News & Events
PREPARING FOR HARD TIMES
With consumer confidence at an all-time
low, and constant media coverage re-inforcing negative sentiment throughout
the community, there is little doubt that all of us in business are likely
to be facing difficult times in the next twelve months or so.
So, what should you do and how should you
prepare to weather the storm ?
The temptation for business is to adopt
the attitude that times are hard, so it is reasonable to accept a downturn
in income and net profits. However, all changes in circumstance bring with
them opportunity as well as threats. The challenge for business now, is to
thrive despite the circumstances, not suffer because of them
Here’s how we think our clients should
approach 2009:
Get smart
Approach the year ahead intelligently.
The starting point with forward planning for 2009 is to have a long, hard
and honest look at your market and your business. Prepare a SWOT
(Strengths, Weaknesses, Opportunities and Threats) analysis. Draw up the
following matrix and list down ALL of the issues that could have an impact
on your business in the next twelve months
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Strengths:
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Weaknesses: |
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Opportunities:
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Threats: |
Then draw up an action plan to capitalise
on your strengths; overcome or compensate for your weaknesses, limit the
likely impact of any threats and most importantly, take advantage of the
opportunities.
Get Fit
Hold a complete review of your financial
situation and your financial practices:
-
Are you likely to be cash flow positive or negative in the next 6 to 12
months? Prepare a cash flow budget to show the peaks and troughs that are
likely to occur in your business
-
How much cash do you have in reserve? - Is it sufficient to cover the cash
requirements of the business over that period ? If not, start organising
finance now
-
How long is it taking to collect the debts owing to your business? How can
this period be shortened ? What measures can be instituted to get cash into
the business earlier?
-
How long is stock sitting in your business before it is sold? Are you
carrying too much stock ? How low can you reduce your stock levels without
risking a “stock-out”?
-
Are you paying your suppliers too soon? Is this draining the cash flow
from your business? Can you extend the payment terms without endangering
supply?
Get Lean and Mean
Review your most recent financial
statements and have an honest look at your costs:
-
How efficient are your buying practices? Are you getting the best price
for your supplies? Are the quantities you are buying in efficient for your
business? If you placed fewer orders for larger quantities, would you
achieve a reduced price? What would this do to your stock holding costs?
-
Check your pricing strategies. Don’t panic into reducing prices simply to
retain or increase sales. The margin you make on your sales is the critical
issue. It is often preferable to sell less at a higher margin than to sell
more at less profit – higher levels of turnover increase your holding and
infrastructure costs, and can be financially damaging if too much is shaved
off your gross profit margin.
-
What unnecessary or excessive overheads are you incurring? Ask yourself
“what would happen if I ceased or reduced this expenditure?”
-
Review your operating systems. Are your manufacturing / service delivery
systems efficient? Is there any wastage that can be eliminated? What
impact will this cost cutting have on team morale and team productivity?
Get Hungry
Hopefully, your SWOT analysis should have
determined a number of opportunities that arise as a consequence of the
current financial climate. If you didn’t come up with any opportunities,
then you are being too pessimistic, and you need to go back in a brighter
frame of mind and come up with list of issues that could work in favour of
your business.
-
It could be that some of your competitors may go out of business and that
will leave the path clear for you to pick up their customers, or to improve
your profit margins because there is less competition.
-
It could be that demand for lower-priced goods is likely to increase, and
that you are in a position to introduce a new product or service to access
this end of the market.
-
The list of opportunities is only limited by your imagination
Once you have identified the
opportunities, then draw up and implement an action plan to make sure you
can take advantage of them.
Get Help
As with all great achievements, the best
results are achieved when you have a good team around you. Don’t be afraid
to spend a little to earn more. Consult widely and gather the ideas that
will work for your business from all available sources. If necessary, hire
assistance or change roles of existing personnel to ensure that your ideas
and strategies are implemented. Get a mentor to help you frame your plans
and to keep you honest with your actions.
It would be remiss of us not
to point out that there are some very experienced, practical and imaginative
advisors at Prime Partners. Give us a call on
(02) 9879 7005to discuss a program to help you
face 2009 with confidence.
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BAD NEWS A BOON FOR INVESTORS?
Source: Warren E Buffett, ‘Bad News a Boon for Investors’, The New York
Times, 16 October, 2008 Financial Review
The financial
world is a mess, both in the United States and abroad. Its problems,
moreover, have been leaking into the general economy, and the leaks are now
turning into a gusher. In the near term, unemployment will rise, business
activity will falter and headlines will continue to be scary.
So … I’ve
been buying American stocks. This is my personal account I’m talking about,
in which I previously owned nothing but United States government bonds.
(This description leaves aside my Berkshire Hathaway holdings, which are all
committed to philanthropy.) If prices keep looking attractive, my
non-Berkshire net worth will soon be 100 percent in United States equities.
Why? A simple
rule dictates my buying: Be fearful when others are greedy, and be greedy
when others are fearful. And most certainly, fear is now widespread,
gripping even seasoned investors. To be sure, investors are right to be wary
of highly leveraged entities or businesses in weak competitive positions.
But fears regarding the long-term prosperity of the nation’s many sound
companies make no sense. These businesses will indeed suffer earnings
hiccups, as they always have. But most major companies will be setting new
profit records 5, 10 and 20 years from now.
Let me be
clear on one point: I can’t predict the short-term movements of the
stock market. I haven’t the faintest idea as to whether stocks will be
higher or lower a month — or a year — from now. What is likely, however, is
that the market will move higher, perhaps substantially so, well before
either sentiment or the economy turns up. So if you wait for the robins,
spring will be over.
A little
history here: During the Depression, the Dow hit its low, 41, on July 8,
1932. Economic conditions, though, kept deteriorating until Franklin D.
Roosevelt took office in March 1933. By that time, the market had already
advanced 30 percent. Or think back to the early days of World War II, when
things were going badly for the United States in Europe and the Pacific. The
market hit bottom in April 1942, well before Allied fortunes turned. Again,
in the early 1980s, the time to buy stocks was when inflation raged and the
economy was in the tank. In short, bad news is an investor’s best friend. It
lets you buy a slice of America’s future at a marked-down price.
Over the long
term, the
stock market news will be good. In the 20th century, the United States
endured two world wars and other traumatic and expensive military conflicts;
the Depression; a dozen or so recessions and financial panics; oil shocks; a
flu epidemic; and the resignation of a disgraced president. Yet the Dow rose
from 66 to 11,497.
You might
think it would have been impossible for an investor to lose money during a
century marked by such an extraordinary gain. But some investors did. The
hapless ones bought stocks only when they felt comfort in doing so and then
proceeded to sell when the headlines made them queasy.
Today people
who hold cash equivalents feel comfortable. They shouldn’t. They have opted
for a terrible long-term asset, one that pays virtually nothing and is
certain to depreciate in value. Indeed, the policies that government will
follow in its efforts to alleviate the current crisis will probably prove
inflationary and therefore accelerate declines in the real value of cash
accounts.
Equities will
almost certainly outperform cash over the next decade, probably by a
substantial degree. Those investors who cling now to cash are betting they
can efficiently time their move away from it later. In waiting for the
comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to
where the puck is going to be, not to where it has been.”
I don’t like
to opine on the stock market, and again I emphasize that I have no idea what
the market will do in the short term. Nevertheless, I’ll follow the lead of
a restaurant that opened in an empty bank building and then advertised: “Put
your mouth where your money was.” Today my money and my mouth both say
equities.
Warren E.
Buffett is one of the world’s most respected investors is the chief
executive of Berkshire Hathaway, a diversified holding company.
In order
to keep you informed about the latest economic developments, we’ll be
holding an Economic Update in the New Year with a respected Australian
economic speaker. More detail on this session will be provided next year.
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SUPER OPTIONS IN A BEAR MARKET!
It is an
uncertain and worrying time, especially with investors looking to fund their
lifestyles in retirement.
It may seem
difficult to believe with the intense turmoil in credit and sharemarkets,
but this is a time of opportunity for astute trustees of self-managed super
funds.
Consider several
of the positives. Australian share prices have fallen by more than 40% from
last year’s high, creating some cheap buys for self-managed funds that are
willing to buy and hold quality stock for the long-term.
And the low
share prices provide a highly tax-efficient opening for you to shift shares
from your own name into your DIY super fund. Any capital gains tax (CGT)
payable on past capital gains is minimised by the massive price fall. And
you may even be eligible for personal tax deductions for the contribution of
your shares.
Here are a few
strategies for SMSF trustees to make the most in these difficult markets.
1. Contribute your shares into your fund
The key benefit
of transferring your shares into your super fund is to take advantage of
super’s concessionally-taxed environment and, eventually, tax-free benefits
from age 60 (assets within your superannuation fund that ultimately back a
superannuation pension are no longer taxed) – representing potentially huge
tax-savings in many cases.
The transaction
of contributing your shares to your super fund will crystallise any capital
gains. From a tax perspective, it is equivalent to selling the shares. A
positive from the current depressed share prices is that the contribution of
shares from your own name into your SMSF will trigger less CGT than
otherwise. You could save a small fortune in tax, particularly if the
shares had been held for a long time.
If you have
already made (or are likely to make) a capital gain this year, transferring
shares that are running at a loss could reduce your personal tax bill.
Depending upon the circumstances, the contribution of your own shares to
your super fund could generate a worthwhile capital loss. Note that
capital losses can only be offset against capital gains, so if you don’t
have a capital gain, transferring your loss-making shares may not provide
you with an immediate tax benefit .
