If your business holds stock for re-sale, an accurate stock count must be carried out on 30 June.

2. Prepare/Print Out a list of Accounts Receivable (Debtors) as at 30 June

3. Prepare/Print Out a list of Accounts Payable (Creditors) as at 30 June

4. Print a Trial Balance at 30th June

Only if you are using a computerised accounting system

5. Print a detailed General Ledger

6. Prepare and print out a Bank Reconciliation at 30th June

7. Back up all 2011 files

8. Run “YEAR END” procedures (MYOB USERS).

Quickbooks users do not have a “Year End” procedure. They need to take extra care to back up all data and keep it separate AND to ensure that there are no more entries dated prior to 30th June.

9. Prepare Employees’ PAYG Payment Summaries

Unless you are a business with only “closely held employees” i.e. family members, the PAYGPS-INB’s must be issued to your employees by 14 July.  The ATO copy of the PAYGPS-INB’s and the PAYG Payment Summary Statement must be sent to the Tax Office by 14 August.

If your business only has “closely held employees” you can obtain an extension of time until the date of lodgement of the business tax return, to also lodge the PAYG Payment Summaries.  If you fit this category, we recommend that you use this option.  Contact us to ensure we have lodged the necessary application for extension of time

If your business has gross revenue for 2011 of less than $2,000,000 you will qualify as a “Small Business Entity” (SBE).  SBE’s can claim a deduction in this tax year for prepayments.  So, if you are an SBE, and your business is showing good profits, consider prepaying up to 12 months of future costs such as those listed below:

• Lease payments (but not Hire Purchase or loans)
• Rent
• Insurance premiums
• Subscriptions
• Advertising (such as yellow pages)

If your 2011 turnover exceeds $2,000,000 prepayments will not be deductible. Conserve your cash for other strategies such as superannuation contributions.

A tax deduction is available to you, even if payment has not been made, on accelerated expenditure such as motor vehicle repairs, insurance, and printing & stationery supplies.  It is essential, however that both the goods/services and an invoice dated prior to 30 June be received.

We recommend that you examine your forward expenditure plans to determine whether it is beneficial to incur expenses a little earlier. 

2. Purchase equipment 

Provided your 2011 gross revenue is less than $2,000,000, you can get an immediate deduction for assets costing less than $1,000.  If you are likely to need such equipment, consider bringing the acquisition forward.  Remember that the limit is on each individual, self-contained item.  So if, for example, you buy 6 items costing a total of $5,000, you will be entitled to a full deduction on the $5,000 outlay.

3. Write off any uncollectible debts

To be tax deductible, bad debts must be physically written out of the books of the business before 30 June.  Please go through your current list of trade debtors and write off any debt which is considered uncollectible.  Retain a list of those debts written off, the action taken to pursue the debt, and the reasons for the write-off.  
 
4. Maximise Superannuation

There are many benefits from accumulating wealth in super, including future tax-free income, exemption from capital gains tax and protection from creditors.  We encourage you to utilise this investment vehicle as much as possible

Contributing to superannuation up to the “age-based limits” will reduce your business’ taxable income. You will normally gain at least a 30% deduction for the contribution and the super fund will pay a maximum of 15%.  The “age-based limits” are:

                         Under 50 at time of contribution $ 25,000
                         Over 50 at time of contribution $ 50,000

Note however, that contributions from all sources (including the compulsory 9% Super Guarantee contributions) must not exceed the age-based limit.  Any amount over the age-based limit will be taxed to the super fund at 46.5%

5. Get SUPERANNUATION GUARANTEE contributions up to date

The minimum super contribution is 9% of gross, ordinary time earnings.  Ensure that you have contributed at least the minimum superannuation contribution for all employees between 18 and 65 years of age who have earned more than $450 in any month.

The last day to make the superannuation contributions without penalty is 28 July, but to be deductible in the current tax year it must be paid before 30th June.

6. Trigger Investment losses

If you have made a capital gain during the year, and you have investments which are valued at less than their original purchase price, realise the loss by selling the investment before June 30.  This will then provide you with a capital loss which can offset or reduce any capital gain.   

