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Managing longevity risk and your superannuation

Longevity risk is a common and important factor to consider when planning for your retirement funds. Longevity risk refers to the risk of outliving your savings and arises as people enter retirement, and in most cases, with a fixed amount of money to use during their retirement years. Managing your longevity risk is important because retirees often have no idea of how long they will need their retirement funds for. Here are a few strategies to help you manage your longevity risk:

Purchase an account-based pension:

An account-based pension is a regular income stream you can buy with the money from your super after you retire and reach your preservation age. When buying an account-based pension, you can choose how much of your super funds you’d like to transfer to the pension phase, the size and frequency of your payments (within a set limit) and how you want your money to be invested through your pension.

If you were thinking of purchasing an account-based pension to begin with, now may be the time as the Government is temporarily reducing superannuation minimum drawdown rates for account-based pensions by 50%. The annual payment as a percentage of account balance currently has reduced rates between 2% and 7% (from age brackets from 55 to 95+ respectively).

Set up a lifetime annuity:

Lifetime income annuities and insurance products designed to provide income throughout your retirement. Annuities are bought from insurance companies with a lump sum of cash and in return, you can get regular income payments until you pass away or for the amount of time you’ve agreed upon.

To make sure you purchase the right annuity for your desires and circumstances, it is often wise to consult a financial adviser before making your decision or go through a reliable insurance broker. In the case that you’d like to avoid paying commission fees from an insurance broker, you can also purchase lifetime annuities from investment companies rather than a traditional insurance company.

Age pension as a safety net:

While there are a number of retirement safety net options available to retirees, age pension is the most obvious and most reliable. An age pension is a means-tested Government-backed safety net for retirees who are unable to fully provide for themselves in retirement. While a stable income stream to take note of, age pensions usually only provide their recipients with the bare minimum and hence considering some of the strategies listed above will give you more leeway with your funds and lifestyle after retirement.

Posted on 16 April '20, under Super. No Comments.

ATO introduces new working from home deduction scheme

COVID-19 is forcing many businesses to work from home, meaning that you now have to pay for expenses such as heating and lighting that were previously covered by employers.

The ATO has introduced a new ‘shortcut method,’ where you can claim additional running expenses at a rate of 80 cents for each hour you work from home as a result of COVID-19.

Deductible running expenses include:

The shortcut will apply from 1 March 2020 to 30 June 2020. A record of hours worked such as timesheets or rosters must be kept as proof. If you only undertake minimal work tasks from home such as occasionally checking emails or taking calls, then you are not eligible for the deduction. To claim the deduction, you must specify your claim with the note “COVID-hourly rate” when lodging your upcoming 2019-20 tax return.

There are two pre-existing alternative methods to claim working from home deductions that individuals may choose to use, however, they are generally more tedious:

These deductions are only eligible for the proportions of the expenses that are actually used for work purposes. For example, if you’re using your own phone to make work calls, then only the portion of the bill that was incurred due to work calls can be claimed. If the room you are working in is shared with others, you can only claim electricity expenses for the hours you were exclusively using that room for work purposes.

Expenses such as rent, mortgage and insurance cannot be claimed unless you have a permanent home office.

Posted on 16 April '20, under Tax. No Comments.

Expert advice on early superannuation access as a result of COVID-19

Under the coronavirus stimulus package released and revised by the Australian Federal Government on 22 March 2020, individuals in financial trouble due to the negative economic impacts of COVID-19 will be able to access their superannuation funds early. However, while the option is available, it is recommended that individuals only consider withdrawing from their super in the case of absolute emergencies and treat it as a last resort.

With the new rules on superannuation, workers whose incomes are reduced by at least 20% due to the COVID-19 outbreak are allowed to take $10,000 out of their super for the 2019-20 financial year and another $10,000 for 2020-21. Individuals will also not need to pay tax on any withdrawn amounts and existing welfare payments will not be affected either.

While the introduced early access to superannuation funds may be inviting for newly unemployed workers, it is important to consider whether the temporary relief is necessary and worth foregoing super funds available for long term investment. For example, even when accounting for Australia’s slowing economy in the coming years, $10,000 is predicted to be worth over $65,000 in another 30 years.

Especially for younger workers who are less likely to have access to other savings, the choice to give up future savings for current comfort is a difficult one. Experts instead are recommending Australians to apply for the other payments and benefits made available to vulnerable Australians through the coronavirus stimulus package, such as added $550 fortnightly supplements to Australians on JobSeeker payments and other welfare recipients and pensioners.

Experts also predict that the Australian Government will introduce more stimuli for increased cash flow in the Australian economy and more payments for unemployed, struggling and vulnerable Australians in the case of COVID-19 becoming more of a serious economic issue. Hence, withdrawing funds from your superannuation account should be considered a last resort and not for the sake of unnecessary temporary relief.

