Completing a thorough estate planning review is crucial for your peace of mind as well as the comfort and wellbeing of loved ones. It is also much more than just making a Will. Depending on your current financial and family situation, you might also need to review your superannuation nominations, discretionary trust deeds, any company documentation and powers of attorney.

Death is not something we like to think about but a little planning can save a lot of heartache for loved ones left behind. H ere are some important areas to consider with examples and possible solutions.

Allocation of your super

In most super funds, the trustee decides who gets your super when you die. Legislation requires the fund to pay your dependants or your estate.

Example

Mary, a divorcee wants to leave money to her children from a first marriage but not to her ex-spouse. She cannot be sure that the trustees of her super fund will not apportion part of her superannuation death benefit to her former partner.

Possible solution

Most super funds allow you to make a Binding Death Benefit Nomination that will provide directions to the superannuation fund trustee as to how your death benefit is to be paid. This ensures your super is paid in line with your wishes. Talk to your financial planner to ensure your super benefit nominations are in order.

Providing money for your dependants quickly

Upon death, your Will needs to be located and, depending on your assets, may need to be proven by the courts in a process called ‘obtaining probate’. This process can take many weeks and in the meantime, your estate assets may be frozen.

Example

David, the principal income-earner dies. David’s family know that he has recently created a Will, however, they are unable to find it and other documents that are needed for both the funeral and to produce for the courts. This is a common situation that causes great distress. In addition, an estranged child challenges the contents of the Will and delays distribution of assets. In the short term, the surviving spouse may have insufficient money to live on, as well as a high level of stress at a time when they are least able to cope with it.

Possible solution

Ensure you have all the necessary records in a safe place. Always tell the executor of your estate where to find this information in the event of your death. To ensure your spouse is protected, it may be beneficial to hold some funds in joint names with your spouse that can be accessed quickly if you were to die suddenly.

Has something in your life changed recently?

Regularly reviewing and updating your Will helps to reduce or even eliminate problems that may arise as a result of changes to your personal circumstances which can affect your Will and even invalidate it.

There are many events that can trigger a need to review your Will, such as:

• marriage – which may revoke your current Will

• divorce – which does not revoke your current Will but does revoke any gifts made under a Will to the ex-spouse

• a change in the family, such as birth, death and marriage

• a change in a relationship, such as children entering or leaving de-facto arrangements

• the death of a person who plays a key role in the estate plan such as an executor or trustee.

Tax and super legislation is complex. Professional advice can help ensure your beneficiaries receive their entitlements in the most tax-effective manner.

An estate planning specialist can help you minimise the stress on your family and ensure your estate and wishes are well protected.

Speak to your Leenane Templeton financial planner to discuss your estate planning solutions on 02 4926 2300

Source: IOOF

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Self-managed super funds (SMSFs) are the largest and fastest growing super sector in Australia and for many good reasons. But before you start an SMSF, it’s important to weigh up both the advantages and disadvantages and consider seeking advice to determine whether an SMSF is right for you.

The advantages

SMSFs can offer a number of features and benefits generally not available with other super options.

More investment control

You can establish your own investment strategy and directly control where and how your super is invested.

More investment choice

You can select from a wider range of investments including all listed shares, some unlisted shares, residential and business property, and collectables such as artwork, stamps and coins.

One fund for the family

You can set up a fund for yourself and up to three other people and consolidate your super balances. This could enable you to invest in assets of higher value than if you set up a fund with fewer members, achieve greater estate planning flexibility, and reduce fund costs.

Borrow to make larger investments

Your SMSF could make a larger investment in assets such as shares and property by using cash in your fund and borrow the rest.

Tax savings

With SMSFs you can take greater control over the timing of tax events, such as, starting a pension without triggering capital gains tax when your superannuation assets move into pension phase. You may also have the option of transferring assets that you own into your SMSF.

Greater estate planning certainty and flexibility 

You can nominate who you would like to receive your super when you pass away, without having to meet some of the constraints that apply to other super funds.

