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General Tax Planning Strategies - Key Items that mean $ in your pocket

How would you like to legally reduce your tax by $500 or $1,000 or $5,000 or more?

Here's how to do it:

The Strategy behind Tax Planning

The tax you pay depends on your taxable income (all assessable income less allowable tax deductions), and the tax rates that apply to that income.

Therefore, your tax is reduced if you:

1. Reduce your income, or

2. Increase your tax deductions.

Seeing we all want to earn more, reducing your income isn't an option! But increasing your tax deductions definitely is. Below we have given you a link to 2 Tax Planning Flyers which both list a number of items that could be claimed as tax deductions. Use these as a guide, but please CONTACT US if you have any questions or uncertainties regarding this.

To illustrate: If you need something in July that is classified as a tax deduction, it makes sense to bring this purchase forward and buy it in June. You then get the tax deduction this year, and not next year.

Warning: Don't fall into the trap of buying something simply to get the tax deduction for it. If your tax rate (including Medicare Levy) is for example 34%, you would only get 34% of the purchase price back as a tax refund (or reduced tax payable) from a tax deductible item. You DON'T get 100% of the amount that you spend back as a tax refund (or reduced tax payable).

But if you do need an item for your business or your work and it is tax deductible, we recommend buying it BEFORE 30 June so that you get the tax deduction this year.

Your Tax Planning Strategy Checklists

Business Owners: Click Here for our Tax Planning Flyer for Business Owners.

Individuals: Click Here for our Tax Planning Flyer for Individuals.

If you are a business owner, please note that we will review BOTH the Business Owner's Flyer and the Individual Flyer because both of these apply to you.

Help us to help YOU!

If you spend a little bit of time with us to review your financial situation and discuss your tax planning options, you could end up saving yourself thousands of dollars.

Now's the time to do it - please contact our office TODAY to get started!

Trust Distribution Resolutions

If you have a Family Trust (also known as a Discretionary Trust) YOU NEED TO READ THIS!

From the 2011/12 financial year, Trustees who distribute the income of a Trust through a resolution to beneficiaries must do so BEFORE the end of the financial year (June 30) for the resolution to be effective in determining who is to be assessed on the Trust's income.

This is a recent change to the Trust taxation laws that applies to this financial year, and future years.

If a Trustee fails to make a resolution to appoint the income of the Trust before the end of the financial year, the Trustee may be assessed by the ATO on the Trust income at the highest marginal tax rate (i.e. 45%), rather than the intended beneficiary(s).

Before 2012, the ATO allowed a certain amount of discretion as to when a resolution could be prepared.

However, the ATO now takes the view that following the recent decision in Colonial First State Investments v FC of T 2011 ATC 20-235, trustees must now resolve to distribute the current year's income on or before year end to ensure the beneficiary is presently entitled to trust income.

What You Need to Do

You need to provide us with a Profit & Loss Statement for each Family Trust that you have for the period 1 July 2013 to 31 March 2014. You also need to send us details of all income earned by all family members during the period 1 July 2013 to 31 March 2014, and your estimated income for the period 1 April 2014 to 30 June 2014, including any capital gains.

We will then review all options for you, and recommend the most tax effective manner to distribute your Family Trust profits. We will then prepare the appropriate Trust Distribution Resolution for you to sign before 30 June 2014.

Contact our office TODAY if you have any questions regarding this information.

Your action now may save you thousands of dollars of unnecessary tax payments!

Pay off your home loan sooner and maximise your tax deductions

Debt optimisation (sometimes referred to as "Debt Recycling") is a financial strategy which creates wealth over time and improves an individual's debt structure. Achieved, in the majority of cases by:

- Using all surplus income to reduce the home loan (non-tax deductible "bad debt");

- Creating or increasing investment debt (tax deductible "good debt"), by drawing against equity in the home; and

- Using this borrowed money to build an investment portfolio.

It is a great strategy that can be adapted to suit your goals and time horizons. Though, it is important to note that borrowing money to invest and budgeting are key components.

