Small Business

• The company tax rate for businesses with annual turnover of less than $10 million will be reduced to 27.5% for the 2016-17 financial year.  It is proposed that by 2027, the company tax rate will have reduced to 25% for all companies.
• The small business entity turnover threshold will increase from $2 million to $10 million from 1 July 2016 so more can access the reduced company tax rate and other income tax concessions, including the $20,000 instant asset write off.   Note that the turnover threshold has not increased for access to the small business capital gains tax concessions.

Individuals and Families

• The threshold at which the 37% marginal tax rate commences will increase from $80,000 to $87,000 from 1 July 2016.  The maximum tax saving is $315 per year.
• The low-income thresholds for Medicare levy and surcharge have been increased for the 2016 financial year.  If you would like more details on these thresholds, please contact our office.
• The Private Health Insurance rebate will not be indexed for the next 3 years.

GST and Other Taxes

• Tobacco excise will be increased by 12.5% annually for the next 4 years, taking the excise on a cigarette to almost 69% of its average price.
• GST will be applied to low value goods that are imported by consumers from 1 July 2017.  Overseas suppliers that have Australian turnover of $75,000 or more will be required to register for, collect and remit GST for goods supplied to Australians.

Superannuation

• Concessional contributions cap has been reduced to $25,000 for all taxpayers from 1 July 2017.
• Individuals with a super balance of less than $500,000 will be allowed to make additional concessional contributions over the cap, where they have not reached their cap in previous years effective from 1 July 2017.  The amounts are carried forward on a rolling basis for 5 consecutive years but only unused amounts accrued from 1 July 2017 can be carried forward.
• The current restrictions for people aged 65 to 74 from making super contributions will be removed from 1 July 2017.  People under 75 will no longer have to pass the work test to contribute.
• From 1 July 2017, the ‘10% rule’ will be abolished and all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.
• A lifetime non-concessional contributions cap of $500,000 has been introduced, effective from 7.30pm on 3 May 2016 (immediately).  The lifetime cap takes into account all non-concessional contributions made on or after 1 July 2007.  This replaces the existing annual cap of $180,000 per year.  Contributions made before commencement cannot result in an excess, but contributions after commencement will need to be removed or they will be subject to penalty tax.
• From 1 July 2017, a balance cap of $1.6 million on the total amount of accumulated superannuation an individual can transfer into tax-free retirement phase will be introduced.  If an individual has more than $1.6 million, they can maintain the excess in an accumulation phase account where earnings are taxed at 15%.  Members already in pension phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017 by converting excess into accumulation phase accounts.  Amounts over the balance cap will have a tax levied, in a similar method to excess non-concessional contributions.
• Super funds will no longer be able to claim a tax exemption for earnings of assets supporting a Transition to Retirement Pension as of 1 July 2017.
• The ability to treat superannuation income stream payments as lump sums will be removed from 1 July 2017.
• The Div 293 tax income threshold (when high income earners pay additional contributions tax) has been reduced from $300,000 to $250,000 from 1 July 2017.

Superannuation Changes – What Do They Mean for You?

Whilst we have sympathy with the intention to limit the largesse of the super system for the truly well off, some elements of the measures proposed change the ground rules quite considerably and will have an immediate adverse impact on many retirees and near retirees in particular.

There is some element of retrospectivity also with the changes to the tax treatment of in particular transition to retirement pensions and the immediate restriction on after tax (non-concessional) contributions to $500,000 per person over their lifetime.  This cap also seems low in today’s world where many Australians have assets in excess of that but would not see themselves as “rich”.

There are also some equity issues. For example a couple with $2.5m combined pension assets split 50/50 will pay no tax on the earnings of their pension accounts. Another couple with $2.5m split $2m and $500,000 will pay tax of $3,750 and now with the changes to the contribution caps are most unlikely to be able to adjust the account balances to rectify the situation.

The ability of the self-employed who have not had the benefit of compulsory employer contributions to catch up as they near retirement is impacted by the changes to both contribution caps also. Some offset to that is the very sensible rule change removing the token work test for the over 65’s and allowing contributions to be made until 75.

We also foresee a number of administrative issues arising, for example, with the tracking of non-concessional contributions from the start date of 1 July 2007. Records will not be easily obtained from fund managers and the like who held super investments that were later closed upon rollover to a new scheme. Innocent mistakes are likely to be made where contributions were overlooked and then penalties may be imposed.

All of the changes have some way to run, of course, with an election and having to be passed into law so the outcome may be many months away. This means something of a hiatus in terms of planning for many people as we await the outcome. We will be monitoring developments and when the outcome is clearer we will be able to advise on what strategies to employ for the future within the new legal framework.

Staff Updates

Notice of Extended Leave

Ken Wild will be on extended leave for all of June and July 2016.  If you foresee any issues arising during that period that you would like to discuss with Ken before he takes leave, please make contact with our office to schedule an appointment as soon as possible so we can put in place the appropriate strategies or actions.

In Ken’s absence please contact the following staff members if any unexpected issues arise:

• Jodie Dickson – financial advice and investment related matters (email jodie@veritassolutions.com.au)
• Allison Reid – administrative matters (email allison.reid@veritassolutions.com.au)
• Rose Geary – administrative matters (email rose@veritassolutions.com.au)

Team Additions

Many of you will have already had the pleasure of dealing with her, but we would like to extend a very warm welcome to our team to Rose Geary.  Rose joined us towards the end of the 2015 year as part of our Client Services team assisting Ken to deliver great outcomes.  She comes to us well qualified, possessing a Bachelor of Commerce and Law and previous experience in a financial services environment.

Team Subtractions

With sadness, we advise that Maureen Wild will be moving on to pursue other opportunities after many wonderful years as a valued member of our team.  Maureen’s last day will be Wednesday 27th April 2016 and while we will miss her expertise and smiling face, we wish her well in her future endeavours.

SMSF Minimum Pension Withdrawal Reminder

A quick reminder for our SMSF trustees about the importance of withdrawing the minimum pension amount from your superannuation fund before Thursday 30^th June 2016.  You can find each member’s minimum pension withdrawal amounts for 2016 in the covering letter we included with your 2015 financial statements.  If you have any questions to do with your minimum pension requirements please call our office to discuss with one of our accountants.

Changes to Motor Vehicle Deductions for the 2016 Financial Year

The number of methods available for calculating your motor vehicle deductions has been reduced from four to two. The two methods that you can use for the 2015/2016 financial year are the log book method and the cents per kilometre method.

Log Book Method:

The log book method remains the same as previous years where you can claim the business use percentage of the vehicle. The expenses that you can claim under this method include the running costs and decline in value. You cannot claim capital costs (eg, the purchase price of the car, principal costs on money borrowed to buy it, and any improvement costs). The log book must be kept for a minimum of 12 consecutive weeks and is valid for the next 5 years.

Cents per Kilometre:

Previously, the rates for claiming a deduction of cents per kilometre were based on the engine size of your vehicle.  In order to simplify this, the ATO has replaced these variable rates with a single rate of 66 cents per km regardless of the engine size of your vehicle.

Exceeding Your Maximum Pension Withdrawals for TRIS

A Transition to Retirement Income Stream (TRIS or TTRP) is a special type of pension that allows a member to access their superannuation benefits while still working once they have reached preservation age.  There are specific restrictions which state that the maximum allowable withdrawal is 10% of the member’s balance.  When a member has a TRIS and they exceed this maximum pension withdrawal limit within the financial year, they have breached the super laws and regulations that the super fund must abide by. The trustees of the fund need to be aware that the following may apply:

• The fund may become non-compliant and the trustees penalized.
• The TRIS will cease for tax purposes from the start of that financial year, meaning that the fund will not receive any current exempt pension income for year (will have to pay more tax!)
• As the TRIS has ceased, any payments made during the year are not considered pension withdrawals and will be counted as super lump sums for income tax purposes and Superannuation Industry (Supervision) (SIS) Regulation purposes.
• These lump sum payments will then be included in the member’s assessable income and may be taxed at the taxpayer’s marginal tax rates, without the benefit of any tax offsets. These payments are treated as early access to member benefits which is a breach of the SIS payment standards.

If you are unsure if you can withdraw certain amounts from your SMSF, please contact our office to discuss with one of our accountants before making the withdrawal.

The Hidden Influences of Your Brain – Part 2

In last quarter’s newsletter, we followed Mark & Meg as they purchased a car and discussed a number of hidden decision-making biases that they were exposed to. This quarter we will look at some common investment errors that result from underlying behavioural biases.

While Mark & Meg are a married couple and share the family income and expenses, they have quite different risk preferences and perspectives on investing. Both had assets before they met so have continued to manage their investments separately. Mark is a self-directed share investor, managing a portfolio of individual stocks. Meg mostly prefers to invest in managed investments.

Mark buys Ivoprotein Industries Ltd

Mark is considering a new investment opportunity that he recently read about, Ivoprotein Industries. It’s a small listed company that has developed a gene-based therapy that reduces appetite and can help the overweight. It has received FDA approval in the US and has signed up a distribution agreement with a major pharmaceuticals company. Sales are growing rapidly (albeit off a small base) and, given the global obesity epidemic, the potential market size is huge. Ivoprotein’s share price has risen from 5.5c just 18 months ago to 48c today.

What behavioural biases can you spot?

There is a collection of biases that are likely to predispose Mark to buy Ivoprotein. Firstly, there is a lot to like about Ivoprotein, and a lot to be excited about. An innovative new product; high sales growth; high share price growth; an expanding market opportunity (pun intended); a salient and easily understood investment story. These characteristics are likely to engage the reward pathways in the emotional centres of Mark’s brain making him feel good about the stock. In the complex and uncertain world of share market investing, feeling good about something can be an easy shortcut when deciding what to buy. However, unfortunately, good feelings don’t necessarily predict good performance!

Secondly, as we saw with assessing Audi’s maintenance record, we are subject to a range of information processing errors. These may lead Mark to extrapolate Ivoprotein’s share price growth, sales growth and commercial successes into the future. However, due to a phenomenon called “regression to the mean”, other things being equal, Mark should expect Ivoprotein’s stellar run to revert to closer to industry average performance for equivalent biotech stocks.

Thirdly, based on the success rate of other promising biotech companies like Ivoprotein, we would expect there to be a very small chance that Ivoprotein will go on to become a highly profitable global drug company. However, just like the small chance of winning the lotto, we tend to weight these small probability events more heavily in our decision-making process than we should.

The effects that lead Mark to buy Ivoprotein are common to many “growth” stocks, and have far-reaching implications for investment markets and strategies. We will explore these in later posts.

Meg sells Australian Equities Fund

While Mark watches the stock market daily, Meg tunes in to financial matters only occasionally. There are too many other things going on in her life, and it isn’t a passion of hers. However, it seems to her that whenever she reads something about financial matters it is bad news: there is a war starting somewhere or a central banker causing market to fall. Meg is going to sell some of her Australian Equities Fund to help pay for her new car. To reduce her risk, she’s wondering whether she should convert more of her fund to cash.

