Everyone is talking about SMSF’s these days. Even with the changes proposed by the government (such as the $1.6M cap), SMSF can be the way to go. Very simply, 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 $50,000 approximately left on the premise. They netted after Capital Gains $205,000; 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%. 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 age 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’s possibly far better than owning an investment property in your individual name or in a Family Trust.
Here at Preston Coe & Ring, we are always looking to improve our service to you. For most of last year, we have been working with Emmanuel at Loanscope. Recently, they have had someone join the team – Daniel Venpin. Loanscope and Daniel are highly dedicated to make sure that you are getting the best deals on your mortgage (whether that be for investment or your home), so don’t hesitate to contact them. For further information on Loanscope, they have prepared this introduction letter, and you can visit their website at www.loanscope.com.au.
This is just a quick run-down of the Budget and the things that are most likely to impact our Clients. Please note that it is not a fully comprehensive review of everything in the Budget. Under the Budget, there is a bank levy which the opposition says they do not oppose, but do not want the banks to pass on. The opposition has also opposed the removal of the 2% debt levy on high income earners. However, as this was a temporary measure with an end date in the legislation, a new law would have to be passed (we will be watching out for this closely). If it all goes ahead as planned, the big winners are first home buyers, people downsizing their home and small businesses. Superannuation Contributions from downsizing the home
Date of effect: 1 July 2018 Individuals aged 65 or older, will be able to make non-concessional (after tax) super contributions of up to $300,000, using proceeds from the sale of the family home. This limit will: • apply on a per person basis
• be in addition to the ordinary non-concessional contribution cap, and
• be available where the home has been owned for at least 10 years. Unlike other non-concessional contributions, it will not be necessary to meet a work test or have a ‘total super balance’ under $1.6 million. The amount contributed will not be exempt from the assets test used to assess eligibility for the Age Pension. First home super saver scheme
Date of effect: From 1 July 2017 – opposition opposes this. First home buyers will be able to save for a deposit, by making voluntary concessional and non-concessional super contributions. Contributions will be limited to $15,000 per year (up to a total of $30,000), and will count towards the relevant contribution cap. Withdrawals can be made from 1 July 2018. Concessional contributions plus assumed earnings withdrawn will be taxed at the person’s marginal tax rate, less a 30% tax offset. The Government has provided an online estimator to help individuals calculate the potential benefit of the scheme. SMSF borrowings
Date of effect: When law is passed Broadly, when new limited recourse borrowing arrangements are established, the loan balance will be included in an individual’s ‘total super balance’. The total super balance is used to determine a person’s ability to: • make non-concessional contributions
• qualify for a Government co-contribution or a spouse contribution tax offset, and
• make catch-up concessional contributions above the annual caps from 1 July 2018, where certain conditions are met. Also, repayments made from the SMSFs accumulation balance will count towards the member’s transfer balance cap, if the borrowing supports a pension account. The transfer balance cap limits the total lifetime transfers a person can make to retirement phase pensions. Taxation Medicare levy increase
Date of effect: 1 July 2019 The Medicare levy will increase from 2% to 2.5% pa, to fully fund the National Disability Insurance Scheme. This increase will flow to a range of other taxes such as Fringe Benefits Tax. Small business accelerated depreciation
Date of effect: 1 July 2017 The ability for small businesses with an annual turnover of $10 million or less, to claim an immediate deduction for eligible assets costing less than $20,000 each, will be extended for 12 months. HELP thresholds and rates
Date of effect: 1 July 2018 – opposition seems to oppose this. The annual income threshold at which Higher Education Loan Program (HELP) repayments commence will be reduced to $42,000 (currently $54,869). Also, the repayment rate will start at 1% and increase progressively to 10%. Social Security Pensioner Concession Card
Date of effect: From 1 July 2017 Individuals who lost entitlement to the Pensioner Concession Card as a result of the 1 January 2017 assets test changes, will be reissued with the card. Energy Assistance Payment
Date of effect: 20 June 2017 Eligible pensioners will be entitled to a one-off Energy Assistance Payment of $75 for singles, and $125 per couple. Eligible recipients include Australian residents who qualify for the Age Pension, Disability Support Pension and Service Pension. Residency requirements for pensioners
Date of effect: 1 July 2018 To be eligible for the Age Pension and Disability Support Pension (DSP), claimants will need to have 15 years of continuous Australian residence unless they have either: • 10 years continuous Australian residence, with 5 years of this being during their working life, or
• 10 years continuous Australian residence, without having received an activity tested income support payment for a cumulative period of 5 years. Existing exemptions will continue to apply for DSP applicants who acquire their disability in Australia. Family Tax Benefit – Part A
Date of effect: 1 July 2018 A single taper rate of 30 cents in the dollar, will apply to income that exceeds the Higher Income Free Area ($94,316 in 2016/17). Currently, two tests are applied and the higher payment determines the entitlement. Family Tax Benefit – Part A and B
Date of effect: 1 July 2017 The payment rates will not be indexed for two years. Indexation will resume on 1 July 2019. Liquid Assets Waiting Period
Date of effect: 20 September 2018 The maximum Liquid Assets Waiting Period (LAWP), will increase from 13 to 26 weeks. The LAWP is a period an individual will be ineligible to receive Government income support. The new maximum period will apply to: • singles without dependents with liquid assets of more than $18,000, or
• couples, or singles with dependents, with liquid assets of more than $36,000. Liquid assets are readily available assets such as bank accounts, terms deposits, shares and managed funds.
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 49% tax rate, that is a $2,450 tax saving. Contribution is income in the Fund @ 15% = $750 tax payable Life Insurance premium is deduction in the Fund @15% = $750 tax refund. NET TAX SAVINGS: $2,450 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.
– A chat with one of our team.
– To take action before 30th June 2017. 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 49%, you would have to earn $9,803. But even if you are on the 34.5% tax bracket, you would have to earn $7,633. 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.