Here is an example of how the assets and cash flow involved in a debt optimisation strategy using a "split loan":



Where suitable, it is possible to extend on the strategy above by using the newly created investments as security for a margin loan, with the proceeds used to further invest. In this type of strategy the interest costs are still generally met from the home loan, with investment income also used to reduce the home loan balance.

Your Action Plan

Contact the Preston Coe & Ring team TODAY for a FREE review of your current loans and advice on whether you would benefit from a Debt Optimisation strategy!

Use Tax Money to pay for your Share Portfolio!

Apart from the usual general tax planning strategies (eg. incur business expenses prior to 30 June to claim a tax deduction this financial year), there are only 2 main ways to reduce your tax:

1. Increase superannuation contributions; and

2. Prepay interest on borrowings for investments before 30 June.

This article will focus on this second item.

With the solid performance of equity markets over the past 9 months, we have seen a significant amount of interest by investors looking to leverage back into the share market with the benefit of capital protection and tax efficiency.

This coupled with a reduction in volatility of shares and reduced borrowing costs have made share investments as attractive as ever.

Here's how this strategy works:

You borrow an amount (say $50,000) from the bank to purchase $50,000 of blue chip shares before 30 June. Some banks will lend you a further amount for you to use to immediately pay back to them to prepay interest on the original $50,000 loan for the next 12 months.

Assuming an interest rate of 8.5% and that your individual tax rate is 46.5%, using this strategy would result in a new tax deduction for you of $3,475. This would result in an additional TAX REFUND to you of $1,615.

You receive all dividends from the shares throughout the year.

You cannot lose your Capital!

If you use a borrowing product such as the Macquarie Geared Equities Investment, your shares are 100% protected. This means that if the share market goes down, you don't lose any capital. And your shares go up in value, you keep all of the upside.

This is ideal for investors who want to have share investments but who don't want to have any chance of losing their capital.

Here is a brief summary of the features of the Macquarie Geared Equity Investment (note that other protected share investments have similar features):

• 100% leveraged and capital protected via a Limited Recourse Loan
• Interest cost deductible up to benchmark RBA limit (currently 6.95% p.a.)
• Menu of around 80 ASX listed securities, ETF's, LIC's or pre-selected portfolios put together by Macquarie Research
• Full dividend and franking entitlements
• Terms ranging from 1 to 5 years
• Each security protected in its own right so no netting off winners and losers. Winners are kept and losers are handed back.
• Minimum investment $50,000 equities

Interest rates are dependent on the stocks chosen, the term of the investment, and the interest type (fixed or variable).

Your Action Plan

If you are looking for some tax relief by leveraging back into the share market, but want the added security of 100% capital protection, contact us TODAY and our highly qualified Financial Planning team will discuss your financial circumstances with you and provide you with a Statement of Advice tailored to your circumstances.

In summary, instead of paying some tax, you can use this money to prepay interest on a loan for shares with full 100% capital protection for the shares.

It's a great option to consider - contact Preston Coe & Ring TODAY to implement this strategy before 30 June and save tax!

SMSF - Get your wealth working for you!

Everyone is talking about SMSF's these days. Recent changes to the laws for operating SMSF's have in our opinion made them an option that every one of our client's needs to consider.

Very simply, a 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 now borrow from a bank to purchase investment properties.

Strategy

Choosing the right STRATEGY for your SMSF is the key.

Here's a brilliant strategy called the Retirement Home Strategy:

An investor finds a property they'd like to live in during their retirement. They use money in their SMSF as a deposit, and borrow into a special super fund borrowing arrangement with the bank to complete the transaction.

Warning: A member (or a relative of a member), of a SMSF by law cannot live in a property owned by a SMSF.

However, while the property is owned by the SMSF, it's rented to UNRELATED INDIVIDUALS for a market-based rent.

Upon retirement, the SMSF members start a pension and sell their current family home. They then use the proceeds from the sale of their home to buy the property from their SMSF at market rates.

