A Super Idea

By Shane Wilson - Director DC Advisory Group

A Super Idea

Superannuation is something I am quite passionate about. This concept around investing money throughout your working life to provide for your retirement. Some people, depending on how much super they retire with, may be required to also rely on the government aged pension to meet their lifestyle needs. 

For most people, superannuation begins when you commence your working life. It was not until approximately 1983 that the government and trade unions agreed to forgo a pay increase of 3% for employees but rather have that increase placed into super. In 1992 the Keating government introduced the compulsory employer contribution scheme of which is very similar to what we know today. The superannuation concept made sense in that we were addressing Australia’s ageing population and retirement income dilemma which in time, was going to put a massive strain on the Australia economy through meeting aged pension commitments. 

According to the Association of Superannuation Funds of Australia (ASFA), superannuation assets at the end of December 2017 tipped a staggering $2.6 trillion. That amount is set to grow substantially in the years ahead due to not only organic growth but also the proposed increase in the contribution level beyond 9.5% (to increase by 0.5% each year until it reaches 12% by 2025). 

I find it interesting however, that there is a message or incentive to promote superannuation and to save for your retirement, yet the government are forever shifting the goal posts and changing laws. For me these changes often negatively influence a retirement benefit (and ultimately your retirement income) and generally disincentivises people from wanting to contribute to super. 

What do I mean? 

Some Incentives: The superannuation environment offers a concessional tax rate of 15% in accumulation phase (pre-retirement). Further, superannuation will also provide a potential tax-free income stream once retiring or in pension phase. Earnings outside super at the highest marginal tax rate is 45% plus Medicare. Superannuation is simply the best taxed structure to house your wealth leading up to and during retirement. 

Some Disincentives: The government continues to reduce annual limits for both concessional (deductible) contributions ($35,000 to $25,000) and non-concessional (non-deductible) contributions ($180,000 to $100,000) which prevents people from committing more money to super and increasing their member balances. Further, the super reforms introduced a new Transfer Balance Cap (TBC) which means that you can only ever commit a maximum of $1.6M to pension (subject to indexation). Anything over this limit will become subject to tax (earnings at 15%). If your total super balance is over the $1.6M TBC you will not be able to contribute any further to super. That means a potential ceiling on what you can get into super and also no more completely tax-free earnings within super. 

Recently we learned of a government announcement where qualifying individuals can withdraw up to $30,000 of personal super contributions (plus earnings) to help purchase their first home. Should this be allowed if you consider the long-standing sole purpose test (that funds are for the sole purpose of retirement)? Is this providing for your old age retirement? I guess that is another debate for another day. 

I still love superannuation

So, what does all this mean? I still love superannuation – my position has not changed, and this savings vehicle still carries huge benefits for all of us. I want to stress that any negative commentary should be taken with a grain of salt and we should not discount super as an integral part of any holistic financial plan. It is important to have a long-term approach to super and to saving for retirement. I want my clients to retire comfortably without having to rely on any government pension. Don’t change your mindset but rather condition yourself to adapt to change and updates to legislation. My key message if you take anything from this article would be to start saving for your retirement early because if you leave it too late and the superannuation window closes, you will lose your opportunities to get money into this great tax environment. 

It is important to note that this article is general in nature and you should seek your own independent financial advice in considering personal and specific circumstances. You should really embrace the relationship you hold with your tax professional and your financial planner. A favourite cliché of mine that you should all consider adopting is ‘failing to plan is planning to fail’. Be on top of your world. 

5 ways work is making us fat

Written by Dr Vincent Candrawinata for Wellness Daily 23 May 2018 - comments by our very own Marketing Coordinator - Candice Dolley

I received this inbox, five ways work is making you fat!  Finally a reason I am overweight, it isn't because I make bad eating choices, it is works fault.  BOOM!  Love it.  As I read Dr Vincent Candrawinata article, I realised, it is still about me and the choices I make, and not avoiding the temptations of a "free lunch".  

Dr Vincent Candrawinata writes... 

There are different reasons as to why your work causes you to pack on kilograms. Stress, lack of physical activity, free cakes and chocolate in the office, business lunches and dinners or even commuting all play a part. 

You should take a moment to really dissect your daily life to understand what aspects of your work habits need changing.

Some of the key reasons are:

Stress 

Do you know that an estimated 17.3 million people will die each year from heart disease and stroke?

This number accounts for around 30 per cent of all total deaths! Stress is one of the causes and precursors for many health conditions, including heart disease. 