Self-employed
taxpayers (meaning owners of unincorporated businesses and other eligible
individuals outside the workforce) can potentially eliminate or reduce CGT
triggered by the transfer of shares into their SMSF. This can be achieved
by claiming a deduction (up to the annual cap amount) for the value of the
shares contributed to their fund.
Example:
John & Margaret plan to sell an investment property in Sydney to purchase a
holiday home on the coast. The investment property has been held for the
past 20 years and they estimate the likely capital gain at $500,000. If
they do nothing else, John & Margaret will be liable for Capital Gains Tax
of up to $116,250
Instead, John &
Margaret also transfer their jointly-owned share portfolio with a market
value of $200,000 into super. They bought the shares for $300,000, so that
triggers a capital loss of $100,000. By claiming the capital losses, John &
Margaret reduce the gain to $400,000.
John & Margaret
then claim a deduction of $50,000 each (they are both under 50). Their
liability to tax now is:
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Capital
gain from sale of real estate |
$500,000 |
|
Less: Loss
on “sale” of shares to super fund |
$(100,000) |
|
Net Capital Gain
|
$400,000 |
|
Less: General CGT
discount |
$(200,000) |
|
Less: Deduction
for super contribution |
$(100,000) |
|
Amount subject
to tax |
$100,000 |
At maximum tax
rates, John and Margaret will now pay tax of $46,500, representing a saving
of almost $70,000. If John and Margaret, had both been over 50, they would
have been able to claim a larger deduction and eliminate their capital gains
tax bill entirely!
2. Check your fund’s cash management trust
Given the
Government’s bank guarantee on deposits, fund trustees should ensure that
they are satisfied with the position of any cash management trust (CMT) in
which their funds hold cash. Many self-managed funds use a CMT to receive
contributions and to hold the proceeds from asset sales until reinvestment.
To check whether your SMSF bank account is covered by the government’s
guarantee, please visit
http://www.guaranteescheme.gov.au/rules/pdf/schedule-1.pdf
3. Adjust pension-paying strategies for falling markets
Super funds are
often forced to sell quality shares in falling markets in order to pay their
pension obligations. This can be either to pay transition-to-retirement
pensions (to members who are aged over 55 and still working) or pensions to
retired members. The problem is the same.
The aim is to
try to ride out market downturns without having to sell quality shares in a
weak market to pay pensions. Fortunately, there are a few possible
solutions that are worth discussing with your investment adviser.
Super Funds
paying a pension should conserve cash as much as possible:
-
Consider
reducing your pension payments. If you are simply drawing a minimum
pension to access the tax-free status for your super fund, use the
reduced value of your investments to justify a reduced pension.
-
Delay
pension payments until close to year-end in order to allow the SMSF to
hold cash and earn interest for a longer period of time.
-
Convert any
DRP investments back to cash dividends
4. Check eligibility for Government Benefits
The fall in the
value of investment portfolios is likely to make many more retirees eligible
for a government part-pension.
A home-owning
couple can own assets valued at up to $873,500 (not counting the value of
the home) and “earn” income up to $66,000 and be eligible for a
part-pension. Pensioners can ask Centrelink to reassess the value of their
shares every two weeks to determine their eligibility for a part-pension.
As a result of
the global financial crisis, the Federal Government has also lowered the
“deeming rates” used to assess the income deemed to be “earned”. The
deeming rate will change from 4% to 3% for
the first $41,000 of a single pensioner's financial investments and the
first $68,200 for couples. It will shift from 6% to 5% for the balance
of financial investments.
If you think you
may fit within any of the above strategies, please contact your Prime Partners advisers
on (02) 9879 7005 who will be able to assist you.
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DRIVE OFF WITH A BARGAIN!
New-car
buyers have a unique opportunity to bargain with dealers as the industry
weathers a perfect storm of plummeting demand, rising costs and fallout from
the credit crunch.
Some
brands are offering huge incentives, including extended warranty, free
on-road costs and attractive price reductions.
The
window will not be open for long. The Australian dollar's dramatic plunge
against major currencies will soon bite hard, forcing prices to rise.
For the
moment, dealers disadvantaged by the credit crunch and the market downturn
seek to urgently shift stock.
Dealers
have been affected by the withdrawal of two big automotive-finance companies
from the car market. This has caused a funding shortfall of about $2 billion
which affects as many as 30 per cent of the nation's dealerships. This has
led to a hiccup in the system as dealers make new arrangements with lenders.
Dealers
are desperate to sell new vehicles because they may not be able to meet
payments on their floor plan (the cost of having each car in stock).
Used
car buyers also have a great opportunity to find a bargain. Motor vehicle
auction houses have been reporting their biggest sale of repossessed luxury
& prestige cars in years.
Prime
Partners Lending has access to many of
Australia's leading lenders. We assess a wide range of lending options for
every application.
Prime
Partners Lending also has affiliations with reputable car buying services.
Car buying services make buying a new car
hassle-free with no heavy sales pitches or time-consuming visits going from
car yard to car yard. Car buying services do all the hard work for you to
ensure that you get the vehicle of your choice at a very competitive price.
If you are in the market to buy a new car
please contact Prime Partners on
(02) 9879 7005
before you drive off with a bargain. At Prime
Partners Lending we ensure you have the right type of loan and the right
loan structure. You can be confident that your loan will be competitive and
hassle free. We can also help you find the right car at the right price
through our car buying affiliations.
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ARE YOU A FIRST HOME BUYER? GOVERNMENT INCENTIVES ARE APPEALING
First
home buyers now have more assistance than ever to get into the property
market.
Under the improved government initiatives
first homebuyers purchasing existing property will be eligible for grants of
$14,000, while those buying a new house or apartment will be eligible for
grants of up to $24,000.
The increased First Home Owners Grant (FHOG)
is valid for contracts entered into between 14 October 2008 and 30 June
2009. After 30 June 2009 the value of the FHOG will revert to $7,000.
In addition to the First Home Owners
Grant, there are stamp duty concessions available in the different states
and territories that also help first home buyers save money.
With
some great home loan options; state government stamp duty incentives;
falling interest rates; increases in rental prices; and falling property
prices, purchasing that first home is looking more and more appealing.
For example, if a first home buyer were
to purchase of a newly constructed property in NSW for $500,000, they would
save $17,990 in purchase stamp duty expenses. In addition, if the purchase
is before 30 June 2009 the first home buyer would receive a government grant
of $24,000. This is a total benefit of $41,990 for a purchase of $500,000.
Some lenders will also allow the government grant to be used towards the
property purchase deposit.
If you are
thinking off buying a new property please contact Prime Partners Lending to
review your options. Buying a property is
probably the largest purchase that you are likely to make, and the right
advice can make a world of difference.
At Prime
Partners Lending we can help you find the right home loan to meet your
current and future needs. Prime Partners Lending can organise your home
loan pre-approval; determine your eligibility for the First Home Owners
Grants; and also assist with applying for the
First Home Owners Grant. Call us on (02) 9879 7005 to discuss your
Lending needs.
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IS YOUR BUSINESS YOUR SUPER?
A survey of
small business owners showed that 66% intend to use their business as their
primary source of retirement income. For many, this is the reality, because
a growing business’s demand for reinvestment of profits into infrastructure,
stock and debtors doesn’t leave enough to enable the accumulation of an
independent investment portfolio.
This reliance on
being able to sell the business when retirement beckons, is dangerous,
because it relies on the business owner getting so many things right. They
must:
-
maximise the
value of their business;
-
find a
willing purchaser close to retirement date;
-
ensure all
ongoing liabilities (including personal guarantees) are eliminated;
-
ensure all
employee entitlements are extinguished;
-
maximise the
after-tax proceeds from sale of the business.
The keys to
getting it right are:
proper planning,
and
early
implementation.
Here’s a few
strategies to start with:
1. Cash flow
Many businesses
fail to manage their cash flow. They allow:
-
stock to
build up beyond optimum levels. This increases the need for more
infrastructure and facilities, and ties up cash, because stock generally
has to be paid for well in advance of collecting money from its ultimate
sale.
-
debtors to
“string out”. Lack of debtor controls often result in customers
extending their payment times. This robs the business of cash and
places undue financial pressure on the owners.
-
creditors to
apply pressure for earlier payment. This drains the cash flow and
forces the business to forgo interest-free debt, and to use bank
overdrafts, at higher interest rates
Analysis of one
of our clients last year showed that:
-
because they
were importers, they were paying for stock for up to two months prior to
receiving it;
-
they were
holding stock for an average of 61 days before selling it, and
-
their
average debtor collection period was 63 days.
All together,
they were tying up their cash for 184 days (half a year !) before they
received any money back into the business. This was placing enormous strain
on the cash flow.
By:
-
reducing the
amount of stock on hand,
-
tightening
debt collection procedures to shorten the collection time, and
-
delaying
payments to suppliers,
they were able
to convert a negative $85,000 cash flow in 2007, to a positive
$485,000 cash flow in 2008 – an improvement of $570,000 despite a 6%
reduction in sales resulting from a general downturn in the economy. The
business owners were then able to contribute $200,000 to superannuation and
to acquire investments to complement (and reduce the reliance on) the
potential sale of their business.
2. Profitability & Business Value
The value of a
business is largely dependent on the profitability of that business. Now
is the time to start working on the profitability of your business.
The first and
easiest step (but the one requiring most courage) is to increase prices.