What behavioural biases can you spot?

Like Mark, Meg is subject to both emotional and information processing biases. A major cause of Meg’s thinking is likely to be her “loss aversion”. Loss aversion means, in part, that we fear losses roughly twice as much as we enjoy equivalent gains. Every piece of negative news increases Meg’s anxiety, making her increasingly predisposed to sell as the market falls. Of course, selling after market falls is the opposite of the conventional wisdom – meaning that Meg is at risk of selling at the worst time and being under-invested during a subsequent market rebound.

Meg is also subject to the “availability bias”. In theory, a fully rational investor should process all available relevant information before making an investment decision. Clearly this is not realistic, particularly for Meg given her competing priorities. We are therefore likely to act on information that comes to our attention. In Meg’s case, the information she relies on is what is presented to her via mainstream news channels. As a result, it has been filtered to reflect perceived news-worthiness, perhaps biasing it towards sensationalist (negative) events.

Mark sells Tintop Resources Ltd 

Like Meg, Mark needs to free up some cash to help purchase the new car. He also needs to fund the acquisition of Ivoprotein. To do this he is thinking of selling his investment in Tintop industries. Mark bought Tintop for $2.33 a few months back. Since then it’s done well – rising to $2.81, netting him a healthy 20% gain. “I’ll lock in my profit,” Mark says to himself.

What behavioural biases can you spot?

While it may be completely necessary for Mark to sell something to fund his car purchase and other investments, choosing Tintop suggests Mark may be subject to the “disposition effect” which is the tendency to sell winners (ie investments on which we have made a gain) and hold onto losers. It is a function of two underlying effects: “mental accounting” and “loss aversion”.

Traditional finance theory suggests that a fully rational investor should view each investment in the context of its contribution to overall portfolio risk and its contribution to achieving their long-term financial goals. However, many investors consider each investment in isolation. This is a form of mental accounting. Given the complexities of investment markets and our finite brain capacity it serves a useful purpose. It simplifies investment decisions to a manageable level. However, it leaves us exposed to making individual stock selection decisions that do not improve overall portfolio performance.

We discussed part of the “loss aversion” effect with Meg’s decision to sell some of her Australian Equities Fund. Mark is experiencing a different aspect of it. Mark’s gain makes him feel good. However, the bigger the gain, the less additional satisfaction he derives. Conversely, were that gain to evaporate, his positive feeling would diminish rapidly. Studies suggest that investors consciously or subconsciously envision this scenario, and anticipate the regret they would feel if they didn’t sell when they had the chance. With diminishing pleasure from further gains, and large potential regret from not selling, off-loading Tintop may feel like a natural thing for Mark to do.

Unfortunately the disposition effect leads to bad outcomes for investors – leading them to sell stocks (winners) that continue to rise, and to hold stocks (losers) that continue to fall.

The Duties of a Company Director – Part 2

In last quarter’s newsletter, we discussed the basic duties required of Company directors.  The following are further requirements that directors must fulfil in order to comply with the Corporations Act 2001.

Your annual statement

Each year within a few days after your company’s review date ASIC will send your company an annual statement.

The annual statement sets out the company’s details recorded in ASIC’s register, such as the names and addresses of its directors and secretary, registered office, principal place of business, ultimate holding company (if any), share details and members’ details.

If these details are correct and no other changes have occurred that require you to notify ASIC, then within two months after the review date you need to pay the annual review fee shown in the invoice that accompanies the annual statement, and the director(s) need to pass a solvency resolution.

If any details on the statement are no longer correct, you must update them. You have 28 days from the statement’s issue date to do so.

Pass a solvency resolution

The company’s directors must pass a solvency resolution within two months after the company’s review date, unless the company has lodged a financial report with ASIC within twelve months before the review date.

A positive solvency resolution means that the directors think that there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. You don’t have to lodge notification of a positive solvency resolution with ASIC, payment of the company’s annual review fee is taken to be a representation by the directors that the company is solvent.

A negative solvency resolution means that the directors think that there are not reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. If the directors pass a negative solvency resolution ASIC must be notified within seven days after the resolution has been passed.

Changes in your company’s details

ASIC must be informed of certain changes to your company, some of the common changes are listed below. The Corporations Act requires officeholders to inform ASIC of these changes within a certain time period otherwise late fees may apply.

• Change of place you keep your Company Registers
• Change of officeholders or details of officeholders
• Resignation of director or secretary
• Change of registered office
• Change of company name
• Issue of new shares
• Change to members (shareholders)
• Changes to ultimate holding company
• Division or conversion of shares
• Negative solvency resolution
• Solvency resolution not passed
• Change of company review date

If you would like further information about the duties and responsibilities of a director, please contact our office.  Further details can also be found on the ASIC website.

Thank you for your Support – Client Referrals

Veritas Wealth Solutions is grateful for the continued support we receive from our clients. A significant number of our new clients continue to come from your referrals. So a big thank you to all our clients who have passed our name onto family, friends and work colleagues. We strive to provide high quality advice and customer service to all our clients and your referrals infer we are achieving our goals.

Staff Updates

Veritas Wealth Solutions would like to congratulate director, Jodie Dickson and accountant, Allison Burman for recently being awarded industry professional certifications. Jodie has recently been accredited as a Certified Financial Planner® (CFP®) from the Financial Planning Association of Australia (FPA), recognised globally for upholding world class professional standards in the financial planning. Allison has recently achieved her Certified Practicing Accountant (CPA) qualification from CPA Australia. This qualification takes multiple years to achieve, including after-hours study and exams and professional experience. Please join us in congratulating Jodie and Allison on their outstanding achievements.

Certified Financial Planning Professional Practice

Did you know Veritas Wealth Solutions is recognised as a FPA Professional Practice? 100% of our financial planners meet the Certified Financial Planner® (CFP®) professional status and our practice certification demonstrates that we are committed to the highest professional and ethical standards.

Gift Vouchers Available for Financial Planning Initial Consultation

Do you want to give your siblings, children or grandchildren a good financial start in life? We have available gift vouchers that provide an initial financial planning consultation (approx. 60 – 90 minutes) with our financial planners Ken Wild and Jodie Dickson. Cost for the gift vouchers is $165. This could be the start they need to get on track and achieve a financially secure future.

New Year Financial Health Check – Are You on Track for the 2016 Financial Year?

Whilst many people make New Year resolutions to set personal goals, January is also an important milestone in the financial year.  Reviewing your finances now allows you time to implement new strategies and/or make sure existing plans are running accordingly to schedule.  We have included some items that should be checked or planned for now rather than in June of the financial year when it is often too late to implement.

• For those working – check your Super Concessional Contributions (this includes Super Guarantee, Salary Sacrifice and personal contributions) to make sure you do not exceed your cap ($30,000 for under 49 years old, $35,000 for 49 and over) or look at making further contributions to make the most of what is still available. Remember deductible super contributions are only tax deductible in the financial year they are received in your super fund account and often the last quarter or monthly contributions are not received until the next financial year.  Ask your employer or check your super fund account if you are unsure of the amounts that have been paid for this year so far.
• For retirees – check that you are on track with your minimum pension withdrawal amounts. Scheduled fortnightly and weekly payments can sometimes fall short due to the timing of weeks in the financial year i.e. 25 payments rather than 26.
• Be proactive – for those that tend to leave paperwork to the last minute start organising your accounts and tax paperwork now. This alleviates stress by not leaving it until the last minute and also assists in getting an idea of your current financial and tax position so you can utilise the next few months effectively and then;
• Talk to us at Veritas Wealth Solutions to see what you can possibly take advantage of over the next few months or have any questions answered in regards to your financial goals before June 30 arrives.

The Hidden Influences of Your Brain – Part 1

Behavioural Biases

What time did you get out of bed this morning?  How did you decide which sock to put on first?  Did you have toast or cereal?  Some of these decisions might have been made consciously.  You set the alarm clock, for example.  But many decisions are made subconsciously – the result of a habit, or an unnoticed behavioural cue, or a distant throwback to a something that helped our ancestors survive on the savannah perhaps.

What may surprise you is how many decisions fall into the subconscious category.  While it is not precisely measurable, neuroscientists estimate that 80-95% of decision-making occurs subconsciously.  That’s right – despite that our internal dialogue and subjective reality that tell us we are the masters of our own minds, the reality is otherwise.

In this article and the next newsletter we will examine:

1. Major decision-making biases that our brains expose us to;
2. Common investment errors that result;
3. Distortions these biases create on financial market prices and returns;
4. Five tips on how to avoid investment decision-making traps; and
5. How investors actually respond to these issues and opportunities today.

As we go, we will challenge you to identify hidden influences in a range of investment and everyday life scenarios.  If you’d like to join us on this journey, you can start below, where we analyse Mark & Meg, a married couple as they decide to buy a new car.

Mark & Meg buy a car

Mark & Meg are a middle-aged professional couple in their 50s.  Mark is a business banker at a major bank, while Meg works part time as a senior architect at a mid-sized local firm.  With their mortgage now under control and the kids starting to become more independent, they feel it’s time to upgrade their car.  It’s their family car, and Meg will be the main driver.

Drive to the dealer

On the way Mark & Meg discuss their preferred option – an Audi A4.  It’s a stylish 4-door sedan that they both like.  Meg’s parents have driven Audis for years and rave about how good they are.  Recently one of the Meg’s friends bought an Audi A4, which Meg enjoyed taking for a test-drive.

What behavioural biases can you spot?

While recommendations from friends can be helpful, we tend to rely on social cues from others more than we should.  In one famous study people were asked to judge which two of a small number of lines corresponded in length.  It was an easy task, less than 1% of people got it wrong.  However, to make it more difficult, the experiment was then altered.  People were put in a room with 9 actors, each of whom chose before the test subject, and each of whom selected the wrong line.  In that context, only 25% of people were able to consistently choose the correct answer.  The surprising outcome from this study is that for most people, social influences are strong enough to overcome the clear objective truth.  And, in case you are wondering, the social influence wasn’t just peer pressure – a similar effect was observed when subjects were told how others had responded, but were able to answer in private.

Being strongly influenced by our peers came in handy for our distant ancestors, much of whose brain structure is the same as what we now carry around in the modern world.  The caveman who stopped to question why everyone was running, soon became dinner.  If social influence is powerful where the correct answer is clear to the naked eye, we should expect it to be stronger in the complex world of investment decisions.

Parking the car

Mark & Meg soon arrive at the dealer and find a park around the back.  As they step out of the car Mark notices something red on the footpath.  He quickly recognises it as a $20 note.  In one fluid motion he picks it up, shows Meg his lucky find, and happily plants it snugly into his wallet.

What behavioural biases can you spot?

Mark, and perhaps Meg too, are have been “emotionally primed” by this experience.  Positive feelings associated with a small lucky find can have significant effects.  In one study, subjects who found a small amount of money just prior to being asked to reflect on their life, reported being happier with their life overall than those who had not.  The emotional priming can come from a range of sights, sounds and smells.  In another study, being exposed to a happy face influenced people to drink more beer.  This was effective even when they saw the happy face for no longer than a few micro-seconds – not long enough to even be aware they had seen it!

