There are many reasons you might purchase a home later in life: perhaps you’re starting fresh post-divorce, or you own a home and have decided to buy a second property to help out your kidults.

Regardless, it comes down to the same thing: knowing what you’re getting into and being ready.

Buying later presents opportunities that younger house-hunters overlook as proximity to schools and playgrounds isn’t so important.

On the flipside, if later-life home-ownership figures in your future, you should be working with your financial adviser now – and here’s why.

Time

Our population is living and working longer. We can save more towards a home with longer to pay it off. But really, do you want to be stuck with mortgage repayments chewing through your income – after retirement?

What if you purchase just before retirement? Servicing a loan is relatively easy while gainfully employed, particularly with record low interest rates. Bad news is they won’t stay low forever. Rising interest combined with reducing income can quickly turn the dream into a financial nightmare.

Job security

According to the Australian Institute of Health and Welfare (AIHW), in the period 1984 – 2014, labour force participation of Australians aged 55 – 64 grew from 41% to 64%. Good news. The Australian Bureau of Statistics (ABS) for the period 2002 – 2010, reports “declining levels of full-time employment” among the same age group indicating greater numbers of older Australians working fewer hours.

Not so good. With fewer full-time job opportunities for those aged over 55, if you’re still considering a pre-retirement mortgage, be aware of:

Compromises

If your retirement goals include travel, hobbies or even a weekly round of golf, servicing a mortgage may overburden your budget, forcing you to cut back your spending and lifestyle.

Regardless of home ownership, the Australian Centre for Financial Studies (ACFI) reports that 20% of retirees’ average household expenditure exceeded income, leaving no alternative but to draw on savings or liquidate assets just to live.

Now, throw a mortgage into the mix …

Ongoing maintenance

Be realistic about your budget and your shopping list. Consider what mod-cons you genuinely need. And size does count! If, down the track, you can’t physically maintain your home, could you afford gardeners, cleaners, etc, while repaying a mortgage?

Superannuation

Ah, that warm glow lighting our path to retirement. You could use your super to buy a house but what will you live on? The age pension? Will that fund your desired lifestyle?

To quote the ABS, “… key factors will be people’s plans as they get older, including when and how they intend to retire and what factors will influence their decisions.”

We don’t always agree with government reports, but in this it’s spot-on.

Our longer life expectancy means retirement planning is more important than ever. Talking with your financial adviser as early as possible will help you set up a strategy for living – to retirement and beyond!

For more information about purchasing a property or retirement strategy, please call Leenane Templeton on (02) 4926 2300 or email success@leenanetempleton.com.au

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The property market is one asset class that is showing signs of recovery following the severe economic downturn caused by the Global Financial Crisis (GFC). Most people have a property investment somewhere in their current portfolio – or would like to. Sometimes this is simply through “the great Australian dream” of owning your home, or maybe through an investment property. In other cases, investing into property may be in a more indirect way, such as via listed property trusts and other collective investments.

Characteristics
Since 1980, property has produced returns similar to the share market, both achieving an average of 14% pa including capital growth and income. However, in comparison with shares, property tends to be less volatile. Tax advantages may also be attached to some of the returns from property. It is a popular investment for negative gearing, as banks will lend a high proportion of the purchase price. Interest expenses in excess of the income generated by the property can be claimed as a deduction against other income. 

Although both the property and share markets collapsed during the GFC, property generally operates on a different cycle to the share market. This allows for effective diversification, and therefore a reduction in portfolio risk. The tangibility of property appeals to many investors, and the willingness of banks to lend against property allow it to be used in an investment gearing strategy. 

Even so, property investment is not risk-free. As with any investment it is important to differentiate between cost and value. The long duration of the property cycle makes the timing of an investment a more critical factor than with other asset types, and property is best viewed as a long-term investment. Investors also need to consider the relatively high costs of buying and selling property as part of the equation. 

Finding value
There is a wide variety of property available, from residential to commercial. Some are relatively low risk while others are high risk, speculative investments. It can also be difficult to obtain all the information one might require to make a fully informed investment decision. Sellers don’t usually tell buyers about the rotten floor beams or the dodgy wiring, so purchasers of property always have to keep the maxim ‘buyer beware’ top of mind. 

This isn’t always a bad thing. It creates opportunities for astute buyers who can obtain an information advantage. One BHP share is identical to another, but each property is in some way unique. Those who take the time to understand property can do well from this asset class.