Too many businesses concentrate on “price” rather than “value”. They fail
to understand that the product or service they are delivering is of greater
value to the customer than the business owner perceives. In another
example, we were able to persuade one of our clients to increase his prices
by 20%. His initial concern that this would lead to wholesale loss of his
customer base was unfounded. Because he had to justify the price increase,
he increased the level of service to customers. He actually gained more
customers as a consequence of the referrals from existing customers, and his
gross revenue and profit margin both increased by more than 25% in the
following year.
Other businesses
take too long to increase prices. With oil price increases affecting the
cost of almost all business supplies, it is better to adjust prices by small
increments every 3 months, than to wait and apply a larger increase in 12
months time.
3.
Systems and Business Value
Purchasers will
also be prepared to pay more for a business that doesn’t depend on the
efforts of the business owner. Developing high quality, standardised
systems and procedures provides the following benefits for a business. It:
-
ensures the
same, consistent quality is delivered to customers. This promotes
customer confidence and loyalty.
-
allows the
business to market itself on the basis of “quality” rather than “price”
-
allows the
business to charge more, and thereby improve profitability
-
creates a
business which can operate efficiently, without the depending on the
business owner
-
allows the
business owner time to work on the growth and profitability of the
business
-
makes the
business more valuable and saleable
4.
Succession planning
The best time to
sell a business is when you have someone interested in buying, and as
Murphy’s Law would have it, that is almost inevitably NOT when you are ready
to sell.
However, a
little forward planning can allow you to control the process:
-
At least
twelve months prior to retirement, commence general discussions with
the prospective purchasers to sow the seed, and to determine the
likelihood of their buying the business. With family members or
existing staff, the lead time may need to be longer, and the buy-in
could be more gradual (eg, they could be given the right to buy 10% of
the business each year, if they achieve certain performance targets).
Note: There are substantial tax concessions for business owners
with at least 20% equity in their small business at the date of sale –
so take care to ensure that the final holding is at least 20%.
-
Organise
finance to suit the purchaser, so there are no impediments to achieving
maximum price and early payment for your business. Many banks are
willing to lend to businesses with an established cash flow, using the
goodwill of the business as security. If your business is “asset rich”
consider selling the assets on a “lease-back”, so that you receive the
proceeds earlier, and reduce the amount that the purchaser has to pay
for the business. Note: There could be tax consequences to such
a sale. Obtain advice prior to taking such action.
5.
Maximising the after-tax proceeds from sale
If your business
qualifies as a “small business”, there are major tax concessions available
to you when you sell. It is often possible for a small business owner to
pay NO CAPITAL GAINS TAX on the sale of their business if they structure the
elements of the sale correctly.
If you currently
qualify as a small business, but expect to be outside the turnover or net
asset limits at the time of eventual sale, you can dramatically reduce the
amount of capital gains tax payable on that sale, if you act now.
Summary
The key to
successfully using your business to provide for your retirement, lies in
careful and early planning. The increase in retirement income that can be
achieved can be huge, and those who take the time are usually well rewarded
for the effort. We encourage all business owners to seek advice and take
action to prepare for their retirement, even though it may be years away.
As always, we can be contacted on (02) 9879 7005 if you would like to make
an appointment to discuss this topic or receive further information from
your Prime Partners advisor.
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SUPER DEATH!
It was Benjamin Franklin that coined the
phrase, “In this world nothing is certain but death and taxes”. In this
article we address how both these certainties can affect your superannuation
benefits.
In 2006, “Simple Super” was introduced.
In typical fashion, while some items were simplified, other items became
more complex as a result of the changes!
Here’s a couple of things to watch out
for:
Super pensions are better than cashed out
super
Generally, if you meet a condition of
release (retirement for example) you are able to “cash out” your
superannuation benefit without personally having to pay tax after age 60.
However, If you withdraw the funds from the superannuation environment and
invest those funds in your own name, you may have to pay tax on the earnings
- so “cashing out” is often not desirable. Instead, funds can be “rolled”
into a pension fund where all earnings and pension payments will be
completely tax-free.
Do things in the right order
Let’s say Harry is 60, has $500,000 saved
up in super, has just retired, and wants to cash-out $50,000 to buy a new
car. While he may not personally have to pay tax on the $50,000 lump sum,
his super fund may have to sell some assets to get the cash to pay the lump
sum to him. This could trigger a capital gains tax bill of between 10% and
15%, which would reduce the funds Harry has remaining in his super fund.
Depending on how well that asset has grown over the years, this additional
(and unnecessary) tax could be quite significant.
Any tax payable by Harry’s fund could
simply have been avoided by first rolling the $500,000 balance to pension
phase, and then “cashing out” the $50,000.
Death without taxes?
What about when you die? There’s no death
duties or taxes anymore, right? Well, they aren’t called “death duties”
anymore but there is often tax to pay on your superannuation when you die.
A spouse and children under 18 are always
“financially dependent”, so generally if they are nominated as beneficiaries
to Harry’s Super or are the sole beneficiaries of his Estate, the benefit
will not be taxed*. However, where a
beneficiary is not defined as a “financial dependent” of the deceased member
(this is a strict definition), the benefit will be taxed between 16.5% and
31.5%.
In the above example, if Harry was aware
he was going to die in a week’s time, and his beneficiaries were not
“financial dependents”, Harry, his super fund and his beneficiaries could
all avoid paying unnecessary tax. While still alive, he could simply roll
his money to pension phase, and then cash in the total benefits to
distribute amongst his family in the proportions he desired. Unfortunately
(or should I say fortunately), most of us don’t know when we are going to
die, so this scenario is not an option unless you are terminally ill.
What often happens in Harry’s situation
is that he dies without sufficient notice. The fund will have to sell up
its assets to enable the beneficiaries to be paid out, and because his fund
cannot any longer be in “pension phase” once he is dead, the fund will be
liable for capital gains tax of between 10% and 15% on any profits it
makes.
Then the beneficiaries will be taxed on
the benefits they receive unless they fit the definition of “financially
dependent” (a spouse will always fit this definition, but adult children
rarely do). Someone who you think is “financially dependent” on you may
not be. For instance, a 21 year old living at home and going to university
could be a “financial dependent” if they have no other source of income.
However, if they have a part-time job, this may mean they are not
“financially dependent” and, consequently, the death benefit may be taxed.
So Harry needs to be careful about who he is nominating as a beneficiary of
his super fund and he needs to review it regularly as circumstances change.
If Harry does not nominate a beneficiary
of his super fund, then the trustee of the super fund will normally pay his
benefits to his Estate. Those funds will then be distributed according to
his Will assuming he has one! (if he doesn’t have a Will, this can cause all
kinds of problems – the extent of which is beyond the scope of this
article). If all beneficiaries of the Will are “financial dependents”
there will be no tax to pay. However, if some of the super death benefit is
left via the Will to someone who was not financially dependent on Harry,
they will have tax deducted.
Death can create a tax refund!
To add further complexity into the mix, a
super fund trustee has the right to apply for a full refund of all
contributions tax paid by a member over their lifetime, but this can
only be claimed once the member has died. Contributions tax is the 15% tax
your super fund pays to the ATO when it receives contributions that you or
your employer have claimed as a tax deduction. This commonly adds up to
thousands of dollars over your working life.
Here’s the catch – not all professional
super fund administrators will claim this – presumably because it is too
much work. However, if Harry had a Self Managed Super Fund (SMSF), the
trustee would normally be a family member, or an associated company. A
closely related trustee would be more inclined to do the work because they
or someone close to them would normally be the beneficiaries. They would
normally apply for the tax refund available under this “anti -detriment”
provision. However, there are some complexities in this provision, so
advice and assistance should be obtained.
More confused now?
In summary, it’s important that you
properly plan what to do with your superannuation benefits, both when you’re
alive and after you’re gone. Please take a look at whether you’ve nominated
any beneficiaries on your superannuation policy and consider the tax and
other implications of your nomination (or failure to nominate). If you’re
not sure of the taxation treatment or whether your nominated beneficiary
qualifies as a “financial dependent”, please ask us for advice.
Once you have your super sorted out, you
then need to review your Will. If you don’t have one, or if it needs
updating, we can refer you to a specialist in this area.
* Please note
untaxed super schemes like the old Comm Super Defined Benefit Schemes can
have different rules.
|
DON'T GO AWOL FROM YOUR FUND!
You are planning your once-in-a-lifetime
world trip, with months of stopping off in exotic countries… savouring the
flavours of the different cultures… not a care in the world.
You've left the workforce, so there's no
point in hurrying back…
But
what happens to your self-managed super fund (SMSF) while you are out of the
country?
Essentially, your fund will remain unaffected if you have ceased making
contributions and if you are travelling overseas for less than 2 years. The
two-year temporary absence rule was introduced in 2001 and was chiefly
directed at SMSFs. The ruling states that as long as you meet certain
conditions, you can continue to run your SMSF while overseas. The “temporary
absence rule” is an alternative test to the "central management and control
of a fund" test, which also applies to SMSFs.
Under
the “central management and control” test, trustees of an SMSF need to
reside in Australia so that they can meet to attend to the business of the
fund.
If you
plan to be overseas for a period exceeding 2 years, then you may encounter
some problems in relation to your SMSF. Ideally, if you intend to stay away
longer than the 2 year period, it might be wise to consider coming back to
Australia for at least 28 days, as this allows the 2 year period to start
again from scratch.
