The Pros and Cons of the FHSSS

The idea of saving for your first home deposit can be a daunting task these days. Houses are so expensive, that many people are opting out of owning and sticking to renting. According to the 2016 census, there are almost as many Australians renting now as there are who own their properties – and that divide is only growing wider.

So, what exactly is the FHSSS and how could it help you obtain the Aussie dream of owning your own home?

In order to address the affordability issue, the federal government introduced the ‘First Home Super Saver Scheme’ in July 2017. Basically, the scheme allows you to make super contributions that are later accessible to put toward your first home deposit. The low tax nature of a super account is what makes this scheme attractive.

Sounds simple, right?

While the FHSSS is perfectly suited to some, there is a lot of fine print that may detract from its immediate appeal. If you are saving for your first home it’s definitely worth mentioning to your financial advisor, but in the meantime here’s our list of major pros and cons of the FHSSS:

Pros:

  • You may save up to $30,000 under the scheme, or $60,000 if purchasing with another person, with added interest from the ATO.
  • You may make concessional (before tax) contributions under a salary sacrifice agreement with your employer. These will still be taxed, however the tax rate is generally lower than the rate normally paid on taxable income.
  • You may access your money saved under the FHSSS, even if you intend to purchase a property with someone who is not a first home owner.
  • Withdrawals made under the FHSSS will not be used in any ATO income tests. Meaning, it will not affect any debt or social security payments.

Cons:

  • Super contributions must be voluntary, meaning you cannot withdraw any super paid by your employer under the scheme.
  • You may not contribute more than $15,000 per year under the scheme.
  • You must not have previously owned a home, and intend to live in your property immediately after purchase.
  • Tax is still payable upon withdrawal, though with a 30% tax offset.
  • If you change your mind about purchasing your home, you will not be able to withdraw any savings under the FHSSS. Rather, they will stay in your super account until retirement.

 

Sources: www.abs.gov.au, www.ato.gov.au, www.superguide.com.au

Get Engaged With Your Superannuation

With the end of the financial year looming, tension is always on the rise. Is your paper work up to date? Have you made an appointment with your accountant? Do they have to play those end of financial year ads on a loop?

With so much to think about, and so many unwelcome reminders, stress can make us overlook some important details.

We’re all guilty of it – you receive your superannuation statement in the mail, consider it for one moment, then toss it out without a second glance. You’ve got a tax return to organise, why would you take time out to examine that extra piece of paperwork?

Your super matters now.

Whether you’re going on 50, or have scarcely scraped your 20’s, if you’ve got a job, chances are you’ll have one or more superannuation funds already earning money. Making sure your super reaches it’s full earning potential, however, is where your financial advisor comes in.

Superannuation isn’t something you should be thinking about when it’s almost time to retire, if you put in the work now, you’ll be reaping the rewards later in life. It is what will differentiate your lifestyle from your neighbours, friends and colleagues – even with the same income, within the same work industry.

Many individuals who have their superannuation professionally assessed, find that they’re under-utilising, overpaying or simply have no need for their product.

So next year, when you receive that little piece of paper, think twice before adding it to the junk mail pile. A little extra labour now, will mean a whole lot of reward later on. Call your financial advisor and make sure your super is working as hard as you are.

Don’t be complacent, get engaged with your super!

Is it the right super fund for you?

So, you’ve rolled your super funds together. Even the one from that weird job you had back in 1993. That’s great. We’ve covered why having one super fund is so much more beneficial than multiple ones. But if you’ve already rolled your super over…or even if you haven’t, you may still be wondering…

Is it “the one” for you?

Let’s remember that super is one of the most tax-effective ways to save for retirement. And of course we want you to be co-contributing/salary sacrificing to make the most of your pre-tax dollars.

Nothing can compare to individualised advice, which is why we suggest booking in for a consultation. But, short of a face-to-face, here are the top 5 factors that influence which is the right super fund for you.

#1 Insurance

What are the insurance covers associated with the different super funds you’re considering? Are there any limits, restrictions or charges associated with the cover? There are benefits to paying insurance via your super rather than after-tax income to it’s worth investigating the insurance options.