A significant part of our sub-conscious brains are used for processing emotions.  Fear helped our ancestors clamber up a tree before they had been able to consciously process the sinister movement in the shadows.  It is the protective effect of fear, in particular, that has made it one of the strongest influences on our behaviour, and one with significant implications for investment decisions and markets.  In Mark’s case, the positive emotion that results from his lucky find may lead him to be more confident in his decision to buy a car.  Consistent with experimental evidence, it is not inconceivable that by finding $20 Mark is now willing to pay $1,000 more for the car!

Comparing options

Inside the dealer, the smartly dressed and well-spoken salesman, Paul, helps them understand the benefits of their proposed purchase.  Mark is keen to understand the after-sales support that will be available.  He recently read a story where the author had a scary experience with his Audi failing on a busy motorway.  The driver feared for his life as he manoeuvred away from a looming truck and felt let down by Audi.

What behavioural biases can you spot?

Theoretically, to make a proper assessment, Mark should compare long-term reliability data across different makes and models.  Instead, we tend to be influenced by vivid stories and personal experiences.  The more vivid, emotional and personal, the greater the impact.  This is why charities present pictures and stories of individual children, rather than statistics about the millions of needy.  We are more likely to give money to help a single impoverished child, than to hundreds of their impoverished classmates.

There is a cluster of related cognitive errors here:

• We are overly reliant on evidence from small samples of data.
• We rely too much on recent experience and expect it to continue.
• We overweight low probability outcomes and underweight almost certain outcomes.

In Mark’s case, these effects may make him feel Audi’s maintenance record is worse than it actually is.  For investors, these biases contribute to the “value effect”, which we will explore in later posts.

Negotiating the price

Mark and Meg have decided.  They are going to buy a black A4.  It’s two years old and has done 38,554 kms.  The sticker price is $45,000 (drive away, no more to pay), but Paul says he could talk to his manager about doing them a better deal.

What behavioural biases can you spot?

The sticker price may be unreasonable, but it will serve as a strong “anchor” for negotiations, drawing Mark & Meg’s estimates of value toward it.  Anchors affect us, even if we believe we are ignoring them.  For example, in one study real estate agents were asked to value a property.  Some were given the vendor’s price estimate; others were not.  Theoretically, it should not matter – the agents were asked to provide an independent appraisal.  But it did.  Those who were given the vendor price provided estimates significantly closer to that amount.
Anchors can affect us even if we know they are irrelevant – and even if we know they are completely random!  Numbers that are shown to us as a result of spinning a pinwheel or rolling dice have been shown to affect our estimates of the proportion of African nations who are members of the UN, or the number of months jail time an offender should serve, respectively.  For Mark & Meg, the sticker price is likely to act as the most salient anchor.  However, given the evidence, it is not inconceivable than the 38,544 km on the clock will also have an anchoring effect on their estimate of value.

In the case of investors, the purchase price is a powerful anchor, helping to create the “disposition effect” – an investment patterns that we will explore in the next newsletter.

The Duties of a Company Director

Directors and company secretaries have a number of responsibilities under the Corporations Act 2001 which are legal requirements and compulsory.  General duties imposed on directors and officers of companies include:

• the duty to exercise your powers and duties with the care and diligence that a reasonable person would have which includes taking steps to ensure you are constantly aware of the financial position of the company and ensuring the company doesn’t trade if it is insolvent
• the duty to exercise your powers and duties in good faith in the best interests of the company and for a proper purpose
• the duty not to improperly use your position to gain an advantage for yourself or someone else, or to cause detriment to the company, and
• the duty not to improperly use information obtained through your position to gain an advantage for yourself or someone else, or to cause detriment to the company.

Duty to not trade while insolvent

Directors’ have a duty to prevent your company trading if it is insolvent. A company is insolvent if it is unable to pay all its debts when they are due. This means that before you incur a new debt, you must consider whether you have reasonable grounds to believe that the company is insolvent or will become insolvent as a result of incurring the debt.

You may expose yourself to criminal prosecution, substantial fines or to action by a liquidator, creditors of the company or ASIC to recover amounts lost by creditors due to your actions.

Your personal assets—not just your company’s—may be at risk.

Duty to keep books and records

Your company must keep adequate financial records to correctly record and explain transactions and the company’s financial position and performance.

Although the Corporations Act does not require small proprietary companies to prepare financial statements, unless requested by ASIC or shareholders, they are considered a valuable tool for managing and monitoring your company’s financial position and performance for tax purposes or for raising finance.

For the purposes of an insolvent trading action against a director, a company will generally be presumed to have been insolvent throughout a period where it can be shown to have failed to keep adequate financial records.

What are financial records?

Some of the basic financial records that the law may require a company to keep include the general ledger, recording all the company’s transactions and balances, cash records, debtor and sales records, creditor and purchases records, wage and superannuation records, asset register, inventory and investment records, tax returns and calculations, and deeds, contracts and agreements.

Other records your company must keep include:

• registers of members (shareholders)
• registers of option holders (if you have them) minutes of general meetings
• minutes of meetings of directors
• financial records that enable an assessment of the company’s financial position and performance and are sufficient for financial statements to be prepared (and audited if necessary) for at least seven years after the transactions are completed.

How to Find Your Lost Superannuation

Millions of Australian’s have billions of dollars of unclaimed superannuation just waiting to be claimed. If you change jobs regularly, had part-time jobs though school or university or move house often, then you are likely to have super accounts that have been forgotten just sitting there waiting for you to claim them. There are a number of ways to search for and claim your super, but here are two simple ones.

Visit the ATO’s Super Seeker website and provide your tax file number, name and date of birth.

If you have a myGov login, the easy option is to log into your myGov account.  You will need to have the ATO as a linked service in order to access the superannuation section. Click on the Services button then on the ATO link. It will take you to an ATO online services page where you can click on the Super tab and see all of your super fund accounts. From this page you can choose to rollover your super accounts into your preferred superannuation fund.

Macquarie Cash Management Account – New charges & changes

From October, Macquarie will now be charging $2.50 per paper statement delivery if you have a cash management account. This affects the majority of our SMSF clients.

For clients that we use email regularly to communicate with, we have changed the preference on your account to deliver statements online so that you will incur no charges. Statement delivery options can be changed at any time via your Macquarie Online client banking portal.

Other important changes introduced by Macquarie:

• You can now transfer up to $20,000 per day electronically
• Chequebooks are no longer automatically issued/replaced & cost $30 (for 30 cheques)
• Email is now the primary contact method
• Periodic payments can now be managed online
• Bank cheques now cost $10

If you need instructions on how to access Macquarie Online, please call our office on 02 6162 1522 or email admin@veritassolutions.com.au.

Making the most of Macquarie online banking

To minimise new cheque book costs, those who withdraw pension payments can organise a periodic payment to a nominated personal account. Use your personal account to live off and pay bills so as to minimise the amount of cheques being written within the SMSF account. These period payments can now be managed online.

Quick Tip for SMSF clients – how to make it easier for our SMSF accounts staff

When making electronic payments via EFT or BPAY in your SMSF account, completing the reference field with a good description can help our accounts team process the annual SMSF financial statements more efficiently rather than needing to query you regarding every transaction. Using descriptions such as “Pension Payment” or “Asset XYZ purchase” or “XYX Asset Expense” can be really helpful.

Self-Managed Superannuation Fund – Trustee Education

Are you a trustee of a self-managed super fund and want to know more about your duties as trustees? We can direct you to the multiple resources available to assist you in understanding your obligations as trustees of an SMSF or any other information you need to know. At Veritas Wealth Solutions, we believe that all SMSF trustees should have an up to date understanding of what it means to be a trustee and are happy to answer your questions or provide more comprehensive resources. If you would like to know more please call our office on 02 61621522 or email us at admin@veritassolutions.com.au.

2015 Superannuation Essentials Conference

Our resident SMSF expert, Jodie Dickson, has been invited to present a session at the 2015 Superannuation Essentials Conference run by Legalwise Seminars, on 29^th October 2015 at the Hyatt Hotel in Canberra. She will be providing a high-level overview on recent ATO rulings, interpretative decisions and other announcements impacting on the SMSF sector. She will also discuss emerging and topical SMSF strategies and SMSF policy predictions for the year ahead. There are several other presentations from various accounting, legal, audit and financial advisory fields. If you would like further information please contact our office.

Are Investment Bonds Right for You?

Investment Bonds (otherwise known as Insurance Bonds) are long-term investment vehicles which may offer tax efficiency to some investors. Investment Bonds are technically life insurance policies under the Life Insurance Act 1995 and require a Life Insured and beneficiaries to be nominated. Investment Bonds can be issued by life insurers and friendly societies. Historically, these bonds incorporated a life insurance element, however most are now purely investment vehicles focusing on wealth creation.

Investment Bonds are designed to be held for at least 10 years, although investors can access their funds at any time. Regular contributions are permitted. A wide range of investment options are available within an Investment Bond structure, including diversified funds, multi-manager funds, Australian share funds, international equities, fixed income and capital guaranteed. Investment Bonds do not distribute regular income to investors. Instead, income is effectively re-invested into the bond to achieve a compounding effect. The current tax system makes Investment Bonds a tax-effective way to generate long-term returns. Investors contributing a lump sum or regular amounts for ten years or more receive ‘tax paid’ returns provided certain conditions are met. Income from investments is taxed at the corporate rate of 30% by the Investment Bond Issuer, meaning investment earnings are not required to be included in an investor’s tax return.

Who should invest in Investment Bonds?

Investment bonds may be suited to:

• Investors with a long-term investment horizon (10+ years)
• Investors with a tax rate higher than 30%
• Investors aged between 65 and 74 who do not currently meet the work test for superannuation
• Investors who have reached their annual contribution limits in superannuation
• Parents / grandparents wishing to invest on behalf of children
• Lower income earners and retirees looking to maximise their potential eligibility for income-tested tax offsets
• Investors seeking to stay under the Commonwealth Health Care Card income limits
• Investors who do not require regular income

Key Features

Tax Paid

One of the features of investing in Investment Bonds over a mainstream managed fund is that it is a tax paid investment. Issuers of Investment Bonds pay the corporate tax rate of 30% on the earnings on the investor’s behalf. Conversely, an investment in a mainstream managed fund generally requires tax to be paid on earnings at an investor’s marginal tax rate. Dividend imputation credits can further reduce the amount of tax payable.

The following table shows the potential taxation consequences of investing in an Investment Bond versus a Managed Fund. The table assumes investment income of $100,000 and a marginal tax rate of 45%.

Funds are accessible

Unlike superannuation where strict conditions of release (including reaching the preservation age) must be satisfied before accessing funds, investors in Investment Bonds have access to their investment at all times.

Regular Contributions are permitted

Unlike superannuation, there are no government-imposed contribution limits.