Once
you exceed the two-year period, then the fund will no longer be deemed a
resident-regulated fund, and as a result it will be non-complying. In that
financial year, the assets and income will be subject to the top marginal
tax rate (45 per cent excluding the 1.5 per cent Medicare levy) rather than
the concessional 15 per cent rate in super -- or indeed 0 per cent if in
pension mode.
However, even if you are overseas for less than two years, your SMSF may
well become non-complying if you were to make contributions during this time
as making contributions means that you are an active member of the fund.
While
you may have retired, there could still be a good argument for you to
continue to put as much money into super as possible to take advantage of
the tax-free status for those aged over 60.
Making
contributions is not a problem if your balance is less than 50 per cent of
the total assets of the fund and there is a resident trustee with more than
50 per cent of the balance. The rule is such that you cannot contribute
while you are overseas if you hold more than 50 per cent of the benefits.
If you
and a resident member have equal amounts in the fund, it may mean that the
resident member has to chip in the same amount as you in order to maintain
the percentages. More importantly, it is important to be aware that if your
SMSF merely comprises you and your spouse, and you are both taking this
world trip, any contribution that is made will get you into strife.
Two
years may seem an excessive time for retirees to be traveling overseas. But
such a time span would be far more likely for those working offshore. And if
that is the case, then you are even more likely to run into problems with
contributions.
It is therefore crucial that if you are
the trustee of a SMSF and are going to be out of the country for any amount
of time you take actions to communicate the details to the relevant adviser
in order to ensure that correct action is taken for your situation.
Call Prime Partners on (02) 9879 7005 to
arrange an appointment with one of our Superannuation experts.
|
SHOP WITH PRE-APPROVAL
You wouldn't go shopping without a credit
card limit, so why go house hunting without being certain of how much you
can afford to borrow?
Home loan
pre-approval will stop you from falling in love with a property and then
finding out it is financially out of reach. It gives you the ability to know
your limit and the peace of mind to be able to put in an offer. Whether you
are buying your first home, looking to upsize or hunting for an investment
property, having a pre-approval in your hand will empower your bargaining
position.
Although a pre-approval is no more than a statement of opinion by the lender
of your mortgage-carrying capacity, it does strengthen your negotiating
position with the seller as it demonstrates you are serious about the
property.
The pre-approval process involves an assessment of your income, assets and
credit. It is a short-term agreement that provides you with a loan limit
subject to the valuation of the property. It doesn't take the place of a
formal loan approval since the price of the property is preliminary.
If your offer on a property is accepted and you already have pre-approval
you won't have to wait around long to close the deal. The entire processing
procedure can be speeded up as you have already accomplished this first step
in securing a home loan. This extra time may be critical to a successful
deal if your contract has a cooling off period.
If you are
looking to purchase a property, we are happy to discuss your lending options
and organise for a loan pre-approval. Call us on
(02) 9879 7005 to speak with one of our
experts.
|
THE ANSWER TO OUR SEPTEMBER PRIME CHOICE QUICK QUIZ IS...
A hummingbird.
The Quick
Quiz question is in the latest edition of our Prime Choice newsletter.
Click here to download the
September
edition.
|
FINALLY SOME GOOD NEWS FOR INVESTORS...
Contrary
to what you’d learn in Economics 101, stock markets aren’t perfectly
efficient or rational. In our experience they tend to be driven up and down
by two primal emotions; greed and fear. Unfortunately, no-one ever knows how
long the greed will continue so we never know when to hop off the train. If
we did, it’s likely I’d be writing this article from my own private island.
Isn’t that greedy!
Studies
done on human emotion show that bad results hurt 2.5 times more than the joy
of a good result. So is it any wonder that, when the bull-run comes to an
end and investment balances start falling, we start questioning our approach
to investment? At the time of writing, the Australian stock market is off
26% from its highs last year. Other world markets have experienced similar
falls. We’ve been bombarded with bad news, so we’re going to tell you some
positive news.
The All-Ordinaries is now well below it’s long-term trend.
Looking
at the graph below you can see that the All Ordinaries index has fallen
below its long term trend. With the exception of 1982 (the “recession we had
to have”) and the period leading up to the crash of 1987 (when stock markets
became extremely overheated) the market has tended to stay within this trend
line.
Australian
Price to Earnings (PE) ratios are back to 1991 levels.
This
effectively indicates that stocks are currently cheap relative to other
investments (bonds, property etc.). You can see from the graph below that PE
ratios have fallen from an average of 17 a year ago to around 12 today. In
simple terms, that means if you had invested last year, it would have taken
17 years to recover your investment. An investment now in the all ords
index should take only 12 years to recover your initial investment.
Time will heal all.
If you
invest any money in shares or property, you should have a long-term
approach. For instance, while the All Ordinaries index is down 15.5% for
the financial year to June 30, 2008, it has made 51% (or an average of
10.2% p.a.) for the 5 years to June 30, 2008. Please note that these figures
do not included dividends, which, if considered, would make the result even
better.
A diversified portfolio is often the best approach.
All of us
have different attitudes to risk. Risk is often defined as volatility and
while things are going well, we can all forget that the more risk we accept,
the more volatility there’ll be in your capital. By diversifying your
portfolio within each asset class (eg holding 20 stocks instead of 2) you
can reduce the volatility of your portfolio. Spreading your money between
different asset classes (eg shares and property) will reduce the volatility
even further.
What does this all mean?
Good
quality shares are generally cheap at the moment, so now should generally be
viewed as a good time to invest. It shouldn’t be too long before people
realise this and start buying again. Once this happens, the greed component
of the greed/fear cycle is likely to gain ascendancy. Please seek
professional advice before making such investment decisions.
If you
already have money invested, the best approach is often to do very little
and stick with your original investment strategy. However, it is always a
good idea to review your portfolio on a regular basis with your Financial
Adviser just in case something needs adjustment.
Diversification will reduce the volatility in a portfolio but will never
eliminate it. Be prepared for the occasional negative return when you have
some exposure to shares and property and don’t look at one year in
isolation. It is important to remember all the good times you had in
previous years as part of a long term strategy.
Want to discuss your situation?
Call us
on (02) 9879 7005 and speak to one of our Financial Planners for advice.
|
LEGAL TITLE - WHO SHOULD OWN THE FAMILY WEALTH?
Whether
it’s buying the family home, or buying wealth-producing assets, one of the
most overlooked areas and least considered questions is “whose name should
go on the title deeds ?” It’s our experience that most people don’t really
give the issue full consideration and simply go for the “joint ownership”
default option. This approach could spell disaster further down the track.
THE DIFFERENCE BETWEEN “JOINT OWNERSHIP” AND “TENANCY IN COMMON”
“Joint
ownership” is where two or more people own an asset jointly between
them. There are no specified ownership proportions, and when one of the
owners of the asset dies, the whole ownership of the asset automatically
passes to the survivor(s). Most married couples own their family home this
way, but it isn’t always the best option.
“Tenants in common” allows two or more people to own an asset in
specific portions, and more importantly, allows them to deal with their
specified portion of the asset independently of the other owner(s). Under
this form of title, each party can bequeath their share of the property to
someone other than the other owner.
ISSUES TO CONSIDER WHEN BUYING ASSETS
Personal Assets
Personal
(non income-producing) assets such as the family home and holiday homes are
usually purchased in joint names for emotional reasons, but some more
hard-nosed issues should be considered before going down this route.
Purchasers should consider the following questions before deciding on the
name that will go on the title deeds:
-
Commercial risk – Is one of the proposed owners at commercial risk –
are they in an occupation which involves a chance they could be sued in
the future? If so, thought should be given to either removing that
person’s name from the title deeds, or by buying the asset as “tenants
in common” and limiting their ownership to a small proportion (as low as
1%)
-
Blended families – are there issues in relation to children or other
dependents from former relationships? Alternatively, are there issues
in relation to the parties contributing different amounts to the
acquisition and wishing to record ownership in proportion to the
contribution? If so, “tenants in common” should be used to allow
trouble-free splitting of the asset in the future
Negatively-geared wealth-producing assets
Negatively geared assets produce their own conflict as to whose name should
be on the title deeds:
There’s
no perfect solution to this one, and up until the May 08 budget there was an
attractive compromise (which involved owning the asset in joint names, but
having the highest income earner “salary package” the interest and other
ownership costs). Mr Swan has now effectively shut that option down.
This now
means that ownership of wealth-producing assets has to be considered on a
case-by-case basis, where we attempt to balance the competing interests of
risk protection, immediate tax benefit from claiming negative gearing
losses, and likely future tax arising when the asset becomes profitable or
is sold for a capital gain. We recommend that you contact us whenever you
are considering the purchase a significant investment asset to discuss both
the ownership of the asset and the funding of it.
By the
way, for anyone who is already using the “compromise” outIined above, it can
continue in operation until 31 March 2009. After that time the ATO will
impose Fringe Benefits Tax, and this will result in a worse tax position
than would apply without the salary packaging.
Positively geared wealth-producing assets
With
investments that are running at a profit, we gain a much wider choice of
ownership options. Profit-making investments are usually (but not always)
best left out of the highest income earner’s hands, and can either be
purchased by the lower income earner, or can be placed into the hands of
more flexible structures such as family trusts or super funds. Depending on
the circumstances, both of these entities can provide more attractive tax
treatment and should be considered whenever acquisition of a profit-making
investment is being contemplated.
Get advice
The
purpose of this article is not to let you know what to do when acquiring
each class of asset, because the correct answer will vary, depending on the
particular circumstances involved in the acquisition. What we encourage you
to do is not just blindly accept the “default” position. We urge you to
devote as much time to deciding who should own the asset, as you did to
deciding to acquire the asset in the first place.
