Blog

May 18

The Price of Survival

Posted by Peter Marmara-Stewart at Friday, May 18, 2018

We would like to share with you an article from the Chris Unwin Training & Consulting Services website entitled, “The Price of Survival”.

If you are having second thoughts on getting Trauma Cover for yourself or a loved one, you might want to read this article to help you decide and understand the importance of having insurance, and just how much it costs in order to survive and overcome unexpected circumstances in life.


Have you ever had a client tell you that Trauma Cover is very expensive? If so, how have you responded? My response was always:- "Compared to what?"

I remember very clearly to this day my first introduction back in 1993 to a brand new product called Trauma Cover. I was shown a promotional video on which a woman in her mid-30s, who had been diagnosed with cancer and who had survived after the necessary medical treatment, simply stated that “If she hadn’t had $50,000 worth of Trauma Cover, then she wouldn’t have been able to have afforded to stay alive”. How much would $50,000 Trauma Cover cost for a woman in her mid-30s? Less than a cup of coffee a week – in this case, that was literally the price of survival.

I would also like to tell you about an article that was in the Sunday Telegraph a few years ago from which I quote:-

"For Yasmin Pallier, the difference between life and death is literally $80,000. That is how much the surgery to remove the aggressive tumor inside her head will cost. Time is running out for the 32 year old who has been given six months to two years to live without the surgery.

“Because we haven’t got the money, we have to go on the public waiting list which is six months long”, she said. Yasmin’s mother, Michelle understands the pressures on the system, but said she can’t get past one irrefutable fact. “At the end of the day, if you don’t have the money, you don’t get the operation. The rich would get it – this I can’t swallow”.

Where is the fundamental flaw in the “irrefutable fact”? Well, how much would $80,000 worth of Trauma Cover have cost for a 32 year old woman? Once again, less than a cup of coffee a week. The reality is that it’s not just the rich that would get the lifesaving operation – it’s anybody who has $80,000 worth of Trauma Cover and everybody can afford that.

May 17

Financial Fitness

Posted by Peter Marmara-Stewart at Thursday, May 17, 2018

Financial Fitness. From these 2 words, you would know that they are basically about finances and physical health. How can you tell if a person is financially fit?

On the article What does being financially fit look like? By Paul Feeny, he discussed the outward signs of being financially fit, and the key on how to improve one’s financial literacy and fitness.

Below are results of the commissioned online survey done in 2016 on 1,617 Australian workers aged 18 years and over to ascertain their financial fitness, as detailed on the article:

All respondents were currently employed (either full time, part-time or casual). The results from this research found:

29% of Australians were financially unfit, with a fitness level of less than 95 out of 200.

32% of Australians had average financial fitness, with a fitness level of between 95 to 125 out of 200.

30% of Australians were financially fit, with a fitness level of between 125 to 160 out of 200.

9% of Australians were financially super fit, with a fitness level of above 160 out of 200.

The average financial fitness of Australians is 50%, with a fitness score of 113 out of 200.


It is common for most people to assume that they are financially fit and literate because they are professionals and have attained high education. But in reality, more and more people are worried about their financial health and are now willing to take charge to better their future.

So what does financial fitness look like? One of the major keys to being financially fit is to have a plan.

According to the article, “The same research referred to above found Australians are almost four times more likely to be financially fit, or indeed, super fit when they have a comprehensive plan, as opposed to those with no plan at all. When an individual engages an adviser to build a plan, their level of financial fitness is 30% higher than those without a plan. So, the best way to improve the financial fitness of Australians is to ensure they can build a comprehensive financial plan.“

A plan will give you a starting point to your financial journey. A reliable financial adviser is what you need; to provide you with an in-depth financial plan to make you more financially fit and literate. So, if you are looking to get in shape financial-wise, this is a great opportunity to join our PCR family, and become financially fit!

May 14

SMSF – Get your wealth working for you!

Posted by Peter Marmara-Stewart at Monday, May 14, 2018

Everyone is talking about SMSF's these days. Even with the changes made by the government (such as the $1.6M cap), SMSF 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 purchasing an existing commercial property you own with 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 can be worthwhile looking at transferring that property to your Superannuation Fund also. It may help you free up cash, and possibly even reduce your personal non tax deductible debt on your mortgage.