The disadvantages

While an SMSF can offer greater opportunities to take control of your retirement savings, there are some potential disadvantages you should also consider.

Higher costs for lower balances

SMSFs generally only become cost-effective if the fund has $200,000 or more invested. This is particularly true where you outsource and pay for most or all of the fund administration.

Greater responsibility

When you set up an SMSF, you and any other fund members will generally need to be trustees (or directors of the corporate trustee) and will be responsible for meeting a range of legal and other obligations.

Harsh penalties for breaches

The Australian Tax Office has the authority to impose various treatments to deal with SMSF trustees who have breached super laws. These include:

• requiring trustees to complete certain educational requirements within certain timeframes
• disqualifying an individual from acting as a trustee or director of a corporate trustee
• imposing significant administrative penalties on individual trustees and directors of corporate trustees of up to $10,200 per breach
• applying through the courts to impose civil and criminal penalties, and
• giving notice to a trustee to freeze the SMSFs assets where it appears that their conduct is likely to adversely affect the interests of beneficiaries.

Time consuming

You will need to have enough time, knowledge and skills to manage your own super and meet your legal and other obligations.

You should seek professional advice or guidance from your financial planner when deciding on the best superannuation solution for you. It is recommended that you also seek advice from a registered tax agent to determine the tax implications before setting up an SMSF.

Call (02) 4926 2300 or email us. 

To speak to our expert SMSF team about whether an SMSF is right for you, please call Leenane Templeton today! 

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When most people think about financial planning they tend to focus on the wealth creation side of things, but often forget about the wealth protection. Building a financial plan without adequate insurance is like building a house on flimsy foundations. 

Comprehensive insurance cover can be a significant expense; however these costs can be made more affordable by taking advantage of the tax deductions that apply to specific types of insurance, and to some methods of implementing insurance. 

Income protection

Due to the high frequency of claims, premiums for income protection insurance can be quite high. However, they are tax-deductible, so the cost is discounted at the same rate as the policy holder’s marginal tax rate. For example, someone on a marginal tax rate of 39% (including 2% Medicare levy), paying a premium of $1,000 would have an out of pocket cost of just $610, after the tax deduction is claimed. 

It needs to be remembered, however, that any benefits paid under an income protection policy are treated as assessable income, and therefore subject to tax. 

Life insurance

While the premiums for life insurance are not normally tax-deductible to individuals, there is a simple way to gain a tax benefit. Superannuation funds can claim a tax deduction for the life insurance premiums they pay. So by taking out life insurance via a superannuation fund, the end result is the same as if the premium was deductible to the person taking the insurance. 

Using superannuation to provide life insurance has another potential benefit. As premiums are paid by the fund, it reduces the pressure on household cash flow. This may reduce the ultimate superannuation payout, but if the savings made outside of superannuation are used wisely, the overall financial position should be improved. 

The proceeds of life insurance are not generally taxable. However, a death benefit paid from a super fund to a non-dependant may be subject to some tax. 

Total and permanent disability insurance (TPD)

TPD insurance is usually attached to life insurance. From a tax perspective it’s treated in a similar way, so implementing it via superannuation is usually the most tax-effective way to do it. 

Trauma insurance

Trauma insurance pays a lump sum if the policy holder suffers a defined medical condition or injury. It cannot be implemented through superannuation. Premiums are not tax-deductible, and benefit payments are not subject to tax. 

As with investing, the main focus on insurance shouldn’t just be on saving tax. It is a protection tool. Always talk to a qualified adviser to ensure you get the appropriate level of cover, and the most tax effective way to implement it. 

Our risk management and accounting teams are ready to help. 
Call (02) 4926 2300 or email us. 

If you have any questions in relation to the tax advantages of insurance please contact our team at Leenane Templeton today!

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Whilst there were no significant taxation proposals in this year’s Budget, the Government has made some relatively conservative changes to FBT exemption and employee share schemes.

FBT exemption for electronic devices

To help reduce red tape, the Government will expand the Fringe Benefits Tax (FBT) exemption for work-related portable devices from April 1 2016. Small businesses with an aggregated annual turnover of less than $2 million that provide employees with more than one qualifying work-related portable electronic device will still be able to access the exemption.