Assets Test Treatment

Investments held in Investment Bonds are treated as financial assets and are counted as assets under the assets test. Investment Bonds can be used as security for a loan, which is generally not possible with superannuation assets. If a loan is taken out and is secured against the Investment Bond, all financing costs (including interest paid) in relation to the loan may be deductible.

Capital Gains Tax

• Any investment growth received by the investor should ordinarily not be subject to CGT.
• There are generally no CGT consequences for investors who switch between underlying investments strategies within the Investment Bond’s structure i.e. switching between the high growth to capital stable option.
• Where no consideration is passed (gift or inheritance), ownership of the Investment Bond can generally be assigned to another person without any CGT consequences.
• Ownership of the Investment Bond can be transferred to a minor without incurring any CGT consequence under a ‘Child Advancement Option’. A ‘Child Advancement Option’ is a system where the policy is automatically transferred to the child at a nominated age between 10 and 25.

Minors Tax Rates

Earnings on Investment Bonds owned by children under 18 (but over 10) are taxed at 30% (children under 10 cannot invest in an Investment Bond in their own name but can if a parent/grandparent owns the policy).

Death, Illness, Financial Hardship

The Australian Taxation Office (ATO) has advised that the following events constitute a maturity resulting in no assessment for tax:

• Death of the owner of the Investment Bond
• Accident, illness or other disability of the owner of the Investment Bond
• Severe financial hardship

10 year tax rule

If an investor has held an Investment Bond for 10 years or more, earnings do not need to be declared in tax returns and no additional personal tax or capital gains tax is payable. If an investor does withdraw prior to the ten year period, they will need to declare the earnings in their tax return. Tax offsets are available for withdrawals made within the specified withdrawal periods outlined below:

• Within 8 years – All of the earnings are taxed at the marginal tax rate with a tax offset of 30%
• During the 9^th year – 1/3 of earnings are tax paid, 2/3 of the earnings are taxed at the marginal tax rate with a tax offset of 30%
• During the 10^th year – 2/3 of earnings are tax paid, 1/3 of the earnings are taxed at the marginal tax rate with a tax offset of 30%
• After 10 years – All earnings are tax paid

The 125% Rule

Investors can make additional contributions to their Investment Bond each year of up to 125% of a previous year’s contributions with the benefit of these contributions being treated as if they were invested at the same time of the original investment. Upon expiry of the full ten year term these additional contributions also acquire a tax paid status. If additional contributions exceed 125% a previous year’s contribution, the ten year term will re-set and a new ten year period is deemed to commence. The following examples outline Investment Bond maturity dates under different scenarios:

• Investors can contribute as much as they wish during the first year.
• If investors make additional contributions in excess of the 125% limit, the 10 year period to achieve tax paid status will re-set to the beginning of the investment year that the excess payment was made (as per Example 2, the contribution made in Jan- 2018 causes a re-set as it exceeds 125% of the previous contribution).
• If investors do not make an additional contribution during an investment year, no further contributions can be made without re-setting the 10 year period (as per Example 2, no contribution was made in Jan-2021, causing a re-set when contributions resume in 2023).
• Investors can continue to take advantage of the 125% opportunity after the 10th year, in which case earnings on each additional contribution receive immediate tax paid status

Risks

Some of the risks that should be considered prior to investment include:

• Underlying investment fund risk
  Different investment funds have different risk / return profiles. A fund’s profile can be affected by factors such as its strategies, managers, investments, the markets in which it operates and their volatility. Leverage, currency risk, derivatives or less liquid investments might be used by some investment funds. Poor performance of an investment fund can affect the returns and value of the relevant Investment Bond.
• Financial strength of the provider
  There is the risk that the life company or friendly society issuing the Bond could potentially fail in its financial obligations to its investors.
• Taxation risk
  As is the case with any investment there is no guarantee that the taxation treatment of Investment Bonds will remain the same.

Who can invest in Investment Bonds?

• Individuals aged 16 years and over
• Children aged 10 – 16 with parental (or guardian) consent
• Parents/grandparents on behalf of children of any age
• Organisations, Companies and Trusts
• Joint Owners

The 2015 Federal Budget

As always, the Federal Budget has given a multitude of changes to the various taxes and regulations surrounding the country. Some of the changes that we believe are relevant to you are discussed below.

Many small business owners rejoice as the burden of calculating depreciation on business related assets up to $20,000 has been removed. For those businesses who meet the small business tests, an instant tax deduction is now allowed for each asset costing up to $20,000 purchased from 7:30pm 12th May 2015 up until 30th June 2017. Any items over that amount must still be depreciated.

The tax burden has also been reduced for small business owners with the tax rate reduced to 28.5% from 1st July 2015.

The asset test thresholds for those eligible to receive a government pension have been adjusted. The lower thresholds have been raised and the upper thresholds have been reduced.

Those parents eligible for paid parental leave through their place of employment will no longer be eligible for the government paid parental leave in order to reduce ‘double dipping’. Stay-at-home parents will no longer be able to access the childcare rebate. Eligibility for subsidised childcare has been removed for parents whose children do not have up-to-date vaccinations.

Overseas businesses supplying digital products and services to Australians will be subject to GST from 1st July 2017 so all those who are subscribed to streaming services like Netflix should expect a 10% increase in pricing from that date.

Macquarie Life Active – Insurance That Just Makes Sense

At Veritas Wealth Solutions, we are always thinking about the best way to ensure that you have the appropriate insurance cover that will enable you to make a claim should you suffer a significant health event.

As you know, insurance is crucial but can be complex. We all want to protect ourselves and our families from the financial consequences of illness, injury or death. Traditionally that has involved the need to choose between four different types of cover:

• Life insurance
• Total & Permanent Disability insurance
• Trauma insurance
• Income protection insurance

It can be hard to know which of these insurances you need. It can be even more difficult than knowing how much insurance you need.

A new product called Macquarie Life Active addresses these problems and provides an alternative solution.

It is based around the idea that you buy a single lump sum of insurance cover. This insurance provides a lump sum not only in the event of Death or Terminal Illness but also provides cover for a whole range of Health Events (ranging from accident injuries to long-term illnesses and fatal conditions). You can also add Income cover to the package.

What that means is that you have one simple policy – and the knowledge that you will receive payments in line with the seriousness of your Health Event. As a condition, such as cancer, deteriorates, or if you have a different Health Event altogether, Macquarie Life Active can continue to pay more funds.

This kind of insurance offers broader coverage and can often be simpler and cheaper than traditional cover. We would always want to discuss your needs and your situation before recommending it to you, but if you think this kind of protection makes sense to you and your family then please contact our office where we can provide further information on the product.

PS: Don’t think you need to worry about insurance? Consider this: the children in 20 per cent of Australian families will endure the death of a parent or watch accident or illness render a parent unable to work.

Source: (Lifewise)

2015 Personal Income Tax Returns

It’s tax time again, which means it’s time to start thinking about lodging your 2014/2015 income tax returns. The ATO will start processing these returns on 7th July 2015, and will proceed to pay out refunds from 16th July. Electronically lodged returns should be received within 12 days of lodgement. Changes for your 2015 personal tax return include:

• Tax payers with taxable income over $180,000 will have additional tax payable of 2% for every dollar over this amount (the budget repair levy).
• The mature age worker tax offset (MAWTO) has been abolished and cannot be claimed this year.
• The net medical expense tax offset can only be claimed if it was claimed on both your 2013 and 2014 income tax returns, unless the expenses relate to disability aids, attendant care or aged care. These expenses can be claimed up until 30 June 2019.
• The Medicare levy has increased from 1.5% to 2%. This should have been accounted for by your payroll department with additional tax being withheld from your income throughout the year.
• The name of the dependent (invalid and carer) tax offset has changed to the invalid and invalid carer tax offset to reduce confusion.
• The dependent spouse tax offset has been abolished and can no longer be claimed.
• If you have a myGov account that is linked to the ATO, your notice of assessment, tax receipts and other mail will be directly sent to your myGov inbox and are no longer sent out to you in paper form. It is recommended that you check your inbox before taking your information to your accountant to prepare this year’s income tax return.
• The government has increased the small business instant asset write-off threshold to $20,000 for assets acquired and installed ready for use after 7:30pm (AEST) 12 May 2015.
• Effective from 7:30pm (AEST) 12 May 2015, there is an accelerated depreciation for primary producers, enabling the immediate deduction for the cost of fencing and water supplies, tanks, bores, irrigation channels, pumps, water towers and windmills; and 3 years depreciation for the cost of fodder storage assets (eg, silos and tanks to store grain and other animal feed).

If you have any queries about what you can or cannot claim, our team of accountants are more than happy to help.

ASIC Fee Changes

From 1st July 2015, the fees which are charged by ASIC on various documents have been updated. The most common fees are listed below with their new cost:

• Annual Review Fee – proprietary company – $246
• Annual Review Fee – special purpose company (ie super fund trustee) – $46
• Late Lodgement Fee – up to 1 month late – $75
• Late Lodgement Fee – over 1 month late – $312

Annual reviews are sent out on the anniversary of the registration of the company and it is very important for the associated fee to be paid on time or there are significant late fees, as you can see above. Jodie Dickson Accounting and Superannuation is a registered ASIC agent so if you would like to receive your ASIC annual reviews electronically, please contact the office.

How Do I Get a Better Rate of Interest on My Capital Investment?

As official interest rates have declined over the last 12-18months to the current rate of 2.0%pa, many investors are struggling to achieve sufficient interest income to meet their lifestyle expenses. Whilst term deposit rates are about 0.75%pa higher, even they are not sufficient to fund retirees spending requirements in most cases. If tax also has to be paid on that income the situation is exacerbated.

Even where the interest paid is not directly required to meet current expenses such as in a self-managed super fund, those rates of return are at or below the current rate of inflation so a loss of purchasing power is occurring.

So what are the alternatives in the fixed interest sector?

Over recent times access at the retail level has become available to the bonds issued by major corporations. Formerly this was the province of the big institutions as the bonds were denominated in the tens and hundreds of millions. Nowadays though, small or retail investors can purchase bonds in as little as $10,000 lots.

What is a bond?

A bond is a security that pays a defined distribution (the coupon) for a given period of time (the term) and repays the face value of the security at maturity.

Unlike an equity, which is purchased ownership of a company, a bond is a loan from an investor to the issuer of the security. There are many types of bonds, including fixed, floating, amortising, annuities and index-linked.

Bonds can be issued as senior secured, senior unsecured and subordinated debt. Each of these three debt classes has varying risk and reward attributes which are also influenced by the issuing entity’s credit rating.

Advantages

• Wide variety of maturities
• Wide variety of issuers rated across the credit rating spectrum
• Provides steady income
• Potential for capital gains if sold prior to maturity
• Can be used to diversify investments in a balanced portfolio
• Cover three levels of capital structure
• Government bonds offer greater diversification

Disadvantages

• Varying liquidity
• Most bonds are traded over the counter, rather than through an exchange
• Potential for capital loss if sold prior to maturity
• Bond markets are currently dominated by Wholesale investors in Australia
• Corporate bonds offer less diversification than government bonds

Bonds are suitable for a very wide range of investors with differing risk and reward attributes, from conservative investors through to those seeking high risk securities, including retail and wholesale investors.