Share trading losses (as opposed to investment losses) can be used to offset share trading profits or any other income, so where they exist, trigger them by selling the loss-making shares

Warning:

Before any sale of investments you should give due consideration to the commercial reality of whether it will be preferable to hold the investment for long term increased value.

You should also be aware of the 45 day rule which will deny you the benefit of any franking credits on dividends if you sell the shares within 45 days of receiving the first dividend on that parcel of shares

As the owner of a business, you have to become a leader. Whether you enjoy the role or not, and how effective you are as a leader will have a direct result on the success or otherwise of your business.  As the leader of your organisation, you are directly responsible for the commitment and productivity of your team. Here are a few tips to help you get the most out of your team.

Only hire people with the right attitude
You can always (with effective training programs) teach people the skills they need to perform their work, but it is extremely difficult to change peoples’ personalities or work ethic. Develop clever interview questions to draw out peoples’ personalities and their attitude to work and achieving. Do not hire anyone that you have reservations about. Those niggling doubts usually turn into real cause for concern. Only hire people that you feel enthusiastic about.  It is better to be short-staffed than to be staffed by people with the wrong attitude.

Align the goals of the individuals with the goals of the business
When everyone in the organisation is working towards the same goal, your chances of success dramatically increase.  Determine what the goals of the business are, and then develop an incentive system, based on objective Key Performance Indicators (KPIs) that rewards the team for working towards and achieving those goals.  Make sure that you are providing regular feedback to the team to let them know how close they are to the businesses and their personal targets, and therefore how likely they are to achieve their rewards.  If they are falling behind, take the time and effort to help them improve their results.

Create an effective induction program
When you hire new people, don’t just throw them into the job and leave them to develop their own way of doing things. Develop and institute a well thought-through induction program which clearly spells out your business philosophy and vision, how your business does things and what you expect of individuals in the organisation. A couple of days spent training in the early days of a new employee’s career will create a much more committed and efficient team member.

Develop clear rules and systems
To achieve great results, any organisation must have a cohesive team with a clear purpose and a clear way of doing things. Your business must therefore have clear rules and easy-to-follow systems, so that the team can work efficiently and co-operatively, and be capable of producing consistent, quality results. Ideally, there should be working systems for every process in your organisation.

Provide Recognition
Leaders who talk to their people and recognise their efforts and achievements, will have a more dedicated and focused team. Recognition can be as simple and cost-effective as a few kind words, an interest in team members’ personal life, or a day off on their birthday. It can also be as grand as taking the whole team on a pre-agreed trip if performance targets are achieved.  All forms of recognition work towards creating a team member who feels supported and valued.

Provide Ongoing Challenges
Talk to your team members regularly to determine if they are struggling with their job, or worse, if they are becoming bored with it. Boredom and lack of challenge regularly causes the resignation of a highly productive and valued employee. Look for new challenges and opportunities to keep these employees interested and growing within your organisation rather than in someone else’s.

Demand the best
Set high standards and demand the best from all of your team. You will be amazed at what can be achieved if people are encouraged to push their limits and step outside their comfort zones. Support the great team members by getting rid of any individuals who are not performing or who are de-motivating.

Listen and Act on team input
Regularly ask team members how you can improve your business. The ones at the coal face often know where the flaws in your systems are and how things could be done more efficiently. Listen with an open mind and be seen to act on the good advice. Acknowledge the author of the advice. Also seek the advice of external advisers who can look at your business from an outsider’s point of view.

Allocate time to work on your business
Lastly, make sure a substantial portion of your time is spent in growing your business, not just doing the work. All of your team want to be associated with a successful business and want to be part of that success. Allocating time to the growth of the business, the design and implementation of systems, marketing, and other business growth strategies will demonstrate to the team that you are a leader who is taking the business in a positive direction, and they will be even more committed to following your lead.

Lead on!

For more information regarding being a good leader or any other business queries that you may have,  submit an online enquiry form or contact Prime Partners on 02 9879 7005.