Additional items that have substantially similar functions as the first device, will still be allowed on the condition that they are used to perform different tasks. Small business employees will benefit by staying connected in the digital economy.

FBT: meal and entertainment

A $5,000 grossed-up cap will be introduced for salary sacrificed meal entertainment and entertainment facility leasing expenses for employees of not-for-profit organisations from 1 April 2016. The cap previously sat at $30,000, allowing charities and other similar groups to compete with the private sector for the attention of prospective employees. Not-for-profit employees can now salary sacrifice meal entertainment benefits without reporting them. In addition, their employers will not have to pay fringe benefits tax.

Employee share schemes

Expanded tax concessions for employee share schemes from 1 July 2015, will allow employees to share in and gain from the future growth and success of the business.

The new start-up concession ensures employees are not liable to pay tax up-front until they are able to grasp a benefit from the share options.

Other measures

The Government tightened access to pension payments as a result of decreases in the assets test. The maximum value of assets outside the family home a couple can hold while still qualifying for a part pension will be reduced from $1.15 million to $823,000. Pensioners with substantial private assets will have to draw on slightly more of their assets to maintain their current income levels of retirement.

The asset test taper rate will be increased from $1.50 of pension per fortnight to $3 of pension for each $1,000 of assets over the relevant assets test threshold from 1 January 2017. It will allow those with moderate assets to receive a full or increased pension.

Call (02) 4926 2300 or email us.

Our accountants are ready to answer any questions you may have in relation to your personal tax matters and the 2015 federal budget. Call the team at Leenane Templeton today!

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June 30 is fast approaching but there’s still time to consider strategies to help you build your wealth and reduce the amount of tax you pay.

Pay interest in advance

Borrowing to invest may be a tax-effective means of wealth accumulation. This type of strategy lets you purchase property, shares, or any other asset that generates assessable income, by bringing forward next year’s interest cost, and allowing you to claim a tax deduction for those costs this financial year.

Make a concessional contribution to super

If you are self-employed, or earning less than 10 per cent of your income from an employer, you can generally claim a tax deduction for super contributions up to $30,000 (or $35,000 if you were aged 49 or over on 30 June 2014). The Federal Government also pays a 15 per cent low income superannuation contribution of up to $500 on concessional contributions made by individuals with a taxable income of less than $37,000.

Protect your income and save on tax

Income protection insurance not only pays you a monthly benefit of up to 75 per cent if you become unable to work due to illness or injury, but also allows you to pre-pay your premiums and claim a tax deduction. If you pay your premiums in advance, you can claim a tax deduction for next year’s premiums in this financial year.

After July 1, consider the following:

1. Have your financial goals changed?

Your goals can change greatly from year to year. Major life events such as serious illness, the birth of a child, or the death of a parent or spouse can all result in significant changes to your wealth management goals.

2. Prioritise your goals

It’s important to be realistic about how soon you can accomplish your financial objectives. For example, reducing any personal loans is likely to be a short-term goal, setting funds aside for your child’s education could be a medium term goal. Paying off your mortgage and providing for retirement are long-term goals.

3. Be investment savvy

Make sure that your investments support your appetite for risk and your objectives. A tailored analysis will address your individual risk preferences. Regular portfolio reviews with your planner are essential to determine any sell-downs or top-ups that would benefit you.

4. Do you need to change your financial strategy?

Your financial planner has the tools and knowledge to create projections that take into account changes to your goals, risk level, and the timeframes for achieving them. These projections will help you to see where your plans for savings, assets or investment contributions may need updating.

Speak to your financial planner to discuss your end of financial year strategies.
Call (02) 4926 2300 or email us.

Our team of qualified and friendly accountants are ready to help with any questions you may have in relation to your end of financial year preparation.

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Every year, the ATO announces a number of compliance targets that will be subject to additional scrutiny.

