Profile Blog - Category ‘Financial Planning’

The Australian Taxation Office (ATO) has issued a renewed warning to Australians about the potential ramifications of illegal early release of super.

         

 

Specific medical conditions or severe financial hardship are two of the very limited circumstances where early release is legal.

In the new warning, the ATO has urged individuals to “beware of people promoting early release of super schemes”.

“They might tell you they can help you withdraw your super to pay off credit card debt, buy a house or car, or go on a holiday,” it said.

The warning comes not long after a man was sentenced to three years in jail after orchestrating the illegal early release of superannuation for 25 people in the community. 

An SMSF adviser was also banned from providing financial services last year after he was found to have been enabling people to use their superannuation savings to buy property. 

Illegal schemes will cost you a lot more than the super you withdraw, the ATO has flagged, with severe fees and penalties for those people that do the wrong thing.

Not only this, promoters of such schemes that encourage the early release of super will also face prosecution, with the ATO asking anyone who has been approached to participate in such a scheme to contact the office directly.

 

 

Grace Ormsby
03 February 2020
smsfadviser.com

 

Small businesses will be the hardest hit by the ramifications of Covid-19.  The following is more information to help small business owners better understand some of the business support that's now available.

Late last week there was an article added to this site about the Federal Governments stimulus package.

Then 4 Fact Sheets became available to help understand the stimulus package.  Plus more information can be found here .

  1. Cash flow assistance for business
  2. Stimulus payments to households to support growth
  3. Assistance for severely affected regions
  4. Delivering support for business investment
     

This latest update provides more detail on how the stimulus package operates.  For example, Cash flow payment for employers.  'Eligible businesses will automatically receive payments of 50 per cent of their Business Activity Statements or Instalment Activity Statement from 28 April 2020, with refunds to be paid within 14 days.'  Read more detail here.

 

ATO
Treasury
Small Business WA

 

 

The Australian superannuation industry has been in the headlines almost every day in the past few weeks, with the Federal Government predicting that as many as 1.7 million people will look to access their superannuation early as part of COVID-19 relief measures.

       

The key message is that accessing your super may be a critical matter of meeting life's necessities in the wake of a global pandemic – but explore all other options first because the long-term cost on your potential retirement savings is significant.

An interesting by-product of all the discussion about early access to superannuation is that it may have sparked the interest of younger investors who haven't always paid the closest attention to their own situation.

According to a research report by the Financial Services Council, the majority of young adults do not check their superannuation accounts and those under 35 were more likely to not know how much money they currently held.

With superannuation so topical, now could be a good time to learn a little more about it, even if retirement seems a long way away – particularly if you do not need to access but have rediscovered multiple accounts that you may have not got around to consolidating and still costing you in fees.

Superannuation 101

Superannuation is essentially money you regularly put into a fund in preparation for when you retire. It is deducted from your pre-tax earnings and when you stop earning a wage, your superannuation funds will be what helps provide you with a regular income in retirement.

Your employer is responsible for paying your superannuation into your specified fund at a compulsory contribution rate of 9.5 per cent of your annual salary. This applies to everyone who earns A$450 a week before tax.

Your superannuation fund then manages your money for you and invests it – either in their default fund or in the investment option of your choice.

Superannuation strategies

One of the simplest things you can do to manage your superannuation is to make sure you only have one account. If you've had multiple jobs in the past, your employer may have selected a default superannuation fund for you. And the more accounts you have, the more fees you are paying and the more your balance gets eroded. You can access ATO services to consolidate your superannuation via the MyGov website.

You are also able to select an investment option for your super, typically growth, balanced or conservative. Each investment option differs in their risk and return. A growth option will usually invest more of your superannuation in higher risk assets such as shares or properties, whereas a conservative option will invest more in lower-risk assets such as fixed income or defensive assets.

One of the key advantages that younger investors have is time, for the simple fact that the longer you have to invest, the more opportunity you have to realise returns. Choosing a high growth investment option earlier on means that although it may be riskier, you have the time to ride out market cycles and capitalise on the good years before you reach retirement. You also have time to reap the benefits of compounding interest on your superannuation balance.

Another strategy to consider is voluntarily contributing funds to your superannuation if you are in a position to do so. Even small amounts add up over time, and could reduce the tax you pay. According to the government's Money Smart website, these concessional contributions are generally tax effective if you earn more than $37,000 a year as they are taxed at 15 per cent. This might be lower than your marginal tax rate. But just remember there is a cap to how much you can voluntarily contribute a year.

Early access

While ultimately the decision to withdraw superannuation should be determined by your own financial situation, it is also important to understand the potential impacts of doing so. Based on an average net return of 6 per cent per annum, the value of $20,000 (the maximum you can withdraw) could grow to approximately $205,000 in 40 years.

Drawing down on your superannuation right now also means you are selling assets when the market values have fallen because of the uncertainty around COVID-19 and the economic impacts. You are asking your superannuation fund to sell your assets at a lower market price and even if you intend to repay it over time cashing out now may mean you can't recover this value when the market rebounds over time.

Conclusion

For those in their 20s or 30s, superannuation won't seem like a priority when you may have only recently entered the workforce. And day-to-day living expenses take precedence so voluntarily contributing more to your superannuation won't seem too appealing when you usually can't access those funds until you turn 67.

But superannuation is more than just a distant pile of money for future you, it also represents financial independence and freedom, and is best cultivated from an early age. This is especially true in recent years where millennials are experiencing record low interest rates, a tough housing market to crack and low wage growth. Making the right investment decisions about your superannuation may be an accessible way to growth your wealth right now.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
29 April 2020
vanguardinvestments.com.au

 

 

 

Overall growth of SMSF sector has continued despite a drop in the number of new funds in the December quarter 2019, the latest ATO statistical report shows.

 

The SMSF sector continued to recorded growth in the December quarter 2019 despite a dip in the number of newly established funds compared to the previous quarter, according to the latest ATO data.

The regulator’s “Self-managed super fund quarterly statistical report – December 2019” revealed the total number of funds increased to 594,163 during the December quarter from 589,737 in the September quarter.

The number of new funds reached 4632 during the December quarter, with only 197 funds wound up, resulting in a net establishment of 4426 funds across the sector.

By contrast, 6324 funds were set up in the September quarter, with 444 funds wound up in the same period, which resulted in a net establishment figure of 5880.

In addition, the report revealed the total number of members of SMSFs had increased to 1,115,822 in the December quarter from 1,108,010 in the previous quarter.

It also showed the total estimated assets of SMSFs for the December quarter dropped to $739 billion despite steady growth in previous quarters, including a jump from $730 billion in the June quarter to $740 billion in the three months to 30 September.

The top asset types held by SMSFs by value in the December quarter were listed shares ($221 billion) and cash and term deposits ($151 billion).

The asset value of limited recourse borrowing arrangements (LRBA) reported by SMSFs for the quarter remained consistent at $44 billion.

The ATO’s recent statistical overview of the SMSF sector for the 2018 financial year revealed the growth in the number of SMSFs reporting LRBAs had steadied and was now increasing at a manageable rate, with some noting this had reduced the sector’s risks around these investments.

As part of its report on the SMSF sector, the ATO also found the level of SMSF wind-ups hit a record high during the 2018 financial year, while new establishments fell away.

 

 

Tharshini Ashokan
July 1, 2020
smsfmagazine.com.au

 

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