Financial & Retirement Planning Wealth Management

Why strive for financial freedom?

July 7, 2016

Why strive for financial freedom seems like a simple question but slightly more challenging when it comes to providing a meaningful answer.

There is no right or wrong answer because everyone is unique, and how you define and value financial freedom is what you do with it. At the end of the day, it’s not all about the dollars and the cents.

For many, it’s about the simple things in life they want to be able to do with financial freedom.

Financial freedom is more about what defines you, and what you want from life.

For some, the ability to have enough money saved up to go on a family holiday is how they see financial freedom. For others, it is about having it to pursue their entrepreneurial dreams, and become their own boss. Or to be able to enjoy a comfortable retirement, spend quality time with the family, and enjoy every moment with their grandchildren.

Financial freedom means different things to different people.

It’s about being able to do what you want in life.

Defining Your Road to Financial Freedom

Attaining financial freedom is no easy task, and there’s no shortcut to it. But the start to achieving anything in life is understanding the What and the Why.

If you can define WHAT financial freedom means to you, and WHY it is important to you, then you have already reached a major milestone.

Having a purpose or a goal to achieve is 100% better than having no purpose or not knowing where you’re going in life.

Purpose gives you focus, direction and the hunger to get you what you want. It’s a very powerful driving force.

3 Tips to Planning your Financial Freedom Roadmap:

Get yourself a trusted professional financial adviser

Work with an adviser with whom you’re comfortable with to share your life ambitions with,  someone who can coach and motivate you. Think of it, like getting a personal trainer to help you get into shape, it is easier to work with a professional financial adviser who can set up a personal financial fitness plan, and get you financially fit and healthy.

Set personal and meaningful financial goals

Your road should be lined with goals. If you don’t know why you’re doing this i.e. WHY you’re working so hard and making sacrifices, then it is too easy to fail even before you begin. Even if things get tough, having goals keeps you focused and determined. It keeps you on the road towards financial freedom.

Remember, for goals to be effective, they need to be personal – it should mean something to you.

Don’t make excuses

If you’re ‘high-fiving’ for getting past Tips 1 and 2, then don’t stop. Don’t get distracted, and stick to your personal fitness plan.

Collaborate with your ‘financial coach’ / financial adviser, and make it work. It can get tough if you’re trying to do it solo so get your coach to make you accountable for your actions.

All the fitness workouts and daily exercises will be worth it when you have the power to make decisions that’ll define the life you CAN lead and enjoy.

With a bit of hard work, some sweat and tears, you can empower yourself to find financial freedom to do what you want in life. This is priceless, and something so significant, you want it bad!

SMSF & Superannuation

What’s involved in running a Self Managed Super Fund (SMSF)?

July 7, 2016

SMSFs are one of the fastest growing sectors of the superannuation industry. The Australian government wants to ensure funds are managed properly in order to accumulate retirement benefits for members thereby reducing future reliance on government pensions.

Anyone who advises on SMSFs must hold an Australian Financial Services Licence and be qualified in advising superannuation trustees and fund members.

The trustee’s role

As a trustee you are solely responsible for the day-to-day operation of your fund. You can seek professional advice – for example, on administration, taxation, investing, legal, actuarial and audit matters – but if you break the superannuation rules, the “buck stops with you”, the trustee.

Getting it wrong whether by accident or carelessness can have serious ramifications.

It can mean loss of concessional tax status for your fund, fines, or civil and even criminal penalties for the trustee. It could even mean you are banned from acting as director of a company.

Increase your retirement benefits

A properly planned and operated fund should significantly increase retirement benefits. As an example, superannuation regulations require all super funds to have a written investment strategy. This will set out what the fund is trying to achieve, taking into account the circumstances of the members and any employer contributor. Typically, it will provide a benchmark asset allocation setting out the types of assets the fund will invest in to achieve its goals.

A long-term strategy is impractical unless it is monitored and reviewed regularly and this is a requirement for all SMSFs.

Although this might seem like an extra impost, the upside of regular reviews of your fund strategy is that you potentially achieve superior results from your investments.

  

Do it right

Sadly, many individuals and businesses have been encouraged to set up and run SMSFs for the wrong reasons, attracted by the promise of low fees. As is often the case, “you get what you pay for” and poor advice can mean trouble with the regulator and an under-performing super fund. Do it right and do it well and you will be the one who wins in the end.

