Superannuation, it’s a bit of mine field when it comes to knowing how to maximise your super contributions. But don’t worry, we’ll break it down for you:

Maximise concessional superannuation contributions

Concessional superannuation contributions for the 2014/15 financial year are limited to $30,000. However, if you were aged 49 or older on 1 July 2014, a transitional limit of $35,000 applies giving you the opportunity to maximise your concessional contributions before the end of the current financial year.

Claiming a tax deduction for personal superannuation contributions

If you’re intending to claim a tax deduction for personal superannuation contributions, a “Notice of Intention to Claim a Tax Deduction” (s.290-170 Notice) must be lodged with your superannuation fund before any one of the following events occurs, whichever is first:

–    lodgement of the income tax return for the financial year in which the tax deduction is being claimed
–    commencing a pension
–    withdrawing superannuation benefits
–    rolling over your superannuation to another superannuation fund

Maximise non-concessional contributions

Non-concessional contributions are personal contributions made from after-tax income. For the 2014/15 financial year, non-concessional contributions are limited to a maximum of $180,000. If aged 64 or under on 1 July 2014, you’re able to bring forward up to three years’ worth of contributions (up to $540,000) provided you haven’t done this previously.

Making large non-concessional contributions is a big decision and advice from a financial planner is recommended before any contribution is made.

Salary sacrificed contributions

Foregoing part of your salary in favour of having additional concessional contributions made to super by an employer may deliver tax advantages.

Existing salary sacrifice arrangements should be reviewed on a regular basis, at least annually. Reviewing a salary sacrifice arrangement before the end of the financial year and amending for the following financial year represents good planning.

Your superannuation contributions at 65

If you’re aged 65-74, your superannuation fund is only able to accept contributions if you have been gainfully employed or self-employed for a minimum period of 40 hours, worked  over not more than 30 consecutive days, in the financial year in which the contribution is being made.

If you’re approaching 65 and not working, consider making superannuation contributions before your 65th birthday.

Government co-contributions for low income earners

If you earn less than $49,488 a year and make a non-concessional contribution to superannuation you may be eligible to receive a Government contribution of up to an additional $500. The actual amount, and eligibility for the co-contribution, depends on a number of factors including the proportion of total income derived from employment, age and taxable income.

Spouse contributions

Where you make a non-concessional contribution to superannuation for your spouse, you may be entitled to receive a tax offset of up to $540 if your spouse has an income of less than $10,800. The tax offset reduces if your spouse’s income is between $10,800 and $13,800. You will not receive a tax offset if your spouse’s income exceeds $13,800. The maximum offset available is 18% of the contribution made, subject to a maximum offset of $540.

Spouse contribution splitting

Superannuation laws allow for a person to split their concessional contributions with an eligible spouse to build up retirement savings for the other. Up to 85% of concessional contributions made in the 2013/14 financial year may be split with a spouse prior to 1 July 2015. Splitting superannuation contributions allows for couples to balance their superannuation savings between partners.

Life insurance held in super

On 1 July 2014, restrictions came into effect in relation to the types of insurance held through superannuation.

The new restrictions affect insurance policies that provide for the payment for an insured event that is aligned to a superannuation condition of release. In essence, the only new policies that can be taken out through superannuation after 1 July 2014 are those covering the following events:

–    death
–    terminal illness
–    total and permanent incapacity – any occupation
–    temporary incapacity

The new restrictions mean that you will no longer be able to take out a policy with your superannuation fund that covers trauma insurance, total and permanent disablement – any occupation and income protection insurance that provides ancillary (such as rehabilitation) benefits in addition to income replacement. Policies taken out prior to 1 July 2014 will not be affected by these new restrictions.

Are you turning 55 soon? Well congratulations! They say life starts at 55….or was that 40?? Either way, you get to have a party, and get lots of presents. But one present that you won’t be able to get is your superannuation.

For Australians to be able to access their superannuation, they must have met a condition of release. Generally speaking, a condition of release is usually around retirement or long term illness or injury. Part of the retirement condition of release is a requirement to have reached ‘Preservation Age’ which is set by the Government and is based on your birthday.

