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Bernie's Blog

Bernie's Blog (4)

The Gen YQ Story -

In November 2009, Bernard Fehon, Managing Director from Tactical Solutions in Penrith, faced the task of retaining his then generation Y employee, Anthony Kurver, to the attraction and social scene of working in the city of Sydney.

This experience was the trigger for Bernard to come up with the idea of having a Generation Y group established in Penrith to give local young business people the chance to network with each other, to assist in furthering their own careers locally and better enabling employers in Penrith to keep their talented staff. (Read more)

CEO Sleepout - The Story

The Vinnies CEO Sleepout began as a local community venture in Sydney’s Parramatta in 2006, the brainchild of, Bernard Fehon, Managing Director of Tactical Solutions. At that time, Bernard had been working on the organising committee of a gala dinner to raise funds for Vinnies locally in the Parramatta region. It was whilst serving on this committee, that Bernard conceived an idea inspired by his children having attended school sleepouts for Vinnies.

The sleepout would engage business leaders to raise awareness and funds for Vinnies to support people experiencing homelessness as part of a larger Escape from Poverty campaign. The campaign also included the annual gala dinner and door knock appeal.

With the help of Vinnies, business associates, volunteers and his family, Bernard held the inaugural event on 21 June 2006 at what was then known as Telstra Stadium, now ANZ Stadium in Sydney Olympic Park. (Read More)

 

Q & A's to Bernie

Access to super

Bernie, I am 59 and want to access some of my super to finish the home we are building. How can I get it? Mary, Castelreagh.

Well Mary, Superannuation is a structure set up by the government to encourage people to provide for themselves in retirement.
The Superannuation system lets you save money for retirement and earnings are taxed at 15%. Being 59 means you can access your money if you are retired. If you are still working, you can only access your unpreserved money (if you have any) or access your money as an income stream, with a maximum of 10% of the balance being paid to you each year.

Now, be careful to consider how much tax is payable as you are 59! When you turn 60 you will pay no tax on any money that comes out of super, but until then, any lump sum withdrawn may be subject to tax. It sounds silly but generally, the first $160,000 of the taxable component is tax free.

Under age 60, the income you draw will be taxable and will come with a tax offset (formerly called a rebate) of 15%.

So , as always with super it is a little complicated. In summary, if you are retired you can probably get all of your super and if not you can get 10%. The other thing to consider is that the particular super fund you are in might have product rules that are different to the legislation……so meet with a financial planner to get tailored advice before you make any decisions and make sure you are considering your longer term needs as well.

Bye for now,

Bernie


Question.

 

Bernie,  I have a question about super. My husband and I run our own businesses (one each in fact).  Do we really need to have Super ?   Is it compulsory?   Brian and I don't really see the benefit of having it at all.   What if we put a certain amount of money away monthly in the bank and call it super?   At the end when we retire, we can have that money back plus interest. Wouldn't that be better?    Tracey – Fairfield.

 

 

Well Tracey,  you are not the first small business owner to ask me that!

 

Paying superannuation is compulsory for your employees.  If you and your husband operate your businesses as sole traders or in partnership (with each other or other people) then you are not employees and do not have to pay super for yourselves.  If you are employees of a Pty Ltd company then it is compulsory to pay for you as well as other employees.

 

Superannuation is simply a trust structure that is taxed quite favourably.  The best way of describing it is to consider a self managed super fund (SMSF) that you could set up for you and Brian.  You could make contributions to the SMSF and if you claim a tax deduction for it, these contributions will be taxed at 15%.  This is better than 30% or higher if your businesses are actually making some good money.  Once in the fund the earnings will only be taxed at a maximum of 15% and you can put the money in a bank account and earn the same rate as you would if it was outside of super (and the interest is getting taxed at a lower rate).  The only catch  is that you cannot spend the money until you are over 60 (assuming you were born after 1964).  You could also invest in shares or property or other investments being careful not to break the rules.

 

 

So it all depends how well your businesses are going.

