Cover that works when you no longer can

It’s bad enough to have an accident or become sick and find yourself without an income, facing hefty medical bills. It’s even worse if you are not insured. And yet by Financial Services Council estimates, some 95 per cent of Australian households are underinsured.

Of course insurance isn’t just about life and death. What if you were to become incapacitated, for example? That’s where total and permanent disability (TPD) insurance is important.


What is TPD?

Depending on your specific policy, TPD pays out when you are unable to work in either your own or any occupation for which you are suited by training, education or experience. The policy can deliver a lump sum to help pay off your debts, provide the money for medical costs, and/or to invest so you have a future income stream.
You need to check what illnesses or injuries are included in the TPD policy as each one will be different. Policies may cover the impact from stroke, heart disease, cancer, motor vehicle accidents, musculoskeletal disorders, amputations and loss of eyesight, as well as mental illness which comes in many forms and affects many age groups.
And TPD differs from income protection insurance because you need to be permanently disabled to receive a payout.

Working for you

Generally, TPD is bundled with term life insurance but in some cases it can be taken as a stand-alone policy. This is particularly useful if you are single with no need to leave money to a beneficiary on your death but still want funds should you no longer be able to work.
On the latest available figures, one in every 2,022 people who have a TPD insurance policy made a claim over the period 2005-09. Add to that number those Australians who don’t have cover in place and the number affected by no longer being able to work is significant. Clearly it makes sense to incorporate TPD insurance into your risk management strategy.

Building a stronger future

Many people take out TPD insurance through their superannuation as the premiums are tax deductible. This means you can get more cover for your money than paying out of your post-tax income. But there may be issues when it comes to getting money out of the fund, which is why it is good to get advice.
This advice is important because not all TPD policies are the same. The first decision is whether your policy will pay out if you cannot perform your “own” occupation or if you cannot perform “any” occupation, although some policies do offer a combination.

This difference is significant. “Own” occupation is more specific than “any”, invariably costs more, and may only be available for professionals. Say you are a heart surgeon and lose a hand; clearly you can no longer operate. But perhaps you had previously lectured a job to which you could return. If your policy is worded “own” then you could still make a TPD claim; if your policy is worded “any”, then you might miss out as you can still work as a lecturer.

But while “own” appears to be a more favourable definition, it can lead to problems if you take your TPD policy through your superannuation. The law which governs superannuation funds restricts immediate payment to those claims meeting the “any” occupation definition, which could mean TPD proceeds remain in the fund until you meet a condition of release such as retiring on reaching preservation age (55). This may be an argument for holding some TPD insurance outside super.

Supporting all the family

Unlike income protection insurance, you don’t just have to be in the workforce to take out TPD so it is particularly useful for homemakers. After all, if you could no longer look after your family, your spouse might have to leave work or else employ somebody to take over your role. A TPD payout could cover these costs.
If you want to know which TPD insurance cover is best for you and whether you should hold it within or outside super, please contact us to arrange a time to discuss TPD and other insurance options with you.

Can you afford your dream retirement?

Planning your dream retirement can be an exciting time. The chance to travel overseas or around Australia without having to rush back to work, time to pursue new hobbies, learn a language or spend time with the grandkids. The possibilities are endless, but what will it cost?

Working out how much you will need to live the dream, and what you can afford will come down to a variety of factors. These include whether you own your home, the value of your superannuation and other investments, the return you earn on those investments and your spending patterns. You may also have a younger spouse who will be dependent on income from your investments after you die.

And that’s the big unknown, because none of us know how long we will live.

Plan for a long life

Today’s 65-year-olds can expect to live to an average age of 84.6 years for men and 87.3 for women, or roughly 20 and 22 years respectively in retirement. That’s a long time, and it’s only an average. Half will live longer than that, many into their 90s.i

The challenge is to ensure your cash lasts the distance, however long that may be. You may retire at age 65 but your money needs to keep working to produce the returns you need to live out your days in the style to which you have become accustomed.

A good way to begin thinking about your retirement needs and working out a budget is to visit the ASFA Retirement Standard, where you will find detailed budgets for different households and living standards.ii The budgets are updated quarterly and assume people own their own home.