It always pays to be aware of these focuses, as non-compliance is, more often than not, the result of an honest mistake as opposed to willful deception. Unfortunately, an honest mistake can still cost you dearly in penalties and/or interest on late payments to the ATO. In the 2014/15 financial year, the ATO will be focusing on:

Personal technology

Deductions claimed for personal technology items such as smartphones, tablets and laptops. Taxpayers who are claiming deductions on such items should ensure that they have adequate documentation to prove the breakdown of personal/work use (for example diary entries). You are only able to claim a tax deduction equivalent to the portion of the use that is professional.

Cash economy

The ATO will be aiming to identify businesses that operate off the books by failing to accurately record their cash transactions. This may involve paying employees in cash (and therefore avoiding minimum wage requirements and the super guarantee) and/or underreporting the business’s profits, thereby reducing the overall tax liability.

GST compliance

The GST compliance program involves ensuring that all businesses that are required to register for GST have done so (that is all businesses with an annual turnover in excess of $75 000). The accuracy of BAS reporting is also under scrutiny.

Travel costs

Taxpayers claiming large deductions in the form of work-related travel costs will be subject to additional examination from the ATO this year. In particular, the tax office has warned that it will be focusing on the validity of deductions claimed for the transportation of bulky tools and equipment.

Call (02) 4926 2300 or email us. 

To speak with one of our expert accountants about upcoming ATO compliance targets please do not hesitate to contact us here at Leenane Templeton. 

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Effective planning and preparation is critical for all taxpayers as the end of financial year approaches.

The good news is that your tax professional is here to support you, so you don’t have to do all of the heavy lifting yourself.

This is the perfect time of the year to seek advice from your accountant – maximise your tax savings for 2014-15 and start planning fresh for next year.

To talk to our accountants about getting ready for year end give our office a call on (02) 4926 2300 or email us.

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Negative gearing is arguably the most generous tax break available to Australian property investors.

Whether you’re an established property investor or contemplating purchasing your first investment property, you may care to familiarise yourself with the way that negative gearing works.

A property is considered to be negatively geared if the owner has taken on debt in order to acquire it and the net rental income is less than the costs of maintaining the property (including the interest paid on the loan).

Investors with negatively geared properties are able to claim the shortfall between their associated costs and rental income as a deduction against their total taxable income.
In the event that your taxable income is insufficient to absorb the difference, then the remaining deduction can be carried forward to the next financial year.

Many Australians would not be able to enter the real estate market without taking on some form of debt. While taking on debt allows you to make investments that would otherwise have been beyond your reach, it also ramps up your risk profile because you will have a greater amount invested. Furthermore, if your investment property is underperforming, you remain responsible for making loan repayments.

Obviously, it is preferable to have an investment property that is positively geared, meaning that rental income covers loan repayments, interest and routine maintenance. Paying tax on a profit is typically considered to be a better option than minimising your tax liability while making a loss. Investors who have long term negatively geared properties are generally hoping to incur long term profits from capital growth.

Even if you think that your investment property will be positively geared, understanding the benefits of negative gearing can give you a little peace of mind. You know that if the property does lose money, you will be able to offset the loss against your taxable income.

When a property is positively geared, the income earned is added to your total taxable income. As such, it is taxed at your marginal tax rate. The same applies to any capital gain that you make from selling a property.

Our team of accountants are at hand to help with any questions you may have in relation to negative gearing and property investment.

Call (02) 4926 2300 or email us.

To discuss negative gearing for property investors call Leenane Templeton.

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When relationships break down, child maintenance payments are often made from post-tax money. If this is a position you are facing, perhaps you might consider a Child Maintenance Trust.

According to the National Centre for Social and Economic Modelling (NATSEM), the cost of raising two children is estimated at $812,000. For those in the 45% tax bracket, every $25,000 in child support costs nearly $50,000.

Just as alarmingly, children receiving payments of ‘unearned’ income, such as support payments can attract tax rates as high as 66%.