As
always, the best decisions are made after consulting the experts, and we
encourage you to give Prime Partners a call on (02) 9879 7005 whenever a
major purchase is on the horizon.
|
ARE YOU PUTTING YOUR FAMILY AT RISK?
1 in 3 Australians say a lack of understanding is a reason for them
not having life insurance. Over half believe they do not need
it.
If you
are in the half that think they don’t need insurance, here’s some scary
statistics for you to think about …
-
Heart
attack, coronary artery bypass surgery, malignant cancer, and stroke
account for 83% of all critical illness claims.
*
Statistical sources available on request.
Are you
confident you are adequately covered if things go wrong?
Most
people are under-insured. We don’t want you to fall into this category –
particularly if you have debt, a spouse and/or young children. Even if you
have some cover, it is important to review and update this on a regular
basis because as your life changes, so do your insurance requirements. If
you already have some cover (like automatic cover through your employer
superannuation fund), please do not assume that this is adequate for
your needs.
Ask
yourself the following questions.
-
If
you suffer a critical illness or die, do you know what conditions are
covered, how much cover you have, and whether this is adequate to pay
off debt and to meet the longer-term living expenses of your family?
Recently
a number of our clients have suffered events which gave rise to an insurance
claim. Because they had followed our earlier recommendations and were
properly insured, they are now in a financially secure position to help
re-build their lives. This has reinforced our belief that proper insurance
is a vital part of planning for the future, and we urge you to review your
current insurances to make sure your financial future is protected.
For more information or an obligation-free assessment of your situation,
please call Min Chang on (02) 9879 7005 to arrange a time to meet one of our
Financial Planners.
|
CONTRIBUTION RULE AFTER 65
The good news for those who are over 65 and still working is that
you can continue to make personal contributions towards your Self
Managed Superannuation Fund. However the only catch is you must pass
an over 65 work test.
You can
continue to contribute to your fund until the 28th day proceeding the month
of your 75th Birthday. To fulfill your over 65 work test requirements, you
must:
Have 40 hours gainful employment in a consecutive 30 days, during a
financial year when the contributions are made.
The term
‘gainful employment’ can include:
-
Business
-
Trade
-
Profession
-
Vocation
-
Calling
-
Occupation
-
Employment
Unfortunately, with such requirements, unpaid work for example charity
involvement or receiving a dividend income does not qualify as ‘gainful
employment’. Additionally, there are contribution caps which will be
enforced.
For more information regarding superannuation please contact us on
(02) 9879 7005.
|
FIXED VS VARIABLE HOME LOANS
It is a perplexing matter to consider in the wake of steadily
growing inertest rates: do you choose the fixed or variable home
loan option?
Unfortunately there is no easy answer. However as your Broker, Prime
Partners can help find the right option for you based on your financial
situation, lifestyle and goals.
Here are
a few points to consider when choosing the loan that best tailors to your
needs:
Fixed rate loans
ü
Best for home owners on a strict budget, guaranteed the certainty of a
regular sum repayment
û
You will be financially penalised if you try to opt out of the loan early
with additional repayments
û
You are set at a fixed rate which is generally higher than variable loans
Variable rate loans
ü
Gives you the flexibility to adapt your repayments
û
You must be prepared for interest rate rises which may mean you will have to
increase repayment sums, thus you will have to plan ahead your budget which
must support this
Split rate loans
ü
For those who can’t decide on variable or fixed. Split allows you to divide
your loan between both fixed and variable interest rates, ultimately
allowing you access to both options.
Choosing
the right home loan for you is a significant decision to make, which will
affect your finances and lifestyle for years to come.
To ensure you have made an entirely informed choice, contact us now for
additional advice and guidance on (02) 9879 7005.
|
ACTION TO TAKE BEFORE 30th JUNE
ACTIONS THAT WILL SAVE OR DELAY TAX
1. Prepayments
If your
business has average gross revenue for 2008 of less than $2,000,000 you now
automatically qualify to use the Simplified Tax System. That means that you
can claim a deduction in this tax year for prepayments. So if your gross
revenue is below the $2,000,000 limit and it is showing good profits,
consider prepaying up to 12 months of future costs such as those listed
below:
If your
2008 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 any expenses a little earlier.
2.
Purchase equipment
Provided
your 2008 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 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
Contributing to super 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 $ 50,000
Over 50 at time of contribution $100,000
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.
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.
You need
to 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 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
7. Use Tax-Effective Investments
If you
have a large income or capital gain, it often makes sense to offset this by
investing in specially structured tax-effective investments. The simplest
way to view these is:
If you do
nothing you pay the tax on your income and you will never see that money
again; OR
You
purchase an ATO-approved investment. The net (after-tax) cost of the
investment will be roughly equivalent to the tax that you would have paid to
the ATO, but you will gain a return on your investment in the future, so you
are saving tax and building wealth at the same time
Further
information on these investments can be obtained by contacting our office.
ACTION ALL BUSINESSES MUST TAKE
1. Stock Take
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
(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 2008 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
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.
You can download
a pdf version of this information for easier printing and reference by
clicking here.
|
SUMMARY OF THE FEDERAL BUDGET 2008 HIGHLIGHTS
The
2008 Federal Budget contained no major surprises, with many of the measures
re-iterating previous announcements (including personal tax cuts). While
there were no substantial changes to superannuation, there were still some
items of interest.
Treasurer
Wayne Swan proudly announced a surplus of $21.7 billion (thanks to the
resource boom), most of which will handed over to the Future Fund Board to
manage and provide for:
-
infrastructure – the Building Australia Fund - $20 billion;
-
a
Health and Hospitals Fund - $10 billion; and
-
an Education Investment Fund - $11billion.
Prime
Partners Alert outlines the following items of interest.
Tax Rates
|
Current tax thresholds ($) |
Tax rate% |
New tax thresholds from 1 July 2008 tax thresholds Income range ($) |
Tax rate % |
New tax thresholds from 1 July 2009 tax thresholds Income range ($) |
Tax rate % |
New tax thresholds from 1 July 2010 tax thresholds Income range ($) |
Tax rate % |
|
0
– 6,000 |
0 |
0
– 6,000 |
0 |
0
– 6,000 |
0 |
0
– 6,000 |
0 |
|
6,001 –
30,000 |
15 |
6,001 – 34,000 |
15 |
6,001 – 35,000 |
15 |
6,001 – 37,000 |
15 |
|
30,001 –
75,000 |
30 |
34,001 – 80,000 |
30 |
35,001 – 80,000 |
30 |
37,001 – 80,000 |
30 |
|
75,001 –
150,000 |
40 |
80,001 – 180,000 |
40 |
80,001 – 180,000 |
38 |
80,001 – 180,000 |
37 |
|
150,001 + |
45 |
180,001 + |
45 |
180,001 + |
45 |
180,001 + |
45 |
Low Income Tax Offset
The
following increased Low Income Tax Thresholds will apply:
|
Effective Date |
Low Income Tax Offset |
No tax payable if Taxable Income is below: |
|
1
July 2008 |
$1,200 |
$14,000 |
|
1
July 2009 |
$1,350 |
$15,000 |
|
1
July 2010 |
$1,500 |
$16,000 |
Senior Australian Tax Offset (SATO)
|
Effective Date |
No tax payable by Single if Taxable Income is below |
No tax payable by each member of a couple if Taxable Income is
below: |
|
1
July 2008 |
$28,867 |
$24,680 |
|
1
July 2009 |
$29,867 |
$25,680 |
|
1
July 2010 |
$30,685 |
$26,680 |
Medicare Levy Surcharge Threshold
Effective from 1 July 2008, the Government will increase the Medicare levy
surcharge threshold for singles from $50,000 to $100,000 and for members of
a family from $100,000 to $150,000,
The
standard Medicare levy will not be charged where taxable incomes are below
$17,309 for singles and to $29,207 for a family. This threshold will
increase by $2,682 for each dependant child
Extension of the small business concessions
For the
2007/08 tax year onwards, the Government will increase access to the small
business concessions for
Education Tax Refund
From 1
July 2008, families receiving Family Tax Benefit (Part A) with children
undertaking primary or secondary studies will be able to claim a 50 per cent
refund every year for key education expenses up to $375 per child per year
for primary students and $750 per child per year for secondary students.
Eligible
families will be able to recoup the cost of items such as laptops, home
computers, home internet connection, printers, education software, trade
tools for use at school, school text books and stationery.
Parents will be able to claim the 50 per cent refund when they
complete their tax return.
Dependency Tax Offset
From 1
July 2008, earning more than $150,000 will not be entitled to the dependent
spouse, housekeeper, child-keeper, invalid relative and parent/parent-in-law
tax offset
From 1
July 2009, the Government will align the definition of income for the above
that will apply to family assistance payments.
Family Trusts
From 1
July 2008, the Government will change the definition of “family” in family
trust elections rules to limit lineal descendants to child and grandchildren
of the test individual or of the test individual’s spouse.
This will
limit the range of beneficiaries available to receive distributions and may
reduce the tax effectiveness of some family trust structures.
Withholding Tax on Certain Managed Fund
Distributions to Non-Residents
Australian taxation to be withheld from certain components of managed
fund distributions to non-residents will be reduced from the current 30% to,
ultimately, 7.5 per cent.
