Newsletter

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:

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:

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:

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