The 10 percent rule is history! This rule prevented employees making additional tax deductible contributions into superannuation, even though their additional contributions were within the concessional (tax deductible) contributions cap.

Outline of new measures

From 1 July 2017, you may make personal deductible personal contributions into superannuation, provided that you do not exceed your concessional contribution cap. This means that any unused concessional contribution cap amounts can fund insurance arrangements in a tax effective way.

For example, consider the situation where your employer makes a $15,000 contribution into your super during the income year ended 30 June 2018. You now have the capacity to make an additional deductible personal contribution of $10,000 in the 2018 income year. If your insurance premium is $5,000 per annum, you can make a tax deductible personal contribution of $5,000 to a superannuation fund, and have the superannuation fund pay the requisite premium.

How does this benefit you?

(i) Substantial out of pocket cost reduction

Funding insurance through superannuation in this way can substantially reduce the cost of insurance.  Unfortunately, the cost of insurance outside superannuation is generally not deductible for tax purposes. If we structure an insurance arrangement in super funded by deductible personal contributions, we can achieve a substantially different out of pocket cost outcome for you. For example, if you earn $90,000 per annum in 2017/2018, you will have a marginal tax rate of 39 percent. In order to fund an annual insurance premium of $5,000, you must earn $8,197 before tax. Using the insurance in superannuation route, you can reduce the out of pocket cost of this insurance to $5,000 per annum. The out of pocket cost reduction is based on your marginal tax rates. The higher the marginal tax rate, the greater the reduction.

(ii) No erosion of retirement savings

A major criticism is that insurance in superannuation erodes retirement savings. This is certainly true when we are using superannuation balances to fund life insurance costs. However, in this instance there is no erosion of retirement savings. The $15,000 employer contribution made on your behalf is not eroded by this arrangement.

(iii) No contributions tax

Everyone gets confused over the imposition of the 15 per cent contributions tax. The good news is that the above arrangement does not carry a 15 per cent impost.

Your personal concessional contribution is included in the assessable income of the recipient superannuation fund, but there is an offsetting tax deduction within the superannuation fund for the premium paid on life cover. This means that the contributions tax cost is reduced to zero via this tax deduction. Your insurance arrangements in super therefore do not carry any costs in addition to the premium paid.

One word of warning

Beware the notice formalities

Personal contributions into superannuation are presumed to be non-deductible (“non-concessional”) contributions, unless you provide the superannuation fund trustee with a notice of intention to claim a tax deduction. If a notice is not provided, and other associated formalities are not completed within the prescribed time periods, no deduction may be claimed for the contribution in question. This means that you need to observe these provisions meticulously and diligently to ensure that you do not lose this valued tax deduction.

Way forward

The insurance in superannuation landscape has changed dramatically with effect from 1 July 2017.  Speak to your financial planner to ensure your life insurance arrangements give you the best possible outcomes.

For more information please speak with our financial advisors at Leenane Templeton Wealth Management.   Call (02) 4926 2300

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For many, owning your own home or buying an investment property and leveraging off Australia’s attractive negative gearing laws is an appealing wealth creation strategy. However, there are compelling reasons for investors to look beyond the residential home and broaden their investment portfolio to include commercial property.

Certain income vs uncertain growth

Commercial property is an income investment, known for its high yields and steady long term capital growth. These high yields (which comprise the main component of the total return) are usually backed by commercial rent agreements which are locked in for five or more years, creating a greater level of certainty on short to medium term returns. Most commercial leases have contracted rent reviews (generally meaning that the rent cannot drop) directly linked to CPI, fixed rates or market based reviews.

Conversely, residential property is generally considered a high growth and low yielding asset. The potential for capital growth can be high, but ‘punting’ on potential growth returns from property can be fraught with danger, especially when you consider variables like interest rate hikes and changes to foreign investment laws. The low initial yield that Australian residential property investors accept presumes an inversely high level of capital growth. But you do run the danger of buying at the wrong time and experiencing low yield and low growth.