The
reduction will only apply to residents of jurisdictions with which Australia
has ‘effective exchange of information arrangements’ to be specified under
Regulations. Residents of other jurisdictions will have 30 per cent
Australian tax withheld, as a final tax (without set off of deductions in
Australia) from certain components of managed fund distributions.
The
Australian tax rate to be withheld from fund payments to residents of
eligible jurisdictions are intended to be as follows:
-
2008/09 - non-final withholding tax at 22.5 per cent (i.e. taxpayer can
claim deductions for expenses relating to these payments);
-
2009/10 - final withholding tax of 15 per cent (without reduction for
expenses
-
2010/11 and later years - final withholding tax of 7.5 per cent
(without reduction for expenses).
These
withholding tax arrangements will apply to distribution components relating
to Australian sourced net income (other than dividends, interest and
royalties for which there are no changes to the withholding tax rates).
Capital Protected Loans - New Benchmark
Interest Rate
The deductible portion of the funding costs attributable to capital
protected loans will decrease for arrangements entered into after 13 May
2008.
Under
the previous law, the deductible portion of the funding costs under these
loans was limited to the Reserve Bank’s personal unsecured loan variable
interest rate. For new loans, the
deductible amount will be limited to the Reserve Bank’s indicator variable
rate for standard housing loans.
Existing
loans will preserve the current tax treatment for the shorter of five years
or the life of the product.
Typically, capital protected loans are used to acquire shares with the
additional feature of protection against a reduction in the value of the
shares. The funding costs under these loans are usually higher than normal
margin loans to reflect the protection.
This
measure will reduce the tax effectiveness of these loans, which include
common arrangements such as instalment warrants and capital protected equity
loans. Using the most recently published Reserve Bank rates, the deductible
percentage rate will reduce from 14.55 per cent to 9.35 per cent for new
loans.
FBT
– Loophole for “double dipping” on Laptops closed down
The
current FBT exemptions for certain eligible work-related items will be
tightened so that they are only available where the items are primarily used
for work purposes. This is intended to cover items such as laptops, PDA’s
and tools of trade. The exemption will also be limited to one item of each
type per employee per year.
This will
impact the ability of employees to salary sacrifice laptops for other family
members.
In
addition, the ability of employees to claim depreciation deductions on these
exempt benefits, such as laptops, that were purchased under effective salary
sacrifice arrangements will no longer be available for new purchases. For
items already purchased, the employee will be able to claim depreciation
deductions for the 2008 tax year only and future deductions will be denied.
Salary packaging of Jointly Held Assets no longer available
This
measure closes a tax effective arrangement that was previously available to
couples who had significant differences in their marginal tax rates. It
applies to a situation in which a husband and wife jointly own an
income-producing asset, but the higher earner of the two “salary packages”
the interest and other costs of ownership.
This
effectively provided the higher income earner with a full deduction for the
costs of ownership, while the income from the asset was split with the lower
income earner.
The FBT
law will be amended to ensure that the full value of the benefit enjoyed by
the employee and the spouse will be subject to FBT. This will apply to new
arrangements.
Employees
who have previously entered into such arrangements will be able to continue
the existing arrangements up to 31 March 2009.
The
Government states that this measure re-establishes the principle whereby
income and deductions from jointly held assets are allocated between joint
owners according to their legal interests.
First Home Savers Accounts
These
will be offered either as a savings account with a financial institution or
through a separate trust structure. Super funds will not be able to offer
them through the super fund itself.
-
The
start date for the first home savers accounts will be 1 October 2008.
-
The
Government will provide a flat 17 per cent co-contribution on the first
$5000 of contributions.
-
The
tax on investment earnings will be 15 per cent (as previously
announced).
-
A cap
of $75,000 account balance (indexed) after which no further personal
contributions can be made. This replaces the originally announced cap of
$10,000 p.a.
-
It is
expected to cost the Government $1.1 billion over four years ($975 in
co-contributions and $125 million in tax concessions on earnings).
Super House Clearing Facility
The
Government has announced $16 million to the Australian Taxation Office over
three years for a superannuation clearing house facility to commence on 1
July 2009. Employers can pay super contributions to a single location and
the clearing house will send the contributions on to the nominated super
funds. The facility will be free for employers with less than 20 employees
and on a fee for service basis for those with 20 or more employees. The ATO
will not provide the facility itself, but will contract it out to the
private sector.
Social Security
Child Care Rebate
From 1
July 2008, the child care rebate for out-of-pocket expenses will increase
from 30 per cent to 50 per cent, which will be capped at $7,500 per child,
per year. The payment will be quarterly, instead of annually, with families
receiving the first quarterly payments from October 2008.
Carers Payment & Allowance
Carer
Allowance recipients will receive a $600 tax-free bonus for each eligible
care receiver and Carer Payment recipients will receive a $1,000 tax-free
bonus for each eligible care receiver.
Baby Bonus
From 1
July 2008, the baby bonus lump sum payment will increase to $5,000.
From 1
January 2009, the baby bonus will be means tested and subject to an annual
$150,000 limit based on the family’s adjusted taxable income.
Australia's Future Tax System
Treasurer
Swan has announced “the most comprehensive review of Australia’s tax system
since World War 2” .
The first
discussion paper will be released in July 2008 and the review panel will
report by December 2009. As already announced there will be no changes to
the GST rates and no changes to the tax-free super payments at age 60.
Otherwise, the terms of reference are wide including:
-
“improvements to the tax and transfer payment system for individuals,
working families including those for retirees";
-
"enhancing the taxation of savings, assets and investment, including the
role and structure of company taxation”.
This
means that there are big reforms on the horizon and maybe Budget 2010 will
be the one to watch.
|
ARE YOU PUTTING YOUR FAMILY AT RISK?
1 in 3 Australians say a lack of understanding is a reason for them
not having life insurance. Over half believe they do not need
it.
If you
are in the half that think they don’t need insurance, here’s some scary
statistics for you to think about …
-
Heart
attack, coronary artery bypass surgery, malignant cancer, and stroke
account for 83% of all critical illness claims.
*
Statistical sources available on request.
Are you
confident you are adequately covered if things go wrong?
Most
people are under-insured. We don’t want you to fall into this category –
particularly if you have debt, a spouse and/or young children. Even if you
have some cover, it is important to review and update this on a regular
basis because as your life changes, so do your insurance requirements. If
you already have some cover (like automatic cover through your employer
superannuation fund), please do not assume that this is adequate for
your needs.
Ask
yourself the following questions.
-
If
you suffer a critical illness or die, do you know what conditions are
covered, how much cover you have, and whether this is adequate to pay
off debt and to meet the longer-term living expenses of your family?
Recently
a number of our clients have suffered events which gave rise to an insurance
claim. Because they had followed our earlier recommendations and were
properly insured, they are now in a financially secure position to help
re-build their lives. This has reinforced our belief that proper insurance
is a vital part of planning for the future, and we urge you to review your
current insurances to make sure your financial future is protected
For more information or an obligation-free assessment of your situation,
please call Min Chang on (02) 9879 7005 to arrange a time to meet one of our
Financial Planners.
|
INTRODUCING TAX EFFECTIVE INVESTMENTS SEMINAR
This seminar will concentrate on tax planning for the 2007 - 2008
financial year. It will be useful for people who:
There
will be a guest speaker at the seminar.
Where:
Prime Partners Boardroom
Level 1, 230 Victoria Road
GLADESVILLE NSW 2111
When:
Tuesday 22nd April 2008 @ 6:30pm
Wednesday 30th April 2008 @ 7:00am
Wednesday 7th May 2008 @ 6:30pm
There will light
refreshments provided at the afternoon seminars and a light breakfast will
be provided at the morning seminar.
RSVP: Call Min Chang on 02 9879 7005 or
email
mchang@primepartners.com.au.
|
THE ANSWER TO OUR MARCH PRIME CHOICE QUICK QUIZ IS...
Its a Hare, its back legs are longer than its front.
The Quick
Quiz question is in the latest edition of our Prime Choice newsletter.
Click here to download the March
edition.
|
ITS FBT TIME AGAIN
31st March is the official end of the Fringe Benefits Tax year.
That means all employers who have provided benefits other than
salary or super to their employees have to account to the ATO for
the value of those benefits.
So, if as
an employer, you provided car, travel, entertainment, financial
assistance at less than commercial rates, or other non-salary or super
benefits to any employees, you must report these benefits to the ATO
and pay the appropriate amount of Fringe Benefits Tax on them. In mid
March, we will issue to our employer clients, a check list to assist them in
compiling the necessary information. Alternatively, you can
download the checklist
from our website.
Note the
emphasis in the above paragraph on the employer/employee relationship. FBT
only applies to benefits provided as part of that relationship. It does not
apply, for example, to benefits provided to partners in a partnership, or
sole traders. The definition of “employee” however, is very broad, and
includes directors of companies, trustees of trusts, and spouses, family and
associates of employees and directors. Non-salary or super benefits provided
to people in these categories will be taxable fringe benefits.
Minimisation Strategies
As with
all taxes, there are strategies that can be used to legally minimise the
amount of FBT payable:
-
Should you be providing Fringe Benefits at all ?
Fringe Benefits Tax is imposed at 46.5% on the grossed-up value of the
benefits provided. However, with the relatively recent changes to tax
rates, the vast majority of Australian taxpayers are on tax rates of
31.5% to 41.5%. – so those who are receiving packaged benefits are
incurring an FBT cost of 46.5%, but only receiving an income tax benefit
of 31.5% to 41.5% Unless you are a special class of employer, it is
actually detrimental to provide non-concessional fringe benefits to
employees who earn less than $150,000 per annum, and you should be
asking whether those benefits should continue to be provided to those
employees.