How do I access bonds?

The bond market comprises of a primary and secondary market. The primary market contains new issue bonds which are sold to the public and enter the bond market for the first time. A bond may be listed and therefore may be bought and sold directly by investors on the Australian Stock Exchange (ASX). The majority of bonds are traded over the counter (OTC) through a fixed income broker, who negotiate the sale of bonds between buyers and sellers. This secondary bond market, allows the sale of purchased bonds prior to maturity. One of the main benefits of investing in bonds is that coupon payments are a legal requirement by the issuer; that is the bond holder must be paid or the entity will be in default. This requirement provides a more stable income from investment than other investment types such as a dividend received from an equity share. This feature is important for investors seeking a regular income from their investment.

Please contact our office if you want to know more about how corporate bonds may fit within your portfolio.

SMSF Minimum Pension Withdrawal Reminder

A quick reminder for our SMSF trustees about the importance of withdrawing the minimum pension amount from your superannuation fund before Tuesday 30^th June 2015.  You can find each member’s minimum pension withdrawal amounts for 2015 in the covering letter we included with your 2014 financial statements.  If you have any questions to do with your minimum pension requirements please call our office to discuss with one of our accountants.

Income Protection Insurance and Workers Compensation – The Differences Explained

Many people believe that being covered at work through workers compensation insurance is enough and feel there is no need to extend their coverage beyond this.  However workers compensation insurance coverage is limited to the workplace and not all injuries that occur in the workplace are automatically eligible for compensation.  There are certain factors that influence as to whether a claim will be paid and if so the amount that will be paid out.  These include: proving the negligence of the employer; the injury has to be a direct result of some kind of negligence on the employer’s part.  If this cannot be proved then usually the claim is denied.  Also the injury sustained must be while the employee is at their workplace.

If the injury incurred does qualify for workers compensation then the amount paid will vary.  Compensation will depend on the type of injury caused, its severity and the time the employee is likely to not be able to return to work.  Therefor the actual compensation amount is very difficult to determine if an employee gets seriously injured at work.  Currently there is no uniformity in regards to benefit periods and amounts paid across all states and territories.  So overall there is a risk of workers compensation not being received or when it is does qualify, not being adequate enough to cover the injury sustained.

Income Protection insurance has a much broader application than workers compensation and as there is a reasonable risk of accidents or injuries occurring outside work from home and recreational activities, it should be considered by most working people.

Income Protection insurance can give you cover until you are fully recovered to return to work or in some cases to the age of 65.  Under Income Protection cover you have a choice as to the type of cover you want and how you will be paid, it will depend on the amount of cover and terms you are willing to pay for.  Each insurance provider will have different coverage and terms as to when a claim can be made.  When comparing policies, it is essential to read the product disclosure statements to understand the different terms and options available that can be taken.  Consider getting professional financial advice to help you pick the correct policy and terms for your circumstances.

Taxing of Minimum Pension Drawdowns Age 55-59

There are some quirky aspects of the application of the minimum drawdown and related tax rules for account-based pensions which have caused uncertainty, particularly for those aged from 55 to 59 inclusive. However, recent Australian Taxation Office (ATO) statements appear to remove all but a few of the remaining mysteries. This article examines some interesting tax implications that can arise for account-based pensioners under the age of 60 depending on the manner in which they make their drawdowns.

Importance of meeting the minimum drawdown requirement

As a starting point, it is worth emphasising the importance of holders of an account-based pension (ABP) receiving total annual payments necessary to meet the Superannuation Industry (Supervision) Act 1993 (SIS) minimum drawdown requirement. As the ATO has made clear in Tax Ruling TR 2013/5, if this requirement has not been met then it considers that an ABP will have ceased at the start of the relevant income year (or not started at all, if it was to have been the first year). The tax consequences for that year are typically unfavourable and include no fund earnings tax exemption and potentially higher tax on benefits paid. The ATO can only exercise discretion to overlook failure to meet the minimum drawdown in very limited cases. How the minimum drawdown requirement is met for an ABP holder varies depending on the preservation status of their super benefits; that is, typically, the extent to which their benefits are classified as unrestricted non-preserved, restricted non-preserved or preserved. For people aged 55 to 59 this often turns on whether or not they have retired for the purposes of SIS.

Retired ABP owner

Assume David is 58 years old, retired for the purposes of SIS and started an ABP in his SMSF in 2014/15 with unrestricted non-preserved benefits, all taxable component. His minimum drawdown requirement for this year is $30,000 and he has already drawn $10,000 by way of regular income payments. He is contemplating making a partial commutation and cashing a further $20,000 in one lump. Note that, prior to any partial commutation, the cashings during the income year must have been at least equal to a pro rata amount of the minimum, based on the number of days the ABP was payable in the financial year up to the commutation date. Alternatively, after a partial commutation the remaining ABP balance must be enough to pay any outstanding minimum requirement. Assume David meets these requirements.

Can a partial commutation count towards meeting the minimum?

While SIS makes a distinction between partial commutations and other payments for various purposes, cashings arising from partial commutations count towards the minimum drawdown requirements in the same way that regular income payments do. The ATO has acknowledged this in its Self-Managed Superannuation Fund Determination SMSFD 2013/2.

Can the partial commutation be taxed as a lump sum benefit?

If taken as a lump sum benefit, the taxable component is taxed on David’s personal income tax return at 0% up to the low rate cap.  Once the low rate cap has been exceeded, it will be taxed at 15% plus the Medicare levy.  If taken as an income stream, the taxable component is taxed at his marginal tax rate plus the Medicare levy but he is also entitled to a 15% tax offset.

David’s regular pension payments will be taxed as superannuation income stream benefits by default. While he will be entitled to a tax offset of 15%, assume his marginal tax rate is higher than that so the payments will give rise to a tax liability. However, if he makes a written election in advance of the payment, the $20,000 partial commutation can be treated as a superannuation lump sum benefit for tax purposes. The low rate cap referred to in the table above is an indexed lifetime limit ($185,000 in 2014/15) that is reduced by the taxable component of any lump sums David has already received in a previous financial year on or after reaching preservation age (age 55 for someone born before 1 July 1960, such as David). Assuming David has not previously cashed a lump sum benefit, if he makes an election for the payment to be a lump sum benefit the $20,000 partial commutation will fall within his low rate cap and no tax will apply to that payment. Note that David’s fund was liable to make a series of periodic income stream benefit payments which it made prior to his decision to take the lump sum benefit. Had that not been the case it is possible that the ATO may have taken the view that there was no pension under SIS nor was the fund entitled to a tax exemption (refer to Tax Ruling TR 2013/5 and Division 295 of the Income Tax Assessment Act 1997).

The transitioning ABP owner

Assume Ann’s circumstances are similar to David’s except that she has not retired and her ABP is a “transition to retirement” (TTR) pension. She started the pension this income year and it comprised of preserved benefits except for around $30,000 of unrestricted non-preserved benefits (URNP) (which were sourced from a benefit rolled over from an employer-sponsored fund upon resignation many years ago). The ATO’s view is that SIS requires payments from a TTR pension to be paid first from URNP benefits, then from restricted non-preserved benefits (but there are none here) and then from the preserved benefits. Ann has received $10,000 in regular pension payments and is contemplating making a partial commutation of the remaining $20,000 of URNP benefits. For TTR pensions, SIS allows URNP benefits to be commuted (but not restricted non-preserved or preserved benefits).

Can a partial commutation count towards meeting the minimum?

The ATO has recently issued SMSF Determination SMSFD 2014/1 which confirms that, on the one hand, the partial commutation cashing does not count toward the maximum drawdown constraint for a TTR pension but, on the other hand, it does count towards the minimum. So, while SMSFD 2013/2 indicates otherwise, SMSFD 2014/1 clearly indicates that the ATO would now accept that Ann will have met the minimum once the $20,000 partial commutation is cashed.

Can the partial commutation be taxed as a lump sum benefit? 

It should follow that Ann can make a written election in advance of payment that the $20,000 partial commutation is to be taxed as a superannuation lump sum benefit and to take advantage of the fact that the amount falls within her $185,000 low tax cap.

What if a TTR pension is fully preserved? 

Assume instead that Ann’s TTR account comprises only preserved benefits. In this case SIS generally does not permit a partial commutation cashing. However, under the governing rules of Ann’s fund, the terms of her TTR pension permit irregular pension payments so Ann arguably would be able to cash a $20,000 payment from the fund without it being classified as a partial commutation for the purposes of SIS.

Would she be able to elect for such a payment to be treated as a superannuation lump sum benefit for tax purposes? 

There does not appear to be anything which expressly prevents her from doing this under the relevant provisions of the Income Tax Assessment Act 1997, but perhaps the fact that the payment could not be recognised as a partial commutation under SIS prevents this in some way. We await the ATO’s view on this remaining mystery.

People about to start a TTR pension: 

For SMSF members about to commence a TTR pension with part of their super savings, the ATO website currently suggests that they can choose which classes of benefits they allocate to their TTR pension account for preservation purposes. For those who have URNP benefits, some thought needs to be given to whether or not the URNP benefits should be transferred to the pension account. On the one hand, if they intend only to draw the minimum required each year, there may be some appeal in transferring URNP benefits into the pension account, as it may provide clear scope for some of the cashings to attract lump sum tax treatment. On the other hand, the fact that any URNP benefits in a pension account must be drawn from that account before any other benefit may limit the scope to take them as lump sum benefits. In particular, members who are likely to need to draw more than the minimum and who are keeping some of their super in accumulation phase may gain extra flexibility by keeping the URNP benefits out of a pension account since these will not be forced out of the fund but are available for cashing at any time. Of course, some members will transfer all their super savings into the TTR pension for tax and other reasons, in which case any URNP benefits will be allocated to the TTR account and be paid out first.

In many cases people with ABPs aged 55 to 59 who are cashing only the minimum necessary to satisfy the SIS rules will have the scope for part of the cashings to be treated as a lump sum benefit for tax purposes. Recent ATO statements indicate that this may extend to TTR pensioners, although it is unclear whether that treatment is limited only to their URNP benefits.  If you would like further information please contact our office.

Tax Planning for 2015

With the end of the financial year fast approaching it’s a good time to start thinking about tax planning ideas to minimise your tax liability. Some strategies, including setting up more tax effective business structures such as a company or trust, negative gearing property or salary sacrificing, are more complex but well worth discussing with your accountant, particularly for higher income earners.

A tax strategy you can use straight away is to bring forward any tax deductions you may have prior to 30 June.  By maximising your tax deductions this financial year you can reduce your taxable income which will reduce the amount of tax you need to pay.