Adding up the costs

As at June 2018, the ASFA Retirement Standard calculated that singles aged around age 65 would need $27,425 a year to live a modest lifestyle while couples would need $39,442. A comfortable lifestyle would cost $42,953 for singles and $60,604 for couples. The comfortable budget allows for higher spending on things such as health, insurances, home improvements, clothing, eating out, entertainment and travel.

To put this in perspective, the full age pension is currently $23,823.80 a year for singles and $35,916.40 for couples.iii As you can see, this does not stretch to ASFA’s modest budget, let alone a comfortable lifestyle, especially for pensioners who are paying rent or still paying off a mortgage on top of other expenses.

Of course, everyone’s income needs and lifestyle will be different. Some people may need to spend more on their health, while a contented gardener and homebody may need less money than a keen global traveller with a season ticket to opera, theatre or football.

It’s also important to recognise that your spending patterns are likely to change in predictable ways over the course of your retirement, determined by your health and mobility.

The three stages of retirement

Most people go through three phases of retirement. The timing of each phase will be different for everyone, but the sequence is the same.

  • The active years. Most Australians currently retire by age 65, although there is a growing trend to maintain some connection to the workforce on a part-time basis. Either way, in your 60s and 70s you finally have the flexibility to travel, spend time with the grandkids and pursue other interests. Expenditure is likely to be high, especially if overseas travel is high on your bucket list. You may also want to help your adult children buy their first home.
  • Slowing down. At some point the joints get a little creaky and niggling health problems may emerge. As your mobility and activity decline so does your spending. Travel is closer to home, you may do some voluntary work and begin to live a little more frugally. Spending on health may increase and many will consider downsizing their home.
  • The frail years. Most of us hope to remain in our own homes, but many will spend our final years in residential aged care. This may be due to increased frailty, a sudden medical event or cognitive decline. Whatever the reason, spending on health and aged care are likely to increase significantly during this phase. While government subsidies may reduce the out-of-pocket costs, having savings will increase your options and access to high quality care in your own home or an aged card facility.

Seek professional help

Australians are living longer, healthier lives which means many of us can expect to enjoy almost as many years in retirement as we did in the workforce. And that requires careful financial planning.

Before you can set financial targets and investment objectives, you need to work out what your dream retirement might cost.

If you would like help to make your retirement dream a reality, give us a call.



Avoiding the holiday debt hangover

We’re coming up to the festive season and for all its fun and frivolity, it’s also a time when we loosen the purse strings to accommodate the excess. 

We all know there’s nothing worse than starting the new year with unpaid debt. Making a solid plan for your silly season spend can make a big difference and will help you avoid a holiday debt hangover.

Psychology of the frenzy

The Christmas frenzy is pretty powerful. Even the biggest Scrooges in our midst can succumb. And it’s not hard to see why. We are bombarded with marketing from all corners at this time of year leading us to make purchases we normally wouldn’t without really giving them much thought. This can all be rather fun in the moment but can result in anxiety come January, when the credit card bill is due.

One way to manage this pressure to spend is to be aware of the psychological concepts marketers employ to turn a sale. Scarcity theory is a big one.i Creating the perception that an item is limited in some way is a great way to close a deal. And Christmas provides a line in the sand that few can resist.

There’s also the fact that the brain produces dopamine when it anticipates reward rather than upon receiving the reward itself.ii The hype and anticipation around Christmas provides a dopamine hit making it hard to resist the sensory overload of the decorations and carols when you hit the shops.

Remind yourself what it’s really about

The best way to counter this marketing frenzy is to remind yourself what Christmas is really about for you and your family. For most of us it’s reconnecting with our loved ones, sharing a meal, and finding some way to give back. This doesn’t have to be material in nature. There are plenty of ways to show someone you care that don’t involve expensive purchases. Giving someone your time, or lending them an ear, can often be so much more valuable.

Now’s also the time to have the chat about Christmas values with your children. Kids are particularly susceptible to the holiday hype. And if you want to maintain your budget and avoid the sulks come Christmas morning, setting some boundaries around what they can expect gift-wise can be helpful (Santa may have some limitations on what he can carry).

