Blog

Apr 26

SMSF – Get your wealth working for you!

Posted by Peter Marmara-Stewart at Friday, April 26, 2019

Everyone is talking about SMSF's these days. Even with the changes made by the Government (such as the $1.6M cap), SMSF’s can be the way to go.

In simple terms, SMSF is a Super Fund that you fully control. You make all the investment choices - including shares, managed funds, property, and cash. SMSF's can borrow from a bank to purchase investments, but this opportunity might be limited.

Strategy

Choosing the right STRATEGY for your SMSF is the key.
One great strategy can be to purchase your business premises in your SMSF, or purchase an existing commercial property, that will be owned by your SMSF. Either strategy means that you can get your Super money working for you now and save significant dollars.

If you already own a commercial property outside of Super, it may be worthwhile looking at transferring the property to your Superannuation Fund. It may help to free up cash, and possibly even reduce your personal non tax deductible debt on your mortgage.

One of our clients owned a commercial property outside of their Superannuation Fund. The property was worth $275,000, with a small loan of approximately $50,000 left on the premise. They netted $205,000 (after Capital Gains Tax); that left them with only $50,000 on their personal mortgage. A great outcome for the client.

Furthermore, they now have net tax savings of $2,175 every year because the income from the property is taxed at 15%, not 34.5% and 39%.

It is important to review any stamp duty implications with the transfer of property, and best to seek advice as to whether you will have to pay stamp duty on the transaction.

Super Share Strategy

Another great strategy can be to lend your SMSF money to buy shares. The rate that your Fund has to pay you is determined by the ATO (and is a pretty good rate). By lending the money to your Super Fund, you will get a great return on your money, and potentially help with your contributions tax inside Super. It can also provide a little bit of leverage in your Super; making it work harder for you.

The benefits of this strategy can add up to tens of thousands of dollars for those with a decent balance ($300,000), and contributions ($20,000 p.a.).

Estate Planning

Another key reason for using a SMSF, is that it gives you exact Estate Planning options. For example, you can nominate a specific dependent (spouse or child under 18), to receive your Super benefit if you die. Unlike a Will, this cannot be contested.

Would you like NO TAX on your Investments?

Once you turn the age of 60, you can start to pay yourself a pension from your SMSF. There is NO tax on income from the SMSF, and NO tax on any capital gains; subject to the transfer balance cap (currently $1.6M).

This means you can gradually sell down assets (including property), held in your SMSF, and pay NO TAX regardless of any capital gain you make.

This can have an absolutely fantastic outcome - and it is possibly far better than owning an investment property in your individual name or Family Trust.

Apr 19

DOUBLE TAX DEDUCTION for Life Insurance

Posted by Peter Marmara-Stewart at Friday, April 19, 2019

You can get a double tax deduction when you pay for Life Insurance through Superannuation.

How does it work?

Your business contributes your premiums to your Super Fund, and the business gets the tax deduction. On top of that, the Super Fund gets the tax deductions for the Life Insurance premiums it pays.

Option 1 – Pay $5,000 premium outside of Super
No tax deduction.

Option 2 – Pay $5,000 Life Insurance premium inside Super
Your business pays the Life Insurance to the Super Fund as a contribution. You receive a tax deduction; at 47% tax rate, that is a $2,350 tax saving.

Contribution is income in the Fund @ 15% = $750 tax payable.

Life Insurance premium is a deduction in the Fund @15% = $750 tax refund.

NET TAX SAVINGS $2,350

What do you need to make sure of in order to get this tax deduction:

- A business, or an employer that allows you to salary sacrifice to Super
- Super
- A chat with one of our team
- To take action before 30th June 2019

FAQ’s

Why are Life Insurance premiums not tax deductible outside of Super?

You are not allowed to claim the premiums outside of Super because you don’t pay tax on the money that you receive.

How much would I have to earn pre-tax outside of Super for that premium?

If you are on the highest marginal tax rate of 47%, you would have to earn $9,434.

Even if you are on the 34.5% tax bracket, you would have to earn $7,634.

Does this strategy apply to other insurances?

This strategy can apply to TPD (any Occupation) and Income Protection Insurance as well. Income Protection insurance is tax deductible outside of Superannuation also. Other insurances such as Home, Car & Pet insurances are not able to be paid through Superannuation.

Apr 17

Budget Summary 2019

Posted by Peter Marmara-Stewart at Wednesday, April 17, 2019

We are not going to give you a traditional Budget Summary due to the Federal Election, and the uncertainty with a lot that was proposed. We will just let you know what is likely to be, and what is likely not to be.

