February 19, 2018

Financial planners divide debt into two types: deductible debt and non-deductible debt.

Deductible debt lets the borrower claim a tax deduction for the interest incurred on the debt. Non-deductible debt does not. Whether interest is deductible or not can have a massive impact on how expensive that debt actually is.

When interest is not deductible, you have to pay tax before you pay the interest. You can see this with an example: If your nominal interest rate is 5%, and you are a 45% taxpayer (the highest tax bracket), the effective interest rate around 9% before tax. To understand this, consider an interest bill of $5000. A person paying tax at 45% has to earn $9000 in order to pay this bill. Of this $9000, they pay $4050 in tax to the tax office, leaving (virtually) $5000 remaining to pay the interest.

When interest is deductible, you don’t have to pay tax before you pay the interest. So you only have to earn $5000 to pay an interest bill of $5000. Here is the effective rate of interest...

December 12, 2017

2017 is drawing to a close and we wish you all the very best good fortune of the season. Thank you for being part of our journey in 2017. May this summertime solstice be a peaceful one for you and your loved ones.

During 2017, Australia took the record for the longest period without a recession – 26 years. The signs are strong that 2018 will continue this great run. This record run is a combination of good luck and good management. So, we thought we would end the year by listing out lots of other lucky things about living in Australia. These ‘facts’ have all been sourced from the Internet, so you can be absolutely sure that they are reliable.

  • Australia has three times as many sheep as people;

  • There are also more kangaroos than people in Australia;

  • Perhaps unsurprisingly, the world record jump by a kangaroo is held by an Australian. The record is 9 metres;

  • This record may or may not have been held by the largest kangaroo ever seen. This kangaroo was also an Australian a...

September 4, 2017

Superannuation is an area that is often forgotten or misunderstood in the estate planning process.

A super fund member cannot just sign a will and assume that their super benefits will automatically be paid in the way set out in their will. The super fund trustees are not bound by the deceased member’s will and may pay the benefits to either the deceased member’s estate or to appropriate dependants as they see fit.

In most cases problems will not arise. But problems can arise, for example, in same sex relationships, with “hidden” or multiple relationships, with “warring” children, and so on.

Moral and legal factors which may influence a super trustee’s discretion to pay a benefit to a person include:

  • the relationship between that person and the deceased member;

  • the person’s age and ability to look after themselves financially;

  • the extent of the person’s dependency;

  • the person’s financial circumstances;

  • the history of the person’s relationship with the deceased membe...

July 24, 2017

Superannuation really is super. Super lets you pay less tax and boost your retirement savings, all in one go. We really like it and we think you should too.

If you are an employee, then you are almost certainly entitled to receive compulsory super contributions from your employer. Generally, these contributions equal 9.5% of your standard wages or salary. These contributions are only taxed at 15% in the super fund – which is probably less than the tax rate you would pay if you received the same money as wages or salary. So, after-tax there is more left in your super fund than there would be if your employer just gave you the money directly.

The 15% tax rate is capped – it can only be applied to concessional contributions of $25,000 per person per year. $25,000 is 9.5% of $263,000. Most people earn much less than this, which means their super contributions are well below their personal limit of $25,000 per year.

Potential tax benefits are going begging for most people in most years.

It is p...

July 10, 2017

2017 has meant a major change that affects recipients of benefits such as the aged pension. When a person receives the aged pension, their eligibility for that pension is affected by two tests: an income test and an assets test. Both tests dictate that, once income or assets pass a relatively low threshold, the amount of aged pension to which a person is entitled will fall.

In terms of income, to receive the full aged pension, income cannot exceed $164 per fortnight (if you are single) or $292 per fortnight (combined, for members of a couple). For every $1 of income above these amounts, the aged pension reduces by 50 cents. This means that no aged pension is payable once income exceeds $1,940 per fortnight (single) or $2,970 per fortnight (couple – although if you are a member of a couple and you need to live apart due to ill-health, this ‘upper threshold’ is higher).

In terms of assets, to receive the full aged pension your assets cannot exceed the following:

(Please note: all figures in...

June 19, 2017

As we have said before, we like to wait a few weeks before going to press with our thoughts about the annual Commonwealth Budget. This year has been no exception: we had scheduled our 2017 Budget special for this week.

The problem is, compared to previous years, the 2017 Budget was a bit of an anti-climax! In previous years, there have been a number of big-ticket changes – such as the big changes to superannuation that we have been discussing in recent articles. But this year there have simply been a whole lot of small changes, some of which will be of benefit and others will represent a small loss.

In this article, we examine those changes that are most likely to affect our clients. So, have a read of our thoughts and decide for yourself whether you’re a budget winner or a budget loser.

BUDGET WINNERS

Disabled people

The government announced that the National Disability Insurance Scheme is now fully funded – the remaining funding has been raised by an increase in the Medicare levy (see bel...

May 24, 2017

Changes to superannuation from 1 July 2017

You probably know the Commonwealth Government hands down its annual budget in early May each year. It’s an exciting time of year for financial planners. Most advisers let their excitement overcome them and race to put material on their website as fast as possible. The budget is handed down on Tuesday night and the websites get updated on Wednesday morning.

Experience has taught us to do things a little differently. Immediately after the Budget, the media is typically saturated with news of the changes. So we prefer to wait a while before we publish our thoughts. This lets us fully digest the changes so that when we do write about them we are providing a thorough and intelligent response that actually helps our clients choose the best way to respond.

And that was our intention again this year. But guess what? The 2017 budget was very different. It actually contained few changes that will be relevant for many of our clients. To be honest, this was...

March 27, 2017

You have probably heard the term ‘positive gearing.’ It is a similar concept to negative gearing, which is certainly in the news a lot these days.

We use the term ‘gearing’ whenever debt is used to fully or partly finance an investment. If you have $90,000 of your own and borrow $10,000 to buy an investment asset worth $100,000, you have ‘geared’ the investment. Similarly, if you borrow $100,000 to buy an investment worth $100,000, you have ‘geared’ the investment.

When you buy an asset, you usually receive some income from the asset. For a property, this income is the rent you collect. And when you borrow to buy an asset, you have to pay interest on the debt. This interest is an expense of holding the asset.

In strict terms, ‘positive gearing’ is where the income from an asset (the rent) exceeds the interest on the loan used to finance the investment. Less strictly, and more sensibly, the term is used when the income exceeds all the other expenses of holding the asset as well. For a prop...

May 9, 2016

Our theme this month is estate planning, and so we thought we would start with a quick article about what happens to your super when you die. We know, it sounds grim, but it is not really. After all, the rate of death has remained unchanged for quite a while: we all get one each. And most of us want to die with some money left!

An important thing to remember when it comes super is that you are usually not the legal owner of your superannuation benefits. That might sound odd, but the assets are actually owned by the trustee/s of the relevant fund. As your trustees they owe you a duty to do the right thing by you and to manage the assets for your benefit. But, once you have died, it becomes pretty hard to insist on this, That’s why it is a great idea to establish a ‘binding death benefit nomination’ before you go.

Let’s pick that term apart to understand what it means. Death benefits are benefits that remain in the fund and need to be paid out to someone when you die. A nomination is a whe...

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