When a Child Maintenance Trust (CMT) is established, investment assets placed into the trust generate income toward meeting child maintenance obligations. CMT income is taxed in the child’s hands at adult rates meaning that children receiving benefits from CMTs can claim the tax-free threshold, currently $18,200.

Before a CMT can be set up certain conditions apply including:

• a marriage breakdown occurring,
• both parents consenting to the trust terms,
• the contributing parent must earn in excess of the income tax threshold.

Importantly, trust assets come under the child’s control at a date pre-determined by you, for example, when the child turns 18.

A clear advantage is that CMTs protect assets so should you become bankrupt or lose your job you can continue to meet your child support obligations.

Case study – Emily

When Emily was 13 her parents divorced. Emily lived mainly with her mother and her father’s child maintenance obligation was set at $1,000 per quarter. After seeking financial advice, Emily’s father considered a Child Maintenance Trust. A comparison of Emily’s financial situation was used to determine whether a CMT was appropriate.

If Emily’s father invested a lump sum of $30,000 at 4%pa, regular quarterly drawdowns of $1,000 could be made comprising $300 income and a return of capital (return of capital is tax free).

Taxed at adult rates, the CMT income would fall below the tax-free annual threshold of $18,200 therefore no tax would be payable.

Emily’s father set up a CMT that would vest in her name when she turned 18. If Emily got a part-time job while she received these maintenance payments, her wages would be added to the payments and provided the total did not exceed the annual threshold no tax would be payable.

Outside of a CMT, Emily’s support payments would pay tax at minor rates. As her payments would exceed $1,307 pa, they would be taxed at the flat rate of 45% ($1,350).

Wages attract adult rates but would fall beneath the tax-free threshold.

Note: this case study does not consider variations in child support payments or inflation.

Sources:
www.smh.com.au Childcare, schools lead rise in cost of raising children (Stephanie Peatling 23 May 2013)
www.dobbrickfinancialservices.com.au Divorcing with children? Consider a child maintenance trust
www.ato.gov.au Tax rates applying to the income of minors
www.civiclegal.com.au Child maintenance tax detail

This has been a very brief introduction. It’s worth talking to your financial adviser about how Child Maintenance Trusts might fit into your overall financial strategy as they are not for everyone.
Call (02) 4926 2300 or email us.

Disclaimer

Our award winning and expert staff are at hand for any questions you may have in relation to a Child Maintenance Trust or any other financial planning matters you may have. Call the team at Leenane Templeton today!

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Every parent wants the best for their child, so if you are in a position to invest money specifically for your children’s future, you should follow the same approach as if you were investing personally.

Start with clearly identifying why you are investing, set a goal and put the strategy into place. A range of products is available depending on your attitude to investing and the investment time frame. For short-term goals, a high interest earning savings fund may be appropriate and for medium to long-term goals, managed funds and direct shares could be suitable. For longer term goals, a geared instalment program may be appropriate.

One taxing question is in whose name to hold the investment. Children are taxed at penalty rates on unearned income. They can receive income of up to $416 in 2014/15. For example, an investment of $5,942 earning 7% pa this financial year would be tax-free if held in the child’s name.

Other options to avoid the high rates of tax include:

• Investment bonds where income is reinvested and the life office pays tax at 30%. The proceeds of the bond are tax-free after 10 years and the child can be named as the beneficiary.
• Investing in the name of the parent on the lowest marginal tax rate. A parent who has no other income could earn around $140,000 in fully franked dividends and pay no tax. A parent already earning $30,000 could earn around $45,000 in fully franked dividends and pay no extra tax, before medicare levy.
• Investing using an ‘implied trust’ where the investment is held in the parents’ name in trust for the child. The child enjoys the tax-free threshold of $6,000 and the parents keep control. Beware that the investment must be used for the benefit of the child or the Tax Office can attribute the income to the parents and tax them personally.

There are plenty of options, so talk to your financial adviser about an appropriate solution for your situation and that of your children.
Call (02) 4926 2300 or email us.

Source: www.ato.gov.au 

Disclaimer

To discuss Tax and your children's investments please do not hesitate to contact the team at Leenane Templeton.

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