The sale of the SMSF-held property is capital gains tax free because the SMSF is in pension phase. When the transaction is complete the super fund has liquid assets to pay their retirement income.

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 age 60, you can start to pay yourself a pension from your SMSF, and there is NO tax on income of the SMSF and NO tax on any capital gains.

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.

We believe this is an absolutely brilliant outcome - and it's possibly far better than owning an investment property in your individual name or in a Family Trust.

Please contact our office TODAY and make a time to discuss your family's financial situation with our Financial Planning Team.

Your appointment with us may mean you have hundreds of thousands more in assets when you retire. What a difference that would make!

 

Tax Planning Starts Now!



There's five key things that all business owners MUST consider RIGHT NOW. Three of them are brilliant wealth creation ideas. Please read on!

30 June is only 13 weeks after the beginning of April. It's not a long time at all.

Too often, we end up suffering because we have procrastinated and not made a positive decision to do something. If we all leave your tax planning until the end of May and early June, quite frankly there may not be enough time to do anything significant to legally reduce your tax.

So for 2014, our invitation to you is to START NOW with your tax planning.

5 Key Tax Planning Strategies

Over the next 5 weeks, we will send you one e-mail per week covering one of our 5 key tax planning strategies. These are:

1. Establish a Self Managed Super Fund (SMSF) - How to make it your family's wealth VAULT and legally pay NIL tax at retirement.

2. Big tax refunds for prepaid interest for a capital protected share portfolio (with NO cash required by 30 June).

3. Debt Optimisation – Pay off your home loan sooner, minimise non-deductible interest and maximise your tax deductions for investments.

4. Trust Distribution Resolutions needed BEFORE 30 June 2014 - or pay up to 46.5% tax on trust profits.

5.General tax planning strategies - Key items that mean $ in your pocket.

So keep an eye out over the next 5 weeks, and we'll outline in detail for you how to save $ and at the same time grow your family's wealth in a low-risk manner.

How our Tax Planning Process works

First of all, we request from you details of your expected income and business profits for the 2014 tax year (1 July 2013 to 30 June 2014). 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 $200,000 for 2014. This would result in $66,547 tax and Medicare levy payable.

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.

Third, 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.

And finally, we provide you with an easy-to-follow Action Plan to ensure that both you and we can do everything that needs to be actioned before 30 June.

5 "strategic" ways to sell your Company
Did you see the news that Facebook has recently acquired Internet messaging service WhatsApp for USD19 billion? It represents the largest-ever acquisition of an Internet company in history.

WhatsApp is a pearl for sure. The messaging service allows users to avoid text-messaging charges by moving texts across the Internet instead of the mobile phone carrier networks. This can save people who travel, or who live in emerging markets, hundreds of dollars a year, which is why WhatsApp is adding one million new users per day.

At the time of the acquisition in February 2014, WhatsApp had acquired some 450 million users. Their business model is to charge a subscription of $1 per year after their first full year of service. Even if all 450 million WhatsApp users were already paying, that is still less than half a billion in turnover. Why would Facebook acquire WhatsApp for a number that is somewhere north of 40 times turnover?

Nobody knows for sure what is in Mark Zuckerberg's head, but we can only assume that at least part of the opportunity Facebook sees is the opportunity to sell more Facebook ads because of the information they glean from WhatsApp users. Global advertising giant Publicis estimates 2013 online advertising spending in the US alone to be around USD500 billion. Presumably, Facebook believes they can get a larger chunk of the global online ad buy because they know more about its users by owning WhatsApp.

And therein lies the definition of a strategic acquisition. Most acquisitions run a predictable pattern of industry norms, but a strategic can pay a significant premium for your business because they are looking at your business for what it is worth in their hands. Rather than forecasting out your future profits and estimating what that cash is worth in today's dollars, a strategic is calculating the economic benefit of grafting your business onto theirs.

There can be many strategic reasons why a big company might want to buy yours. Here are a few to consider:

1. To control their supply chain

In 2011, Starbucks announced it had acquired Evolution Fresh, one of their providers of juice drinks, for USD30 million. Now Starbucks is no longer beholden to one of its suppliers. 