#2 Fees

You need to compare the administrative costs associated with superannuation. While this isn’t the only factor to base your switch, you do want to be mindful about to what extend fees are eating away your superannuation figure. Take note of exit fees, entry fees and advisor service fees. (Or skip the time-consuming research and get us to do the grunt work).

#3 Choice

What is the level of investment choice within your super fund? Some funds have default portfolios, but it’s worth investigating how much freedom you have to construct your own portfolio.

#4 Service

Service goes beyond how friendly the customer service team are on the phone. Think about what your super fund actually provides you in terms of performance data, details of transactions and fees and education services.

#5 Performance

At the end of the day, or in your case — your working life — it’s the performance of the super fund that matters most. But don’t be too hasty. You should consider at least 5 years of performance data before making a switch. And as always, this is something your financial planner can help you with.

Care to cut the legwork when choosing the best super for you?

Call us today on (03) 5227 7777.

Federal Budget 2018

On Tuesday 8 May 2018, the Australian Government handed down its Federal Budget. It’s important that you take the time to understand what the Budget proposals mean – and how they might affect you personally.

To help break down the key proposals I’ve included a Federal Budget overview that explains some of the key outcomes and what they mean to you.

Supporting you through the changes

Depending on your circumstances, the Budget proposals could have an impact on your financial situation and your financial plans for the future. If you have any concerns, or would like to discuss your financial strategy, please don’t hesitate to get in touch on (03) 5227 7777 or contact@financialaspects.com.au to arrange an appointment.

On Tuesday 8 May, the government handed down its Budget for the 2018–19 year, which is likely to be the final Budget before the next federal election. It’s therefore hardly surprising that the Coalition promised to deliver a suite of tax cuts for individuals at various income levels, as well as a range of incentives to support older Australians.
Here are some of the key Budget announcements. Note that each of these proposals will only become law if it is passed by Parliament.

Tax changes

Seven-year personal income tax plan

The government’s three-point plan for personal income tax reform will be delivered over the next seven years as follows.

Stage 1 from 2018–19:

  • A new Low and Middle Income Tax Offset (LMITO) worth up to $530 p.a. will be introduced, in addition to the current Low Income Tax Offset (LITO).
  • The top threshold for the 32.5% personal income tax bracket will increase from $87,000 to $90,000.

Stage 2 from 2022–23:

  • The top threshold for the 19% personal income tax bracket will increase from $37,000 to $41,000.
  • The top threshold for the 32.5% personal income tax bracket will increase from $90,000 to $120,000.
  • The LITO will increase from $445 to $645.

Stage 3 from 2024–25:

  • The 37% personal income tax bracket will be removed.
  • The top threshold for the 32.5% personal income tax bracket will increase from $120,000 to $200,000.

What this could mean for you

If you’re eligible for the LMITO, it will be available each year from the 2018–19 financial year until the 2021–22 financial year. You’ll receive the payment as a lump sum after lodging your tax return.

For more information about the proposed changes to tax thresholds and offsets, speak to your accountant.

Maintaining the Medicare Levy at 2%

In the 2017–18 Federal Budget, an increase in the Medicare Levy rate from 2% to 2.5% of taxable income was announced, which was legislated to take effect on 1 July 2019. However, the government has confirmed it will not proceed with this initiative and the Medicare Levy will remain at 2%.

What this could mean for you

It was expected that the increased Medicare Levy would also cause increases to other tax rates linked to the top personal tax rate, including fringe benefits tax. As the Medicare Levy is remaining unchanged, these consequential increases won’t take effect.

Increasing the Medicare Levy’s low-income thresholds

As of 1 July 2018, the government will increase the Medicare Levy’s low-income thresholds for singles, families, seniors and pensioners for the 2017–18 income year.

What this could mean for you

You won’t be charged the Medicare Levy if your taxable income is below the following thresholds:

 2016-172017-18
Taxpayers entitled to seniors and pensioner tax offset
Individual$34,244$34,758
Married or sole parent$47,670$48,385
For each dependent child or student, add:$3,356$3,406
All other taxpayers
Individual$21,655$21,980
Couple/sole parent (family income)$36,541$37,089

Extending accelerated depreciation for small businesses

From 1 July 2018, the government will extend the existing $20,000 instant asset write-off by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million.