A side by side comparison

* Core Logic RP Data Home Value Index. Effective cash yield takes into account deductions such as: agents fees, advertising, repairs and maintenance, vacancy on renewals, insurance, cleaning/damage.

Commercial property is attractively priced

Whilst the Australian residential market is considered over valued by many industry experts, our valuation analysts shows that Australian Real Estate Investment Trusts (AREITs) are currently attractively priced. AREITs, formerly known as Listed Property Trusts are made up of a portfolio of property assets listed on the ASX that allow private investors to own a portfolio of large properties that would not normally be accessible to individual investors due to their value and size. 

A key metric utilised in our AREIT valuation process includes analysis of a trust’s Net Asset Value (NAV), which indicates that the market is currently trading at a discount of around 8 per cent and suggests material upside potential. AREITs are currently yielding in the range of 5.5-8.5 per cent.

Income. Diversification. Liquidity

A well-managed AREIT portfolio can offer investors an ideal way to access high quality commercial property and enjoy greater diversification in their portfolio. Not only is the risk/reward trade-off superior due to the lower reliance on capital growth, but the lower ongoing costs makes exposure to commercial real estate more accessible and attractive than a residential property investment.

If you would like to learn more about commercial property investments and AREITs, speak with your Leenane Templeton financial planner on 02 4926 2300.

Source: APN Property Group

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Can you now relax in the comfort that everything is under control? Certainly not. Remember, life is dynamic, and you will encounter major milestones on your journey through life. These milestones can be positive and life affirming. For example, you meet and marry the partner of your dreams or you bring children into the world and face the exciting prospect of watching them flourish and develop. The milestones can also be profoundly sad and traumatic, such as the death of a beloved family member. Sadly these events are part of our existence as human beings.

However, in the joy and sadness accompanying these trigger events, we need to take time out to assess the impact of these events on our future wealth and risk profile.

In the case of a forthcoming marriage, you need to spend some time thinking about the distribution of your property in the event of untimely death or disability after marriage. Marriage, for example generally revokes prior Wills. Everyone contemplating marriage should consider how their property should be distributed after marriage, and also discuss with their financial planners whether or not a new Will is necessary. If the marriage is a second marriage, the position is even more complex. In this situation, you need to think of a distribution of property which is fair to the children of the first marriage, and possibly your former spouse.

Many individuals fail to appreciate the limitations of a Will. A Will only operates on death of the testator. It does not operate where a testator survives a traumatic event, such as an accident or stroke, but loses mental capacity. It is preferable for individuals to execute an enduring power of attorney to cater for this contingency. In this document, you can appoint a trustworthy person of your choice to handle your affairs during your period of incapacity. This provides certainty, and reduces the risk of state government interference and delays should you lose the capacity to manage your affairs.

Do not forget, in rejoicing over the birth of a child, to review the impact of the new arrival. It may be necessary to review your insurance needs to provide a source of funding for education and living costs in the event of your untimely death. It is also important to consider whether or not your Will and superannuation beneficiary nominations need updating. There have been instances of newly arrived infants being excluded from death benefits simply because the deceased parent had neglected to update nominations to include the new arrival.

Other trigger events in your life which should prompt you to think of the future include:

• buying a home
• divorce
• an accident or traumatic event
• receiving an inheritance or
• retirement or changing jobs.

There is no substitute for having a well-constructed estate plan. However, you need to do more. Major trigger events will occur as you go through life. When these events occur, it is time to review your arrangements in conjunction with your financial planner, insurance and legal advisers. This will ensure that your estate plan continues to be robust and effective.

Speak with your Leenane Templeton financial planner on 02 4926 2300 to discuss your estate plans.

Source: TAL

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For some investors, the recent market volatility has resulted in anxiety and concern. In this article, we’ve outlined some of the common pitfalls that lead to harmful investment decisions and explain that the most important variable in your investing success – and the only thing you can control – is your behaviour.

Don’t be a Darth Vader driven by emotions

Darth Vader is the ultimate example of someone who started off on the right track, but motivated by emotion ended up on the dark side. Many of us have common emotional behaviours which can threaten our financial security. Fear, greed, indecision and regret are the emotions most frequently linked to harmful investment decisions.

