. 

Bring on that budget surplus! 

The RBA however needs to be careful. With unemployment rising and banks continue to tighten lending requirements, a lower interest rate may not drive the required stimulus that the government is looking for. 

If history tells us anything Monetary Policy only works until the interest rate gets below the inflation rate. Japan is a clear example of what happens when monetary policy is taken too far. 

Inflation in Australia averages at 3%, below this Monetary Policy will become a major problem for Australia. 

The moral of the story is that Monetary Policy is not the saviour our Government is looking for, it has its limits and we are getting close. 

The facts are that the average Australian is going to have to do it tough for a little while before things improve this is the cost of overspending during the last 10 years.