Financial & Retirement Planning SMSF & Superannuation

Moving your Self Managed Super Fund (SMSF) into Pension Phase

July 7, 2016

Moving accumulated superannuation benefits to pension phase is a common way to fund retirement income. If you have a self managed superannuation fund (SMSF), there are a few things you should think about when starting a pension.

 

What is an account-based pension?

An account-based pension is like a personal retirement income account operating in a superannuation fund. You receive regular income payments, while at the same time your account may earn investment income. Any investment income earned in pension phase is generally tax free.

 

Note that before you can start to receive a pension with your super benefits, you must have met a condition of release.

The most common conditions of release are:

  • Reaching your preservation age
  • Permanently retiring after reaching preservation age
  • Reaching age 65, or
  • Permanent incapacity

Your preservation age depends on when you were born:

  • Before 1 July 1960 (Preservation age is 55 years)
  • 1 July 1960 – 30 June 1961 (Preservation age is 56 years)
  • 1 July 1961 – 30 June 1962 (Preservation age is 57 years)
  • 1 July 1962 – 30 June 1963 (Preservation age is 58 years)
  • 1 July 1963 – 30 June 1964 (Preservation is 59 years)
  • After 30 June 1964 (Preservation age is 60 years)

Check your trust deed

Your SMSF’s trust deed must allow the payment of an account-based pension.

It is a good time for a general review of your trust deed, and an update, if appropriate. This will generally require a legal professional.

Consider your fund’s investment strategy

The investment strategy that suited you in accumulation phase might not be appropriate in pension phase.

One of the objectives of an account-based pension may be to have your capital last throughout your lifetime, so setting up your account based pension marks an important time to review your investment strategy.

Studies show(1) that in general the impact of negative returns can be greater when drawing down on your capital, compared to when in accumulation phase (where generally you won’t be drawing down, and may be adding to your capital), so your investment strategy should take into consideration this additional risk. Your adviser will be able to assist you in determining an appropriate investment strategy for your SMSF.

 

Make the minimum payments

When running an account-based pension, one of the key requirements is to ensure you draw at least the minimum payment amount each financial year. This is an important criteria in maintaining the tax-free status of your fund’s earnings in pension phase.

The minimum amount you have to draw is a percentage of your account balance based on your age, which is calculated as follows:

Required minimum payment amount = payment factor x account balance

Your minimum percentage depends on your age:

  • Under 65 (4% payment factor)
  • 65 – 74 (5% payment factor)
  • 75 – 79 (6% payment factor)
  • 80 – 84 (7% payment factor)
  • 85 – 89 (9% payment factor)
  • 90 – 94 (11% payment factor)
  • 95 and over (14% payment factor)

To calculate your minimum payment amount follow these simple steps:

Step 1: Work out the payment factor that applies to you. This will be based on your age when you started your pension (in the year of commencement) or at 1 July (for subsequent years).

Step 2: Work out the value of your pension. When starting a pension, it’s important to get a current market valuation of the assets for each member’s pension account. If you are planning to start multiple pensions, this will involve a market valuation for each pension account. Your accountant or fund administrator may be able to assist with these valuations.

The value of your account is required to calculate your minimum payment level, and to complete your fund’s tax returns.

Step 3: Calculate the minimum payment amount you need to make by multiplying the result of steps 1 and 2. This amount may be modified in certain circumstances, outlined below.

 

If you start your account based pension part way through the year (but not in June):

  • The payment factor will be applied to the account balance on the date you commenced your pension.
  • You are able to ‘pro rate’ your minimum pension for the number of days in the financial year that it was in place for.

If you start your account based pension in June of a given financial year:

  • There is no minimum pension payment amount for the remainder of that financial year

If you don’t meet the minimum payment amount requirements then the entire balance of the account based pension will be treated as if it were in accumulation phase for the whole year. This will result in assessable investment earnings being taxed at 15%, rather than being received tax free. It’s not enough for your fund to simply ‘account’ for the minimum payment through a journal entry; funds must actually be paid from your account and leave your SMSF.

Keep your records safe

SMSF trustees are required by law to keep records of transactions of the fund, including those relating to pension payments. These records will also assist your accountant in substantiating your fund’s tax position. Generally records relating to pension payments must be kept for a minimum of 5 years, but note that some records (e.g. minutes of trustee meetings) must be kept for 10 years.

 

Estate Planning

If you are receiving a pension from your fund, the rules of your SMSF may allow you to nominate one of your dependants (usually your spouse) to continue to receive the pension after your death, generally referred as a reversionary pension. Alternatively you may be able to nominate one of more dependants to receive either a lump sum payment or a pension after your death, or your estate to receive a lump sum payment.