In addition to being allowed early access into individual super funds, superannuation minimum drawdown rates will also be temporarily reduced by 50% for account-based pensions and others similar until 2021.

The Government has also reduced the upper and lower social security deeming rates by a further 0.25 percentage points, with upper at 2.25% and lower at 0.25% which will come into effect on 1 May 2020.

Posted on 2 April '20, under Super. No Comments.

Setting up your myGovID

If you haven’t set up your myGovID yet, you need to do it before you can lodge your next business activity statement (BAS).

AUSkey, including Manage ABN Connections, will be replaced by the ATO’s myGovID and Relationship Authorisation Manager (RAM) from 27 March 2020. After this change, you will no longer be able to access government online services through an AUSkey. Device AUSkeys will be replaced by new machine credentials.

Business owners will need to set up a myGovID soon if they haven’t already done so and link it to RAM. Your myGovID is separate from your myGov account and will allow you to prove your identity online. RAM is an authorisation service that uses your myGovID to provide you with access. When linked with your myGovID, RAM will allow you to act on behalf of your business online.

Desktop and browser-based versions of myGovID will not be supported as these devices are easily accessible. To set up your myGovID, you will need an email address (that you do not share with anyone else) and a smart device that uses iOS 10 or later on Apple devices, or Android 7.0 or later (not including devices that use Android Go operating systems). You can download the myGovID app for free through the AppStore or Google Play.

Depending on what government online services you wish to access through myGovID, you will have to provide certain identity documents to authenticate your account. You can generally have a Basic or Standard identity strength. A Basic identity strength is where you provide only one or no identity documents, aside from your personal details (such as your date of birth and email address). Only some government online services will accept a Basic identity strength, such as Bankruptcy Register Search, ACMA Lodgement Portal and Debt Agreements Online.

A Standard identity strength requires two Australian identity documents, such as:
– A passport, no more than three years past its expiry date
– A driver’s license, including a learner permit
– A birth certificate
– A Medicare card.
This will allow you to access all participating government online services, including the Business Portal where you can lodge your BAS.

Posted on 2 April '20, under Tax. No Comments.

Investing in shares vs property in SMSFs

Shares and property are two popular investment options for those with a self-managed super fund (SMSF). However, they both have very different attributes and choosing the one that will achieve the best outcome for an SMSF depends on your personal goals and situation.

While the price of shares can vary drastically, property is a relatively stable asset, making it appealing to those who want more security and predictability. Property prices are also negotiable unlike shares, and you can generally borrow money at a lower rate for property purchases.

It may seem hard to find the perfect investment property, but older and undercapitalised properties can be renovated for profit. However, returns from property rentals can be dented due to factors such as land tax, utilities and rates, maintenance and tenancy vacancies.

Shares are more dynamic and volatile than property. One advantage is the accessibility of investing in shares, as you can enter the share market with a few thousand dollars – much less than what you need to invest in a property.

Maintaining a portfolio of quality shares that pay tax-effective dividends may be a good way to fund retirement. With the right portfolio allocation, shares also have the potential to provide a better, stronger income than property rentals, as long as that income is sustainable and increasing.

Property can generally be used as a wealth-creation tool, while shares can create a reliable retirement income. For those who can afford to put more money into investments, it may be a good idea to consider investing and diversifying in both. If you’re unsure about which investment option is right for you, seeking financial advice may be the best option.

Posted on 19 March '20, under Super. No Comments.

CGT exemptions have been scrapped. What does that mean for you?

Are you an Australian living or working overseas with a family home in Australia? Or you know someone who is? If so, be sure to consider the impacts of the capital gains tax (CGT) on you from 30 June 2020.

Since 1985, the exemption of Australian expatriates from the CGT tax has been available for homes which have never been rented out for more than six years at a time. However, following the scrapping of the CGT exemption under the A$581m federal government plan, Australians working overseas will have to sell their property before the 30th of June 2020 to avoid CGT and still be eligible for CGT main residence exemption.

With the removal of CGT exemption past June 2020, Australian ex-pats who own property in Australia will be required to pay CGT dating all the way back to when they first bought the property. That is, if an ex-pat was to have bought their property in 1985, they would have to pay an accumulation of their tax owing in CGT from 1985 to 2020. The only way to avoid such hefty tax payments would be to sell your property on or before the 30th of June or to re-establish Australian residency before selling the property.

Understandably, the new change will impose a sizable cost on Australian ex-pats and has come as a result of the influx of speculative foreign investors as well.

As every situation is unique, taxation planning customised to every taxpayer’s specific circumstances are advised. In order to avoid the accumulated CGT payments, Australian expats need to be aware of their financial standings and be ready to make a quick decision regarding the selling or keeping of their Australian property.

Seeking out tax advice from knowledgeable tax specialists, employing organised bookkeeping services and detailed financial statements written up by accountants in preparation for making such an important decision regarding your Australian property is heavily recommended to ensure the new CGT laws don’t cause you financial problems.