Assets valued at $20,000 or more that cannot be immediately deducted can still be placed into the small business simplified depreciation pool. These assets can be depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).

What this could mean for you

Under this measure, small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 that are installed and ready for use before 30 June 2019.

Superannuation adjustments

A work test exemption for retirees

From 1 July 2019, people aged 65–74 who have a total superannuation balance of under $300,000 will be able to make voluntary contributions for 12 months from the end of the financial year when they last satisfied the work test.

What this could mean for you

This initiative will make it easier to keep contributing to super after you’ve left the workforce. For example, if you retire on 30 March 2020 and your super balance is below $300,000 on 30 June at the end of the year, you’ll still be able to make voluntary contributions during the 2020–21 financial year. The usual concessional and non-concessional contribution caps will still apply.

Increasing the maximum Self-Managed Super Fund (SMSF) membership from 4 to 6 members

From 1 July 2019, the Superannuation Industry (Supervision) Act will be amended to allow the number of members in new and existing SMSFs to increase from 4 to 6.
This change will also apply to Small APRA funds (funds regulated by Australian Prudential Regulation Authority).

What this could mean for you

This initiative will provide more flexibility for larger families to be members of a single SMSF, but may also increase the risk of disputes among members. It’s also important to consider the need for:

  • multiple investment strategies to cater for members with different risk profiles
  • a corporate trustee, to avoid the risk of additional trustee penalties and to address the increased risk of fund membership changes.

Introducing a three-year audit cycle for some SMSFs

From 1 July 2019, SMSFs will have the option to move from an annual to a three-yearly audit cycle if they have:

  • three consecutive years of clear audit reports, and
  • lodged the fund’s annual returns in a timely manner.

What this could mean for you

If your SMSF has a good compliance and lodgement record, this initiative could make it cheaper to operate your SMSF, as it will remove the need for an annual audit. If a compliance breach does occur, however, it might not be detected for up to three years, potentially making it more difficult and expensive to rectify.

Supporting older Australians

New means testing rules for certain lifetime income streams

From 1 July 2019, new age pension means testing rules will be introduced for pooled lifetime income streams. Those purchased before 1 July 2019 will be grandfathered.
At this stage, however, it’s unclear exactly which income streams will meet the definition of ‘pooled lifetime income streams’.

What this could mean for you

This initiative is designed to help you avoid the risk of outliving your income. Under the new rules:

  • 60% of all income payments will be assessed as income, and
  • 60% of the purchase price will be assessed as an asset until you turn 84 (or a minimum of 5 years) and then 30% of the purchase price will be assessed as an asset for the rest of your life.

Expanding the Pension Work Bonus

The Pension Work Bonus currently allows age and service pension recipients to earn up to $250 per fortnight without it impacting their pension entitlements. Under the proposed changes, this amount will increase to $300 per fortnight from 1 July 2019. The scheme will also be extended to pensioners who are self-employed.

Pensioners will still be able to accrue unused amounts of the bonus, so that their future earnings will also be exempt from the pension income test. The maximum accrual amount will increase from $6,500 to $7,800 a year.

What this could mean for you

The Pension Work Bonus is provided in addition to the income-free area of your pension. So if you’re a single person with no other income source apart from your pension and wages, you could earn up to $468 a fortnight from working and still be entitled to the maximum age pension.

Extending eligibility for the Pension Loan Scheme

Under the current rules, pensioners can top up their age pension to the maximum rate if they:

  • receive a part pension under the income or assets test, or
  • don’t receive an age pension under either the income or assets test (but not both).

This allows pensioners to take advantage of a voluntary reverse mortgage scheme, under which Centrelink treats the top-up payments as a loan that is secured by the pensioner’s property. This loan must be repaid when the pensioner either sells the property or passes away.

From 1 July 2019, the government proposes to expand the scheme by making all age pensioners eligible and increasing the maximum top-up payments from 100% to 150% of the maximum age pension rate.

What this could mean for you

If you’re receiving the maximum age pension, you could be eligible for annual top-up pension payments of up to $11,799 for singles or $17,877 for couples. However, some restrictions may apply, depending on factors such as:

  • your age
  • whether you are single or a member of a couple
  • the value of your home
  • the expected duration of these top-up payments.