We had one client that we did this for. They owned a commercial property outside of their Superannuation Fund. The property was worth $275,000. They had 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% & 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 it is pretty good). 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 in a Family Trust.

May 07

DOUBLE TAX DEDUCTION for Life Insurance

Posted by Peter Marmara-Stewart at Monday, May 07, 2018

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 2018

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 30

Trust Distributions – Who can you distribute to?

Posted by Peter Marmara-Stewart at Monday, April 30, 2018

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 $20,542, and they will not pay any tax. At the 47% tax rate, that is $9,655 in tax savings. If we increase that to $37,000, they will have to pay $3,456 in tax and your net tax savings will be $13,934.

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 23

Tax Planning 2018 - It Starts NOW!

Posted by Peter Marmara-Stewart at Monday, April 23, 2018

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. Last year, we were able to help our clients save over $1,000,000 in tax. So, over the coming weeks, we will be listing a number of strategies to help you reduce your tax legally.

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 2018, 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 2018 tax year (1 July 2017 to 30 June 2018). 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 $100,000 for 2018.

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.

Apr 20

Do not let yourself get scammed

Posted by Peter Marmara-Stewart at Friday, April 20, 2018

Every year, scams cost Australian citizens, businesses, and the economy hundreds of millions of dollars, and have the ability to cause emotional harm to victims and their families. The best way to protect yourself is through awareness and education.

Therefore – the Australian Competition and Consumer Commission (ACCC) is providing us with ‘The Little Black Book of Scams’. We are sharing this terrific little publication with you to help protect your financial well-being, and so you can spot, avoid, and protect yourself against scams.

Apr 20

Age Pension and the Superannuation Sweet Spot?

Posted by Peter Marmara-Stewart at Friday, April 20, 2018

What am I talking about?

I will try and provide a very simple explanation. The “Superannuation Sweet Spot” is recent terminology referring to the amount of money a person or couple needs to have saved in superannuation to ensure they achieve a reasonable level of income while maximizing their age pension.

There have been many articles written in the press concerning this matter with suggestions that an amount of approximately $300,000 in superannuation for a single person who owns their home is sufficient, and $400,000 in superannuation for a couple who own their own home is more than adequate.

Viewing the situation on the following table may give you a better idea:

Situation  Superannuation  Drawdown from Super  Age Pension  Total Income 
Single Home-owner    $300,000 $15,000 $19,210 $34,212
Couple Home-owner $400,000 $20,000 $33,272 $53,272
Now the argument, rightly or wrongly, is that if you can achieve these levels of income in partnership with the age pension, what is the incentive to save and contribute any more to superannuation?

For example, to ensure that you maintain a similar income without the age pension you need to have the following amounts in superannuation –

 Single homeowner – $684,240
 Couple homeowner – $1,065,440

This assumes the minimum level of income (5% between the ages of 65 and 74) is being drawn from super.

So, to a certain extent I can understand – what is the incentive for me to save and sacrifice more of my salary into superannuation if as a couple, I can retire now, wait a couple of years, apply for the age pension and have an income of $53,272 tax-free per annum?

Let me run through a couple of very simple reasons:

   My Comfortable Retirement – the blog I wrote a couple of weeks ago. If you read this blog, I am sure you will agree $400,000 and an income of $53,272 per annum will certainly not be sufficient for me to achieve all I want in my retirement

   Secondly, my wonderful partner, Donna, is a couple of years younger than myself, 4 and a half years to be precise, and it means that my plans of applying for the age pension would need to be deferred until she reaches the age of 67 – 10 years from now.

   Thirdly, from a health perspective, if I do wait five years after I retire for Donna to retire and become eligible for the age pension, I am sure I would become extremely bored and drink a lot more wine than my doctor says is advisable.

   Finally, as we have seen on numerous occasions over the years just like superannuation, the legislation surrounding the payment of age pension is constantly changing, meaning that to some extent my cash flow would be subject to change on a regular basis as well

Qualifying for an age pension is not and should not be anyone’s financial or retirement objective. And no, just because you or I have worked all our lives and paid taxes does not mean that we should have an automatic right to the age pension.