Avoid unnecessary debt accrual

The average Australian credit card holder spent $3342 on plastic in December last year.iii Worryingly, many were unable to pay it back for months, often accruing unnecessary interest. Credit cards can be handy if used correctly. But you need to ensure you have the cashflow to meet your repayments. Having a holiday season budget will help here.

Another trend to be aware of is Afterpay. A bit like layby except you get the product immediately, for many it is a form of forced budgeting, but for others it can lead to making purchases they can’t afford, and the late repayment fees can really add up.

Cut the cloth accordingly

It’s important to remember everyone has different means and expectations around the festive season. There’s no point trying to keep up with the Joneses if it’s going to put a dampener on the rest of your summer. If, on the other hand, you’re one of the lucky ones who has the ways and means to live large at Christmas, remember not everyone does.

We call it the silly season for a reason. And there’s no harm in spending a bit more in December in the name of fun and family. We all have our limits however, and knowing yours could help you avoid a holiday hangover in the New Year.

Avoiding post-Christmas debt

  • Make a list (check it twice!)
  • Set a budget and stick to it
  • Shop around for the best deals
  • Watch the use of credit cards and Afterpay



FIRED up for financial independence

Millennials are often accused of living for the present and wasting their money on smashed avocado. So it may come as a surprise that younger Australians are at the vanguard of a growing movement committed to the old-fashioned virtues of thrift and saving, but with a modern twist. 

Whereas the mantra of the Baby Boomers in the 1960s was ‘turn on, tune in, drop out’, their adult children also want to leave the rat race, but they want to do it with a substantial nest egg to allow them to pursue their dream lifestyle. The new mantra is ‘Financial Independence, Retire Early’, or FIRE for short.

The FIRE Brigade

The fundamentals of the movement come down to three lifestyle changes – living frugally, increasing income and investing the surplus – that they believe will help them achieve FIRE.

The godmother of the FIRE movement is Vicki Robin, the author of Your Money or Your Life. Robin suggested to her readers that they consider the ‘hours of life energy’ a purchase entailed. For example, a person earning $60,000 a year who is contemplating buying a $30,000 car should ask themselves whether owning the vehicle is a reasonable trade-off for six months of their life.

Robin’s book came out during the pre-GFC consumption frenzy and failed to have much impact. However, over the last decade or so, increasing numbers of individuals and couples in their twenties and thirties have embraced its core message about stepping off the consumerist treadmill.

FIRE blogs, websites and books are largely devoted to money-saving tips such as trade your car for a bike, be content with fewer, cheaper items of clothing and forget about eating smashed avocado on toast at cafes. FIRE enthusiasts are also highly motivated to increase their income by working smarter, studying or starting a side business. When it comes to investing surplus income, they are also actively engaged with a preference for income-producing assets such as property and bonds and dividend paying stocks.

Fuelling the FIRE

It’s not clear what has drawn so many Millennials to the idea of achieving financial independence earlier in life than their parents. It’s possible that the GFC had the same kind of impact on them as the Great Depression had on their grandparents. It’s also conceivable Millennials have less interest in flaunting status symbols than preceding generations. Or it could simply be the case that Millennials value freedom and autonomy and want to escape the rat race asap.

Being Millennials, technology is central to spreading the FIRE message. The favoured online hangout of Australian FIRE fans appears to be the Reddit, sub fiaustralia, which has 8,400 subscribers. There are even Australian FIRE celebrities, such as ‘Aussie Firebug’. While remaining anonymous, Firebug has revealed he’s in his mid-twenties and determined to achieve financial independence by no later than his mid-thirties. He defines this as: “Having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses.”

While its adherents skew towards the young, people of any age can embrace the FIRE philosophy. Many older Australians with modest super balances are doing much the same things as FIRE devotees, albeit out of the fear of having to keep working past retirement age rather than the hope of quitting their job in their thirties.

A timeless approach

Despite its recent arrival, the FIRE philosophy is essentially a modern makeover of some timeless financial wisdom. Work hard, spend less than you earn and invest the surplus in assets that will grow your wealth and produce income when you retire.