The following are some examples:

• Paying rental property expenses including repairs and maintenance
• Giving gifts and donations to registered charitable organisations
• Paying subscriptions to professional journals
• Paying memberships to professional associations
• Prepaying for business travel, seminars and conferences
• Prepaying insurance premiums or rent on business premises
• Purchasing office supplies and stationery
• Business owners can pay employee’s super contributions into a complying fund by 30 June
• If you intend to claim work related Motor Vehicle expenses remember to prepare a log book to document your private and business kilometres travelled for a continuous 12 week period as well as your motor vehicle expenses
• Higher income earners could get private health insurance to avoid the Medicare levy surcharge.

These ideas require spending money sooner rather than later in order to save money.  If your cash flow prevents this or does not relate to your circumstances at the very least it’s a good idea to plan just by making sure you have all your necessary tax documents together sooner rather than later.  Not only will you then not miss claiming items you should have but it will mean you can have your tax prepared in a timely fashion so you don’t get hit with late lodgement fees and if you do have a tax liability you can then budget for it.

Rules for Collectible and Personal Use Assets in SMSFs

From 1^st July 2016, the transitional rules for collectibles and personal use assets held in SMSFs will have expired.  Collectibles and personal use assets include items such as:

• Artwork – including paintings, sculptures, drawings, engravings & photographs
• Coins, medallions or bank notes – where their value exceeds their face value
• Antiques
• Postage stamps or first-day covers
• Memorabilia
• Wine or spirits
• Memberships of sporting or social clubs
• Bullion coins are collectables if their value exceeds their face value & they are traded at a price above the spot price of their metal content
• Jewellery
• Artefacts
• Rare folios, manuscripts or books
• Motor vehicles & motorcycles
• Recreational boats

The new rules took effect for purchases made from 1^st July 2011 and from 1^st July 2016 they apply to all collectable and personal use assets.  The rules prevent these types of assets:

• being leased to, or part of, a lease arrangement with a related party
• being used by a related party
• being stored or displayed in the private residence of a related party.

This excludes agreements where art is displayed at the business premises of a related party where it is visible to employees and clients.  However you are allowed to store collectibles and personal use assets in purpose-built storage facilities that are owned by a related party provided the premises are not a part of their private residence and the assets are not on display.

Artwork can be leased to an art gallery provided the lease is an arm’s length arrangement and the gallery is not owned by a related party.  The SMSF must have an insurance policy in its name over the artwork, regardless of the insurance policies held by the gallery.

Investments in classic motor vehicles, as well as restrictions on display and storage, also prevent related parties from driving them, even for restoration or maintenance reasons.

As well as storage and use restrictions:

• the investment must comply with all other investment restrictions, including the sole purpose test
• documentation, such as meeting minutes, must be kept for 10 years on storage decisions
• insurance must be in place within 7 days of acquisition and the policy must be held by the SMSF
• if the item is sold to a related party, it must be sold at market value as determined by an independent valuer.

Gift Vouchers Are Now Available at Veritas Wealth Solutions

Gift vouchers are now available from Veritas Wealth Solutions for an initial consultation session (usually 60 – 90 minutes) with our Certified Financial Planner Ken Wild at a cost of $165.  An initial consultation will help your children and friends plan for their future in setting financial goals and developing plans on how to achieve them.

Please contact the office at 02 6162 1522 if you would like to organise a voucher.

Enduring Power of Attorney For SMSFs

While it is never nice to contemplate becoming incapacitated by illnesses such as Alzheimer’s or dementia, or even physically or mentally incapacitated due to illness or accident, if it does occur it is imperative that there are processes in place allowing someone else to legally make decisions on your behalf.

An Enduring Power of Attorney (EPoA) allows a person to give another person the authority to make decisions on their behalf if they should find themselves unable or incapable of conducting their affairs at any point in the future.

It is vital that all trustees/members of a SMSF have an Enduring Power of Attorney (EPoA) so that the nominated attorney can continue to operate the fund when a trustee is no longer able or capable. Failure to do so can cause significant and costly problems for the fund.

Consider the implications for the SMSF if someone is incapable of making decisions:

How does the SMSF run?  How can documents be executed?  How does a corporate trustee operate?  How is a new trustee appointed?  How are assets sold or bought?  How are pensions or lump sum withdrawals made?

If there is an EPoA:

• It means the member gets to choose a person to give the authority to make decisions for your SMSF.
• The SMSF can continue to operate if you are incapacitated.
• The SMSF maintains its complying status without fear of contravening relevant legislation.

If there isn’t an EPoA:

• The ATO may decide to make the fund non-complying.
• An incapacitated member cannot be rolled out as SIS regulations require member consent.
• Documents that require two signatures can’t be executed.
• Apply to the relevant state or territory Civil and Administrative Tribunal.
• Apply for guardianship of the incapacitated member.
• But who gets appointed? Surviving spouse, son/daughter, Public Trustee? Could be someone the member does not want making decisions for them.
• What happens to the SMSF while waiting?

General features of an EPoA:

• The EPoA covers financial and legal matters when an individual cannot make those decisions themselves.
• The person appointing the attorney must be over 18 years and have the mental capacity to make decisions. Generally you can nominate if the power of attorney is to take effect immediately, or only when, or if, they become incapacitated and can no longer make decisions.
• The person appointed as an attorney must be at least 18 years old, have the capacity to make decisions, and agree to be your attorney.
• The person appointed as an attorney should be a trusted spouse, partner or adult child, a relative, a friend or even a professional such an accountant or lawyer. You can appoint more than one person so you have different people responsible for different things, or so powers are exercised jointly.
• If the attorney has power to sell real estate this must be registered with the relevant state or territory land titles office.
• Each state and territory have different formal requirements for the form of the EPoA and witness requirements, so check for the area specific to you or consult a solicitor.
• The EPoA ceases upon the death of the appointer. When someone dies, the Will takes over for decisions regarding the estate.

Attorney responsibilities

The decision to act as an attorney and the legal duties involved are significant so this decision must be carefully considered.  The attorney must act in the best interest of the appointer when making decisions, take care of property/assets, avoid conflicts of interest, ensure relevant legislation is complied with and if necessary, prove that they have been appointed your attorney.

Things to consider when appointing an EPoA

• Make sure you know where your original documents are located, including previous deeds and upgraded company constitutions.
• Review those documents and ensure you understand the requirements to appoint and remove trustees and directors.
• Consider who is to be appointed as a member’s individual attorney because they will have a significant amount of control should the member become incapacitated.
• Consider whether the attorney would be an appropriate choice. Are they sensible, likely to act in your interests, not living overseas?
• Do a “what if test” assuming the worst has happened, and test the rules, seeing how the documents would work. Does your appointed attorney and the rules of the trust deed fulfil your wishes?
• Regularly review the appointed attorney. Are they still an appropriate choice or have things changed? Has the trust deed or company constitution been changed? The “what if” test should be conducted again to make sure you still achieve your desired outcome.
• Seek legal and other professional advice and guidance to ensure the EPoA is a valid document.

Medibank Private Ltd (MPL) Share Transfers

If you purchased MPL shares in individual or joint names and would like transfer the holdings to your self-managed super fund, please contact our office to assist in arranging the transfer for you as soon as possible.

Children and Insurance Cover

What would be the financial consequences on your retirement if one of your children or their partners were disabled or died?  Or a grandchild was disabled?

These are confronting questions but unfortunately they require answers and those answers may be financially devastating coming as they will on top of the emotional toll these events would already be taking.

We all know the cost of hospitalisation and modern medical technologies is horrendous even if we prepare via holding private medical insurance. But these out of pocket expenses may be insignificant if for example a son or daughter died leaving children and a single parent whose career was permanently on hold due to parenting responsibilities from then on.

Who pays the mortgage each fortnight out of the now meagre single income? You possibly could assist but that was never in the pre retirement list of expenses calculation.

You may be able to do the child minding duties so the parent can return to a career and better income prospects but you may be wanting to go on extended holidays every so often. Child care is also very expensive and longer term possibly not viable. You are also not as young as you were and looking after demanding young children is going to take its toll on you also and certainly was not built into your retirement plan.

A worse scenario may be if a child or their partner was disabled so was requiring permanent medical assistance and intervention. Again can you afford to help without depleting your investment portfolio to the point where you suffer a reduced standard of living? We are talking tens, possibly hundreds of thousands of dollars here in ongoing care from an injury or sickness which may not have any compensation claims attached to it. We could still have the mortgage and the children’s education to factor in as well in many cases.

Having posed the scenarios what can you do about it to make sure you are not financially ruined by such a tragedy?

The answer is you make an investment in adequate insurance cover for your children who have dependency situations and relationships. Or you insist they do it themselves if they have the means as it is generally not that expensive, particularly whilst they are still relatively young(under 45) which coincides with the highest risk period anyway in most cases ie they have young children, big mortgages and no savings.

One of the best ways to provide the Death, Disability and Income Protection insurances is via a superannuation fund. The premiums are tax deductible to the super fund and group insurance cover offered through the funds can be extremely cost efficient. The only problem can be that some funds do not provide adequate levels of cover so either an alternative super fund needs to be found or a policy outside of super undertaken.

When the child is self funding the insurance via super there is also an element of it is not costing anything as only the child’s ultimate retirement savings are being depleted, not day to day living money. The ability to catch up later in life is assumed with this approach.

As we have just started a New Year a resolution for many of you therefore could be to ask these questions of your children to ensure you are not lumbered with the financial burden of caring and supporting children following a debilitating injury or death.

And if you are the child or children concerned you should take stock of your insurance situation so you do not deprive your parents of the retirement they have planned.

If you require assistance with an evaluation of your insurance needs we will be pleased to provide advice and recommendations.

Beware of Scams

Falling victim to a scam can be embarrassing, not to mention very costly.  Some scams are easy to spot but it’s the scams that appear to be genuine offers or bargains that we need to be wary of.  Scammers use various techniques; online, via email, SMS, telephone calls and even in person.  Every day people are falling victim to scams and Australians are collectively losing millions of dollars a year to them.

Recently, we have heard of people receiving emails from the ATO regarding their tax refunds.  It is important to remember that whilst these emails look legitimate the ATO or other Australian Government departments such as ASIC or ACCC will never contact you via phone or email requesting personal details for refunds.  From time to time they may send emails and SMS messages, but these do not include or request personal details.

Some tips to remember if you suspect an email, SMS or telephone call is a scam:

• Immediately delete emails or SMS messages or hang up on the caller if they are out of the blue and claim you are entitled to a refund or some sort of prize.
• Don’t respond to text messages or missed calls that come from numbers you don’t recognise.
• Do not click on links in a spam email or open any files attached to them.
• Never give out any personal details or information unless you have initiated contact and trust the other party. Likewise, never send money to anyone you are not totally sure about.
• Verify who the caller is and who they represent. If it’s a legitimate call you should be able to ring them back on a number you find yourself from an independent source (i.e. google, yellowpages).
• If someone is offering you an investment or other financial services ask for their Australian Financial Services Licence Number and check this with ASIC. It is illegal to sell investments in Australia without an AFS Licence.