So, I firmly believe that when we talk about the “Superannuation Sweet Spot”, it should not be in the context of the ideal balance of funds a person needs to have saved in order to maximise the appropriate age pension entitlement to achieve their required cash flow. It should be in reference to a person maximizing their enjoyment in retirement.

Now everyone’s idea of enjoyment in retirement will be different so I can only speak from my perspective.

However, I do believe that the incentive for me and for everyone who works is to have enough superannuation to not have to rely on the safety net of an age pension. Why shortchange your retirement by not achieving all you can and all you want to, because someone tells you the income and assets means test associated with the age pension is a disincentive to a person building a substantial superannuation balance.

I am certainly going to grow my superannuation balance as much as I am able over the next few years to ensure I can achieve “My Comfortable Retirement”. I will not shortchange my enjoyment in retirement by giving away assets or having as my retirement objectives compromised by only achieving my “Superannuation Sweet Spot” in order to qualify for an age pension.

By Mark Teale

Jan 17

Partnership: Are you serious about it?

Posted by Peter Marmara-Stewart at Wednesday, January 17, 2018

Going into partnership in business is like a marriage.

It is a collaboration of two or more people that share ownership of the business, as well as its profits & losses. It is a serious commitment of time, money and reputation; therefore, deciding to enter a business partnership should be of good judgement.

If you are looking to bring other people on board in your business, there are certain things to consider before ‘taking the plunge’:

Director & Public Officer Insurance

  • This insurance is like Professional Indemnity for Directors. This is important to have, if they are going to come on board as Directors as well.
Shareholders Agreements
  • This should take into consideration how a voluntary exit (i.e. retirement or circumstantial) takes place, a forced exit (i.e. disagreement, non-performance, bankruptcy) or involuntary exit (i.e. death, significant trauma). 
It is important to get a Shareholders Agreement in place, if you are looking at bringing two or more people on board. Part of that would be looking at how you deal with each exit – what are the terms & conditions that surround that. Another part would be the Risk Management of it – if something happens to one of the partners, or if someone must exit for some unknown or unforeseen reason.

Note that whenever you make a business proposal, you must include a clause about agreeing to a Shareholders Agreement and the terms & conditions set out in it. You will need to get a Solicitor to help you make and set in place a Shareholders Agreement.

Voluntary Exit - retirement or circumstantial exit
  • Any voluntary exit should be predetermined and managed. This could be an exit where someone retires, or it is just time for them to move on from the business. Shareholders Agreement should cover minimum terms on which a voluntary exit is dealt with.
Forced Exit - disagreement, non-performance, bankruptcy
  • Any forced exit might be somewhat more difficult to manage then a voluntary exit. This type of exit can come about due to disagreement, non-performance of a partner or even other things such as criminal conviction and/or bankruptcy. Should this arise, details of what is expected and how this is managed should be covered in your agreement as a minimum, to provide you with the security of knowing how to deal with it. 
Involuntary Exit (death or some significant trauma)
Buy/Sell Agreements & Risk Management
  • Should one of the owners have an accident, there needs to be the appropriate mechanisms in place to protect the interests of the business and shareholders. A Buy/Sell Agreement covers the involuntary exit and is usually covered via some insurance policies, or vendor finance agreement agreed upon in the Shareholders Agreement.
When you bring in two or more people into your partnership, there is a higher chance that something may happen, where someone must exit for some unknown or unforeseen reason. You should be prepared for that, because that could blow things out of proportion in your business. That unexpected change can have significant impact in your business organization and overall performance.

Aug 21

Attention Required: Update your Automatic Superannuation Registration

Posted by Peter Marmara-Stewart at Monday, August 21, 2017

Xero has recently sent an email reminder to update Super Registration by Monday, 28 August 2017. Please refer to the message below for your reference:

Attention Required: Update your Automatic Superannuation Registration

Just a reminder to update your Superannuation Registration in Xero by Monday 28 August, so Super payments can continue to be processed as usual. (If you have already updated your registration, no action is required.)

Updating your registration takes just a few minutes.

1. Login to Xero.
2. Navigate to the Superannuation tab.
3. Make sure there are no batches in pending approval or approved pending processing.
4. Click on the Update Registration button and follow the prompts.

For a demo of updating your registration, watch this video. You can also refer to the superannuation info in the help centre.
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