And then there’s tax
The tax issues that arise from property investment can vary greatly, depending on how your investment is made and the activities that take place whilst you hold it. For example, if you have invested in a property development, a number of complex tax issues arise such as GST and whether profits are taxed as income or capital gains. Make sure that you seek appropriate advice as early as possible to ensure you are paying the correct type and amount of tax.

Is property right for you?
Many property promoters pitch their offerings indiscriminately, which sometimes results in unhappy investors. As with any investment, a property purchase must meet the specific needs of the investor. Take the time to make your decision supported by unbiased advice.

For more information, contact us at Leenane Tempelton on 02 4926 2300 or email success@leenanetempleton.com.au

The post A word about property appeared first on Newcastle Financial Planners & Financial Advisors.

The months seem to fly past in a blink of an eye with another new financial year on the horizon again – it’s almost another financial year gone!  

Almost every year we see dramatic changes to our superannuation system, interest rates, the stock market and the property market.

All of this emphasises the need for regular reviews of your financial strategy and your investment portfolio. A full review should take place on an annual basis and cover such topics as:

• Have your financial objectives changed as a result of changed business, job or family circumstances?
• Are you on course to achieving your objectives in the planned time frame or are adjustments needed?
• Has there been new legislation or taxation changes which you need to factor into your plan?
• How have your investments performed and are they appropriate for current market conditions, or would you benefit from rebalancing your portfolio?
• Are you adequately protected against changing financial and personal risks?

If you’re looking after your own investments, it might be time to ask a professional adviser to take a look at your strategy and portfolio to ensure it’s continuing to meet your changing needs now and into the future.

Call (02) 4926 2300 or email us. 

P;ease contact the team at Leenane Templeton to discuss having a financial review and how we can help you! 

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The end of financial year is a good time to think about your capital gains and losses for the year.

Timing and planning are everything when it comes to minimising your CGT bill and making the most out of your investment returns.

Capital gains tax (CGT) is incurred when a taxpayer disposes of an asset, for example, commercial and residential property, shares, units in unit trusts or collectables. If the asset sells for a price that is higher than the purchase price, the difference is considered to be a capital gain. Where an asset is sold at a loss (for a smaller amount than it was originally purchased), a capital loss is incurred. Capital losses can be used to offset capital gains in a financial year. It is also possible for taxpayers to carry capital losses forward to subsequent years if they do not have capital gains against which they can deduct them at the time.

Here are some strategies to reduce your CGT liability:

Dispose of poorly performing assets before the end of financial year

In years where you have incurred a significant capital gain, you may care to consider disposing of another asset that will yield a capital loss.

In the event that an underperforming asset will not have a positive turn around, disposing of it before the end of financial year will allow you to use the capital loss to offset your tax liability from any capital gains.

Defer disposal to a lower-income year

Instead of disposing of an asset that you expect to make a capital gain on this year, you may care to consider postponing the disposal if you expect to have a lower taxable income next year. For example, you may be planning to take some unpaid leave or have disposed of multiple assets in the current year.

Plan for CGT events in advance

If you are planning on making any new investments or disposing of assets, it always pays to plan your CGT strategy in advance. Careless timing can cost you a huge amount on your tax bill.

Carry forward your capital losses

You can carry forward capital losses from previous years to offset capital gains in the current year. The real offset value of capital losses diminishes, so if you have incurred a significant capital loss you may care to consider bringing forward the sale of an asset that you expect to make a capital gain on.

Our accountants are here and ready to help with any questions you may have regarding capital gains.

Call (02) 4926 2300 or email us.

If you would like to discuss capital gains at end of financial year please do not hesitate to give the team at Leenane Templeton a call.

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In this article, we look at the liquidity risk associated with holding fixed property in SMSFs, as well as some of the factors to consider when investing in these types of assets.

Fixed property holdings in SMSFs can have distinct advantages:

– Capital appreciation of the property is taxed at an effective rate of 10 per cent, with a reduction to zero if the realisation occurs during the pension phase.
– Over recent years, the progressive relaxation of borrowing restrictions inside SMSFs also means that SMSF fixed property investments can be geared in certain circumstances – an attractive prospect for many investors.