A parent who has a child (either by birth or by adoption) after midnight on 31 December 2010 may be eligible to receive Paid Parental leave payments.

If you are having a baby, then you need to know:

The parent who will be the primary carer will need to register with the Family Assistance Office (FAO). This should be done within the 3 months before the expected date of birth or adoption of the child. You can do this by visiting a Centrelink office or by going to the Family Assist Website and following the links.

• You will need to pass 3 tests:
  a.    a residency test,
  b.    a work test,
  c.    an income test. If the primary carer’s “adjusted taxable income” is less than $150,000 in the previous full financial year then you are eligible.
• PPL replaces the former government’s Baby Bonus and Family Tax Benefit Part B schemes, so claiming PPL will disentitle you to the Baby Bonus, and you will not be entitled to Family Tax Benefit whilst you are receiving PPL.
• The amount you receive is the national minimum wage (currently $569.90 gross per week) for up to 18 weeks.
• Payments can be taken any time within the first year after birth or adoption.
• The payments are assessable income and will be taxed. (FAO or your employer will be responsible for withholding the tax from the gross payment) and for issuing you with a PAYG Payment Summary at the end of the financial year.

If an employee is having a baby then you need to know:

• The scheme is administered by the Family Assistance Office (FAO). All eligible recipients will have to register with the FAO and advise their employer’s details. You, as employer should then be notified of this, and you will need to complete some documentation to receive the funds from the government.
• Ultimately it is the employer who is responsible for paying and administering PPL, even though the scheme is funded by the government.  The employer will receive funds from the FAO in advance of the need to pay the PPL to the employee.
• Participation in the scheme is optional for employers between 1 January 2011 to 30 June 2011.   However, there will certainly be some very unhappy employees of any employer who chooses not to participate during this period.  It is compulsory for all employers from 1 July 2011.
• Funds received from the FAO are assessable income to the employer and the payments made to the employee will simply be part of their wage, and such will be an allowable deduction.
• The employer is to withhold tax from the PPL payments and they are recorded as PPL payments but treated as normal wages to the employee. That is, the payments form part of that employees earnings and are included in the usual PAYG payment summary at the end of the financial year.
• The employer must provide the employee with a record of payment.
• The payments are in addition to, and can be paid before, during, or after any other paid maternity leave or other employer funded entitlements (such as annual leave and long service leave).
• Annual leave and long service leave does not accrue whilst the employee is receiving PPL payments.
• PPL payments are excluded from the definition of “ordinary time earnings”, therefore compulsory 9% superannuation does not need to be paid on PPL earnings.
• PPL payments are not included as part of the payroll tax calculation or the workers compensation definition of wages.

These are just some of the basic elements of the scheme and are meant for your general understanding.  Further details can be obtained by visiting the government’s Family Assist Website.

For more information regarding the paid parental leave scheme or any other taxation and accounting queries that you may have,  submit an online enquiry form or contact Prime Partners on 02 9879 7005.

At Prime Partners, we are noticing an increasing trend of women coming to us for advice about planning their financial futures irrespective of whether they’re single or in a relationship. 

Quite apart from the fact that many of our planners are good looking guys, the other attraction is that women need to carefully plan their finances for the following reasons:

1. Women tend to live longer than men - on average 5 years more.  This highlights two issues for women:
           a.   Women will generally be in the retirement stage of their lives for much longer and will therefore need to prepare financially for their comparatively lengthier retirement period.
           b.   At some stage, it is likely that the majority of women will ultimately have to take sole responsibility for their finances – either from the beginning of a relationship or after their spouse has passed away.
2. Women tend to chose different career paths than men.  Two key factors that may impact this different career choice are:
           a.   Becoming mothers, and/or
           b.   Becoming primary caregivers
   At some point in their lives. These factors may require women to alter their working patterns to give them time to focus on their family.  Despite this being both satisfying and rewarding, for many women time away from work can impact quite heavily on their finances by the loss of income and possible limitation of future career paths. This usually translates into lower superannuation balances and lower retirement savings.
3. Women receive less pay. The statistical reality is that women tend to earn, on average, less than men.  Recent studies indicate the average weekly income of males in Australia is $1346.10 as opposed to $1074.80 for women. This means that women tend to have less income and superannuation contributions to fund their lifestyle and retirement. 
4. Women are financially vulnerable in divorce and relationship breakdowns.  It’s a sad fact of life that sometimes, marriages and long term relationships end in divorce or breakdown. Statistics show that after divorce, men often rebuild assets more rapidly than women. Women often have a need at this time for strategic professional advice and planning.
5. In the majority of relationships, the financial management is usually left to one partner.  If the female in the relationship has delegated the financial duties to her spouse, it is usually because she is focusing on the day-to-day running of the household finances, but has left the long term planning (such as investing and retirement planning) to their partner. It’s important for both partners regardless of their gender, to become active and involved in gaining experience in handling the investing and retirement planning side. When both partners are committed to the longer term goals, it is much more likely that those goals will be achieved.