Wealth Management

Introducing Bishop Collins Wealth Management

June 2, 2016

e are pleased to announce, we have formed a strategic partnership with a specialist wealth management firm, Primestock Securities Ltd AFSL No. 239180 (Prime) to offer a diverse range of wealth management services and solutions to cater to our client’s unique needs from simple to complex advice situations.

 Bishop Collins Wealth Management is a Corporate Authorised Representative (No. 1242273) of Primestock Securities Ltd , and we will be integrating Prime’s wealth management advisory model into our business to offer our clients a ‘total financial experience’ across Accounting & Tax | Wealth Management & Asset Protection.

 This exciting new partnership means we are able to support and guide our clients towards a truly successful financial future with Business Advice, Accounting, Wealth Management, Superannuation and Insurance, all from one place in a complete and seamless way.

 We are also excited to introduce Bishop Collins Wealth Management’s adviser, Ben Travers. Ben is a highly regarded CFP qualified financial adviser with strong strategic thinking combined with a passion to truly helping client’s achieve their life goals and vision. Ben holds a Bachelor of Commerce, major in Accounting.

 To Learn More about Ben, please click here to view a copy of Ben’s Adviser Profile.

 With Ben and the rest of the Prime Team on our side, we are thrilled and excited to be able to offer a complete wealth management advisory service to our clients.

 We are able to provide the following areas of service and advice:

 Investment Advice

 A comprehensive investment strategic advice looking at the different investment options available to help grow wealth and to maximise on goals and retirement aspirations.

 Superannuation Advice

 Advice and strategy on all areas of superannuation to best position for financial future success.

 Asset Protection

 Strategic and structural advice to allow greater control over assets whether they are personal, family or business.

 Life Insurance

 Appropriate and practical advice on planning for personal, family and business protection against unexpected situations and circumstances.

We would be very happy to help with any questions related to your wealth matters. Please chat with Rebecca Ryan on: 02 43532333 or email us: [email protected]

 

SMSF & Superannuation

What to look out for in relation to insurance within your SMSF

June 2, 2016

SMSF’s can be a great place to hold insurance, and more importantly, the super laws require any SMSF trustee to consider the insurance needs of SMSF members as part of the fund’s investment strategy.

Three types are usually available within a SMSF these include:

  • Life insurance
  • Total and permanent disability insurance (TPD)
  • Income protection insurance

Life Insurance

The purpose of Life insurance is that it provides a lump sum benefit to a beneficiary, third party or an estate in event of your death. This allows you to provide for the financial needs of your family in the event of death. In some cases, your benefit may be paid to you in advance should you be diagnosed as terminally ill. The premiums are tax deductible when owned by a SMSF but not if owned by an individual.

 Total and Permanent Disability (TPD) Insurance

 TPD insurance provides a benefit in the event of becoming totally and permanently disabled and assists with meeting ongoing financial commitments and any necessary medical care. The premiums are tax deductible when owned by a SMSF but not if owned by an individual. The definition of TPD can vary and is defined in each policy document. Furthermore, some policies allow you to obtain TPD as a standalone policy or as a rider policy to a Life insurance policy. The rider benefit is normally provided as an advanced payment of a death benefit.

 Income Protection

 This provides a monthly benefit to the person insured in the event that they are unable to work due to sickness, injury or accident. Income protection will provide cover up to a maximum of 75% of your gross annual income. There is no specific list of events for which you can claim on income protection, the ability to claim is very broad. Essentially if you are unable to work due to sickness or accident you can claim. Note that income protection policies do not provide cover for redundancy.

Deciding whether to hold your income protection insurance inside a SMSF or not will come down to your own individual circumstances. Owning in a SMSF has added burden as the trustee has to meet the requirements of the temporary incapacity condition of release before the income protection benefit can be paid to the member whereas, outside super, the insured person only has to comply with the terms of the contract. Income protection premiums are 100% tax deductible to a SMSF and to an individual.

Landlord Insurance

If your SMSF invests in property, it is also advisable to consider landlord insurance. The owner of this policy needs to be in the name of the trustee(s) of the fund. If there is a LRBA in place, this policy also still needs to be in the name of the trustee(s) of the fund. This policy cannot be bundled with other business or personal insurances as all assets of the fund need to be kept separate to the assets

If you require a review of your insurance needs or would like a quote to place an insurance policy in your superannuation fund please email us at [email protected].