Potential liquidity risk – and solution

The fallout from holding illiquid assets in an SMSF can be severe if a member dies or becomes totally and permanently disabled. This is because, in many cases, the property assets may need to be liquidated in order to pay the required benefit to the member or their family from the fund – which could not only take time to resolve, leaving the member and their family in limbo, but a ‘fire sale’ could result in a lower than market price for the property.  

Liquidity protection insurance enables a benefit to be paid to the member, or their beneficiary in the case of death, while enabling the SMSF to retain the property.

However, the question often arises about why conventionally structured life insurance would not be appropriate. In this situation, life insurance payouts are simply provided to policy holders or their estate – no provision is made for other members of the SMSF. 

Thinking about compliance

Liquidity protection insurance is often an attractive option for SMSFs holding property. However, this is a relatively new area, and there is uncertainty about the best way of structuring these arrangements – particularly around the compliance and tax requirements.

It’s important to understand how liquidity protection insurance is seen under the Superannuation Industry Supervision Act (1993), best known as SISA.

When considering liquidity protection insurance, the following compliance issues should be considered:

– Does it meet the sole purpose test? Liquidity protection insurance lies within the parameters of both the core and ancillary purposes, and therefore should meet the sole purpose test requirements.
– Does it meet investment strategy requirements? Liquidity protection insurance will usually contribute to satisfying these requirements, which obligate trustees to address liquidity issues when setting investment strategies.
– Does it meet the requirement to allocate premium expense on a fair and reasonable basis?  While this can be a grey area, age and health issues of the members need to be discussed openly and objectively up-front.

Equally, in the event of a claim, payments must be allocated on a fair and reasonable basis. To avoid possible dispute, the allocation methodology should be agreed and documented.

Tax considerations

It is necessary to consider tax deductibility of the premiums, the tax treatment of the claim proceeds, and whether or not the strategy could create reserves which may be treated as taxable contributions when appropriated for the benefit of members.

Action plan

This 10 step guide may help SMSF trustees deal with liquidity risks:

1. Complete an asset and liability review.
2. Consider other strategies to eliminate liquidity risk – e.g. payment of benefits in pension form only.
3. Identify the cover required if the insurance option is chosen to mitigate liquidity risk.
4. Select the methodology for allocating premiums and claims proceeds.
5. Review the SMSF trust deed to ensure that insurance in the proposed format is permitted.
6. Brief the SMSF auditor on your proposal.
7. Hold the trustee meeting to approve the strategy. Ensure that the outcome of this meeting is minuted.
8. Ensure that the statement of advice (SOA) prepared by your planner is consistent with other documentation.
9. Once agreed, ensure that the insurance is properly disclosed in annual member statements.
10. Review the insurance annually and update it where necessary.

Source: TAL, October 2014

For more information call Leenane Templeton on (02) 4926 2300 or email us.

If you wish to discuss SMSF liquidity and liquidity risk in SMSF please contact our specialist advisors.

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Assets available to an SMSF include property, as well as shares and managed funds – however the usual superannuation rules continue to apply where the fund is purchasing an asset from a related party.

Some SMSF borrowing strategies

There are a number of strategies that enable individuals to take advantage of the rules.

Increasing the asset base.

Contributions rules place a limit on the amount of contributions that may be contributed to a fund. In addition, an investment in the SMSF borrowing arrangement is generally accounted for as net of liabilities. Where members are in a position to contribute assets such as property or shares this has the effect of enhancing SMSF borrowing.

Increased contributions.

Members may be able to transfer assets that they own into a fund, taking advantage of the borrowing rules. Members are then able to act as Trustee of the borrowing trust as well as the lender. The repayments made by the SMSF may then be contributed back into the fund by the member under the normal contribution rules.

Costs of finance

Financial products are readily available by lenders to take advantage of the rules allowing funds to borrow for investing.These products take into account the rules that only allow a loan to be secured against the investment it is funding, not total fund assets.

As a result of the higher risk profile, loans may attract a higher interest rate and require a deposit significantly higher than usually occurs with other standard investment loans. Trustees need to factor these risks and costs into their borrowing strategy.

The loan and the lender

SMSFs are able to use anybody as a lender, that is, they are able to obtain the loan from a bank, or other lending institutions, a member themselves, their business, a family member, company or trust. However while the law does not prevent the lender from being a related party, SMSFs must satisfy the sole purpose test and comply with existing investment restrictions such as those applying to in-house assets and prohibitions on acquiring certain assets from a related party of the fund.

Contact Leenane Templeton's professional staff to discuss how we can help you.

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