From 1 July 2015, Australians turning 55 will no longer be able to access their superannuation if retired, but rather will have to wait another 12 months to be able to do so. The preservation age will progressively increase in the coming years and you should be aware of them to know when your preservation age is.

What does this mean for you? Well, if you were planning on retiring early, you need to ensure that you have access to alternative funds or assets to provide an income to cover your expenses before you are legally allowed to access your superannuation funds. While retiring early may not be everyone’s plan, you should also take this into consideration as the preservation age is only increasing and you may find that when you get closer to retirement, you might want to look at your options and if you don’t have sufficient alternative options, you may have to continue to work until you can access your superannuation.

This shouldn’t be confused with the Age Pension age which is the age that you are entitled to receive Government benefits if you meet other qualifying conditions. The Financial Services Council has called for further increase to the preservation age to bring it in line with Age Pension age, as they are worried that some Australians will choose to retire early and utilise their superannuation for the years before Age Pension kicks in, and then rely on the Government to fund the remainder of your life.

If you’re worried about what the increasing preservation age will mean to your retirement, you should contact JBS for a chat.

Joe Hockey’s 2nd Federal Budget proposed some important changes, particular for families, retirees, and small business owners and looks to be aimed squarely at growing the economy.   There are always winners and losers and this year is no different.

Please view the video to watch a brief summary of the Budget proposals.

Budget Summary

The following provides a summary of the main proposals announced in the 2015 Budget:

–   The government has expressed their confidence in the importance of the superannuation system and announced there will be no changes
–   Pension assets test changes will benefit lower net worth retirees, however, higher net worth retirees may receive reduced entitlements
–   Many lower income young families will benefit from greater child care subsidies
–   Families choosing not to vaccinate their children will miss out on child care subsidies and family benefits
–   It will no longer be possible to claim both the full Government and employer provided parental leave payments
–   The company tax rate for eligible small businesses will be reduced by 1.5%
–   Unincorporated small businesses will receive a 5% tax discount to a maximum of $1,000
–   Small businesses will be able to fully deduct capital expenses of up to $20,000 per year

Please Note: The measures outlined in the Federal Budget are proposals only and may or may not be made law.

Click here to read the full breakdown

If you have any questions about these changes and what this could mean for you, please contact the JBS Team to discuss.

For those with a Self-Managed Super Fund (SMSF) you are required to prepare an Investment Strategy, when you initially set up your SMSF and you need to review it on a regular basis, with the industry standard being at least annually.  You may also consider reviewing your investment strategy when there are changes in circumstances, for example a member entering pension phase, or a member making a large contribution into their fund.  The main reason that an SMSF is required to have an investment strategy is to allow for the members personal circumstances to be regularly reviewed as well as, to account for any changes in the markets and economies.

The investment strategy is a way to prompt you as trustees to review your investment portfolio and ensure that it is still current given any changes that may have occurred in your personal circumstances or the markets and economies.  It also helps you review your objectives, strategies and asset allocation to ensure that they’re still current and may even prompt you to make changes where needed.

When drafting an investment strategy there are a few key considerations that you should consider.

Liquidity Needs:

Each member’s personal circumstances and life-stages are an important factor with regards to the SMSF investment strategy.  If each member is 15 years out of retirement, then you may consider investing for growth and riding out any volatility.  However, if one or more members is approaching retirement or is in retirement, then you may need to use a more cautious approach to ensure that you can afford ongoing pension payments, but you may need to adopt some level of risk to help your super benefits last in retirement.

Risk Tolerance:

Each member may or may not have different tolerances to risk.  Some may like or feel comfortable taking on additional risk in the hope of achieving greater returns, however others may feel more comfortable only taking on a small amount of risk and may feel better preserving their capital by investing in mainly cash and fixed interest.  Either way, when reviewing your investment strategy and portfolio for your SMSF, you need to take into account each members risk tolerance.