 

If you are not making much money then you will not be paying much tax and there will be not much point in putting money into super where you can’t touch it till you are much older.  If on the other hand your businesses are making plenty of money and you think you are paying too much tax then it makes a lot of sense to put money into super (saving tax), get taxed lower on the earnings and then get it back tax free later.

 

You see, the government rewards you with lower tax if you promise to save it till later.  I hope your business is going well and if it is then super makes sense.  You mentioned putting it in the bank and it is interesting to see that a lot of super funds now offer term deposits inside super.

 

So either shop around to find one of those, consider a self managed super fund or find a professional advisor that you can trust.

 

Thanks for a great question,

Bernie

 

 

Bernard Fehon is a Certified Financial Planner and Managing Director of Tactical Solutions

Bernard Fehon and Tactical Solutions are Authorised Representatives of AMP Financial Planning AFSL 232706

 


Children categories

Federal Budget May 2013

Federal Budget May 2013 (0)

Federal Budget 2013/14

What does it mean for you?
On 14 May 2013 the Federal Government handed down one of the most keenly anticipated budgets for years.
Some big numbers
The talk in the lead-up to the 2013/14 Federal Budget was all about surpluses and schools, deficits and disability care.
Some of the numbers are eye-catching. With $14.3 billion for DisabilityCare Australia and $9.8 billion for school funding, there are some big sums on the table.
But back at the kitchen table, what does all this mean for your hip pocket?
When it comes to accessing healthcare, education and aged care, not to mention paying the bills and saving for retirement, how will the budget change the way you live, work and pay for services on a practical day-to-day level?

Winners and losers
From expectant parents to working families and pre-retirees, Australians will be looking at the budget closely to see whether they will be better or worse off.
Here’s a brief round-up of what the budget means for your family finances.
But don’t forget, the proposals may change as the legislation passes through parliament.

 Highlights
• Super contributions cap increased
• Super tax for high earners increased
• Baby Bonus abolished
• Income tax cuts on hold
• Medicare levy increased
• Childcare rebate frozen

Superannuation
The budget essentially confirmed previous superannuation announcements and in some areas provided additional clarification. The key measures previously announced include:
Concessional contributions cap increased to $35,000
As previously announced, the Government will increase the concessional contributions cap to $35,000 (unindexed) as follows:
• For the 2013/14 financial year, the higher cap of $35,000 will apply if you are 59 years or over on 30 June 2013. For everyone else the general cap of $25,000 applies; and
• For each financial year from 2014/15 onwards, the higher $35,000 cap will apply if you are 49 years or over on 30 June of the previous financial year.
The higher concessional contribution cap will apply until the general concessional contribution cap reaches $35,000 due to indexation (expected to occur from 1 July 2018). That is, the higher cap will only be temporary.
The current $150,000 limit together with the additional 2 year “bring forward” rules for non-concessional contributions remain completely unchanged.
Excess concessional contributions taxed at marginal rates
If you make excess concessional contributions, they will be taxed at your marginal tax rate, plus an interest charge to recognise that the tax on excess contributions is collected later than normal income tax.
You’ll also have the option of deciding whether you want to withdraw your excess concessional contributions from your superannuation fund.
These reforms will apply to all excess concessional contributions made from 1 July 2013.
Under the current arrangements, concessional contributions in excess of the annual cap are taxed at the top marginal tax rate regardless of your personal marginal tax rate. In addition, you can only withdraw excess concessional contributions the first time you make an excess contribution after 1 July 2011, and only up to a maximum amount of $10,000.
Pension earnings over $100,000 to be taxed at 15%
From 1 July 2014 the amount of exempt current pension income available to superannuation funds will be limited to $100,000 a year for each individual.
Fund earnings, derived from pension assets, above this limit will be taxed at the 15 per cent rate that applies to earnings in the accumulation phase.
This proposed $100,000 limit will be indexed to the Consumer Price Index (CPI), and will increase in $10,000 increments.
Currently, when a superannuation fund makes a capital gain on assets in the pension phase, the capital gain amount is also treated as exempt current pension income (and therefore exempted from tax). However, a capital gains tax event is only triggered in the year that the fund disposes of the asset.
As such, special arrangements will apply when assessing capital gains on assets purchased by a fund before 1 July 2014:
• For assets that were purchased before 5 April 2013, a full tax exemption will continue to apply to capital gains that accrue before 1 July 2024;
• For assets that are purchased from 5 April 2013 to 30 June 2014, you will have the choice of including in the $100,000 limit the capital gain, or only that part that accrues after 1 July 2014; and
• For assets that are purchased from 1 July 2014, the capital gain will be included in the $100,000 limit.
When assessing capital gains that are subject to this tax, a 33 per cent discount will apply (where applicable), to effectively tax the gain at a rate of 10 per cent.
It is important to note that this reform will not affect the tax treatment of withdrawals (both lump sums and pensions) made from a superannuation fund. Withdrawals will continue to remain tax-free if you’re 60 or over, and be subject to the existing tax rates if you’re under 60.
The Government will also ensure that members of defined benefit funds, including federal politicians, are impacted by this new reform in the same way as members of defined contribution funds (i.e. that there will be a corresponding decrease in concessions in the retirement phase).
 Contributions tax doubling to 30% if you earn over $300,000
In the May 2012 Federal Budget the Government announced a proposal to apply an additional 15% tax to concessional contributions made from 1 July 2012 if your combined annual income and concessional contributions are greater than $300,000. Since then, draft legislation has also been released.
The key details of this measure are summarised below:

• If you exceed the combined $300,000 annual threshold, you will generally have to pay an additional 15% tax on your concessional contributions.The additional 15% tax will not apply to any concessional contributions that are in excess of the concessional contributions cap, or to any excess concessional contributions on which you accept an offer from the ATO to have them refunded and taxed as income.

• The definition of income for the combined $300,000 threshold is a modified version of the income definition used for Medicare Levy surcharge purposes. The modified definition is broadly:

Taxable income PLUS concessional contributions (within the concessional contributions cap) PLUS reportable fringe benefits PLUS total net investment losses.

Any taxable component of a superannuation withdrawal that is within the low rate cap amount ($175,000 for 2012/13) is excluded from taxable income when calculating the threshold.

Excess concessional contributions will generally not count towards the combined $300,000 threshold.

• If your income before including your concessional contributions is less than $300,000 but the inclusion of the concessional contributions pushes them over, then only that part of the contributions in excess of the $300,000 threshold will be subject to the additional tax. 

Example
Jack’s income, as defined above, before including his concessional contributions is $285,000. After adding his concessional contributions of $20,000 this takes his combined income to $305,000.
So Jack will only pay the additional 15% tax on $5,000 of his contributions (i.e. an additional $750).
Taxation
Income tax cuts put on hold
The personal income tax cuts which involved increasing the tax-free threshold to $19,400, scheduled to commence on 1 July 2015, are deferred.
Medicare levy increased to 2%
The Medicare levy will be increased by half a percentage point from 1.5 to 2 per cent from 1 July 2014 to provide funding for DisabilityCare Australia.
Low-income earners will continue to receive relief from the Medicare levy through the low income thresholds for singles, families, seniors and pensioners. The current exemptions from the Medicare levy will also remain in place.
DisabilityCare Australia, the NDIS, is aimed at providing long-term, high quality support for individuals who have a permanent disability that significantly affects their communication, mobility and self-management. It is intended to improve the lives of people with a disability, their family, and carers by providing a lifetime approach towards individualised care and support. It is intended to devote resources to focus on early intervention by investing in remedial and preventative early intervention and also promote social and economic/workforce participation.
With this proposed increase to the Medicare levy, taking the top marginal tax rate to 47% (previously 46.5%), a number of other tax rates which are based on this combination will also be increased to 47% from 1 July 2014. These include increasing the:
• Fringe Benefits Tax (FBT) rate, and
• Excess contributions tax rate on excess non-concessional contributions.
Low-income threshold for Medicare Levy increased
The Medicare levy low-income threshold for families will increase to $33,693 for the 2012-13 income year, with effect from 1 July 2012.
The additional amount of threshold for each dependent child or student will also increase to $3,094. The increase in these thresholds takes into account movements in the Consumer Price Index and ensures that low-income families are not liable to pay the Medicare levy.