It could be argued that 26 years without a recession and access to easy credit has made many Australians too relaxed about living within their means. If that’s the case, the FIRE movement could be the spark we all need.

If you’re interested in building wealth to enjoy a financially independent future, give us a call.


How to make retirement less taxing

Planning your retirement isn’t just about what you are going to do once you stop work. It’s also about planning the actual process to make the most of your accumulated wealth. This includes tax planning. After all, the less tax you pay, the more you can spend on the things that matter most to you in retirement.

To begin with, you might want to consider the month in which you retire. If it’s a retirement brought on by redundancy, there could be a healthy lump sum with accumulated long service leave or holiday leave. Waiting until the anniversary of your employment date may make a difference to your payout as the formula is based on the number of complete years. Whether or not you are retiring due to redundancy, waiting until the start of the new financial year may reduce your tax liability.

Genuine redundancy payments are tax free up to a limit based on your number of years of service. It’s a flat dollar amount plus an amount for each complete year of service. Any amount above this tax-free sum is treated as an Employment Termination Payment (ETP) and is taxed depending upon your age and the components that make up your payment. Golden handshakes are taxed as ETPs.i

Employment Termination Payment Tax treatment

Component Tax treatment*
Tax free Tax free
Taxable component (under age 55 during the income year payment is received) – 31.5% up to concessionally taxed ETP cap
– 46.5% on balance
Taxable component (at or over age 55 during the income year payment is received) – 16.5% up to concessionally taxed ETP cap
– 46.5% on balance

*Includes Medicare levy of 1.5 percent.

Consider taking a holiday

Holiday pay is also an area to consider. It may be worth your while to stay in employment and take your holidays immediately before you retire. That way you can still be accumulating holiday leave while you are taking the holiday and you will also be entitled to superannuation guarantee contributions! All this is lost if you take your leave as a lump sum payment.

Some companies offer approved early retirement schemes to encourage certain groups to retire early. Like genuine redundancy, these payments are tax free up to a limit based on the number of complete years the employee has worked for the employer. Any amount above the tax-free limit is treated as an ETP.ii

Selling a business

If you are selling your practice or business, you may benefit from the small business capital gains tax (CGT) concessions. Provided you have net assets of less than $6 million and a turnover of less than $2 million, you may qualify as a small business. If you have owned your business asset for more than 15 years, then it is CGT-free. If you are under 55 then the capital gain up to a lifetime limit of $500,000 must be rolled over into your super to benefit from the retirement concession. This is not the case if you are aged 55 or over.

Regardless, you should consider putting the funds from the sale (the proceeds under the 15-year exemption and the capital gain under the retirement concession) into your super as this “contribution” is carved out from the new rules which reduce the non-concessional contributions caps.

It’s worth noting that while the maximum you can roll over into pension phase is $1.6 million, there is no limit to the amount to which the balance can grow through capital growth and returns.

Any excess above the $1.6 million can remain in the taxable accumulation phase. While you will pay a maximum of 15 per cent tax on earnings and 10 per cent on capital gains in the accumulation phase, this may still be less than you would pay outside the super environment.

Age at retirement

The age you retire is also significant. While money in the pension phase of super is tax free, income payments are also tax free once you have turned 60. So it may make sense to hold off drawing down your super until you have reached that age.

If you are at or over the preservation age (55 if you were born before July 1960) but under 60, then all your concessional contributions to super and fund earnings are taxable. However, the first $195,000 is tax free when taken as a lump sum. If you opt for an income stream, then the taxable amount is taxed at your marginal tax rate but you will be eligible for a 15 per cent tax offset which could reduce your tax payable.

Your non-concessional contributions to super – those that were made with after-tax money – are, and remain, tax free.

Of course, it’s likely that you will also have money invested outside super. If you are aged 65 years or more, then the seniors and pensioners tax offset can see you earn $28,974 each as a couple a year before you will pay any tax. That’s $57,948 a couple. The amount for a single is $32,279.iii

Retirement is for the rest of your life, so it’s worth taking time to plan ahead. Call us if you would like to discuss how you can make the most of your retirement nest egg.



iii ‘No tax in retirement because you SAPTO’,Super Guide 9 November 2016,

How to avoid unwanted ATO attention

Nobody wants to attract unwanted scrutiny from the ATO. Tax audits can be stressful and potentially costly. They are also increasingly well targeted, now that the ATO’s data matching capabilities are making it easier to pick up discrepancies. The best way to avoid an audit is to know how to stay out of trouble in the first place.