In the case of planning for your future, there is at least one tendency that we’ve all succumbed to on occasion. It’s the feeling of instant gratification that causes people to overemphasise immediate rewards at the expense of long-term needs.

You may recognise your own past decisions in a handful of other frequent behavioural tendencies.

1. Overconfidence in your prowess as market prophets can also be detrimental to making market profits. When markets advance enough to get the casual investor’s attention, many often start to think their success is the result of skill, rather than cyclical luck.

2. Obi-wan Kenobi was smart in his advice to a young Luke Skywalker when he told him, “your eyes can deceive you, don’t trust them." Many investors have a tendency to overweight recent events. It causes misguided decisions at both good times and bad, as fear and greed override long-term prudence. It’s reactive, not proactive, and the response often causes people to buy high for greed’s sake and sell low out of fear.

3. Investors often also fear loss more than they seek gain. Loss aversion makes it difficult to put your money to work outside of a “safe” investment (eg term deposits), even if that perceived safety means inflation may destroy your purchasing power over time. Loss aversion causes people to plan for worst-case scenarios to minimise losses rather than trying to maximise wealth.

How to become a super Jedi and avoid dark side behaviour

1. Determine your risk tolerance.

Are you an aggressive investor? Or more conservative? Can you tolerate wide swings in the market, or are you willing to accept potentially lower returns for lower volatility?

Determining your risk tolerance is one of the first steps you should take in setting out your investment plan.

2. Stay diversified.

The very point of diversification is to limit downside losses in difficult markets. If a market correction happens (such as what we’ve seen recently) and you’re properly diversified, you’ll be less likely to lose a substantial amount – and thus less likely to sell at the bottom.

3. Think long-term.

Shmi Skywalker (Anakin’s mother) was on to something when she said, “you can't stop change any more than you can stop the suns from setting.” It’s good to remember that markets will always change and to realise that in the history of share markets, very few individual events have had a meaningful impact on long-term returns. Not the assassination of President Kennedy, not the fall of the Berlin Wall, not 9/11, not the start of the wars in Iraq and Afghanistan. In each of these cases, the US share market (S&P 500) stood higher two years after the event occurred.

Broadly speaking, in time, markets tend to recover from events that may seem overwhelming in the near-term.

4. Get advice. Find yourself a Yoda.

With bumpy markets, fear is a natural reaction. One of the best ways to deal with it is to seek advice from the specialists. Having a plan in place means you’ll be less likely to deviate from it – even when markets test our emotions with wild swings. Much like Yoda, your financial planner will help to guide you in the right direction. Call us now on 02 4926 2300.

Source: Russell

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Aged care homes charge a range of fees to cover care, accommodation costs and living expenses. These can vary enormously between facilities and from resident to resident. The following are the four basic fees associated with aged care:

• Basic daily fees – Residents in aged care can be asked to pay a basic daily fee as a contribution towards accommodation costs and living expenses. This includes items such as meals and refreshments, cleaning, laundry, heating and cooling. The basic daily fee for all permanent residents who enter an aged care home is 85 per cent of the annual single basic age pension.

• Contribution towards accommodation– There are two types of accommodation charges which may apply:

1 Accommodation contribution – For clients who have some assets, they will be required to make a contribution to the cost of maintaining the aged care accommodation.  This amount will be variable depending on the operation of the means testing arrangements, but will never exceed a certain figure (currently $53.84 per day). 
2 Accommodation payment – Residents of reasonable means (where their means tested amount exceeds the $53.84 per day figure) will be required to pay the accommodation provider’s fixed costs, which are advertised on MyAgedCare.gov.au Figures listed on this site are set by each aged care facility.

Importantly, the client has full control over whether they pay their accommodation costs by a lump sum (known as a Refundable Accommodation Contribution/Deposit), via daily payments (knows as Daily Accommodation Contribution/Payment) or a combination thereof. An aged care provider cannot force the client to make their accommodation payments in any specific way.