Stress triggers the release of hormones that can increase appetite, which make you crave more sugary and fatty foods while at the same time, lower your metabolism. Managing your stress level is key to stop the domino effect of work-related weight gain. 

You are too busy

Poor time management could be an underlying cause of stress and unhealthy habits. When you are late, you take a taxi instead of walking. When you are late, you don't have time for breakfast, so you snack on a chocolate bar. When you are late, you have less time to prepare for a meeting which in turns gives you a tremendous amount of stress and we all know what stress can do to us!

My father always tells me that being late is expensive and now I know why, it doesn't only cost you more money, being late could actually take a toll on your health.

Lunching out with colleagues

If you pay attention to the lunch options around offices, at least three out of five options are actually unhealthy.

A study proved this by showing that the group with the most exposure to takeout joints at work was almost twice as likely to be obese in comparison to those with who were least exposed.

Sure, we can always choose a healthier option on the menu but let's be honest and realistic, would you really swap those fries with the sad looking salad in a fast food joint? And if you say yes, let me ask you this, how often do you actually do it? A key way to stop eating junk food is to stop going out to lunch with colleagues. 

Packing your own lunch helps you to eat healthy at work and it is socially acceptable to take your lunch box and sit with your co-workers who order salted egg pork ribs with fried rice. Not only will it save you on the unnecessary calorie intake, it will save you dollars and without you knowing it, it does save you time!

Stop drinking coffee and start drinking water (I read this as I head for another coffee)

In this modern lifestyle, 50 per cent of the time when we think that we are hungry is actually a sign that we are thirsty. So, before you reach for a handful of M&M's or a packet of chips, drink a glass of water first.

Staying hydrated also helps to ensure that your body's systems work well which means you could be less likely to experience headache, cramping and even bad breath! And stop drinking coffee. While everyone drinks coffee and it is good to catch up for a cuppa with the boss to pretend you are interested in what they are saying, you could be drinking water instead. Drink out of a mug and no one will know the difference.

Eat well

You are what you eat, right? Your first and main source of nutrients should always be fresh and healthy food. Eat your veggies, fruit, protein, healthy carbs and fat.

Some people need supplementation, like Vitamin D, B12 and B6, but these have to be customised for the individual.

The two supplements I take are Activated Phenolics and fish oil, because we live in the highly polluted world, if you eat enough fish to supply your body with enough omega-3, you’d likely die of mercury poisoning first! And you can eat all the apples, grapes and acai berries in the world, but at those low [antioxidant] absorption rates, you are taking in more sugar and water than anything else.

Be more active

Take charge of your life. If you want to change something, do something. Every little thing counts, taking the stairs instead of the lift, waking up half an hour earlier to do a quick workout, skipping a happy hour drink after work and do a meal prep instead.

End of financial year super strategies

Bonus blog article!

The end of the financial year is a good time to think about how you could grow your super and get started with saving for retirement. Here are some options you could consider to help your super work harder for you. 

First home buyers 

You may be able to make voluntary superannuation contributions to use towards a deposit for your first home under the First Home Super Saver Scheme (FHSSS) starting from 1 July 2017. Voluntary contributions you make, plus associated earnings, can be accessed from 1 July 2018 subject to meeting eligibility criteria. Whether using concessional or non-concessional contributions, the total amount of contributions you can withdraw is capped at $15,000 a year (or a maximum of $30,000 in total). Superannuation Guarantee contributions, as well as contributions that don’t count towards or are in excess of the contribution caps, cannot be accessed under the FHSSS as part of your deposit. See more here. 

Downsizer contributions 

From 1 July 2018, if you are planning on downsizing your family home of ten years or more and are aged 65or over, you may be able to contribute up to $300,000 from the sale proceeds to superannuation as a downsizer contribution. If you have a spouse, they could also contribute up to $300,000 to their superannuation from these proceeds. Downsizer contributions do not count towards your before or after-tax contribution caps or caps on contributions for total superannuation balance. You can find out more about whether you might be eligible at ato.gov.au. 

Tax-deductible super contributions 

You may be eligible to claim a tax deduction for your personal super contributions. By doing this, you may be able to pay less tax while saving more for your future. Your eligibility can be affected by your age, sources of income and the level of salary sacrifice and certain other employer contributions made for you. To claim a deduction, you must give a notice to the Trustee of your super fund and have it acknowledged. 