For 2012-13, the Medicare levy low-income thresholds have increased to $20,542 for individuals and $32,279 for pensioners eligible for the Seniors Australians and Pensioners Tax Offset.
Tax offset for net medical expenses to be phased out
The net medical expenses tax offset (NMETO) will phase out from 1 July 2013, with transitional arrangements if you’re currently claiming the offset.
From 1 July 2013, if you claimed the NMETO for the 2012-13 income year you will continue to be eligible for the NMETO for the 2013-14 income year if you have eligible out of pocket medical expenses above the relevant thresholds. Similarly, if you claim the NMETO in 2013-14 you will continue to be eligible for the NMETO in 2014-15.
From 1 July 2015, the NMETO will continue to be available for out of pocket medical expenses relating to disability aids, attendant care or aged care expenses until 1 July 2019 when DisabilityCare Australia is fully operational and aged care reforms have been in place for several years.
Tax deductions for work-related self-education expenses capped at $2,000
From 1 July 2014 there will be an annual cap of $2,000 on tax deductions for work-related self-education expenses.
Social Security
Normal deeming rules to apply to account-based pensions
Under the current Centrelink rules, account-based pensions are fully assessable under the assets test.
However, income received from account-based pensions is currently treated more favourably than income generated by other financial investments such as bank accounts, shares and managed funds under the income test. This is because income from an account-based pension attracts a non-assessable portion, which loosely recognises that part of these pension payments represent a return of capital. In comparison, other financial investments are subject to deeming rules which attribute a fixed rate of return to these investments, irrespective of how much income they actually produce.
The Government proposes that these normal deeming rules will apply to new superannuation account-based income streams commenced after 1 January 2015. All account-based pensions held by pensioners before 1 January 2015 will be grandfathered and the existing rules (e.g. access to the non-assessable portion under the income test) will continue to apply, unless the product is changed on or after 1 January 2015.
 Age Pension means test exemption for downsizing the family home
Under the pension means testing rules, the value of the family home is not assessed if the dwelling and adjacent land is less than 2 hectares. The Government believes that many older Australians may want to downsize and to move into more appropriate housing (e.g. retirement villages or granny flats) but are reluctant to do so in order to avoid the excess proceeds from sale of their home affecting their Age Pension.
Under this proposed measure, the Government will run a pilot which will offer a means test exemption for Age Pensioners and other pensioners over Age Pension age who are downsizing from their family home. Among other things, to qualify:
• the family home must have been owned for at least 25 years; and
• at least 80 per cent of the net proceeds from the sale (up to $200,000) must be deposited into a special account by an authorised deposit taking institution.
These funds (plus earned interest) will be exempt from pension means testing for up to 10 years provided there are no withdrawals during the life of the account.
The exemption will also be accessible to people assessed as home owners who move into a retirement village or granny flat. It will not be available to people moving into residential aged care.
The pilot will commence on 1 July 2014 and be closed to new customers from 1 July 2017.