• Means-tested care fee – Residents in permanent aged care may be asked to pay a fee in addition to the basic daily fee. The amount payable depends on the residents’ level of assets, their income and the level of care required. This contributes towards the cost of care.  If a client is paying an Accommodation Contribution, they will not be required to pay a means-tested care fee.

• Extra service fees – Some aged care facilities provide extra services which can be offered across the whole facility or to a designated part. Extra service means that the facility will provide the residents with a higher standard of accommodation and/or services. Examples of extra services could be a bigger room, a wider choice of meals or wine with meals. This does not mean that the resident will get a higher level of care, as all homes have to provide the same level of care.

Renting out the family home

Retaining and renting the family home could provide an exemption for social security purposes, provided:
1. the resident is paying a Daily Accommodation Contribution/Payment (even if they have also partially paid a lump sum)
2. it is rented out.

If these criteria are satisfied, the asset value of the family home and the income (rent) will be exempt from age pension assessment.  However, the value of the property will remain assessable up to a cap (currently $157,987.20) for the calculation of aged care fees.  The rental income will also be included for aged care income testing if the person moved into care after 1 January 2016, whilst residents in care before this date benefit from the rental income being excluded in calculation of their aged care costs.

It should be noted the current Government has shown an intention to remove this exemption from social security means testing – however no legislation has been introduced to implement this change at the time of writing.

When retaining and renting the family home, it is important to consider the income tax impact (as the rental income is assessable for tax purposes), the capital gains implications and whether renovations are required.

Get advice

Seeking advice from your financial planner or an aged care specialist will ensure that you can make the right financial decisions. This could make a difference to your or a loved one’s overall quality of life by being able to afford the standard of care that is required. Call us now on 02 4926 2300

Source: IOOF

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The basic function of a trust is to separate control and ownership. The result of using a trust is that assets are protected and profits are distributed in the most tax-effective way. There is no 'one-size-fits-all' type of trust. The trust you use depends on many factors, such as the type of asset or business, financing, income type, marriage status, susceptibility to being sued – just to name a few.

Whilst there are many types of trusts the two most commonly used are:

1. Testamentary trust – set up through a directive left in a will, which takes effect after the will-maker’s death;
2. Discretionary trust – set up by a ‘trust deed’, which commences during the life of the individual(s) establishing the trust. 

Both types allow for income and capital to be flexibly distributed to beneficiaries, while those beneficiaries have no legal entitlement or interest in the trust’s property until the trust deed declares it so.

The trustee is the legal owner of the trust property and is responsible for managing the trust fund on behalf of the beneficiaries. The trustee has a legal duty to obey the terms of the trust deed and to always act in the best interests of the beneficiaries. A trust can operate for up to 80 years in Australia, though it is common to have a clause within the trust deed to allow the trustee the option to wind it up earlier if considered appropriate.

Benefits of using trusts to manage family wealth include:

• Protection of assets: Under certain conditions, family assets may be protected from creditors in the event of bankruptcy or insolvency.

• Cost: For a straightforward structure, the costs of establishment are relatively low. Specialist advice should be sought for more complicated family scenarios.

• Effective family tax management: Income can be directed to members of the family on lower tax rates. It also allows different types of income to be directed to different family members.

• Simplified regulation: Trusts are less complicated than operating a company structure.

• Tailoring: Most modern day trust deeds are flexible in their operation and can often cater for a wide variety of beneficiary classes and investments.

• Geographical flexibility: A trust established under Australian law can operate effectively in every Australian state. Where potential beneficiaries live overseas, specialist advice should be sought to determine the optimal structure. 

Trusts allow considerable estate planning benefits providing more certainty in how your assets will be dealt with after your death. Many wealthy people in Australia use family trusts to gain some peace of mind that their loved ones will be looked after financially when they no longer can, but you don’t have to be rich to benefit from a well-planned structure.

For more information on trusts, contact us at Leenane Templeton on 02 4926 2300

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Increase in the assets test threshold
The assets test threshold is the amount of assets pensioners can hold before their pension starts to reduce under the Centrelink assets test. The table below shows the new thresholds that apply from 1 January 2017.