Increasing the availability of home care packages

Since last year’s Federal Budget announcement, the government has provided an additional 6,000 high-level home care packages. From 1 July 2018, the government will supplement this with a further 14,000 new packages over the next four years.

What this could mean for you

As at 31 December 2017, there were over 100,000 people in the national queue waiting for either their first home care package or an interim package, with 54.4% waiting for a high-level (Level 4) package. If you’re in this situation, the initiative could help you access a home care package sooner.

Additional funding for residential aged care and short-term restorative care

During the 2018–19 financial year, the government will provide $60 million to fund additional places in residential aged care and short-term restorative care. A further $82.5 million will support mental health services for residents of aged care facilities.

What this could mean for you

As part of this initiative, the government will simplify the aged care assessment forms available via the My Aged Care website. This will make it easier to access the aged care services that you or your loved ones need.

 

Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at colonialfirststate.com.au or by calling us on 13 13 36. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.

 

Less Worry: More Super

A recent report on the Future of Retirement conducted by HSBC found two interesting points about Australians:

  1. We worry more about our super than any other nation, yet…
  2. We take less action to plan for our financial futures.

As a Certified Financial Planner, naturally, I’m concerned about this finding. It’s also a far cry from our international reputation as ‘laid back’ Aussies. It seems this ‘she’ll be right, mate’ type of attitude may mask our deeper financial fears that lie just below the surface.

While our employers pay our super for our working lives, it’s when we head into retirement that super kicks into reverse. The more super we have accrued means the longer it’ll last to support a comfortable lifestyle. Our super will determine how many holidays we can enjoy in our later years. How well we can spend our kids’ inheritance or how well we easefully and quickly we can relax into retirement.

Super is worth taking seriously.

If you’re like the majority of Australians who worry about super, yet aren’t doing anything to alleviate that worry, why is that?

Perhaps super feels beyond your control. Perhaps it feels too far away. Perhaps you don’t know where to start or feel overwhelmed by conflicting points of view.

The truth is: you have more power than you think.

No matter what you earn; whether you’re an employee or self-employed business owner, you can create a powerful plan that will yield the best super results for your situation.
Imagine feeling secure, in control and at peace with regard to your super. Most of our worries are about the future, which means planning for a comfortable future, will help you sleep easy at night.

To help you plan for retirement – effectively – seek professional support. Here at Financial Aspects, we help people manage their superannuation and plan for retirement everyday. Call us to arrange a consultation at a time that suits your schedule.

Got more than one super fund? Read this.

Do you find it hard to keep track of your super funds? If you’ve changed employers and chances are that if you’re an adult you’ve had more than one job so far, you may not even know which funds you have. So if anyone in your life — or yourself — has more than one superannuation fund, it’s time to consolidate. And it doesn’t have to be hard or scary.

Why consolidate super?

Remember that the more superannuation you have stocked up; the more holidays you can have in retirement; the earlier you can retire! So what are the benefits of having only one superannuation fund? With one fund you’ll save on fees, reduce your paperwork (always a plus!) and it’ll be easier to track your path to financial freedom.

Which fund should you choose?

Before you choose a fund: do your research. Don’t just choose the fund with the highest balance as you may have a smaller fund that is better suited to you. Other things to consider include whether your chosen fund allows employer contribution and insurance.

Which factors should you weight up?

We help clients rollover superannuation into one fund, so if you’re after personalised advice; please call us to arrange a consultation. In general, the questions you should ask to determine which super fund you’ll choose are:

  • What are the fees? Which fund offers the lowest fees?
  • How diverse are your investment options?
  • Are there other benefits? Which benefits will make a difference to your life?
  • What’s the performance like for the fund? How do they stack up?
  • What’s the insurance associated with the fund?
  • What kind of service will you get?

Are you avoiding it?

The fear of paperwork can put people off making changes. Even if these changes will ultimately be for your greater good. Consolidating can actually be quite easy. Which is another reason why some people procrastinate. We tend to avoid those things that aren’t urgent, even if it’s important.

While consolidating your super probably isn’t on your urgent to-do list, it is important. It will make a difference to your future. So don’t hesitate. We’re here to support you make an impactful decision and roll the funds into one beautiful account that will blossom.