Posted on 19 March '20, under Tax. No Comments.

Becoming socially conscious of where you super invest

Whether you are a newcomer to the workforce or have been working full time for 30 years, you must have come across the concept of superannuation. Chances are, you’ve already been steadily building your retirement funds in one of the 500 Australian superannuation funds but are still unfamiliar with how exactly your super is being managed and where your super fund is investing your money in.

With the beginning of a new decade and social issues on the rise, it is time to take a more conscious stance on what you are doing with your super and what causes you are supporting through the employment of your money through your super fund.

A recent investigation into Australian super funds by the Australian Centre for Corporate Responsibility (ACCR), released in February 2020, found that 50 of the largest super funds in Australia are proxy voting against local climate-change initiatives. These organisations are instead approaching climate change from a global perspective, whilst ignoring more pressing domestic challenges to reduce carbon emissions..

The lack of support from Australian super funds for localised climate action is growing problematic, as Australia fails to address its appalling record on carbon emissions and is falling behind new-age global goals to fight against environmental degradation and climate change.

In contrast, some of Australia’s most environmentally and socially conscious super funds lack the reputation to attract long-term users. To look for more environmentally friendly Australian super funds, the Responsible Investment Association Australasia (RIAA) grades supers based on their ethical contributions and makes this information available to the public.

Instead of mindlessly joining Australian super funds that are neglecting growingly problematic domestic climate change issues, Australians need to become more conscious of our indirect actions and super investments. Rather than investing in an unethical super fund, looking into self-managed super funds may be another good option. We need to learn to take matters into our own hands and become more socially conscious of where exactly our money goes.

Posted on 28 February '20, under Super. No Comments.

What’s tax-deductible for home businesses?

Running your business from home can have great benefits, such as being able to spend more time with your family, not having to travel, and deciding your work hours. To make the most out of your home business experience, it is important to be aware of what tax deductions you can claim.

If your home is also your principal place of business and you have a designated room space for business activities, then you are considered to be running your business from home. However, if you only do some business activities from home, then you may be considered to be working from home and the following tax implications don’t apply to you.

You can claim deductions for your home business on expenses that you need to undertake work that produces income. Tax-deductible costs include:

Posted on 28 February '20, under Tax. No Comments.

You can now opt-out of super guarantee as a high income earner

If you’ve unintentionally been going over your superannuation concessional contributions cap in past years, you may not have to worry about it from now on. As of 1 January 2020, eligible individuals with multiple jobs can apply to opt-out of receiving super guarantee (SG) from some of their employers.

You may be eligible to apply if you:

Employees who are eligible can apply for the super guarantee shortfall exemption certificate when they complete the Super guarantee opt-out for high income earners with multiple employers form (NAT 75067).

When you opt-out of SG contributions, you must still receive SGC from at least one employer. If other employers agree to use the SG exemption, then they may provide an alternative remuneration package instead, as to not be disadvantaged. However, the exemption certificate:

Posted on 21 February '20, under Super. No Comments.

Taking a super pension

Once you have met your preservation age (between 55 and 60 depending on when you were born), you can choose to take a super pension. There are six main types of super pension:

The standard conditions of release for super pension withdrawals are:

The amount you withdraw can have an impact on any Age Pension entitlements you have, so be aware of these implications when deciding to withdraw an amount. You should also be aware of the transfer balance cap of $1.6 million that you’re allowed to move to an account-based pension. For super pension income streams, you generally need to transfer funds from your accumulation account to your retirement account for your pension.

Posted on 13 February '20, under Super. No Comments.

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Spouse contributions – when are you eligible for a tax offset?

Contributions made on behalf of your spouse to a complying superannuation fund or a retirement savings account (RSA) may be eligible for a tax offset.

The 2019/2020 tax rules allow you to claim an 18% tax offset on super contributions up to $3,000 on behalf of your spouse. While you are able to contribute more than $3,000, there will be no spouse contribution tax offset over this amount. The amount you can claim depends on your spouse's annual income:

  • $540 for spouse income of $37,000.
  • $360 for spouse income of $38,000.
  • $180 for spouse income of $39,000.

The tax offset may be available for individuals who meet the following eligibility requirements:

  • Your spouse's assessable income, fringe benefits amounts and employer superannuation contributions equate to under $40,000.
  • Contributions made on behalf of your spouse were not deductible to you.
  • You and your spouse were Australian residents at the time of contributions.
  • Your spouse did not have non-concessional contributions that equated to a higher amount than their non-concessional contributions cap, or they did not have a total superannuation balance of $1.6 million or more at 30 June 2018.
  • Your spouse is younger than their preservation age, or are not retired while being between 65 and their preservation age.

Under Australian superannuation law, your spouse can be either:

  • Your partner who you are married to and live with, or;
  • Your de facto partner, who you live with on a genuine domestic basis.

The spouse contributions tax offset can be claimed on your tax return.

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