Families
Child Care Rebate frozen at $7,500 for four years
Child Care Rebate (CCR) provides a 50 per cent rebate on out of pocket eligible child care expenses, up to the maximum of $7,500 per child per year.
The Government will continue to freeze the indexation of the annual cap on the CCR until 30 June 2017. This means that the maximum amount of CCR that can be paid will remain at $7,500 a year until 30 June 2017.
Upper income limits frozen for family-based payments
The Government will freeze the indexation of eligibility thresholds and amounts for certain family-based payments at their current levels until 1 July 2017.
This will mean that the current upper threshold limit will be maintained for the following payments until 30 June 2017:
• $150,000 for the Paid Parental Leave Scheme, FTB Part B, certain dependency tax offsets, Dad & Partner Pay, and
• The FTB Part A upper income limit will remain at $94,316, plus an additional $3,796 for each child after the first.
Further, the FTB supplement rates will be maintained at current levels of $726.35 per child per annum for FTB Part A and $454.05 per family per annum for FTB Part B.
Baby Bonus replaced by lower payment to families receiving Family Tax Benefit (Part A)
The Baby Bonus is currently set at $5,000 per eligible child. The Government has proposed that the Baby Bonus will no longer be available from 1 March 2014.
Instead, if you do not qualify for Paid Parental Leave (PPL), the Government will increase the Family Tax Benefit Part A (FTB Part A) as follows:
• by $2,000, to be paid in the year following the birth or adoption of a first child or each child in multiple births, and
• $1,000 for second or subsequent children.
The additional FTB Part A would be paid as an initial payment of $500, with the remainder to be paid in seven fortnightly instalments.
If you take up PPL you will not be eligible for this additional FTB Part A component. However, the Government proposes that from 1 March 2014 you will be able to use the period while you are in receipt of Government PPL towards the work test requirements for assessing eligibility for PPL for a subsequent child. This treatment will be consistent with how the employer funded parental leave is treated for the work test purposes for PPL now.
Family Tax Benefit (Part A) restricted to children at school
From 1 January 2014, FTB Part A will only be paid until the end of the calendar year your child completes school.
If your child no longer qualifies for FTB Part A, they may be eligible to receive Youth Allowance, subject to the usual eligibility requirements.


Need more information?
For more information on how the Federal Budget 2013/2014 will affect your personal financial situation, please contact us at Tactical Solutions today.
Note: Any advice contained in this document is general in nature and does not consider your particular situation. Please do not act on this advice until its appropriateness has been determined by a qualified financial adviser. Whilst the tax implications have been considered we are not, nor do we purport to be a registered tax agent. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding.

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When you’re together it may be easy to grow your super together. But what happens to your super savings when you’re facing a divorce?
When you’re part of a couple, there are plenty of ways to juggle your joint finances and grow your super.

If one of you is working less, the partner with the higher income could reduce their tax by making spouse contributions.

Low income earners may also be able to take advantage of government co-contributions. If you are eligible and make $1,000 of after-tax contributions into super, the government will top up your payments by up to $500, depending on how much you earn.

One or both of you could also make salary sacrifice arrangements, although the spouse earning a higher income may be the one in a stronger financial position to do so. Either way, if you allocate more of your pre-tax salary to go straight into your super, you will pay only 15%1 tax on the salary sacrificed amount, up to a $25,000 concessional contributions limit2.

When times get tough

However, if your relationship founders, you’ll need to separate your financial arrangements. Super is where many of us hold the bulk of our assets – apart from the family home – so it’s an increasingly important part of divorce negotiations.

If the divorce is amicable – you can make a super agreement to divide the super. The ‘non-member spouse’ can:

either receive a new super interest in the same fund; or
transfer their share of the super benefit to another super fund.
And they don’t necessarily need to wait to access the money. In some cases, the non-member spouse may be able to withdraw the super benefit immediately if they meet a superannuation condition of release.

But if the lawyers become involved, the Family Law Act allows for super to be split using a court order. If one person has been working full time while their partner has been at home, it doesn’t mean they will be entitled to their super in full. The court will take into account the couple’s respective roles in the relationship, how much money they have overall, and each person’s future earning potential, when deciding how the super benefit should be split.

Watch out for the tax consequences…

Splitting super can affect your tax situation, as lump sum payments and pensions are calculated and taxed separately for members and non-member spouses. So it may be more attractive to look at swapping other assets for super.

…and don’t forget your will!

You will need to update your will and your beneficiaries, particularly if you have children, to make sure the right people inherit your assets.

Get back on track for retirement

A divorce can end up leaving you with a reduced retirement nest egg. If you’ve paid some of your super to your former spouse, you could get your long-term investment strategy back on track by:

-working out your budget
-bringing your super accounts together to reduce fees
-taking advantage of super’s tax concessions for
-pre-tax contributions
-after-tax contributions.
-And if you’ve received super as part of a divorce settlement, you should think about the most suitable insurance cover and investment mix for you -in light of your changed circumstances.

The value of advice

If you’re going through a divorce, you should consider getting tax advice from an accountant and financial advice from an experienced financial planner.