Whether it’s not declaring foreign or business income, claiming too much for work-related deductions, or not paying your employees’ superannuation, some activities are likely to attract the tax man’s interest.

Here are some simple steps you can take to reduce the likelihood of the ATO taking a closer look at your personal or small business return.

Declare all your income

For individuals, it’s important that you include all your taxable income in your return. Ultimately, the responsibility for including all your income rests with you, so ensure you report everything as the Tax Office will use a wide variety of information sources to cross check.

Common mistakes are not including capital gains you received when selling shares or property or forgetting income from overseas sources such as a business, rental property or shares.

When it comes to tax deductions, the ATO is particularly interested in your work related expenses. If your deduction claims are unusually high compared to other people in similar industries, the ATO will want to know more. A good tip is to check out the ATO’s guides to deductions for specific industries.i

Take care with property investments

Tax deductions claimed on your rental property are another red flag for the ATO, so it’s important to follow the rules.

Ensure you understand the difference between claims for depreciation and capital works, and only claim expenses for periods when the property is rented, or genuinely available to tenants. And don’t forget you can no longer claim travel expenses for inspecting your property or undertaking maintenance.

The ATO is also interested in any noncommercial rental income received from a holiday home, so if you let your property at a discounted rate to relatives or friends, you need to limit the amount of deductions you claim to avoid problems.ii

If you have a loan for an investment property and are claiming for the cost of interest on the loan, you need to split your deduction into private and business purposes.

Watch your business reporting

When it comes to small business, the ATO looks for enterprises that incorrectly or under report their sales (both cash and electronic payments) or fail to register, so ensure you keep good business records and lodge accurate business activity statements.

Another warning signal for the ATO is businesses that report outside the normal small business benchmarks for their industry.iii These benchmarks are helpful for comparing your business’s financial performance against similar businesses, but they also provide the ATO with a useful tool for comparing tax payments and deductions claimed by businesses across the industry.

As more customers pay electronically, the ATO is also increasingly interested in cash-only businesses which it views as more likely to be avoiding tax. If your business operates and advertises as being ‘cash-only’, or does not accept electronic payments, you will need to keep detailed records of your takings and payments, as the ATO will be extremely interested in your tax returns.

Pay your staff correctly

If your business employs staff, ensure you are deducting Pay As You Go (PAYG) withholding from their wages and regularly forwarding it to the ATO. Making regular Superannuation Guarantee (SG) contributions to your employees’ super funds is also important if you want to avoid ATO scrutiny.

Not paying the correct amount of Fringe Benefits Tax or incorrectly accessing FBT concessions are also red flags, so ensure you are complying with the rules.iv

If you are registered for Goods and Services Tax (GST), ensure you are actively carrying on a business or you may find yourself talking to an ATO auditor.v

The key to ensuring your tax return is correct is to get professional help. We can help you to maximise your tax return, while ensuring that it is correct and compliant. Deductions-you-can-claim/Deductions-for-specific-industriesand- occupations

ii IT2167/NAT/ATO/00001&PiT=99991231235958


iv groups/what-you-should-know/transparency/whatattracts- our-attention/?anchor=Fringebenefitstax&anchor=Fri ngebenefitstax#Fringebenefitstax,-super-funds—charities/ applying-for-an-abn/abn-entitlement/#Whatcarryingonanenter prisemeans

Benefits of a super long engagement

Superannuation is a long-term financial relationship. It begins with our first job, grows during our working life and hopefully supports us through our old age.

Throughout your super journey you will experience the ups and downs of bull and bear markets so it’s important to keep your eye on the long term.

The earlier you get to know your super and nurture it with additional contributions along the way, the more secure your later years will be.

Like all relationships, the more effort you put into understanding what makes super tick, the more you will get out of it.

