Profile Blog - Category ‘Financial Planning’

 

The rules around Superannuation contribution change almost every year, so it is important that taxpayers know what these changes mean to them.

 

         

The following outlines what has changed.

An increase in the age required for the work test.

From July 1, 2020, the age required rose from 65 to 67. The main benefit of this change is that it provides, where possible, an additional opportunity to implement voluntary super contribution strategies.

What taxable contributions can be made for the year ending June 30, 2021?

There is a cap of $25,000 per person for those able to make extra contributions to their super during the 2020/21 financial year. Any excess over this concessional contribution (CC) cap is taxed at the inpidual’s marginal tax rate.

CCs are contributions where a tax deduction is claimed and include:

  • Superannuation guarantee contributions (SGCs)
  • Employer voluntary / extra contributions like salary sacrificing
  • Member taxable contributions claimed as a deduction in personal ITR.

The CC cap will, in most cases, exceed employer contributions in 2020/21. If this is the case, then consideration could be given to adding personal taxable contributions to get you up to the $25,000 limit.

The higher your income, the greater the tax savings and keep in mind that there is no upper age limit for being eligible to receive SGCs.

Carry forward provisions

An indivdual can carry forward CCs if their total superannuation balance (TSB) is less than $500,000.

Unused contributions can be carried forward for five years. This option came into effect in 2019/20.

An important consideration prior to June 30, 2021 is to see if you can utilise this carry forward option to bolster your CCs before the date noted.

Work test

If an inpidual is under 67, there is no work test required to be able to make a contribution.

The work test is where, once you turn 67, you must be able to show that you have been gainfully employed for 40 hours or more in any 30-day period in a financial year.

If an inpidual is between the ages of 67 to 74, they must meet the work test in order to make a contribution.

Splitting of contributions

An inpidual can split their CCs that are made on their behalf to a spouse but they need to meet certain requirements.

The main reasons to split contributions are to:

  • Assist with the limit of only being allowed to have $1.6 million to start an account-based pension with
  • Assist with ability to make non-concessional contributions (NCC) given the cap limit also of $1.6 million
  • Assist with the ability to use the carry forward provisions given the member balance cap of $500,000
  • Address age differences between spouses and the ability to access benefits at an earlier date
  • Access Centrelink advantages by minimising a member’s account
  • Allow a member to have sufficient superannuation to be able to pay life insurance.

Spouse rebate for super contributions

A spouse rebate, up to a maximum of $540, can be claimed for superannuation contributions for the year ending June 30, 2021.

If your spouse earns less than $37,000 per year and you contribute $3,000 into superannuation for them, you can claim a tax rebate of $540.

Spouse contributions can be made if you are aged under 75 from July 1, 2020.

What tax-free contributions can be made for 2020/21?

Non-concessional contributions (NCC) are those contributions made into a super fund from after tax income. In this case, an inpidual is not claiming a tax deduction. There is a cap for NCCs of $100,000 for the 2020/21 year.

Members under 65 have an option to contribute up to $300,000 over a three-year period, depending on their total superannuation balance (TSB). The rule works as follows:

TSB                        NCC and bring forward amount

< $1.4M                 $300,000 over 3 years

> $1.4 & < $1.5M   $200,000 over 2 years

> $1.5 & < $1.6M   $100,000 over 1 years

> $1.6M                $0 (nil)

To be able to make an NCC, a member must meet the work test, as described above.

The increase from age 65 to 67 also impacts on the ceasing work contribution rule as of July 1, 2020 by given more time to make a NCC.

NCCs can be made on a once-off basis in the financial year after you have ceased employment if your TSB is less than $300,000 as of June 30 in the previous financial year. You also need to be under 75.

Downsizing contributions and how this applies to those over 65 years of age.

From July 1, 2018, anyone 65 years or older can make a downsizer contribution of up to $300,000 from the proceeds of selling their residential home.

The contribution is not an NCC and does not count towards the contribution caps, so it goes into superannuation as a tax-free contribution.

If a member has more than $1.6 million in superannuation, they are still allowed to make a downsizer contribution.

If the downsizer contribution is made and is placed into retirement phase, it will count towards a member’s transfer balance cap, which is $1.6 million.

If you are thinking of downsizing then speaking to a financial planner will help clarify eligibility requirements.

Get more from your super

If you have any questions on the above then simply ask us.

 

 

 

Australian banks this month started the largest ever customer contact program in the industry's history.