2. To give their sales people something else in their briefcase

Also in 2011, AOL announced the acquisition of The Huffington Post for USD315 million, even though HuffPo had just turned its first modest profit on paper. AOL wanted to give its advertising sales people more inventory to sell and HuffPo had 26 million unique visitors a month.

3. To make their cash cow product look sexier

Microsoft bought Skype for USD8.5 billion even though Skype was losing money. The good folks in Redmond must have assumed they could sell more Windows, Office and Xbox by integrating Skype into everything they already sell.

4. To enter a new geographic market

Herman Miller paid USD50 million to acquire China's POSH Office Systems in order to get a beachhead into the world's fastest growing market for office furniture.

5. To get a hold of your employees

Facebook reportedly acquired Internet start-up Hot Potato for USD10 million largely to get hold of the talented developers working at the company.

Most acquisitions are done for rational reasons where an acquirer agrees to pay today for the rights to your future stream of cash. You may, however, be able to get a significant premium for your company if you can figure out how much it is worth in someone else's hands.

Curious to see what your business is worth and how you might improve its value to both strategic and financial acquirers?  Complete the Sellability Score questionnaire today and we'll send you a 27-page custom report complete with your score on the eight key drivers of Sellability.

Protect your Reputation – Manage your Credit Rating


New credit rating regulations find out who's been naughty and who's been good...

Next month, missing a credit card repayment will mean more than a 'slap on the wrist' letter in the mail and a possible fine. You'll also leave yourself open to a nasty black mark on your personal credit rating.

The New Regulations

As of 12 March 2014, loan and credit repayment details are one of five additional pieces of information that lenders can pass on to credit bureaus as part of a new more comprehensive credit reporting regime.  Similar to the country rating system, individuals will soon be slapped with a credit rating which financial institutions can use as a quick reference loan check along with other more comprehensive checks.

Know your limits

Be aware of ALL your cards and their limits. Even those 'emergency cards' that we keep in the deep dark corners of our purses and wallets. It doesn't matter whether you have borrowed the full amount or not, it is automatically assumed that you already have. So keep an eye your card limits.

But it's not all doom and gloom

As opposed to the current system where only negative aspects of a person's credit history have been taken into account. Under the new regulations you can be rewarded for your years of good behaviour. A few minor defaults which in the past could prevent someone from obtaining a credit card can be outweighed by years of diligence in paying bills on time.

This is the first time Australian have a real incentive to manage their credit

Now is a really great time to assess your credit file and implement a routine to stay on top of your personal finances. You can obtain one free copy of your credit file per year and an additional copy if your loan application is rejected.

Your Report Card Do's & Don'ts

Report Card
How to GET a top rating	How to LOSE a top rating
• Set up automated direct debits to pay off all credit cards and loans. This will safeguard you against unforeseen circumstances such as holidays or hospitalisation.	• Paying debts late. Any payments more than five days late will be recorded as a late payment.
• Cancel all credit cards and credit lines that you're NOT using or need.	• Paying your debts REALLY late. Debts larger than $150 and remain outstanding after 60 days will be recorded as a default.
• Make sure you pay something. Pay a smaller amount rather than default if making repayments become difficult.	• Applying for credit cards and loans that you DON'T need.
• Check that your credit file is accurate. Credit bureaus make mistakes – make sure you're not one of them.	• Failing to organise easier payment plans with lenders when repayments become too difficult, will end in default.

 

An Eye on the future

Although these changes are a massive step for credit bureaus, they are still wanting more information. They are still lobbying to obtain further information on individuals. Credit balances, electricity and even phone bills are on your cards. With post-paid phone bills being among the first young people receive, now is a good time to teach your kids about the importance of managing their finances and their reputation.

For more information on the new regulations, what it will mean for you and other ways you can take control of your credit history, visit www.creditsmart.org.au 

Growth vs. Value: not all turnover is created equally

When you look for your growth, will it come from selling more to your existing customers or finding new customers for your existing products and services?