Your employer is required to make Superannuation Guarantee (SG) contributions into your account of at least 9.5 per cent of your before-tax income. If you are self-employed you are responsible for making your own voluntary contributions, but these are tax-deductible.

Check your account

The first step is to check how much money you have in super and whether you have accounts you’ve forgotten about.

You can search for lost super and consolidate all your money into one fund if you have multiple accounts by registering with the ATO’s online services.i Having a single fund will avoid paying multiple sets of fees and insurance premiums.

The next step is to check what return you are earning on your money, how it is invested and how much you are paying in fees.

If you don’t nominate a super fund or investment option, your SG money is invested in the ‘Balanced’ or default option nominated by your employer. Balanced options typically have 60-75 per cent of their money invested in growth assets such as shares, with the remainder in bonds and cash.

Over the past 10 years, $100,000 invested in the median balanced option would have nearly doubled to $193,887, but there was a wide range of performance (see the graph below). The best performing balanced option returned $214,464 over the same period while the worst returned $156,590.ii

The difference between the best and worst performing funds could fund several overseas trips when you retire, so it’s worth checking how your fund’s returns and fees compare with others. You can switch funds if you are not happy, but it’s never wise to do so based on one year’s disappointing return. Super is a long-term investment so get in the habit of looking at your fund’s performance over five years or more and comparing its returns with similar products.


State your preferences

Default options are designed for the average member, but you are not necessarily average. Younger people can generally afford to take a little more risk than people who are close to retirement because they have time to recover from market downturns. So think about your tolerance for risk, taking into account your age, and see what investment options your super fund offers.

As you grow in confidence and have more money to invest you may want the control and flexibility that come with running your own self-managed super fund.

Also check whether you have insurance in your super. A recent report by the Australian Securities and Investments Commission (ASIC) found that almost one quarter of fund members don’t know they have insurance cover, potentially missing out on payouts they are entitled to.iii

Insurances may include Total and Permanent Disability (TPD) and Income Protection which you can access if you are unable to work due to illness or injury, and Death cover which goes to your beneficiaries if you die.

Building your nest egg

Once you understand how super works you can take your relationship to the next level by adding more of your own money. Small amounts added now can make a big difference when you retire.

You can build your super in several ways:

    • Pre-tax contributions of up to $25,000 a year (including SG amounts), either from a salary sacrifice arrangement with your employer or as a personal tax-deductible contribution. This is likely to be of benefit if your marginal tax rate is higher than the super tax rate of 15 per cent.
    • After-tax contributions from your take home pay. If you are a low-income earner the government may match 50c in every dollar you add to super up to a maximum of $500 a year.
    • If you are 65 and considering downsizing your home, you may be able to contribute up to $300,000 of the proceeds into your super.

You could also share the love by adding to your partner’s super. This is a good way to reduce the long-term financial impact of one partner taking time out of the workforce to care for children. You can split up to 85 per cent of your pre-tax contributions with your partner. Or you can make an after-tax contribution and, if your partner earns less than $40,000, you may be eligible for a tax offset on the first $3,000 you put in their super.

Before you make additional contributions, adjust your insurance, or alter your investment strategy, it’s important to assess your overall financial situation, objectives and needs. Better still, make an appointment to discuss how you can build a positive long-term relationship with your super.



Young invincibles – the importance of insurance

When you are young, healthy and just starting your working life the last thing on your mind is life insurance. In your 20s and 30s your financial focus is more likely to be on saving for a car, holidays, a home or the birth of a child. But failing to protect the lifestyle you are creating could have a devastating financial effect.

Like many Australians young and old, it’s possible that you already have insurance cover in your superannuation fund without realising it. But that could be about to change.

Under new legislation proposed with this year’s Budget, large numbers of super fund members are likely to lose their insurance cover. The legislation is still before the Senate but if the changes go ahead from July 1, 2019, those aged under 25 or with low super balances will be required to ‘opt-in’.

When to consider insurance

The move to ‘opt-in’ insurance for young members has been generally welcomed, as some may have more insurance than they need at their age and stage of life. But there are concerns that a significant minority could be left underinsured.

No matter how fit and healthy you are, accidents happen – on our roads, while playing sport or on the job. Insurance may be a necessity if you work in a hazardous occupation such as construction. Major illness and chronic health problems can also strike in your 20s and 30s.