Scamwatch.gov.au is a good website to take a look at to learn more about scams.  It is run by the ACCC and provides information on how to recognise, avoid and report scams.  ASIC deals with investment scams or scams concerning financial products or services, you can learn more about this at Moneysmart.gov.au.  The ATO has information on tax related scams at ato.gov.au.

New Year Financial Health Check – Are You On Track for tThe 2015 Financial Year?

Whilst many people make New Year resolutions to set personal goals, January is also an important milestone in the financial year.  Reviewing your finances now allows you time to implement new strategies and/or make sure existing plans are running accordingly to schedule.  We have included some items that should be checked or planned for now rather than in June of the financial year when it is often too late to implement.

• For those working – check your Super Concessional Contributions (this includes Super Guarantee, Salary Sacrifice and personal contributions) to make sure you do not exceed your cap ($30,000 for under 50’s, $35,000 for 50 and over) or look at making further contributions to make the most of what is still available. Remember deductible super contributions are only tax deductible in the financial year they are received in your super fund account and often the last quarter or monthly contributions are not received until the next financial year.  Ask your employer or check your super fund account if you are unsure of the amounts that have been paid for this year so far.
• For retirees – check that you are on track with your minimum pension withdrawal amounts. Scheduled fortnightly and weekly payments can sometimes fall short due to the timing of weeks in the financial year i.e. 25 payments rather than 26.
• Be proactive – for those that tend to leave paperwork to the last minute start organising your accounts and tax paperwork now. This alleviates stress by not leaving it until the last minute and also assists in getting an idea of your current financial and tax position so you can utilise the next few months effectively and then;
• Talk to us at Veritas Wealth Solutions to see what you can possibly take advantage of over the next few months or have any questions answered in regards to your financial goals before June 30 arrives.

Reviewing and Refreshing Your Financial Goals

Each year you should take stock of how your finances are going and see where improvements can be made. But perhaps the most important issue to address is how well you are setting your financial and lifestyle goals.

What drives your financial planning?

Most people will associate a new financial year with their tax return, the associated analysis of their income and expenses, and where improvements can be made and efficiencies found.

While these are worthy and important issues to deal with and they do require planning, they are not the central focus of what financial planning should really be about. The real driving force behind your financial planning is the ultimate lifestyle goals that your finances are aimed at achieving for you. When you have a clear and realistic grasp on what you really want out of life, this will enable you to make the decisions and build the habits that will get you there.

Goals are more than just a dollar amount

When we think of goals in a financial sense, our focus can sometimes gravitate toward a simple dollar figure. While it is important to quantify goals in dollar terms, the real focus needs to be on the things that we enjoy doing, owning and creating. In other words, what you would want to ultimately enjoy more of, if you had the time and the money.

This is a very personal question and every individual will have their own unique take on what is important to them. For some, it will be a holiday house. For others, it will be international travel, a car or indulging in a hobby or passion. The more it excites you, the greater the motivation will be to achieve it.

Once you have clearly articulated those goals, you can then build your financial plan around them. The process of saving and investing, then simply becomes a way of serving the realisation of those goals, rather than being a goal in itself.

Your Veritas Financial Adviser is the ideal sounding board

Why not arrange time to sit down with your Veritas Financial Adviser and take a fresh look at your lifestyle goals? It’s a great way to bring new energy and purpose to your financial planning.

SMSF Trustee Education

From 1 July 2014, the ATO may direct a trustee or a director of a corporate trustee of an SMSF to undertake a course of education if they have contravened superannuation law. The ATO approved SMSF Trustee Education Program has been released by CPA Australia and Chartered Accountants Australia and New Zealand. The program is provided free to members and trustees of SMSFs and has been approved by the ATO as a course of education for education direction purposes.

We encourage all trustees, both new and existing, to undertake the SMSF Trustee Education Program to improve their competency as an SMSF trustee, improve their ability to meet their regulatory obligations and reduce the risk of contravening the law in the future.

To register and complete the program, please click here

Importance of Financial Planning for the Younger Generation

Young people face significantly different financial questions than someone approaching retirement. They have finished formal education and are looking at questions about insurance needs, debt repayment, buying a home, saving and investing for retirement, and maybe even funding school fees for children.

Many young people will already have successful careers underway and are earning good incomes. The opportunity to establish the sound financial base that will carry them through their working lives and into retirement is now upon them and it will not be there forever. Many studies have shown that those who make plans and have organised their financial affairs have a much better chance of being successful and have far more peace of mind.

Long term planning does not mean you have to forego everything that being young entails. It simply requires some discipline around money management in the first instance and the establishment of good money habits. For example, one of the best strategies any young person can employ (or anyone for that matter), is the “pay yourself first” principle. Generally how most people approach saving for goals is to pay the bills and lifestyle expenses and then save what is leftover. Unfortunately, this too often means very little or nothing is left over and the planned for saving is at best erratic and often fails to meet the target.

If however every pay day you first deduct say 10% of your after tax income as savings, using the rest to pay bills and other expenses, you guarantee that progress toward your target is being made. For many young people, particularly those without mortgages and the like, this is not too big an impost on their lifestyle and they very soon do not miss the 10% saved at all.

Probably the best strategy for any young person looking to make the most of their assets and income though is to invest in a good financial adviser to guide them along the way. Financial education and literacy is still not very high in our society in general so the sooner you are on that pathway the better outcomes you will have financially.

A good adviser will ask the questions that need to be answered around your finances then put them in perspective. He/she will be able to make tangible your goals and objectives by breaking them down to the basics such as how much do I need to allocate over how many years to achieve that target. Their experience and knowledge can see beyond the 12 month window which is about as far as most people can visualise with their monetary aspirations.

They will also ensure you are protected against sickness and accident through having in place appropriate insurance covers. They will also protect you from yourself and your lack of financial experience and knowledge by providing a sounding board for the investment opportunity you read about or your best friend wants you to join them in etc. Too often we see the impetuosity of youth result in ill thought out endeavours that come crashing down around their ears.

A young person today will expect to earn millions of dollars in income over their lifetime. Protecting that asset by developing a relationship as early as possible with a quality financial adviser is probably the best investment decision anyone can make.

If you would like to get started on the pathway to financial security, please contact our office to arrange an appointment.

Mineral Resource Rent Tax Repeal – What This May Mean for You

The Mineral Resource Rent Tax Repeal legislation was recently passed by the Senate and was passed by Royal Assent on 5^th September 2014.  As part of the negotiations this legislation also included other budget measurers that may affect you.   These measures include:

Individuals

• Superannuation Guarantee (SG) Rate Changes: The current SG rate of 9.5% will be in place until 30 June 2021. It will then increase a half a percentage point annually (1^st July) until it reaches 12% on 1 July 2025.
• Low income superannuation contribution (LISC): Concessional Contributions for low income workers will continue to receive the LISC until 30 June 2017. The Government had planned to cease this as of 1 July 2013.
• Income Support Bonus (ISB) for social security recipients: The ISB is an indexed, non-means tested payment that is paid twice annually to eligible social security recipients. The ISB will now be removed from 31 December 2016.
• Schoolkids Bonus: The schoolkids bonus will now be removed from 31 December 2016. From 5 September 2014 (date of Royal Assent) to 31 December 2016, an additional income test will apply. Individuals must have an adjusted taxable income of less than $100,000 to receive the schoolkids bonus.

Small Businesses and Companies

• Abolition of the company loss carry-back from 1 July 2013: The loss carry-back cannot be claimed for the whole of the 2013/14 financial year. The ATO will be contacting companies that have claimed the loss carry-back tax who are now no longer eligible. The offset will also be removed from the affected assessment and the company will be sent a notice of amended assessment. Penalties and interest will not be imposed by the ATO on any amount payable on the amended assessment if payments are made within a reasonable time.
• Reduction of the instant asset write-off from 1 January 2014: The reduced threshold of assets costing less than $1,000 will apply from 1 January 2014. Assets costing $1,000 or more will need to be depreciated in the general small business pool. The previous threshold of assets costing less than $6,500 will still be eligible for immediate write off for those assets that are installed and ready for use by small business between 1 July 2013 and 31 December 2013.
• Abolition of accelerated depreciation for motor vehicles from 1 January 2014: From 1 January 2014, Motor Vehicles will only be immediately deductable if they cost less than $1,000. Motor Vehicles costing $1,000 or more after 31 December 2013 will need to be depreciated in the general small business pool. Those motor vehicles acquired and ready for used between 1 July 2013 and 31 December 2013 will still be eligible for an immediate deduction of up to $5,000.
• Amendments to Returns – Small business write off concessions: Taxpayers that have lodged their 2013/2014 return under the previous law should seek amendments to reduce their depreciation claim.   Penalties will not apply (eg shortfall on interest charge) if taxpayers request an amendment to their previous assessment within a reasonable amount of time.

Medibank Private Initial Public Offering

On 28^th September 2014 Mathias Cormann, Minister for Finance, announced the opening of pre-registration for the Medibank Private Share Offer. Pre-registration is only open to eligible Australian resident retail investors.

Pre-registering for a Prospectus is not a commitment to buy shares – it simply lets Medibank Private know that you are interested in reading the Prospectus when it becomes available. You should only pre-register once; however if you are also acting in another capacity (such as a trustee of a SMSF), you may also pre-register in that capacity.

Australian residents who pre-register to receive a prospectus and then apply for shares can receive a preferential allocation of shares. Eligible Medibank policyholders can also receive a greater preferential allocation than those non-policy holders when pre-registering for the shares.

Pre-registration for the Medibank Private Share Offer is now available on https://www.medibankprivateshareoffer.com.au and through the Medibank Private Share Offer Information Line by calling 1800 998 778 8am to 10pm (Sydney time), Monday to Friday. The pre-registration for retail investors will close on 15^th October 2014, with further details of the offer to be provided in the prospectus due in late October 2014.

National Breast Cancer Awareness Month

October is Australia’s Breast Cancer Awareness Month, and with eight women in our office of nine, Veritas Wealth Solutions and Jodie Dickson Accounting & Superannuation are proud to support the National Breast Cancer Foundation research into the prevention and cure of breast cancer.

We have raised a total of $1,395.45 so far with our online fundraising and “Boobalicious” morning tea on Friday 3rd October, with Allison and Jess also volunteering to colour their hair pink for the occasion!

Binding Death Benefit Nominations In Superannuation

A few recent Supreme Court decisions have highlighted the importance of having valid binding death benefit nominations (BDN) in place for your superannuation benefits, both in self-managed super funds (SMSF) and in public super funds.

A BDN is the document that will ensure your superannuation entitlements are distributed according to your wishes.  There are different types of BDNs and understanding them is essential:

	Binding	Non-Binding
Lapsing	Valid and binding for a specified period per trust deed, generally 3 years. Trustee must comply with directions within this period. Converts to non-binding after period lapses.	Not applicable
Non-Lapsing	Trust deed must allow this type. Valid and binding until a new nomination is made. Trustee must comply with the directions. Important to update as circumstances change to ensure it still complies with your wishes.	Trustee is entitled but not bound to follow the nomination so can distribute funds as they see fit.