The answer may have a profound impact on the value of your business.

Take a look at the research coming from a recent analysis of owners who completed their Sellability Score questionnaire. 5,364 businesses were looked at and it was found that the average company that had received an overture from an acquirer was offered 3.5 times their pre-tax profit.  When we isolated just the businesses that had a historical growth rate of 20 per cent or greater, the multiple offered improved to 4.3 times pre-tax profit, or about 20 per cent more than their slower growth counterparts.

However, the real bump in multiple came when we isolated just those companies that claim to have a unique product or service for which they have a virtual monopoly. The niche companies enjoyed average offers of 5.4 times pre-tax profit, or roughly 50 per cent more than the average companies, and fully 20 per cent more than the fastest growth companies.

Nurture your niche

Chasing "bad" turnover by offering a wide array of products and services is common among growth companies. The easiest way to grow is to sell more things to your existing customers, so you just keep adding adjacent product and service lines. But when a strategic acquirer buys your business, they are buying something they cannot easily replicate on their own.

A large company will place less value on the turnover derived from products and services that you have in common. They will argue that their economies of scale put them in a better position to sell the things that you both offer today.

Likewise, they will pay the largest premium to get access to a new product or service they can sell to their customers. Big, mature companies have customers and systems, but they sometimes lack innovation; and many choose a strategy of acquisition as a way to buy their innovation.

Focusing on your niche is one of many areas where the long-term value of your business is at odds with short-term profit. For example, if you wanted to maximize your short-term profit, you might avoid investing in new technology or hiring a head of sales, arguing that both investments would hinder short-term profit. The truly valuable company finds a way to deliver profit in the short term while simultaneously focusing their strategy on what drives up the value of the business.  

You can get your own Sellability Score, and see how you compare on the eight key drivers of sellability, by taking our 13-minute survey here

 

5 reasons why it's so important to love your job

While catching up with a friend last week, the conversation steered to his career. He explained that lately he had been thinking about moving from his current position and pursuing some other interests, but was concerned about making such a big change. The dilemma is, his current position is with a well-respected company, and appears great in theory. However, he has lost interest in the position and wants to seek out a more challenging and satisfying role. My advice? If you don't love what you're doing, you need to change it.

Why you need to love what you do

It's a debatable topic - many have the opinion that it's just a job. It's not realistic to enjoy yourself every minute of the day; simply do the things you love in your spare time.

To me, this is nonsense, you should be able to love what you do. And this is why:

5 important reasons to love your job:

1. Many people spend more than half their waking hours at work. If you don't enjoy your time at work, then you're going to be an unhappy person a lot of the time - and that's no way to live.
2. How can you invest in your career if you're not into it? Why would you seek out extra training, certifications, conferences etc? The answer? You won't. This leads me onto reason No. 3.
3. You'll never be truly great at what you do. Without having a passion for your work or improving your skills, how can you have a rewarding career?
4. It's unlikely you will progress in your career. If you aren't great at what you do, and don't show much interest in improving; let's face it - you're not going to be promoted.
5. You will never be fulfilled. If you are spending the majority of your time on something you don't love, you are always going to feel as though your time could be better spent. Watching the clock and waiting for the end of the day - so that you can finally do the things you want to do, is not the best way to live your life.

What can be done if you don't love your work?

Now that you have decided you want a change, you need to take action. Merely wishing things would change will not get you anywhere.

A person can earn a living with just about any skill. You just need to find that balance between finding a job you love, and still being financially able to live your desired lifestyle. There are so many opportunities out there, it's just a matter of having the patience to find the one that fits you.

Start off by looking up professions you think might be interesting. Research these positions and try to speak to people who have actually pursued these careers. Why not look these professions up on LinkedIn; connect with people and ask them questions about their job.

Take the leap

You owe it to yourself to find your passion. To live everyday doing the things you love. By embracing the change you can live a happier and healthier life, benefiting you and everyone around you.