While Australians are marrying and establishing families later than previous generations, there are still plenty of people under 25 with a partner, and/or children, who would be financially disadvantaged if they were to die or be unable to work due to accident or illness.

Even though Millennials may not have dependents yet, or the financial commitments their parents have, spending on rent, car loans, credit cards and daily expenses all require a steady income.

So why the changes?

The Government’s Protecting Your Super package is designed to protect members’ savings from being eaten up by excess fees and insurance premiums.

Most super funds currently make automatic deductions from members’ contributions to pay for life insurance. This is known as “opt-out”, as the onus is on members to cancel the insurance if they don’t want or need it.

Typically, there are three types of insurance offered to members:

    • Death Cover or Life Insurance – part of the benefit your beneficiaries receive when you die.
    • Total and Permanent Disability (TPD) – pays you a benefit if you become seriously disabled and are unlikely to ever work again.
    • Income Protection Insurance – pays you an income stream for a specified period if you can’t work due to temporary disability or illness.

Under the new rules, funds will only offer insurance on an ‘opt-in’ basis for new members who are under 25 years old, members with balances below $6,000 or those who have an account that has been inactive for 13 months.

Good news and bad

Despite the good intentions of the new rules, the bad news is that insurance premiums are likely to increase for most members who retain cover. This is because under the present system younger, healthier members cross-subsidise insurance claims by older members.

According to Price Warner, premiums are likely to increase by about 11 per cent on average.i Premium rates will vary considerably from fund to fund, depending on the benefit design, demographics of the membership, and changes to terms and conditions to deal with switching cover on and off.

The good news is that there is time to consider your options. Funds are required to notify members with low balance or inactive accounts and outline what steps they can take if they have insurance and want to continue their cover.

To find out what insurance cover, if any, you may already have in super, contact your fund or speak to us. We can help you assess your insurance needs and whether you should consider opting-in or taking cover outside super.

i ‘Federal Budget average premium increases’, Rice Warner, 31 July 2018,

Taking philanthropy to the next level

Australians are generous when it comes to opening their wallet for a good cause. But you may have reached a point in life where you want to make a more substantial contribution with control over how your money is spent. You may also wish to get your children involved to instill shared values.

While it hasn’t received much publicity, increasing numbers of Australians are using charitable trusts to give in a more planned and tax-effective way.

The turning point came in 2001, when the Howard Government introduced the Private Ancillary Fund (PAF) with the aim of encouraging more individual and corporate philanthropy. PAFs are charitable trusts that can be used by an individual or family for strategic long-term giving.

Since then, the number of PAFs and the amount of money contained in them has grown steadily. In early 2018, there were 1600 PAFs, housing $10 billion and distributing $500 million a year.i

Claiming a tax benefit

According to Philanthropy Australia, in the 2015-2016 financial year 14.9 million Australians collectively donated $12.5 billion to charities and not-for-profits (NFPs).ii

Though donations to accredited charities and not-for-profits are tax deductible, the figures indicate two-thirds of taxpayers don’t bother to claim. It’s well worth keeping track of receipts so you can claim when you think that, for example, a single donation of $5000 to a charity or NFP in a financial year will reduce your taxable income by $5000.

A core principle of tax-deductible philanthropy is that the giver shouldn’t stand to receive any material benefit. For example, if you buy tickets in a raffle run by a charity you can’t claim a tax deduction on the cost of the tickets. In order to receive a tax deduction for your donation, the recipient must also be registered as a deductible gift recipient (DGR).

There are many ways to be charitable but the impact on your tax bill will vary depending on how you go about it.

A more sophisticated approach

These days, people who want to take philanthropy to the next level with an ongoing, tax-effective approach have a variety of trusts to choose from.

The Private Ancillary Fund

PAFs are the best-known of the new breed of trusts. The money placed in a PAF is tax-deductible and assets in the fund aren’t subject to income or capital gains tax (but do qualify for franking credits).