Archive

ATO Penalties

June 2, 2016

From 1 July 2014 the ATO introduced a new range of penalties which can be applied on SMSF Trustees when breaches of the superannuation rules occur. From our experience in dealing with the ATO this year, they are very focused on trustees who repeat the same contravention.

Penalties will be payable by trustees or the directors of the trustee company on a joint and severable basis who committed the breach and the penalty cannot be reimbursed by the SMSF i.e. the penalty will impact the trustee’s back pocket, not the super fund.

Penalties

Penalties range from 5 penalty units up to 60 penalty units. From 1 July 2014 until 30 July 2015, each penalty unit equates to $170. For example, if a SMSF trustee failed to sign a SMSF trustee declaration, he or she could be fined 10 penalty units, that is $1700. From 31 July 2015 onwards, each penalty unit equates to $180. For example, if the trustees of a 2-member fund fail to prepare financial statements for the fund , this means the 2 trustees can be fined $1800 each. The maximum administrative penalty for a single breach is $10,800, and such a fine would apply where, for example, a SMSF trustee breached the borrowing rules, or the in-house asset rules.

Rectification Powers

The ATO will have the power to force you to rectify specific contraventions. According to the explanatory memorandum accompanying the legislation, the ATO can give a ‘rectification direction’ to an SMSF trustee that “will require a person to undertake specified action to rectify the contravention within a specified time frame and provide the Regulator with evidence of the person’s compliance with direction.

Mandatory Trustee Education                                                                                                                    

If you’re a naughty SMSF trustee in the eyes of the ATO, you can be forced to attend mandatory trustee education, when the ATO gives you an ‘education direction’. The ATO can give an ‘education direction’ that “will require a person to undertake a specified course of education within a specified time frame and provide the Regulator with evidence of completion of the course.” You will also be required to sign, or re-sign the SMSF trustee declaration to confirm that you understand your obligations and duties as a trustee.

Although the size of some of the financial penalties that are now possible may surprise you, these penalties are a better option than losing half of your SMSF assets via penalty tax, which until 30 June 2014 was about the only ‘big stick’ financial option available to the ATO. Note the regulator also can currently disqualify you as an SMSF trustee, and force you to fix a breach, and even take you to court to impose civil or criminal penalties. The ATO can continue to impose these more severe penalties but is now more likely to impose financial penalties when trustees breach the super laws.

Archive

Collectables – deadline looming

June 2, 2016

The deadline for SMSF trustees to ensure all collectables and personal use assets purchased before 1 July 2011 meet the current rules is fast approaching.

By 30 June, trustees must ensure all collectables comply with current rules, which include:

  • not leased to or used by a related party
  • not stored or displayed in a private residence of a related party
  • record in writing the reasons for the decision on where to store the collectables and
  • insure the asset is in the name of the fund

Trustees need to ensure all collectables meet the rules or dispose of the assets before 1 July. If transferring assets to a related party, the market price needs to be determined by a qualified independent valuer.

Archive

2016/2017 Budget

May 4, 2016

CONCESSIONAL CONTRIBUTION CAP REDUCED TO $25,000

Effective 1 July 2017

Annual cap on concessional contributions will reduce to $25,000 for all taxpayers regardless of age.

Age Annual cap amount
In 2015/16 and 2016/17 From 2017/18
48 or under on 30 June 2015 $30,000 $25,000
49 or over on 30 June 2015 $35,000 $25,000

For individuals with a superannuation balance less than $500,000, unused concessional contribution cap amounts will be able to be carried forward on a rolling basis over 5 consecutive years. This applies to unused cap amounts from 1 July 2017.

 

LIFETIME CAP FOR NON CONCESSIONAL CONTRIBUTIONS

A lifetime non concessional contributions cap of $500,000 will be introduced effective Budget night, 7.30pm on 3 May 2016.

The $500,000 lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007. Contributions made before Budget night cannot result in an excess of the lifetime cap, however those who have exceeded the cap prior to Budget night will be taken to have used their lifetime cap.

These new rules will replace the existing annual non concessional cap of up $180,000 per year (or $540,000 every 3 years under the bring forward rule for individuals aged under 65)

REMOVE CONTRIBUTION ELIGIBILITY REQUIREMENTS FOR THOSE AGED 65 TO 74

Effective 1 July 2017

The current work test that applies for people making contributions between aged 65 and 74 will be removed.

PENSION LIMITS

Effective 1 July 2017

A transfer balance cap will be introduced to restrict the amount of a member’s superannuation balance that can be transferred to pension phase to $1.6 million. Any balance over this amount must remain in accumulation phase where earnings will be taxed at 15%.