 

       

The mammoth program involves banks contacting more than 900,000 borrowers who have needed to defer making payments on their loans as a result of the COVID-19 pandemic.

Among them are hundreds of thousands of home loan borrowers around the nation with owner-occupied and investment property mortgages.

The first stage of this contact program coincides with the initial wave of six-month loan payment deferrals coming to an end, and will involve the assessment of around 80,000 mortgages by the end of September.

A further 180,000 customers with deferred mortgages will be contacted before the end of October, and the program will continue as the banks work through their customer lists to determine whether further payment deferrals are required.

In short, lenders are seeking to mitigate their potential loan defaults.

Tighter loan serviceability guidelines

But there's a lot more going on behind the lending scenes than immediately meets the eye.

Some of this is directly related to COVID-19, but there also have been developments that follow recent regulatory updates in responsible lending guidelines.

Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, at the end of last year the Australian Securities and Investments Commission updated its guidelines for how it expects lenders to deal with borrowing applications.

Those updates are still filtering through the lending system.

In its detailed guidelines, ASIC outlines that lenders should specifically be noting whether there are “foreseeable reductions” to the amount or frequency of a loan applicant's income.

What the regulator means is that it wants lenders to pay particular attention to older borrower applicants who are at an age where the loan they are seeking would mature beyond their retirement age.

ASIC recommends that lenders should be proactively asking these applicants how they intend to pay off their loan.

“For example, if a consumer is approaching retirement, and will still be making repayments on the credit product after their expected retirement age, you will need to determine whether this event is likely to change their income, and information about the amount that is expected to be available,” ASIC states.

“And, if the income is of a kind that has a known end date which will occur during the term of the loan…you should have regard to the effect that change to income is likely to have on the consumer's overall financial situation.”

These are general lending guidelines, however what's changed in recent months is that some lenders have strengthened their loan serviceability criteria – especially in relation to home loans.

They've done this by instructing their internal loan managers and external mortgage brokers to ask borrowers approaching retirement age to document their actual loan exit strategy, including the age they intend to stop working.

One large bank has recently issued instructions that if a loan applicant is aged over 55 or intends to retire in the next 10 years, their application will need to include:

  1. “At least one co-applicant under the age of 55 or within 10 years of their intended retirement with “sufficient income to service the home loan at drawdown.
  2. “Evidence of financial assets worth at least 100 per cent of the loan limit; or
  3. “Evidence of a plan to downsize an owner-occupied home (with at least $200,000 in available equity at drawdown) once the applicant retires.”

Loan exit strategies to consider

ASIC's responsible lending guidelines state that borrowers should preferably be able to meet their payment obligations from income rather than from the sale of assets.

But the regulator recognises that may not always be possible post retirement, and that asset sales may be required to extinguish a loan.

One important point to note is that most lenders are unlikely to consider the future sale of your principal place of residence as an acceptable loan exit strategy.

However, the intended future sale of an investment property, or being able to gain access to equity in a property through an equity release facility such as a reverse mortgage, are likely to be considered as viable exit plans.

Other assets that lenders will take into account when assessing pre-retirement loan applications are superannuation (if it is sufficient to pay off the loan balance), and investments outside of super such as shares.

On the income level, lenders will consider any plans to continue earning income on a casual of part-time basis, rental income derived from investment property, and dividend income from shares.

The key for those close to retirement who may be contemplating borrowing money for a property or other investment purposes is to be prepared to answer some hard questions during the application process.

Having a well-defined loan exit strategy has become a much more important part of the lending process for older Australians.

 

 

Tony Kaye
Personal Finance Writer
15 September 2020
vanguardinvestments.com.au

 

 

Some fireworks and a great Advent Calendar to help you celebrate. On behalf of all our staff we wish our clients and their families a Merry Christmas, a Happy New Year and a great holiday period.

 

         

Our annual Advent Calendar. 

Come back each day and click on the next date for another inspirational quote or poem from some of the greatest writers and poets.

(Please click on the image to open the Advent Calendar and then click on a date)

 

 

 

Public interest in financial advice rose significantly in 2020, with consumers focusing their online searches on super topics as the government launched its COVID-19 early access scheme, according to new data from fund manager Allan Gray.

 

         

New research from the investment manager revealed that online searches related to financial advice increased by 18 per cent year-on-year in 2020, while media articles relating to advice increased by 61 per cent from 2019 to 2020.