Assets test thresholds from 1 January 2017

Increase in the ‘taper rate’
The taper rate is the rate at which the age pension starts to reduce when the level of assets increase. From 2017 the taper rate will increase from $1.50 a fortnight to $3 a fortnight. This means the maximum age pension a pensioner can receive will be reduced by $3 per fortnight for every $1,000 of assets they hold above the assets test threshold.

How the changes could affect your age pension
The higher assets test thresholds will generally mean:
• age pension recipients with an asset value ‘around’ the thresholds are likely to see an increase in their age pension entitlement, and
• age pension recipients with assets above the threshold are likely to see a reduction in their age pension – in some cases to zero –as a result of the increased taper rate.

Example
Retired couple Betty and John are both 68 years old and own their home. They have $823,000 in total assets and currently receive a part age pension of $500 per fortnight. If their assets remain unchanged on 1 January 2017, their age pension is estimated to reduce to zero (see Chart 1 and Chart 2).

Chart 1– The effect of a couple homeowner’s age pension as at 1 January 2017 *1

Chart 2 – Projection of future entitlements

Speak to your Leenane Templeton financial planner to find out more about the likely impact of these changes on your entitlements and to explore strategies to help reduce the impact.

The post Changes to the age pension rules – will you be affected? appeared first on Newcastle Financial Planners & Financial Advisors.

Have you ever visited a retail store with the intention of ‘window shopping’, only to be enticed into buying something you don’t really need through an interest-free purchase program?

Whilst having up to five years interest-free to pay off a large purchase may sound too tempting to pass up, as with anything, always remember the age-tested dictum “buyer beware”. In the case of interest-free it’s not as simple as it sounds.

Here’s a common scenario…

Brad and Sharon went window-shopping and fell in love with a deluxe cream leather lounge suite. The price tag was $5,000. They hadn’t planned to spend that much money but the salesperson came to their rescue offering the chance to take the lounge now and pay it off over 48 months interest free.

He explained that there was a $30 set-up fee and a $3.00 per month account keeping fee, but absolutely no interest during the loan period.

Brad and Sharon had always been wary about these promotions – they knew there had to be a catch because businesses have to make a profit.

Where was the profit for the retailer?

It comes from the way the repayment reminder system is set up.

Some finance companies note on each statement that the minimum payment required may not be enough to pay off the loan during the interest-free period. However, the credit provider is not obligated to tell you that the interest-free period is ending (although some good providers do). It’s up to you to work out how much you need to pay every month to clear the debt during the promotion period and pay that amount – or more if you can.

In our example, Brad and Sharon would receive a bill for the minimum repayment due each month, probably around $75. Obviously this wouldn’t fully repay the $5,000 purchase price in 48 months and that’s when they would start to pay real interest – anything up to 30% per annum!

This means that the interest charged at the end of the promotion would be around $1 for every $3 of the amount outstanding. For instance, if you had a loan of $3,000, how would you feel about paying an extra $1,000 interest per year? That’s just not smart buying.

It’s not just interest

Also be careful when agreeing to long periods to pay off a relatively inexpensive item, eg. a $1,000 TV. The monthly account keeping fee will add up considerably over a longer period. Five years (60 months) at $3.00 is an extra $180 in fees, an extra 18% on a $1,000 purchase. Reducing the period of the loan will save you money on these fees.

The moral of this story

If you intend to buy using an interest-free arrangement, check your budget and make sure you can repay the entire purchase price (and fees) before the expiry of the interest-free period. If you do this, interest will be your friend. If you don’t, it will be a very expensive enemy.

For more handy financial planning tips, contact us at Leenane Templeton on 02 4926 2300

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It is incredible that terms created to assist in demographic research for advertisers would become mainstream words in today’s society.

It all started with the post-war baby boom to create the aptly named, “Baby Boomers” through to our present-day youngsters known as the Alpha Generation or “Gen A”. But it seems the generation that has consistently attracted the most attention in recent years is “Gen Y”.

Whether you like this labelling or not, if you delve into how the generations interact with one another when it comes to money, it can be very interesting.