Example: Ryan’s story – make up lost ground

Ryan and Diana have finalised their divorce amicably, including joint custody of their two children.

Diana has agreed to accept 30% of Ryan’s $200,000 super savings (or $60,000) in return for more cash from their term deposits.

This leaves Ryan with $140,000 in super. He’s got 17 years to get his super back on track for his planned retirement at age 60.

As part of the divorce settlement, Ryan borrowed money to pay Diana her share of the family home. With increased personal liabilities, he should consider whether he needs to increase his insurance cover in his super fund. As Ryan wants his children to receive his superannuation benefit if he dies, he should review the beneficiaries he has nominated on his super account to make sure that his children are named.

Ryan needs to work out his budget and calculate his discretionary income before developing a long-term investment strategy. And he should consider whether it is appropriate for him to top up his super, whether from his pre-tax salary or other funds.

Ryan consults a financial planner who helps him work out how much he may need to retire. Together, they map out an investment strategy that could take him through to retirement and beyond.

 

1The government is proposing to double the 15% tax rate on before-tax personal contributions to 30% from 1 July 2012 for individuals earning more than $300,000 pa. As at February 2013, this proposal has not yet been legislated.

2The government is proposing to double the 15% tax rate on before-tax personal contributions to 30% from 1 July 2012 for individuals earning more than $300,000 pa. As at February 2013, this proposal has not yet been legislated.
“The Family Law Act allows for super to be split using a court order.”

 What you need to know
Any advice in this document is general in nature and is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on the advice, you should consider the appropriateness of the advice having regard to those matters and consider the Product Disclosure Statement before making a decision about the product. AMP Life is part of the AMP group and can be contacted on 131 267. If you decide to purchase or vary a financial product, AMP Life and/or other companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

My husband and I are currently renting.  We have two incomes and one 2 year old child.  We don’t want to rent forever and am wondering if now is the right time to buy?  Leonie, Westmead.

Well Leonie, I reckon the best time to buy is now nearly all the time.  If you can afford to.

The reason I say this is that property prices have clearly increased significantly over time and over the long term I expect they will continue to do so.  The big issue though is ...can you afford to?

Often, when buying your first home it is a stretch.  The repayments are likely to be higher than rent, unless you have a large deposit.  Despite this, I generally recommend that people buy a home to live in and this reduces the chance of having to move when the landlord decides.  The key is to save a deposit.  If you are renting and also saving a deposit you are proving to yourself that you can cover the mortgage of that same level.  That is, your weekly rent plus your weekly savings.

As a financial planner, I encourage you to think about the other related issues.   Are you planning to have any more children, do either of you have any health issues,  Have you got insurance in place for death and disability, including income protection insurance?  Do a detailed budget and start saving that deposit.  Do another budget that is for after you have purchased a property that shows you can afford the repayments.  Also, have a look at one where interest rates are say 2% higher than current and see if you can handle that.  This will give you “peace of mind” that you can handle interest rate rises.

You might benefit from the government scheme linked to First Home Savings Accounts as there are incentives for you to save using them.

In some situations, it might make sense to keep renting for a while and get into the property market with an investment property.

So there are plenty of issues to consider and as always, I recommend that you get individual advice after discussing all of your details with a professional planner. I recommend that you choose one who is accredited to advise on insurance as well as investments.

Bernard Fehon, Tactical Solutions,  4731 2299

Bernie's Blog -Question.


Question.

Bernie,  I have a question about super. My husband and I run our own businesses (one each in fact).  Do we really need to have Super ?   Is it compulsory?   Brian and I don't really see the benefit of having it at all.   What if we put a certain amount of money away monthly in the bank and call it super?   At the end when we retire, we can have that money back plus interest. Wouldn't that be better?    Tracey – Fairfield.

Well Tracey,  you are not the first small business owner to ask me that!

Paying superannuation is compulsory for your employees.  If you and your husband operate your businesses as sole traders or in partnership (with each other or other people) then you are not employees and do not have to pay super for yourselves.  If you are employees of a Pty Ltd company then it is compulsory to pay for you as well as other employees.

Money Made Simple - Bernie answers a question from a local resident about Super.