Asset allocation:

The asset allocation of your SMSF portfolio needs to also be reviewed, especially alongside your risk tolerance, as you don’t want to be too overweight or too underweight in an asset class.  However in some circumstances you may be comfortable with being over or underweight in an asset class.  You may also review your asset allocation based on what’s happening in the markets or economies.  For example, with the cash rate at all time lows, you may wish to seek returns and income from other asset classes, e.g. investing more in shares or international equity.

Insurance Needs of the Members:

As trustees of your SMSF it is now a requirement that you must consider insurance as part of your Investment Strategy.  It is not a requirement for each member to actually hold insurance but it needs to be clearly outlined that insurance has been considered for each member.

Here at JBS we can help you prepare your Investment Strategy and can even help review your current Investment Strategy.

JBS Financial Strategists is excited to announce the launch of JBS Robson. JBS Robson can provide a whole range of new of services including taxation, accounting, auditing and business solutions. Why would you need to go anywhere else – with JBS Robson working alongside JBS Financial Strategists in the South Melbourne office, we are now your complete ‘one stop shop’ for all your financial requirements.

Michael Robson has over 20 years experience in the finance industry, specialising in construction for the past 7 years. Michael can assist with Business and Individual Income Tax, Goods and Services Tax, Fringe Benefit Tax (FBT) along with many other services.

Below is a short video on services that JBS Robson can assist with:

Want to know more about JBS Robson? Jump on our brand new website, like our Facebook page, follow us on Google + and connect with Michael Robson our Accountant on LinkedIn.

If you have any questions about these new services available please speak to the team at JBS.

On 20^th March 2015, the age pension for a single person increased by $5.90 per fortnight increasing the total payment to $860.20 per fortnight. The rate for each member of a couple increased by $4.40 per fortnight to a combined rate of $1,296.80 per fortnight for a couple.

The Seniors Supplement which is paid as part of the Commonwealth Seniors Health Card, increased by $7.80 per annum to $1,262 per annum, for a single person and by $5.20 per annum each for members of a couple, increasing their combined annual payment to $1,898.

In the 2014 Budget, the Government proposed stopping the payment of the Seniors Supplement for Commonwealth Seniors Health Card holders. The amending legislation is still before the Senate.

Deeming rates, which apply for the purposes of calculating income derived from financial investments were reduced from 20^th March. The new deeming rates are 1.75% up to the threshold, and 3.25% for financial investments over the threshold. The threshold for a single person is $48,000, and $79,600 for a couple, combined.

The Department of Human Services made another important comment in relation to grandfathering of account based pensions for income testing purposes.

Where a person was in receipt of Government income support, such as an age pension before 1 January 2015 and they also had an account based pension in place before that date, the account based pension would continue to be assessed under the former (and often more favourable) income test rules. If the account based pension ceases for any reason, or the income support benefit ceases (even temporarily) the account based pension will then be subject to deeming.

The Department has reiterated that grandfathering will be lost where the benefit recipient receives no benefit payment of a “whole pay period”. This means people who have grandfathered account based pensions will need to exercise caution if planning on taking on casual work, even if only for a short period. If a fortnight’s income from casual work results in the loss of the age pension for just one fortnightly pay period, then the grandfathering of the account based pension is lost.

If you have any questions about these changes and how they could affect a Government benefit you are receiving, please contact the team at JBS.

Personal insurance policies may have a large effect on our cash flow. One factor which dictates how much you pay is whether your insurance premiums are structured on a stepped or level premium. If you’ve ever held any form of personal insurance then you may have come across these terms, however have you ever wondered what the differences is between the two? When your personal insurance policy is initially set up, you have the option to choose whether to have the premiums set on a stepped or level structure.

 
Having your premiums on a stepped structure would generally mean you pay lower premiums initially compared to a level structure.  Stepped premiums increase annually with the added risk of a potential claim.  The downside however is that over time your stepped premiums will increase each year as you get older. This method may not be desirable to some as the premiums may become too expensive to sustain over time.  In certain circumstance, stepped premiums are more favourable.