-
Write up a log book
Often, for reasons of convenience (or laziness), fringe benefits tax is
calculated on cars using the “statutory formula method”. Whilst this is
a valid approach for vehicles with minimal business usage, it is often
more costly than the “operating cost” approach for vehicles with
significant business usage. Have your employees write up a log book for
12 consecutive weeks to accurately record the percentage business usage
of the car. You then have the choice of which method to choose, and
naturally, that choice will be the cheaper of the two alternatives !
-
Use non-taxable vehicles
Certain vehicles are not subject to FBT:
-
Vehicles with a rated carrying capacity of more than one tonne,
-
Vehicles designed by the original manufacturer to carry 9 or
more passengers;
-
Commercial vans and utilities where the private usage is limited
to driving to and from work
Have
a look at the vehicles in your fleet and decide if any of these vehicle
types are appropriate for your business.
-
Make employee contributions to reduce FBT
Many
employees pay some of the running costs on vehicles (eg petrol for
private trips). These costs paid by the employees are deemed to be
“employee contributions” and they actually reduce the amount of FBT
payable. Make sure that employees in this situation obtain and retain
receipts and documentary evidence of the expenses they have paid on
vehicles owned by the employer.
-
Categorise your expenditure correctly
Entertainment costs are subject to Fringe Benefits Tax – at least on
the portion attributable to employees. However, some businesses aren’t
aware of the distinction between entertainment, staff welfare and
marketing. Meals provided on the business premises over a working lunch
for example does not constitute “entertaining” and are not subject to
FBT, whereas a cup of coffee (or a beer) purchased and consumed outside
the business premises is “entertaining” and is subject to FBT. Meals or
snacks provided as incidental to a seminar or conference is not
“entertaining” Provided the meal is not the main issue, then the meal
is either “marketing” if the principal attendees are business clients or
prospects, or “staff training” if the attendees are staff. NB: The
ATO has classified 38 different types of “entertaining” – some of which
are subject to FBT, and some of which are exempt from FBT and
tax-deductible – so tread with caution.
-
Use the “Minor Benefits” exemptions
Benefits which are minor in nature (such as Christmas gifts of less than
$300 per employee) are exempt from FBT, and are tax deductible.
“Entertaining”, such as for the annual Christmas party, can also be
exempt from fringe benefits tax so long the cost is less than $300 per
persona and it can be classified as infrequent and irregular. However,
entertaining of this nature is not tax deductible. By contrast, the
provision of laptops and mobile phones (and similar devices) are exempt
fringe benefits which do not have to be reported and are still tax
deductible.
At the risk of stating the obvious, Fringe Benefits Tax is a minefield, and
there are other exempt benefits and traps that we haven’t had the space to
deal with in this article. Knowledge of the rules is essential. We
recommend that you contact us
on 02 9879 7005
if you have any questions or if you would like to review your business’s
fringe benefits structure.
|
TRANSITIONING TO RETIREMENT SEMINAR FEBRUARY 20 & 26, 2008
Recent Government changes have attempted to
reduce the stress of funding your retirement by introducing changes
to superannuation that are more flexible and adaptable to each
person’s situation.
To find out more about this important topic,
join us for a free seminar that will answer all your questions about the
changes to superannuation regulations and show you how to:
1. Create tax-free income - even while you’re
still working.
2. Reduce your work hours now and maintain your
current lifestyle.
3. Increase your retirement income without
sacrificing your lifestyle today.
RSVP: Friday 15th February. Call Min Chang on 02 9879 7005 or
email
mchang@primepartners.com.au.
*Australian Bureau of Statistics – Australian
Social Trends 1999 Population – Population Projections: Our ageing
population
|
TESTAMENTARY TRUSTS
Have you ever considered having a Testamentary Trust as part of your
Will?
A testamentary trust is a trust created by a will. It is generally a
discretionary trust – one where the Trustee has discretion about how
much is paid to the beneficiaries of the trust.
A testamentary trust has two significant advantages for a will maker
and the nominated beneficiaries:
Income splitting
The Tax Act provides that income and capital gains derived by
children under the age of 18 years from assets received as a result
of a will are not subject to penalty tax rates. Children who benefit
under a will are taxed at the normal marginal rates.
This has the following significant tax advantages:
-
Each child has a tax-free threshold of $6,000. Taxable income
between $6,000 and $30,000 will be taxed at the low rate of 15%.
Medicare levy of 1.5% may also be payable.
-
Imputation credits attaching to franked dividends received can
be effectively used by the child.
-
The main advantage of using a discretionary, testamentary trust
for bequeathed assets is that any income gains, capital gains
and franked dividends can be distributed among all the family
beneficiaries each year in the most tax-efficient way.
The tax concessions do not apply solely to income and capital gains
derived by the trust from inherited assets. They also apply to any
income and capital gains derived from assets acquired from the
reinvestment of moneys received from the original inherited assets.
There is no legal limit to how many testamentary trusts a will can
establish. Ideally, a will would establish a separate testamentary
trust for each beneficiary.
Asset protection
Many clients are concerned about protecting their assets. They want
to make sure that the assets remain within the family and are used
to benefit family members.
In particular, clients are concerned about:
-
their beneficiaries becoming bankrupt, especially those that are
involved in highly leveraged businesses;
-
their beneficiaries becoming divorced and their assets being
split in the divorce;
-
spendthrift children;
-
ensuring that the surviving spouse will pass on their assets to
their children upon that person's death; or
-
looking after handicapped children.
The significant advantage of a testamentary trust is that the assets
are held by a trustee or trustees, and the benefit of the income and
capital of the trust passes to the beneficiaries. This separation of
control and benefit allows testamentary trusts to help protect
assets from any legal action involving the beneficiaries.
The terms of the testamentary trust are set out in the Will. These
terms can restrict the ability of any of the beneficiaries to
control the activities and investments of the trust or give them
complete control if they are also trustees.
Most clients wish to make sure that their assets are invested and
managed for the benefit of their beneficiaries, so it is often
appropriate to have independent people as trustees for the
testamentary trust. This should only be done after careful
consideration of the implications.
Prime Partners has a strategic alliance with a legal firm that
implements Wills and Testamentary Trusts for our clients. For more
information contact Prime Partners on 02 9879 7005.
|
LAND TAX - THE "CLAYTONS" WEALTH TAX
It
has always been a source of irritation to many that, simply by
owning real estate, many clients are subjecting themselves to a
major tax burden each year that others with similar levels of wealth
do not have to pay.
Why
is it that someone owning an investment property with a land value
of $500,000 pays land tax of over $2,500 each year, while someone
with a share portfolio worth $500,000 pays nothing in equivalent
taxes? And why is this tax still payable even if the property does
not produce any income (say, because it is a privately used
weekender)?
The
answer to those questions is purely political, and for many existing
land owners, is beyond their control.
Change of ownership
However, if you are either acquiring or disposing of real estate,
you may be able to minimise your land tax bill for at least one
year. Land Tax is based on the land value of property you own at
midnight on 31 December each year. Purchasers are deemed to own
the real estate if they have “settled” (i.e. paid the final balance
of the purchase price) on the property before midnight on 31
December. Conversely, vendors are deemed to have disposed of the
property if they received settlement before midnight on 31 December.
So,
if you are buying a property that is not to be your principal place
of residence, delaying settlement until after 31 December can save
you a significant amount of land tax that would otherwise be payable
in early 2008. Of course, if you are selling an investment property,
it is very much in your interest to try receive settlement before 31
December – then the land tax becomes the purchaser’s problem.
Land
Tax is so significant that it has deterred many investors who may
otherwise have been inclined to accumulate property. However, if
you, like many Australians, still see property as the way to create
wealth, there are a couple of things you can do to minimise land
tax:
Acquire property in different states
Land
Tax is a tax imposed by each of the states, and the rate varies from
state to state. In NSW, you do not pay land tax if the total land
value of your non-principal-residence property is less than
$352,000. Each state has similar thresholds. If you acquire property
in different states, they do not get accumulated for land tax
purposes, and it is possible to own at least one property in each
state without attracting land tax. Note that the land value of each
property must be below that state’s threshold. Note also that you
must consider the commercial issues associated with “tyranny of
distance” that usually arises when buying property in areas that you
are not familiar with, and which make it inconvenient to check on
the need for expensive repairs etc.
Invest in property trusts
This is a different way to own property. Instead of buying one
single property, and concentrating all of your risk, you can pool
your funds with other investors into a property trust, and buy
multiple properties in which you own a share. Yes, the property
trust still pays land tax. However, because it buys bigger and more
diversified properties we would anticipate that it would be able to
accomplish:
-
A higher income yield for you (after all costs have been paid);
-
A better tax result because the larger and newer buildings being
acquired by the trust usually allow for much greater
depreciation deductions;
-
Better quality “big name” tenants; and
-
Because you obtain the services of a professional property
manager as part of the arrangement, you can often achieve some
respectable capital growth on your investment.
Want to know more? Give us a call on 02 9879 7005 and let Rachel
know which of the paragraphs above is of major interest to you. She
will direct your call to the appropriate adviser.
|
FAMILY TO THE RESCUE!
Buying that first home is harder now than at almost any other time in the past. However, all is not lost - financial institutions are developing options to help first home-buyers establish themselves in their own homes sooner with the help from certain family members.