Average monthly searches for “financial advice” increased from 12,100 in 2019 to 14,800 in 2020, according to the data, which was compiled by digital agency Kamber on behalf of Allan Gray.

Super was the most popular topic relating to advice, with seven of the 10 most popular articles relating to super. Many themes related to the government’s early access scheme, including ASIC action around unlicensed advice being given by real estate agents relating to the scheme, as well as the impacts of withdrawing super early.

The topic of unlicensed advice also rated more than 12,000 mentions on Twitter over the course of the year, driven by ASIC’s real estate action as well as Liberal MP Tim Wilson’s comments encouraging consumers to withdraw their super.

Other popular topics on Google relating to advice that were searched regularly in 2020 included ethics, conflicts of interest, strategy and retirement. Searches for each of these terms increased by more than 5,000 per cent year-on-year.

“It appears the pandemic caused us to pay closer attention to matters related to the preservation of our finances, now and into the future,” Allan Gray Australia chief operating officer JD de Lange said. 

“Superannuation was a topic focused on by publishers and readers alike as Australians engaged with and talked about the impacts and risks of the government’s early access scheme.”

Mr de Lange noted that while improper conduct in advice had remained a popular topic among consumers, most of the articles engaged with related to unlicensed advice given by real estate agents.

“Other articles about which generated substantial engagement included one describing the compound future impact of withdrawing $20,000 from superannuation today, and another mentioning that 500,000 Australians 30 years or younger had dipped into their superannuation,” he said.

 

 

Reporter
03 February 2021
smsfadviser.com

 

 

As Australian businesses implement work from home arrangements as part of their business contingency plans, managers need to consider how to accommodate telecommuting arrangements without sacrificing productivity and team dynamics, says one recruitment firm.

 

           

According to Robert Half Australia director Nicole Gorton, modern workplaces must allow for flexible working arrangements and uphold a high standard of professionalism and productivity regardless of where the team is situated.

“Although implementing telecommuting may prove more challenging for organisations that have not previously supported remote working options, it is a necessary consideration to ensure business are able to uphold productive workflows, clear communication and positive working culture regardless of external forces,” she said.

In order to assist businesses to establish a framework for successful telecommuting, specialised recruiter Robert Half has prepared five work-from-home management tips:

1. Establish regular catch-up meetings

Communication is central to any working relationship, Ms Gorton said.

“Setting aside time for regular communication is a powerful way to work together – it’s also a faster way to address issues than typing emails on the fly. Moreover, biweekly status calls and regular feedback allow telecommuters know that out of sight is not out of mind,” she argued.

“A regular Skype meeting or phone call can help the team to connect, discuss the progress of projects, share new developments and resolve any issues that could potentially arise. The start of group meetings is also a good time to acknowledge birthdays and encourage people to share personal updates, which in turn helps to uphold staff morale.”

2. Set clear expectations

When it comes to quality and deliverables, Ms Gorton continued, there “should be no difference” between the work an employee performs remotely or when that person is present in the company's office.

“Set equal standards for on-site and off-site professionals in areas such as client service, deadlines, office hours, and response times for emails and phone calls,” she said.

3. Choose the right tech tools

In a virtual environment, technology is everyone’s communication lifeline, she said.

“Slack, Google Hangouts and Skype for Business are some of the platforms employees can use to reach out to colleagues and employers throughout the day. File-hosting services like Dropbox, Google Drive or an in-house system also foster virtual collaboration and information sharing in real time,” Ms Gorton said.

4. Keep virtual team members in the loop

As opposed to remote working, Ms Gorton mused, unscheduled meetings and brainstorming sessions as well as impromptu moments of team bonding can often occur in office working arrangements.

“Managers can do much to help telecommuters and other remote workers feel like part of the team by encouraging virtual discussion boards or video meetings to conduct spur-of-the-moment conversations,” she said.

5. Don’t overlook the needs of on-site workers

“Employees who don’t have the option to telecommute — or may simply prefer working at the office — may miss out on some of the same conveniences of their telecommuting colleagues. For those who are working from the office, consider easing the office dress code, allowing flexible scheduling or offering commuter benefits like subsidised parking or transit passes for those workers,” Ms Gorton concluded.

“To make telecommuting work well for the workforce, employers need to make sure that remote team members never feel left out. Likewise, don’t overlook the need for in-office employees to maintain a better balance between their professional and personal lives and to work in a more relaxed environment.”

 

 

Jerome Doraisamy
wellnessdaily.com.au

 

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