 Members already in pension phase at 1 July 2017 with balances in excess of $1.6 million will need to either:

  • transfer the excess back into accumulation or
  • withdraw the excess from their superannuation fund

ADDITIONAL 15% CONRIBUTIONS TAX – THRESHOLD REDUCES TO $250,000

Effective 1 July 2017

Division 293 tax, which is an additional 15% contributions tax payable by high income earners with income exceeding $300,000, will apply to those with income exceeding $250,000.

Income Tax on concessional contributions
In 2015/16 and 2016/17 From 2017/18
<$250,000 15% 15%
$250,000 to $300,000 15% 30%
$300,000 + 30% 30%

TRANSITION TO RETIREMENT PENSIONS – REMOVAL OF EARNINGS TAX EXEMPTION

 Effective 1 July 2017

The tax exempt status of income from assets supporting transition to retirement (TTR) income streams will be removed from 1 July 2017. Earnings will then be taxed at 15%. No grandfathering provisions have been applied therefore this change will apply irrespective of when the TTR income stream commenced.

LOW INCOME SUPERANNUATION TAX OFFSET

 Effective 1 July 2017

 A Low Income Superannuation Tax Offset (LISTO) will be introduced to reduce tax on superannuation contributions for low income earners.

The LISTO will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions up to a cap of $500. The LISTO will apply to members with adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.

EXTEND DEDUCTIONS FOR PERSONAL CONTRIBUTIONS

Effective 1 July 2017

Australians under 75 will be able to claim an income tax deduction for any personal superannuation contributions made to a complying superannuation fund up to their concessional cap. This effectively allows all individuals, regardless of their employment circumstances, to claim a deduction for their personal contributions up to the value of the concessional cap

Audit & Assurance

Compliant Collectables

April 1, 2016

Now might be a good time to review the assets held within your SMSF and make sure that your fund complies with the rules that began on 1 July 2011, if it holds collectables or personal use assets.

Collectables purchased prior to 1 July 2011 have- for the last 5 years- had special transitional rules apply to them that come to an end on 30 June 2016.

Collectable and Personal Use Assets can include items such as: jewellery, wine and cars. The type that we encounter the most is artwork owned by a SMSF. Trustees investing in these types of assets must be able to demonstrate that the investment is for the purpose of providing benefits in retirement.

The new rules require the following and need to be in place well before 30 June 2016:

  • The Collectable must be insured in the fund’s name, not with assets insured in the members’ names.
  • The Collectable cannot be stored at a member’s residence or business premises. The trustees must document their decisions regarding the storage of the asset.
  • The Collectable cannot be leased to a related party.
  • If sold to a related party, the value of the sale must be based on a professional valuation, not on a trustee’s valuation.

The ATO has indicated that this will be an area of interest for them in the 2016/17 financial year. Please review the investments held by your SMSF and contact us if you require any assistance at: [email protected]

The information presented in this document was prepared for discussion purposes only and should not be relied upon for decision making. You should consult a professional financial adviser if you require additional information. This information has been prepared by Bishop Collins Wealth Management Pty Ltd – Financial Services (Corporate Authorised Representative (No 1242273) of Primestock Securities Ltd ABN 67 089 676 068 Australian Financial Services Licence 239180).

Archive

Changes to Concessional Contributions

April 1, 2016

There have been recent rumblings from Canberra that the government may be looking at dropping the cap for concessional contributions from $30,000 to $20,000 in this year’s May Budget.

Concessional contributions are the ones you make before your income tax is taken out. They include: the super from your employer, your salary sacrificed contributions, and any other contributions where you’ve claimed a tax deduction.

The SMSF Association has raised strong objections to any reduction in the amount of concessional contributions.

SMSF Association Chief Executive Andrea Slattery said that; “Reducing the cap will critically undermine the superannuation system’s ability to give people the opportunity to save for a self-reliant, secure and dignified retirement.”

Read more via this Self Managed Super Magazine article.

Whatever the outcome, the next few months are going to prove interesting in the SMSF space.

The information presented in this document was prepared for discussion purposes only and should not be relied upon for decision making. You should consult a professional financial adviser if you require additional information. This information has been prepared by Bishop Collins Wealth Management Pty Ltd – Financial Services (Corporate Authorised Representative (No 1242273) of Primestock Securities Ltd ABN 67 089 676 068 Australian Financial Services Licence 239180).

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