A major key to a long and happy life is financial security.  We believe that every family should have a financial strategy that plans for:

• The big financial commitments, such as a house, children.
• Ongoing lifestyle.
• Retirement, and (very importantly).
• The unexpected things that tend to crop up in life, and that have the potential to cause a major financial impact.

Everyone needs a sensible financial plan to get them successfully through life. For the reasons we have set out above, it is even more important for women than it is for men. Regardless of your circumstances, or your level of knowledge, Prime Partners are here to help. Our philosophy is “Your Goals, Our strategies, Great outcomes” and that is what we aim to deliver for all clients.   

For more information regarding financial planning advice for females,or any other financial planning queries that you may have,  submit an online enquiry form or contact Prime Partners on 02 9879 7005. Our first financial planning meeting is both informal and obligation-free.

Harry is a man of conscience and commitment, and rather than react emotionally to the sudden drop in turnover, he chose to keep all of his employees on the payroll for as long as possible in the hope that things would turn around fairly quickly - after all, he had taken a lot of time and effort to get them trained, and it’s difficult to find good, reliable workers.  But the recovery took longer than he hoped and he soon found himself borrowing against the family home to keep his business afloat.

This debt, together with the existing mortgage he had on his factory premises, drained his cash flow even further, and Harry soon found himself in a spiralling situation where he was getting deeper into debt and was struggling to stay afloat.  He finally made the tough decision to let a few of the staff go, but not until some serious financial damage had occurred.  Harry now owed a total of $400,000 ($200,000 still owing for the purchase of the factory and $200,000 borrowed to keep the business alive).  The interest cost was eating up the already depleted profits from the business.

Harry tried selling the factory building with the hope that he would be able to lease it back from the new owner, but the market was dead, and there was no-one willing to pay enough for it to get him out of trouble.  So he took the decision to sell his family home.  Naturally, that didn’t go down too well and the stress of this on top of his anxiety over the business started to cause considerable strain in on his marriage.  Things had gone from being fairly rosy to dire within the space of just over 18 months.

Harry called us to see whether the rent he would have to pay for somewhere else to live would be tax deductible.  Sadly, we had to advise him that it wouldn’t be because it was an expense of a private nature.  But after quizzing him as to why he was intending to sell the family home and rent a place instead, we heard the full story.  Once we knew the facts, it was matter of utilising the combined skills of our accountants, financial planners, and superannuation specialists to come up with an overall strategy that provided a much more palatable solution for Harry:

• By coincidence, Harry had a little over $500,000 in his superfund – enough to fund the purchase of his  factory premises (which had been valued for sale at $450,000), and to pay the stamp duty on the purchase.  His superannuation was in an industry super fund, which would not have permitted the purchase of the property as an investment, so the first step was to create a self-managed super fund (SMSF), over which Harry had effective control.
• Then he rolled the money from his existing industry superfund into his SMSF.
• Contracts were drawn up, and the SMSF purchased the factory premises from Harry.  Even though Harry was the owner of the property and there is a strict prohibition on super funds buying assets from their members, this was possible because commercial real property is excluded from that ban.
• Because we had registered the SMSF for GST, we could also achieve the sale without GST, using the “going concern” exemption.
• The stamp duty on the transfer was only $50 thanks to the State Government’s recent concessions on transfers of property to super funds where the vendors of the property and the members of the super fund are identical.
• Once the legal work was complete, the SMSF paid $450,000 to Harry, and he then paid out his debt.  He immediately felt 10kg lighter !  He was free of debt, he had retained his family home, and he had $50,000 left in his pocket to help keep the business going and to take his wife on a holiday to repair some of the damage that had been done over the previous 18 stressful months.
• The icing on the cake is that his business (with significantly reduced overheads) has returned to profit, and is gaining a tax deduction at the rate of 30% on the rent  for the factory it is paying to the SMSF,  while the SMSF is only paying 15% tax on the rent it receives.  In 2 years time, Harry will be entitled to start taking a “Transition to Retirement” (TTR) pension from his SMSF, and when that happens, the tax rate on rent and other investment income earned by the fund will reduce to zero !  The rate at which Harry will be able to continue to build on his super and his overall wealth will be significantly enhanced and, if the SMSF sells the building after Harry commences his TTR pension, there will be no capital gains tax on the sale! 

Clearly Harry benefited significantly by utilising a resource that he had virtually forgotten about and had not even considered in his difficult circumstances.  Your circumstances don’t need to be difficult for you to benefit significantly from making similar use of your superannuation or by using any of the many strategies available to members of SMSFs. 

For more information regarding self managed super funds or any other superannuation queries that you may have,  submit an online enquiry form or contact Prime Partners on 02 9879 7005.

A regular home loan health check ensures you’re still getting the best deal and the maximum benefit out of your biggest investment. As your personal circumstances change over time, it’s important to make sure your home loan meets your needs and evolves with your lifestyle.

Here’s what a health check might uncover about your loan.  You may need to, or be able to:

• Save on interest and pay off your loan sooner by changing the frequency of your repayments.
• Achieve a lower interest rate.
• Negotiate better terms with your current lender.
• Reduce your loan balance and build your equity by using an offset account or paying income directly into your home loan.
• Unlock the equity in your home to use for investment or renovation.
• Reduce other, higher-cost debt by consolidating it into your home loan.
• Access product innovations that were not available when you first took out your loan.
• Transfer your loan to another lender.

How does it work?
Mortgage health checks are free of charge and involve minimal time on your behalf. Simply contact us and we will undertake a comprehensive analysis of your current loan by comparing it across a range of mortgage products available from banks and lenders. We’ll then share with you any potential ways we have uncovered for you to save money and time, and assist you with putting these into action.

A health check doesn’t mean you will have to refinance your loan; it can be as simple as restructuring with the same lender. Banks and lenders are constantly enhancing and fine-tuning their product range, which means there is often a cheaper or more efficient product provided by the same lender.

In situations where refinancing is the better option, we can help minimise the effort, time and expense that is often involved in moving from one lender to another. As part of this process we will help you weigh up any fees and other costs associated with switching your loan, with the expected savings and benefits of the new loan product.

For more information regarding a health check for your home loan or any other lending queries that you may have,  submit an online enquiry form or contact Prime Partners on 02 9879 7005.

The most common client reaction is “What ?? This is an extremely competitive industry.  If I increase my prices I’ll lose customers!” Our follow up question is “how many customers will you lose?”

What a lot of clients don’t realise is that sometimes, it’s better to lose customers if you can achieve higher prices.  If you lose customers, you don’t have to hold as much stock, and you don’t have to provide free credit to as many customers.  Even when these issues are pointed out, clients fear that they will lose far more than they will gain by increasing their prices.

So we have calculated the relationship between price movements and changes in volume of goods or services sold.  If we know how much volume we can afford to lose, maybe it won’t be as scary to think about price increases.

