Approximately $800 million+ was wagered on Melbourne Cup Day.  It is part human nature to trust in luck or a big windfall such as winning the ‘big one’ at the Melbourne Cup or the lottery, and for most people it’s just good fun.  But statistically we know this is highly unlikely to happen.  We also know that a high proportion of people will suffer a significant health event throughout their working life resulting in their income stopping.

There is a greater chance of suffering a heart attack than winning the Melbourne Cup trifecta.  In fact, the confronting news is if you buy a tattslotto ticket the day before the draw, studies show you have a greater chance of dying before the lottery is drawn than winning it.

The challenge is to make sure we take the ‘gamble’ out of things that really matter, like protecting our family in the event we become sick / injured and are unable to work to ensure we can continue to pay the mortgage and living expenses.

What are the Odds?

A lack of financial preparedness can have significant impacts down the track.  No one wants to find themselves in a situation where they can no longer support themselves financially.  It is about making your own luck rather than simply hoping for the best.

If you wish to discuss your risk protection options further, please contact one of the advisers at JBS.

From 1st January 2015, the way account based pensions are treated under the Centrelink Income Test will change, potentially reducing your entitlements to the Age Pension.

Account based pensions have generally been given favorable treatment when Centrelink assesses your eligibility for the Age Pension.  Currently, the income counted towards Centrelink’s income test from your account based pension is the pension payments you receive less a deductible amount. This usually results in a very low amount being considered income for Centrelink purposes and as a result many people with account based pensions are able to receive valuable social security support, topping up their own pension account payments to help their retirement savings last longer.

This is set to change on 1st January 2015 when new ‘deeming’ rules come into effect for account based pensions meaning they will be subject to the same ‘deeming’ rules that apply to financial investments.  All new account based pensions will be deemed as earning a certain rate of income regardless of the actual return of the investment.  The current deeming rates are as follows:

2% p.a. on investments up to $48,000 for a single ($79,600 for a couple).
3.5% p.a. on investments over $48,000 for a single (over $79,600 for a couple)

Deeming rates are currently low by historical standards.  Any increase to the deeming rates will increase the amount of income deemed to be earned from an account based pension which will potentially reduce age pension requirements further.

If you have an account based pension opened before 1st January 2015, your account will not be subject to deeming if you are receiving Centrelink income support payments immediately prior to 1st January 2015.

If you haven’t opened an account based pension and you are eligible to do so, there may be benefits in starting an account based pension and applying for Centrelink income support prior to 1st January 2015.

Not all pensioners will be affected by these changes, as some of you will be still be assessed under the Assets Test even if the deeming provisions did apply.  If you feel you may be affected by the changes please to contact our office to discuss further.

Ever wondered what a franking credit is? Well…it’s not what you get when you do a favour for your mate named Frank. (ha ha get it?) Franking credits are a useful little tool to help pay less tax or even boost up your investment returns.

What are franking credits and how do they work?
Franking credits, also known as imputation credits, are essentially credits representing tax that a company has already paid  (currently 30%) on its profits prior to a dividend being paid.

Basically franking credits stop double tax being paid on company profits as the tax paid by the company can then be passed to the shareholder.  So for example, your XYZ share that you own pays a dividend of $1.00 per share after tax. This means that they have already paid the 30%, so this $1.00 is actually $1.43 with $0.43 per share paid in tax. When you come to do your taxes, you get a credit for the $0.43 per share already paid so if your tax rate is 32.5%, you only need to pay the remaining 2.5% on the $1.00 per share dividend received.

Franking credits in superannuation
In superannuation (accumulation phase), the tax rate is 15%, compared to a company tax rate of 30%. The 15% difference in tax payable, can be refunded to your superannuation account and further enhance the return achieved from your share investments.

Example
Michael holds his super through a SMSF. He has an investment of 500 shares in ABC company which paid a dividend of $3.30 per share. This equates to a lump sum dividend payment of $1,650. With this comes $707 in franking credits (30%). As he is in accumulation phase and only paying 15% on income earnt within the fund, his SMSF is eligible to receive a refund of $353.50.

Franking credits in pension phase
The other good news is that when you are in pension phase and paying 0% tax, franking credits received by your super fund are fully refundable even without taxable income in your superannuation. This means that your super can claim back all the tax already paid by the distributing company from the ATO.

With either a superannuation or pension phase account, you need to understand the structure of your superannuation investments as bundled share purchases like through a pool super trust may not necessarily give you the same tax credits.

Example
Sally has reached age 65 and retired. She now has a pension account with a retail pension provider. Within her balance she holds 1,000 shares in XYZ company that paid a dividend of $8.70 per share. This equates to a lump sum dividend payment of $8,700. With that comes $$3,728 in franking credits (30%). As she is in pension phase and paying no tax, her pension fund is entitled to a refund of the full tax paid ($3,728) which would be repaid into the cash account of her fund and will help to cover ongoing pension payments.

Franking credits can be a great added extra in returns alongside growth and income to boost the overall return. They should most certainly be a consideration when developing an investment portfolio for your retirement funds. If you want to learn more about franking credits or direct shares, don’t hesitate to contact one of the team members at JBS.

Your children’s lives are full of great experiences and big adventures.  And as a parent, you’re there to support them every step of the way.  Most importantly, you’re there if your children ever get sick – regardless of the demands that may place on your time and your finances. No one likes to think about their children getting sick or injured but it is better to have a plan in place now to ensure you have options available to you should the unfortunate event occur.

Child Insurance can help you cover the extra financial burden of a serious illness, so you can do what ever it takes to get them healthy again.

What is Child Insurance?  Child Insurance pays a lump sum if your child suffers from a serious medical condition.  The point of Child Insurance is to provide funds to help you fund any out-of-pocket medical expenses, and allow you to take time off work to care for your child.  It is designed to get you by while caring for you child. To apply for cover your child must be aged between 2 and 18 years of age.

Conditions:  The types of conditions that Child insurance will provide funds for include cancer, blindness, brain damage, cardiomyopathy, chronic kidney failure, deafness, intensive care, loss of limbs / sight / speech, major organ transplant, meningitis, stroke, severe burns and a number of other conditions. Like all insurances, they vary between insurer and policy so you’ll need to refer to the Product Disclosure Statement of the product to know what your particular policy covers.

Cost:  Premiums for Child Insurance are inexpensive and easy to apply for.  There are no medicals or tests required and the cost can be as low as $10 per month for $50,000 of cover.

Continuation of Cover:   When your child grows into a young adult, generally Child Insurance can be converted to Trauma cover without the need for any medical tests.  This allows your child to continue being comprehensively covered in their adult years.

Sadly, many children suffer from medical conditions and accidents which are serious.  Child Insurance provides financial support should the unforeseen happen to your children and most importantly reduces the financial stress to provide choices to aid in your child’s recovery.  JBS can assist in this area if you wish to discuss in more detail.