Recent court cases typically involve blended families where there are children from a previous relationship.  Generally, a parent wants their children to benefit from their superannuation upon their death, a wish that is usually very clear in their will and in discussions with their spouse.  However, a will does not apply to your superannuation.  If there is no valid BDN in place, the trustee/s can (but do not have to) take your instructions into account.

With superannuation becoming an increasingly large component of a person’s wealth, the need for regular reviews of superannuation arrangements assumes even greater importance.

For example: There is the recent court case of Ioppolo v Conti [2013] WASC 389 in which Francesca Conti died leaving her second husband, Augusto as sole trustee of their SMSF.  He set up a corporate trustee within the required timeframe so the fund remained complying after her death.  In her will, Francesca had specified that her super entitlements were to be paid to her children and stated that no benefit was to go to Augusto.   The BDN that she completed in 2006 had lapsed at the time of her death.   As the trust deed provided absolute discretion of the trustee in paying out death benefits in the absence of a binding nomination, Augusto paid her super benefit to himself.  The Supreme Court has upheld that Augusto has complied with the requirements of the trust deed and denied the application of Francesca’s children for access to her super benefits.

Is Your Will Up To Date?

Have you got a valid Will? If you have already made a Will, have you reviewed or updated it since there was a significant change in your life?

You may need to make changes to your Will to ensure that it still meets all of your goals. Below are some events that may prompt a need for review of your Will:

• Change in marital status (many states have laws that revoke part or all of your Will if you marry or get divorced)
• Additions to your family through birth, adoption or marriage
• Spouse or family member has died, become ill or is incapacitated
• Acquisition or disposal of a significant asset
• A significant change in your asset position or business interests
• A spouse, parent or family member has become dependent on you

Estate planning is a specialist area and as such your estate planning requirements should be reviewed on a regular basis with your Solicitor or estate planning specialist.

What Changed on 1 July 2014?

A number of changes to rates and thresholds occurred on 1 July 2014, in addition to the introduction of more stringent penalties for SMSF trustees who contravene superannuation legislation. Some of the most relevant changes include:

• A Temporary Budget Repair Levy of 2% will be payable on taxable incomes over $180,000 p.a. for the next three financial years, increasing the personal income tax rates for the 2014/15 year to the following rates:

Taxable Income	Tax Payable
$0 – $18,200	Nil
$18,201 – $37,000	19c for each $1 over $18,200
$37,001 – $80,000	$3,572 + 32.5c for each $1 over $37,000
$80,001 – $180,000	$17,547 + 37c for each $1 over $80,000
$180,001+	$54,547 + 47c for each $1 over $180,000

In addition, the Medicare Levy will increase from 1.5% to 2% from 1 July 2014 to fund Disability Care Australia (National Disability Insurance Scheme).

• The Super Guarantee contributions rate has increased to 9.5% 1 July 2014; however the next increase to the Super Guarantee contributions rate is not schedule to occur until 1 July 2018.
• The Dependent Spouse and Mature Age Worker Tax Offsets have been abolished from 1 July 2014.
• Increase in the standard concessional contributions cap to $30,000 (and $35,000 for those age 49 or over on 30 June 2014) and the non-concessional contributions cap to $180,000.
• People who make non-concessional super contributions from 1 July 2013 that exceed the cap now have the option to withdraw the excess amount plus earnings on the excess (subject to the passing of legislation). Excess contributions tax will continue to apply for individuals who leave their excess contributions in their fund.

New Powers Given to the ATO to Penalise SMSF Trustees Who Breach Their Obligations

Legislation has given the ATO new powers to penalise SMSF trustees who breach their obligations. These powers cover monetary penalties, education directions and rectification directions. The changes commence on 1 July 2014 and the powers also apply to contraventions that were made prior to 1 July 2014 and continue after this date.

The ATO has only had a limited range of penalties to deal with SMSF trustees who break the rules, and these penalties were difficult and time-consuming for the ATO to manage. Hence, some trustees were not being held accountable for failing to meet their obligations under the law.

Any financial penalties payable (up to $10,200 per trustee) are personally payable by each trustee (or director of the corporate trustee), meaning that the SMSF cannot pay or reimburse the penalty to the individual.

If you would like further information regarding the changes to legislation for SMSF trustees who breach their obligations, please contact us.

Payment Summaries for SMSF Clients

If you are a member of an SMSF, you are under the age of 60 and have received pension payments or a lump sum benefit during the 2013/14 financial year from your SMSF, you should receive a pay as you go (PAYG) payment summary from your payer (SMSF).

Generally, the SMSF must provide the PAYG payment summary to the relevant member by the 14^th July following the end of the financial year in which the payment was made; however SMSFs who meet certain eligibility criteria may be eligible to access the “closely held lodgement concession”, allowing the registered tax agent to lodge the Fund’s PAYG report by the due date of the Fund’s tax return rather than by 14^th July.

Where eligible, SMSF clients of Jodie Dickson Accounting and Superannuation and Veritas Wealth Solutions will be added to Jodie Dickson’s “closely held lodgement” list and as such, PAYG payment summaries will be completed at the same time as the Fund’s annual accounts and income tax return, unless we hear otherwise from you.

For those clients that we complete both personal income tax returns and SMSF accounts, we will endeavour to undertake the preparation of personal income tax returns, SMSF accounts and SMSF PAYG payment summaries at the same time to simplify the accounting process and ultimately keep the cost of our services at a competitive rate.

Recurring Payments for SMSF Clients

If you have a Macquarie Cash Management Account in your SMSF, did you know that you can set up an electronic funds transfer to make the same payment each week, fortnight, month or quarter?

For example, if your superannuation benefits are held in pension phase and you take regular withdrawals from your account to meet your income needs and/or minimum pension requirements, establishing a recurring payment can alleviate the sometimes cumbersome process of drawing a cheque from your super fund account and waiting for these funds to clear in your personal bank account before you can access the money.

Payments can be easily set up and maintained online through Macquarie Online using your Macquarie Access Code (MAC) if you utilise internet banking. Alternatively, if you are interested in establishing a recurring payment and do not utilise internet banking, please contact us and we will send you a Recurring Payment Authority form.

Extension of Superstream Compliance Date for SMSF Clients

The government has announced that the date by which SMSFs must comply with the SuperStream contributions data standards has been pushed back from 1 July 2014 to 1 July 2015. The change in date for compliance provides more time for employers and SMSF trustees who still need to take action to comply with the SuperStream contribution standards.

SuperStream is a government reform aimed at improving the efficiency of the superannuation system. Under SuperStream, employers must make super contributions on behalf of their employees by submitting data and payments electronically in accordance with the SuperStream standard. All superannuation funds, including SMSFs, must receive contributions electronically in accordance with this standard.

From 1 July 2014, employers with 20 or more employees were to start using the SuperStream standard to send contribution data and payments electronically. From 1 July 2015, employers with 19 or fewer employees are required to send contributions data and payment electronically. The shift to 1 July 2015 for SMSF trustees to comply with SuperStream standards aligns this date with the proposed date for “small employers” to comply with SuperStream.

Superannuation Contributions Caps

Indexing of the superannuation contributions caps will resume from 1 July 2014, resulting in an increase in the contributions caps for the 2014/15 financial year as follows:

	Standard Cap	Aged 50 years or over on 01/07/2014
Concessional Contributions	$30,000	$35,000
Non-Concessional Contributions	$180,000	$180,000
CGT Cap Amount	$1,355,000	$1,355,000

From the 1 July 2014 if you are 50 years old or over, you can make additional concessional contributions to your super, with the cap increasing from $30,000 to $35,000. The temporary higher cap is not indexed and will cease when the general concessional contributions cap is indexed to $35,000.

It is important to regularly monitor the contributions made to your superannuation fund/s if you do not want to inadvertently exceed a cap.

Non-concessional Contributions – Bring Forward Rule for Over 65s

A twist on the bring forward provisions for non-concessional contributions is the ability to contribute up to $450,000 to superannuation in a financial year, even if you are over the age of 65.

This is due to the fact that the bring forward provisions can be used, as long as you were aged 64 on the 1^st July in the relevant financial year, even if by the time you want to make the contribution you are already aged 65, subject to the conditions below. If you contribute more than $150,000 (being the 2013/14 non-concessional contributions cap) in the financial year you turn 65, you automatically trigger the bring forward rule for the following two years.

However, there are a few other interactions with the superannuation laws that come into play once you are over the age of 65 that you need to be aware of:

• After the age of 65, you need to meet a work test to continue to contribute to super. The work test involves working for at least 40 hours over a 30 day period in the financial year, prior to a contribution being made.
• If you are aged 65 on the 1^st July, the “fund capped” amount is limited to the standard annual non-concessional contributions cap (currently $150,000). Therefore, if you have already activated the bring forward provisions in the previous financial year, your superannuation fund can only accept contributions of $150,000 at any one time and you may need to make two separate contributions in order to utilise the remainder of your bring forward cap.

Importantly, once you have triggered the bring forward provisions in a year, any changes to the non-concessional contributions cap for the subsequent two years do not apply to you.

For example, Jim turns 65 on the 30^th July 2013 and has not triggered any previous bring forward provisions on his non concessional contributions. He comes into an inheritance of $250,000 on the 1^st January 2014.

Jim is able to trigger the bring forward provisions in the 2013/14 financial year as he was only aged 64 on the 1^st  July 2013, allowing him to contribute his entire $250,000 this financial year, or spaced out over the three year period up to 30 June 2016. He does however need to satisfy the work test to contribute funds to superannuation after his 65^th birthday.

Should Jim come into another lump sum of money (say $200,000) that he wants to contribute to superannuation in the 2014/15 financial year, he still has $200,000 up his sleeve that he can contribute over the three year period ending 2015/16. However, as Jim will be aged 65 on the 1^st July 2014, he will need to make sure he meets the work test before making the contribution and the “fund capped” amount is limited to $180,000 per contribution for the 2014/15 financial year and Jim will need to make two separate contributions of $180,000 and $20,000.

Changes to Centrelink Deeming Rules

From 1^st January 2015, the normal deeming rules will be extended to superannuation account based income streams. This will mean that all financial assets are assessed under the same rules for payments such as the Age Pension, Disability Support Pension and Newstart Allowance. Deeming rules assume your financial assets are earning a certain amount of income regardless of the actual income you earn.

This change will start on 1^st January 2015 and account based income streams held by pensioners and allowees prior to 1^st January 2015 will continue to be assessed under the existing rules, unless they choose to change products or buy new products from 1^st January 2015. Currently, account based income streams have a non-assessable amount (which is essentially a return of capital), reducing the level of income assessable under the Centrelink Income Test.

These changes do not impact on the treatment of superannuation funds held in accumulation phase.

To find out more about the changes to deeming rules and how these changes may impact your financial position, please contact our office to make an appointment to speak with your adviser.

The Color Run Canberra