 
For example a 25 year old male may not be able to afford insurance premiums on a level structure, however in several years’ time he may be earning a larger income and thus be able to afford level premiums. So in the meantime he can put in place his personal insurance policy on stepped premiums to ensure he’s covered and once can he can afford to pay level premiums, he can change the premium structure.

 
Or you may have to take out an additional loan for a short period of time (say 5 years) and you can then ensure you have sufficient insurance to cover this debt for just the 5 years and cancel the policy once the debt is repaid.

 
A level premium is the second option you have and it calculates the risk over the life of the policy (assuming it is held to the expiry of the policy – age 65 and above depending on your policy) and spreads the cost of this risk.  Although initially more expensive to set up, insurance policies on a level structure will not increase over time (excluding any CPI increase).  A disadvantage to having level premiums is it may have a larger impact on your cash flow initially, however over time the savings will catch up.

 
The following table is an example of a 35 year old male with $500,000 of death insurance.

*Please note premiums are shown in months. The above table is only an example, for personalised quotes please contact your adviser.

 
As shown above, stepped premiums are initially cheaper, however over time becomes much more expensive.  In the above example the insured person from age 35 to 60, will have paid $14,002 more under stepped premiums compare to a level structure.

 
Stepped and Level premiums are only one factor to consider when reviewing your insurance needs tailored to your needs. So if you’re interested to know more, please contact JBS for further details and advice.

During times of share market volatility it’s easy to get caught up in headlines aimed to scare us from investing.

An article in the Age on 9th March 2015 had the headline ‘$24 Billion wiped off the ASX’,  can be a little daunting when expressed this way.  It went on to discuss how the share market fell 1.3% that day.  What it failed to mention was the share market was up over 10% in the previous 2 months, which equated to many more ‘Billions’ added to people’s wealth.

Investing into share markets or other growth assets (such as property) is not a short-term prospect.  You need to take a long-term view of at least 5 – 7 years.  Focusing on just the year ahead, or the daily movements of share markets, you can easily get caught up in the hype and make irrational decisions.  However, when we look at share markets over a longer term, we can start to see the benefits.

Constructed correctly, a share portfolio can bring rewards when a longer time frame is assessed.  The following graph outlines the annual returns from the Australian share market (including dividends) over the last 20 years.

As outlined in the graph, there have been 3 negative years and 17 positive years since 1995.  Over the last 20 years, 85% of years were positive, yet it is those negative years that get the most attention.

The average return has been +9.64% per year or 192% (since 1995).  That includes a period where markets were heavily negative during the Global Financial Crisis.

It is important that you receive adequate advice when constructing share portfolios, as your time frame, investment risk profile, your goals, and the underlying investments need to be analysed.  Investing is an area JBS are passionate about as we see the benefits it can provide our clients.

This passion leads us to produce a weekly newsletter on how share markets are performing.  If you are interested in shares and want to increase your knowledge we ask you to subscribe to our weekly Monday Markets newsletter here.

In the late 80s interest rates peaked at 17% which made home ownership out of reach for most people and hard to cover for those that had them. We move forward to today and the Reserve Bank Cash Rate is at a very low 2.25% with the last rate rise occurring in November 2010.

While this isn’t great news if you’re thinking of investing into bank deposits or fixed interest investments as returns are low, it does open up opportunity for people to review their mortgage, other debts and financial planning affairs in general.

Some of the main considerations could be:

–   Obtaining a low rate mortgage that still provides the benefits that you need or utilise. If you refinance to the lowest rate loan you could end up paying a higher interest rate on your credit card and may not be an appropriate strategy or beneficial for you

 
–   There are lenders outside the major 4 banks. While many of us complain about the big 4 making massive profits, we also like their security. You can consider options outside the banks and look at credit unions, lending societies, and other lending institutions.

 
–   Reducing your mortgage interest rate and continuing to make the same level of repayments could see you reducing the length of your loan which means interest savings. But, are there restrictions on how much you can make in additional payments? Do you have a redraw facility in case you need to access the funds?