Consider this case study:
Profitplus Pty Ltd is a wholesaler who has been in business for 10 years. Its current turnover is $1,800,000 per year, and it hasn’t changed much over the last three years.  An analysis of its results show that its Gross Profit has been gradually declining – in 2008 it was 30%, it fell to 28.75% in 2009 and in 2010 it is standing at 26%.  Overheads have remained fairly constant at $400,000 per year, so its net profit has slowly reduced from $140,000 in 2008 to $117,500 in 2009 and $68,000 in 2010.  The cause of this slow decline is due to the company being squeezed from both ends – suppliers have been slowly increasing their prices, but fear of losing sales has prevented the company from matching suppliers’ price increases with price increases of their own.  The management is aware of, and very concerned in relation to this trend, but don’t know what to do because they see further loss of profits no matter which way they turn.

However, when they are questioned as to how much business they will lose if they increase prices, they are unsure.  We can quantify it for them.  Based on a current Gross Profit ratio of 26%, we know that their gross profit would actually increase if they increased their prices by 5% and lost less than 16% of their sales volume.   A 10% price increase would mean that they could afford to lose up to 27% of sales volume and still increase their gross profit!  Armed with this information, the company feels much more comfortable that a price increase would not reduce their bottom line as it was highly unlikely that sales would fall by the percentages advised.

If the company increases prices by 10% and loses only 10% of their volume, they will increase their net profit from $68,000 to at least $248,000 !  The flow-on benefits of holding less stock and carrying fewer debtors could increase this even further.  The additional profit thus generated could then be used to embark on an effective marketing campaign to increase the company’s sales volumes and further increase profits.  And all it takes is a little courage inspired by knowledge.

When questioned about their marketing strategy, most clients emphasise quality of price or service as their key competitive advantage – yet they still try to be the cheapest as well.  It doesn’t work.  Customers and potential customers equate cheapness with lack of quality, and businesses who try to promote themselves as both, lose credibility.  Decide whether you want to be the cheapest on the market, or the best, and price accordingly.  Quality costs, so you won’t be successful if you try to be both!

If you’re interested in determining the potential impact of price variations on your business, please contact your prime Partners Adviser.

Basic Legal Structures
There are 5 basic legal structures that you can use to operate a business in Australia:

• Sole Trader
• Partnership
• Company
• Unit Trust
• Discretionary Trust

Issues involved in choosing the best structure

1. Commercial Risk
The first two structures listed above are only suitable for businesses with a low level of commercial risk.  Both sole traders and partners of a partnership are operating businesses in their personal names, and if anything goes financially wrong, all of the individual’s business AND personal assets are at risk.  A medical practitioner operating in their own name could therefore, if they lose a significant malpractice suit, lose their medical practice, their home, and any investments that they hold in their own name. 

The other entities (provided that the trusts have a corporate trustee) all enjoy the benefits of “limited liability” which limits the potential loss to assets held by that entity.  Note that “limited liability” does not provide total protection.  There are numerous cases where directors of corporations have been jailed for criminal negligence, and have lost considerable personal wealth in situations where they have acted irresponsibly.  We therefore recommend, that no matter which legal structure you choose, you should:

• insure the business for professional  indemnity or product liability as appropriate
• follow a course of owning your home in your spouse’s name (provided he/she is not also at commercial risk) and building your investment assets in a separate structure that will provide an additional level of asset protection (eg superannuation fund, or discretionary trust)

2. Income Tax
The legal structure you choose has a significant impact on the amount of tax you may pay:

3. Other Taxes & Costs
The simpler structures of sole traders and partnerships are the structures in which the other tax issues are simplest.  Because the sole trade or partners are not employees, we don’t have to worry about, payroll tax, workers compensation premiums, compulsory superannuation, or fringe benefits tax on any the income or benefits they take out of the business.  Those entities also provide flexibility in relation to use of the business income to pay off personal debt.

The structures that provide limited liability usually put the business owner into the position of becoming an “employee: of the business, and all of the imposts in the previous paragraph potentially apply to income and benefits taken by the owners from the business.

So which entity should you use to conduct your business?
Being honest, there is no standard answer to this, and even taking account of your specific circumstances, there may be no “perfect” solution.  The solution may involve more than one entity, and may involve changing from one legal structure to another over time as your circumstances and the regulatory environment change.  The most appropriate structure is certainly going to depend on exactly what you are doing and what you are trying to achieve. 