We can confirm that the instant asset write-off of $30,000 passed parliament, and is now law. This means, small and medium-sized businesses can instantly write off assets purchased under $30,000.

Both sides have committed to the Low and Middle Income Tax Offset, with Labor vowing to deepen the tax rebate and cut to lower income earners even more so. Labor hasn’t really changed its stance on its policies, still wanting to remove Franking Credit refunds for this financial year, and remove negative gearing effective 1st July 2020. Whether or not Labor can do this, even if they win the next election, remains unclear.

Anyone attempting to build wealth in this country will be worse off, if Labor wins the next election.

The coalition did announce a reduction and flattening of tax rates over the next several years in the budget, so that, there will be only 3 rates: 19%, 30% (up to $200,000) and 45%. Labor have said that they will not support this.

Of course, until it is passed into legislation, it isn’t so.

On a final note, we thought you may appreciate this great chart (courtesy of Cuff Links), showing the Federal Government’s deficit and debt position since 1901. The upper section shows revenues (green line) and expenses (red). The middle section shows the resultant annual surpluses (green bars – look hard!), or deficits (red bars). The purple bars in the lower section shows the level of Federal Government debt. All are expressed relative to total national output (GDP) each year (click on chart for larger image):


Apr 10

Trust Distributions – Who can you distribute to?

Posted by Peter Marmara-Stewart at Wednesday, April 10, 2019

If you are a small business who uses a Trust, there are a number of people that you can distribute to with a Discretionary Trust.

These include:

- Children
- Parents
- Parents-in-law
- Brothers & Sisters
- Grandparents
- Grandchildren

Children & Grandchildren

You can distribute only $416 to children who are minors. That might not seem like a lot, but if you have 3 children and you are in the 47% tax rate, that works to being $586.56 in tax savings.

If you have children who are over 18 and are studying at University, or are not really earning an income, you can distribute up to $21,600, and they will not pay any tax. At the 47% tax rate, that is $10,152 in tax savings. If we increase that to $37,000, they will have to pay $3,667 in tax, and your net tax savings will be $13,723.

Brothers & Sisters

If you have brothers and sisters who are studying at University, or are not really earning an income, you can also distribute to them in a similar fashion as demonstrated above. Just make sure no one else is doing the same thing!!

Parents, Parents-in-law & Grandparents

If you have parents, parents-in-law and/or grandparents who are self-funded, you might be able to distribute to them in a tax effective manner.

How do you take advantage of this?

You need to have a Discretionary Trust with income, and you need to be a small business.

FAQ’s

Do I need to pay the distribution?

Yes, you will need to pay the distribution.

What if they receive Centrelink?

If the people you are looking to distribute to receive Centrelink, then this strategy is unlikely to work for you.

Apr 08

Tax Planning 2019 - It Starts Now!

Posted by Peter Marmara-Stewart at Monday, April 08, 2019

What would you do with an extra $10,000?

On average, we save more than this for our small business clients every year in tax. The reason we are able to do this is because, we help them plan ahead before the 30th June. We have saved millions in tax for our clients through good planning. So, over the coming weeks, we will be listing a number of strategies to help you reduce your tax legally.

This year will be a little different to others though, as there are some significant changes that could occur for this financial year and they have not. This is due to the policy positions of both the major parties creating different tax outcomes. As a result, we will be going on what we know is; and providing commentary on what might be.

Why?

If you leave your tax planning until the end of June, quite frankly, there may not be enough time to do anything significant to legally reduce your tax.
So, for 2019, start planning ahead to save tax.

How to plan to save tax with PCR’s help?

Our process works as follows:
First of all, we request details of your expected income and business profits for the 2019 tax year (1 July 2018 to 30 June 2019). This includes all wages / employment income, interest and dividends and rental income received, business profits / losses, and any capital gains / losses you expect to make.

Based on this information, we estimate your taxable income and your tax payable BEFORE any tax planning strategies. For example, we may calculate (based on your information) that you may have a taxable income of $150,000 for 2019.

Secondly, we discuss all of your tax planning options. Some of these may be things to do in your business, and some of these may be investment / wealth creation options.

Thirdly, we provide you with a report that explains (in plain English) the tax planning strategies we recommend, and exactly how much tax you will save.

Finally, we provide you with an easy-to-follow Action Plan, to ensure that both you and us can do everything that needs to be actioned prior to 30th June.

So, over the next few weeks, keep an eye out for our tax planning strategies. They can help you save more for your family’s wealth creation.
1