 
–   Credit card interest rates are high and can be up to 20% so consolidating debt may be a way to go, especially if you can reduce that down to say a mortgage rate of around 5%. But beware because if you don’t make additional payments to cover the consolidated funds, you are extending the term of this debt and could end up paying higher interest over the life of the debt.

 
–   Margin lending becomes more appealing with lower interest rates however any strategy that includes debt, should also have contingency plans. Can you still afford it if interest rates increased by as much as 3%? Do you have relevant insurances in place to ensure that can cover your obligations if you can’t work?

 
–   Returns on cash and fixed interest investments become lower and shares become more appealing however you need to consider the risks involved. Chasing returns rather than investing into a diversified portfolio could see a decline in your balance outside what you are comfortable with.

 
–   Be careful with your spending, with additional funds in our pocket due to lower interest rates, it is tempting to spend more. Maybe consider making additional repayments of debt, additional savings or additional super contributions to ensure that the additional money available in your cashflow isn’t blown.

While you may think that you’re personal situation hasn’t changed, the world around you is. Interest rate rise and fall, economic markets changes and legislation is amended, which is why you should be regularly reviewing your financial position. If you haven’t had a review of your financial plan lately, make sure you give the team at JBS a call to make an appointment.

The Commonwealth Seniors Health Card (CSHC) provides concessional benefits to self-funded retirees who aren’t entitled to the Government Age Pension.

Some of the benefits provided include:
•    Concession rates for medication (Pharmaceutical Benefits Scheme)
•    An additional Seniors Energy Supplement payment
•    Other concessions provided by State, territory and local governments as well as private businesses, in the areas of health, transport, education and recreation

To be eligible for CSHC a person must meet the following criteria:
•    Have reached the age of Pension entitlement
•    Not qualify for pension payments from the Department of Human Services or Department of Veterans Affairs
•    Meet residency requirements
•    Meet the income test which is based on your Adjustable Taxable Income

The income test is as follows:

Changes from January 1st 2015

Any person, who commenced a superannuation income stream from the 1st January 2015, will have their Account Based Pension deemed as income. This means your account based pension income is now subject to a rate of income (deeming rate) for calculation purposes rather than the previous calculation of reducing the gross annual pension payments by the relevant deductible amount which is actually a return of the original capital. This could make it more difficult to meet the income test.

The deeming rates are as follows:

Anyone who has commenced a super income stream prior to the 1st January 2015 will be exempt from the new rules as long as they became holders of the CSHC before 1st January 2015 and continue to be eligible in the future.

Example 1
John is 66 years old, married, and a holder of the CSHC before the 1st January 2015.  John and his wife have a combined annual income of $70,000 per year.  John also has $600,000 in a tax free account based pension, which he commenced before the 1st January 2015 and draws $45,000 per annum.  Because of the grandfathering rules, John’s Account Based Pension will not be subject to deeming rules as it was commenced before the 1st January 2015.  The pension is subject to the old rules, giving him a deductible amount of $33,784 on the $45,000 he’s withdrawing from his Account Based Pension.  This means that only $11,216 will be assessed as income.  This amount together with John and his partner’s income of $70,000 brings their total annual income to $81,216, meaning he will be eligible for the CSHC.

Example 2
Cath is 66 years old, married and a holder of the CSHC before the 1st January 2015.  Cath and her partner have a combined income of $70,000 per annum.  On the 2nd February 2015, Cath decides to move her account based pension, which is worth $600,000 to a new product.  As a result, Cath loses the grandfathering provisions and her new account based pension will be deemed to earn $19,806 worth of income.  Together with Cath and her partner’s taxable income of $70,000, brings their combined total income to $89,806.  In this scenario, Cath would fail the income test, as their combined income is over $82,400 meaning Cath will not be eligible for the CSHC.

This is why it is very important to seek advice before considering re-booting an existing pension. The benefits that you currently receive from holding the Commonwealth Seniors Health Card must be considered as part of the assessment in the strategy to re-commence any income stream to ensure that the strategy is right for you.

If you wish to discuss how these changes may affect you, please contact the JBS team.