The complexity of the alternatives and their (often conflicting) impact on different risk factors makes it essential to obtain competent professional advice and, as always, we recommend consulting with your Prime Partners adviser before taking action.

If you are trying to save for your children’s education, your own retirement or simply trying to accumulate a bit more wealth, increased tax of this level can have a serious detrimental impact on your final outcome.

No other investment vehicle is as tax-efficient as superannuation, and generally we still recommend that you should maximise your superannuation contribution each year.  But for those who are fortunate enough to be able to “save” more than $25,000 per year (if they are under 50) or $50,000 per year (if they are over 50), investing the surplus in your own name is probably not the best approach.

One tax-efficient alternative is insurance bonds. 

Insurance Bonds - What are they?
An Insurance Bond is an investment portfolio managed by a life insurance company.  They pay no income direct to the bond holder during the term of the policy, but instead accumulate and reinvest the investment income back into the Bond. 

How are they tax-efficient?
Insurance bonds can be classified as ‘tax-paid’ investments. The portfolio manager pays the tax on investment earnings – not the client. The rate of tax paid is the company tax rate of 30% (compared to the maximum individual tax rate of 46.5%) , and this may be reduced further through the use of imputation credits if the underlying investments are in shares.

These bonds are also very simple at tax return time. Clients don’t include investment earnings in their tax return unless a withdrawal is made from the Bond in the first 10 years.

If the Bond has been held for 10 years or more, and provided the client has not increased each year’s contribution by more than 25% of the previous year’s contributions, any withdrawals made will not attract income tax or capital gains tax. Capital gains tax is also not applicable when switching between investment options – say from a share option to a cash option.

For clients that do withdraw before the 10-year period is completed,  the following rule apply:

If the withdrawal is made:

• within eight years or less, all of the profit is included as assessable income;
• during the ninth year, two-thirds of the profit is included as assessable income;
• during the 10th year, one-third of the profit is included as assessable income;

Note that any profit declared under the above rules will be subject to a 30 per cent tax offset  in your personal return (so  the  maximum tax rate you will pay will be 16.5%, and if your taxable income ends up in the 16.5% tax rate, declaring this income will actually reduce your tax bill)

What are the Estate Planning benefits?
Taxation upon death is a large consideration for us when advising clients, particularly when they have non- financially dependent children as beneficiaries.

Death benefits that are paid out of superannuation to non-dependents could be taxed at up to 31.5 per cent. of the total benefit received by the “non-dependent”. Insurance bonds offer an alternative in these situations as they allow proceeds to be paid to any beneficiary (including non-dependants) tax-free.

These bonds can also be structured in a number of ways to solve other estate-planning problems:

• Clients can nominate more than one beneficiary and can stipulate the percentage or amount that each will receive. When a beneficiary is nominated, the proceeds cannot be subject to any challenges to the client’s Estate, as they will not form part of the Estate assets.

What are the Family Planning benefits?

• For clients with children whose marriage is at risk, insurance bonds can provide a level of asset protection from the child’s spouse. Upon death of the client (i.e., the parent), bond proceeds can be paid to their estate and used to create  a testamentary trust for the benefit of children and grandchildren to the exclusion of the ex-spouse.
• Where a client wishes to provide for children or grandchildren, insurance bonds can be set up as advancement policies. Ownership can automatically transfer to the child or grandchild at a stipulated age (say 21), generally without capital gains tax consequences.  This strategy is particularly popular with grandparents who want to provide for a grandchild’s education.

Other benefits
Some bonds offer:

• capital guaranteed investment options, which are very relevant given current market conditions.
• death benefit guarantees, which can ensure the estate and/or beneficiaries are paid at least the amount the deceased contributed (less any withdrawals) regardless of market movements.

Conclusion
The taxation concessions, estate planning benefits and the family planning benefits of insurance bonds makes them a valuable tool for some clients. While not necessarily for everyone, they certainly have some added benefits and are making a resurgence. If you’d like to find out more, please call your Prime Partners adviser.