Financial institutions call these loans by different names however they are most commonly known as family guarantee loans. They are particularly attractive as a way of helping children who, for a variety of reasons, haven’t been able to save a deposit into their first home but are now able to meet the repayments.
Our clients Aaron & Sarah are a typical example. Both completed their uni degrees at the end of last year. As students they haven’t had a chance to save a deposit, but with solid incomes, they are now keen to own the roof over their heads.
After talking to us they chose a home costing $500,000. We arranged a 100% loan with Aaron’s parents providing a family guarantee for just 20% of the loan, secured by the equity in their own home.
Aaron & Sarah feel they can comfortably meet the repayments of $3.600 per month but if they have any shortfall while they are getting established, it is covered by the guarantee.
The family guarantee loans have many benefits for all concerned, including:
-
The borrowers have the house of their choice, which they couldn’t have afforded without assistance.
-
The parents are able to help their children into their first home at no cost to themselves.
-
The guarantee is limited to only that part of the loan in excess of 80% of the property value. The guarantee will be cancelled when the loan is reduced to that level
-
The borrowers are able to avoid paying costly mortgage insurance usually required when borrowing greater than 80% of the purchase price;
-
The borrowers still have access to a full choice of variable or fixed rate mortgage options.
Prime Partners Lending is able to advise you of the range of finance options available and ensure that the facility works for everyone. For further information please contact us on 02 9879 7005 or service@primepartners.com.au.
|
TRANSITIONING TO RETIREMENT SEMINAR 6.00PM WEDNESDAY OCTOBER 17 & TUESDAY
OCTOBER 23
People are living
longer and as the baby boomer generation reaches their retirement
years, it’s estimated that the population aged 60 years and over
will double*. While a long life expectancy is good news for all of
us, some may feel anxious about funding our retirement years
Recent Government
changes have attempted to reduce the stress by introducing changes
to superannuation that are more flexible and adaptable to each
person’s situation.
The old rules
In the past, most people approaching
retirement faced an all or nothing decision. Generally, they either
continued to earn a full-time salary or they retired permanently and
accessed their super savings.
The new rules
On reaching your ‘preservation’ age, you can
access your super through a ‘non-commutable’ income stream (see
table below for your preservation age). You can continue working
full or part-time or you can retire permanently from the workforce.
It’s up to you.
A non-commutable
income stream is one that allows you to draw a regular income
(either as a fixed regular payment, or as a regular payment within
prescribed limits), but does not allow you to make lump sum
withdrawals.
What’s your preservation age?
|
Date of
Birth |
Age |
|
Before 1 July 1960 |
55 |
|
1 July 1960 – 30 June 1961 |
56 |
|
1 July 1961 – 30 June 1962
|
57 |
|
1 July 1962 – 30 June 1963
|
58 |
|
1 July 1963 – 30 June 1964
|
59 |
|
After 30 June 1964 |
60 |
Your preservation age
These changes to
superannuation also make it a lot easier for people to work
part-time without having to reduce their income. Studies show that
keeping your mind active in retirement is essential, consequently a
part-time job may provide mental stimulation, allow you to maintain
contact with a network of friends and contacts that inevitably
develop through work, provide you with additional income and give
you time to explore new hobbies.
Additionally
pension income may be tax free. Whilst it is taxable for those aged
between 55 and 60, tax offsets of 15% are available to reduce any
tax payable. However from 1 July, for those over 60, pension income
is completely tax free, and will not have to be declared on your tax
return.
To find out more
about this important topic, join us for a free seminar that will
answer all your questions about the changes to superannuation
regulations and show you how to:
1. Create
tax-free income - even while you’re still working.
2. Reduce your
work hours now and maintain your current lifestyle.
3. Increase your
retirement income without sacrificing your lifestyle today.
RSVP:
Friday 12th October. Call Rachel Leard on 02 9879 7005 or email
service@primepartners.com.au.
*Australian Bureau
of Statistics – Australian Social Trends 1999 Population –
Population Projections: Our ageing population.
|
PROFIT OPTIMISER - HELPING YOU MAXIMISE YOUR PROFIT
Analysing and evaluating your accounting data is an important
component of managing your business professionally. A detailed
review of your financial statements allows you to really understand
the opportunities for growth and control your expenses.
Profit Optimiser is
an exciting piece of new technology we use to provide our business
clients with an evaluation of their financial records. It determines
the strengths and weaknesses of their business so they can make
better decisions for future growth.
Following a detailed
analysis of your core financial data, we produce an easy-to-understand
'financial scorecard. We then:
-
Provide you with comprehensive information that
will help you map out a financial strategy and provide numerous
opportunities for business improvement;
-
Model future profit, performance and cash flow
scenarios.
Our clients find
Profit Optimiser extremely beneficial for a number of reasons
including:
-
Interpretation
of 3 key financial drivers: profitability, cash flow and growth
as a service to improve financial performance.
-
To provide
annualised and projected financial data.
-
Developing
strategies to determine results of ‘what if' scenarios.
-
Goal
seeking to visualise future improvements.
-
Assessment of
anticipated tax position.
-
Document agreed
performance measures.
To find out more about how we can help you maximise your profits
with Profit Optimiser, contact us on 9879 7005 or email
service@primepartners.com.au
to arrange an appointment now.
|
END OF FINANCIAL YEAR TAX TIPS FOR BUSINESSES
Below are some actions you can take prior to 30 June to assist you to delay or reduce your tax liability;
1. Prepayments
If your business has average gross revenue for 2007 of less than $2,000,000 you now automatically qualify to use the Simplified Tax System. That means that you can claim a deduction in this tax year for prepayments. If your 2007 turnover exceeds $2,000,000 prepayments will not be deductible. Conserve your cash for other strategies such as superannuation contributions. We recommend that you examine your forward expenditure plans to determine whether it is beneficial to incur any expenses a little earlier.
2. Purchase equipment
Again, if your 2007 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.
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
Contributing to super 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 based on the age of the employee/member at the date of the last contribution made for them. 2007 is also the last year that self-employed people need to contribute more to achieve the maximum deduction.
5. Get SUPERANNUATION GUARANTEE contributions up to date
The minimum super contribution is 9% of gross, ordinary time earnings. You need to 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 other income, so where they exist, trigger them by selling the loss making shares.
7. Use Tax-Effective Investments
If you have a large income or capital gain, it often makes sense to offset this by investing in specially structured tax-effective investments.
If you require more information, please do not hesitate to contact us on (02) 9879 7005 or service@primepartners.com.au
2007 Tax Preparation Kit Now Available!
The Prime Partners Tax Preparation Kit is a simple to use folder which lists all the required documents when submitting your information to us. It allows you to organize all your documents into sections making your life easy. Prime Partners has designed this folder as another way of serving you better and making tax time a breeze.
To order your FREE Tax Preparation Kit, please call us on 02 9879 7005 or email service@primepartners.com.au for your copy today.
Now is FBT Time
If your business provided any Fringe Benefits during the year ending 31 March 2007, you will need to lodge an FBT Return. The due date for lodgment is 21 May 2007. This includes fringe benefits provided to:
-
You;
-
A relative;
-
An employee or director; or
-
Relatives of employees or directors.
Please be aware that if you are registered for FBT but will not be lodging a return because no FBT is payable, a notice of non-lodgement of an FBT return should be sent to the Tax Office. This is to prevent a request for lodgement being made by the Tax Office at a later period.
If you require any further information in regards to FBT reporting requirements or if you are unsure if fringe benefits tax applies to you, than please do not hesitate to contact us on (02) 9879 7005.
Super Changes - Only 10 Weeks To Go
It is less than 10 weeks now until the changes passed by Parliament last December come into effect. These sweeping changes to legislation governing taxation on superannuation are intended to:
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Simplifying the superannuation system for retirees.
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Improving retirement income.
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Providing more flexibility around how superannuation can be taken in retirement.
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Encouraging older people to work longer.
The laws, described last year as the most significant reforms to the taxation of superannuation in Australia's history, are scheduled to take effect from 1 July 2007. The reforms are aimed at removing a number of complex tax provisions, while encouraging older people to remain in the workforce.
The Tax Laws Amendment (Simplified Superannuation) Bill 2006 has 10 related bills included.
This means that most Australians aged 60 or older will pay no tax on their superannuation, in either a lump sum or pension.
Some of the changes that are proposed to take effect as of 1 July 2007 include:
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Additional tax could apply to super contributions where an individual has not supplied their tax file number.
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Before tax contributions (also referred to as concessional, deducted or employer contributions) to superannuation would be limited to $50,000 (indexed) per person per year and would be taxed at 15%. A transitional period would apply for people aged 50 or older allowing them to make larger contributions.
There are also a number of transitional arrangements in the proposed changes that can be taken advantage of now. These include the option for individuals to make up to $1 million of after tax contributions (also referred to as non-concessional or undeducted contributions) to their super before 30 June 2007.
Simplifying and streamlining superannuation will have a significant impact in terms of providing financial security for older people in society. For someone who earns $1,000 per week, the lump sum savings of forty years will be $37,000, or an extra $136 per week in pension.
The removal of the taxes on the three levels of taxation on entry, on earnings and on exit to only two, will certainly bring us into the forefront of the lower taxation regime which applies throughout the world.
More than ten million Australians with superannuation accounts, in addition to the many additional account holders who will establish superannuation savings in future years, will benefit significantly through the groundbreaking reforms that this legislation introduces.
If you would like any further information or would like to speak with one of our Financial Planners about how these changes may effect you, please call us on 9879 7005.
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