There is no doubt that Generation Y, the children of the Baby Boomers, is the driver of the next economy. Currently aged in their 20s and early 30s, these people tend to be highly educated, live for today and delay marriage, children or a traditional career, until later in life. And, generally speaking, they are not good money managers.

Who’s to blame? The Baby Boomer generation (born between 1946 and 1964) consisted of children born into families recovering from WWII. This generation was the first to create two-income families and with this extra income these parents tended to indulge their children.

“Gen Y-ers” (born between 1980 and 1994) have been referred to as ‘KIPPERS’ (Kids in Parents’ Pockets Eroding Retirement Savings), with the latest Australian census data showing that nearly a third of young adults are still living with their parents.

Extended education and housing affordability are contributing factors, but it usually comes down to the fact that it’s far cheaper to stay at home with parents covering most of the costs, such as utilities, food and other essentials.

Some of the Y Generation are happy for “Bank Boomer” or “Bank Mum and Dad” to prop up their lifestyles and supplement their income. But this is proving to be the downfall in their becoming successful money managers. Many are heavily in debt, with research indicating that 73% hold some form of loan, often HECS debt.

Having grown up in a largely booming economy, Gen Y is often unrealistically optimistic but it’s getting close to crunch time for this generation. Overly generous Baby Boomer parents are closer to retirement age and are becoming more focused on their own future needs. They either won’t or can’t afford to continue supporting their children’s lifestyles. These young adults need to develop budgeting and debt management skills, build their savings and turn their attention to their future, such as buying a home.

If you’re the parent or the child and the time is looming to make some hard decisions, arrange a time to sit down with us to help you prepare for a different future that works for everyone. Call Leenane Templeton on 02 4926 2300.

The post Y it needs to change appeared first on Newcastle Financial Planners & Financial Advisors.

Welcoming a new family member is exciting but with so many aspects of your life changing, when it comes to your finances some forward planning can make the transition so much easier.

Fortunately, babies allow several months to prepare for their arrival and it’s easy to get caught up in the excitement. When making preparations it’s important to have all of Bub’s needs ready; but it’s equally important for Mum and Dad to be financially organised.

It’s wise to conduct a review of your financial affairs as early as possible, even before you start your family. An idea recommended by the Australian Securities and Investments Commission (ASIC) is to draw up a “baby-budget”. Do this by listing all household income and expenses under three columns: before pregnancy, during pregnancy and after pregnancy.

This allows you to see and compare your financial position at the different stages you’re going to experience.

If you have difficulty keeping track of incidental spending you’re not alone – many people can’t account for where their money goes. To help, ASIC has developed an app you can download from its Money Smart website, www.moneysmart.gov.au called TrackMySpend. It suggests using this app for two weeks prior to completing your baby-budget and reports that people are often surprised by the results.

Determine your entitlements

At least one parent will probably take time off work and the potential reduction of household income can be daunting. Understanding your support entitlements upfront can relieve some of the worry.

The federal government offers eligible parents up to 18 weeks Parental Leave Pay. Centrelink has a Paid Parental Leave comparison estimator on its website, www.humanservices.gov.au. This tool will estimate your entitlement and enable you to determine the best option for your family.

If you decide to return to work after Bub arrives, you may qualify for government assistance with the cost of childcare. The Department of Human Services can provide information about your eligibility. See www.humanservices.gov.au.

Planning = less stress

People often set up a savings strategy for key life events like buying a home, a major holiday or retirement. Having a baby is more than a key event – it’s life-changing – yet few people consider saving for it.

Your financial adviser can assist you in creating a practical household budget, and set up a savings plan that will help cover large or unexpected costs. At this time you should also consider life insurance to protect your family’s future.

Planning ahead will provide peace of mind and place you in the best possible position to welcome the newest member of your family. For more advice on forward planning, contact us at Leenane Templeton on
02 4926 2300.

Sources:
www.moneysmart.gov.au  Having a baby
www.humanservices.gov.au  Parental Leave Pay
www. humanservices.gov.au  Compare your payment rates

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