Let’s say a dentist sets up a PAF and gifts half his $500,000 annual income into the fund. The dentist’s taxable income now drops to $250,000. What’s more, no tax is paid on the returns made on the $250,000 that has been invested in the PAF. The dentist must distribute a minimum of five per cent of their PAF’s net asset value annually, or a minimum of $11,000. After meeting that requirement, the dentist has a relatively free hand about which charities to support and how much they receive.

The Public Ancillary Fund (PuAF)

PuAFs work the same way as PAFs but operate on a larger scale. For example, 10 dentists may set up a PuAF to finance the building of dental hospitals in Africa. As well as gifting part of their incomes, the 10 dentists can (in fact, are obliged to) invite the general public to make tax-deductible donations to their PuAF.

Testamentary Trust (or Will Trust)

These are used by individuals wanting to leave money in their will to charity. The two advantages of this type of trust are that the trustee(s) can distribute the income generated by the trust in a way that minimises the tax burden of beneficiaries, and the assets in the trust can’t be accessed by parties such as creditors.

Few people give to get a tax deduction but by supporting good causes in a tax-effective manner you can achieve a bigger bang for your philanthropic buck. If you would like to know more about tax-effective giving, give us a call.


Taxing issues for SMSFs

The re-think of Australia’s taxation system has superannuation firmly in its sights. That’s making investors nervous, especially those with their own self-managed super fund.

The recent white paper on tax, which was prepared for the government and designed to start a conversation, has sparked debate about what some see as the disproportionate benefits of super to wealthier investors.

While SMSFs are not being directly targeted, they tend to be more active contributors to super. Consequently, they stand to be more adversely affected by any winding back of current tax arrangements.

So what is the current tax regime and what areas might be subject to change?

Super contributions tax

Individuals can make voluntary contributions to super, in addition to their employer’s super guarantee payments, on a concessional or non-concessional basis.

Concessional contributions are paid from pre-tax income and taxed at the special rate of 15 per cent rather than your marginal tax rate. As a result, if you are an employee making salary sacrifice contributions or a self-employed person making personal contributions you can reduce your tax bill.

If you are on the top tax rate of 49 per cent (including the Medicare levy and deficit levy), then you will receive a 34 per cent benefit by making concessional contributions.

However, if you earn more than $300,000 a year then you pay 30 per cent including an additional 15 per cent tax on your contributions.

If your income is at the other end of the scale then the benefit is minimal or even negative as it is likely you are not paying any tax at all. Until 2016-17, if you earn less than $37,000 a year and you or your employer make concessional contributions, you may be eligible for a refund of contributions tax of up to $500 paid directly by the federal government. This is called the low income super contribution.

Concessional contributions for the year ending June 30, 2015 are capped at $30,000 a year if you were aged 48 or under on June 30, 2014 and $35,000 for if you were 49 or over.

Non-concessional contributions are made from post-tax income so there is no contribution tax, but there are still limits. You can contribute $180,000 a year or, if you were aged 64 and under at July 1, 2014, $540,000 over a three-year rolling period.

Super earnings tax

In the accumulation phase, earnings on investments inside complying super funds are taxed at a maximum of 15 per cent. Tax credits from dividend imputation can reduce this tax liability further, while capital gains from the sale of assets held for more than 12 months are discounted to an effective tax rate of 10 per cent.

But super is most generous in the pension phase. Once you hit 60 both income on investments and withdrawals are tax free no matter how much money you have in super.

What’s on the table?

The public discussion around super tax concessions has aired a number of possible reforms.

There is talk of lifting the tax rate on concessional contributions for more Australians. Since the tax is taken from your super account, it won’t hit your current hip pocket but it will impact on your balance when you retire.

Lifetime concessional contributions could also be capped. Once your super balance was sufficient to give you a comfortable lifestyle in retirement, then you would revert to your normal marginal tax rate for contributions.

Another option is to tax the withdrawals of people with balances above a certain figure.

Dividend imputation has also come under scrutiny as the return of cash to those on low (or no) tax rates has a negative impact on government coffers.

Time to prepare

Of course all these options are just up for discussion. Depending on what changes, if any, are introduced, there is the possibility that existing arrangements may be grandfathered.

If you would like to discuss your retirement income strategy both inside and outside super, give us a call.