Keep in mind that personal deductible contributions count towards your annual before-tax contributions cap. The current before-tax contributions cap is $25,000 per financial year. Any contributions made above these limits will attract additional tax. 

Consider a one-off contribution 

After-tax super contributions are made from money you have already paid income tax on and won't be claiming a tax deduction on. For example if you work for an employer, making a contribution to super directly from your bank account is considered an after-tax contribution. 

Investment earnings within your super accumulation account are taxed at up to 15%, compared to your marginal tax rate which applies to investments you may hold outside of super. Please note that depending on your income level, your marginal tax rate may be less than 15%. 

The annual limit for after-tax contributions is currently $100,000 if your total superannuation balance is below $1.6 million at the start of the financial year. In certain circumstances, you may be able to bring forward three years of after-tax contributions into one year, contributing up to $300,000, if you haven't triggered the rule in the previous two years and your total superannuation balance is below $1.4 million at the start of the financial year. You may still be able to contribute part of the bring-forward if your total superannuation balance is between $1.4 million and $1.5 million at the start of the financial year. 

Salary sacrifice to top up your super 

Salary sacrifice is an arrangement where part of your before-tax wage or salary is paid into your super account instead of being received as take-home pay. It could be an effective way to boost your super and help you with saving for retirement. There may be tax advantages for you, depending on how much you earn. 

To get started, do a budget to work out how much you can afford to invest from each pay packet. You may also consider talking to your employer to find out if they can set up salary sacrifice arrangements for you. 

Keep in mind that salary sacrifice contributions count towards your annual before-tax contributions cap of $25,000 per financial year. Personal deductible contributions and contributions made by your employer also count towards your annual before-tax contributions cap. 

Government co-contribution 

In the 2017/18 financial year, if you are a middle to low income earner, adding to your super from after-tax money could see you entitled to a government co-contribution worth up to $500. 

To be eligible you need to earn less than $51,813 in the 2017/18 financial year and be aged below 71 at 30 June 2018. You must also have a total superannuation balance of less than $1.6 million at the start of the financial year to be eligible. 

The maximum co-contribution of $500 is available if you earn less than $36,813 in the 2017/18 financial year and if you have made a contribution yourself of at least $1,000. The co-contribution steadily reduces as your income rises and until it reaches zero at an annual income of $51,813. 

Spouse super contribution tax offset 

If your spouse or partner’s assessable income is less than $40,000 in a financial year, and you decide to make super contributions on behalf of your spouse, you may be able to claim a tax offset for yourself. 

The maximum tax offset available is up to $540 if your spouse receives $37,000 or less in assessable income in the 2017/18 financial year. The tax offset is progressively reduced until it reaches zero for spouses who earn $40,000 or more in assessable income in a year. 

Be aware of annual limits 

As annual limits apply to the amount you can add to your super each year, it is important to consider how much you have already added to your account (or accounts) during the financial year to know which strategies can work for you. Visit ato.gov.au for the latest information on super contributions.

The legal stuff

Succession Planning

The Three Categories of Succession Planning

There are many benefits to being a small business owner such as being your own boss, leading a team and the ability to give back to your community. A well-funded retirement account, though, is not one of these many benefits. Most of us believe that, when the time is right, we will sell our business and easily transition into retirement on the earnings generated from the sale. It’s certainly an appealing scenario. To pull it off, however, takes years of preparation and careful planning. This succession planning can be broken down into three categories – people, systems and finances.

People

Identifying and training the right person, or team, to take over the business requires the most time and effort. The smoothest and most obvious options will be family members or long-time, current employees. Start having these conversations at least five years prior to your anticipated transition date. If you need to look outside your current organization, it’s crucial to start looking early for several reasons.First, it may take quite a long time to find the right fit. You’re not just looking for someone capable of executing the work. You’re looking for someone to take over relationships with clients and employees that you’ve built over decades. You’re looking for someone to run an operation that most in your community will still associate with you.Once you have selected a successor, the two of you should spend several years essentially tag teaming the job together. Make it clear to both your team and your clients that this person not only has your full trust and confidence, but you’re also transferring all of your knowledge through a clearly set out and transparent transition process.

Systems

Much of this transition process will be facilitated through systems. The more your business operates based on system, as opposed to based on you, the stronger position you’ll be in to hand it over to someone else. This can prove to be tremendously difficult in small businesses founded and run by one person over several decades. When it comes time to step away, we quickly discover that processes are not documented. It’s easy to take for granted the fact that you know how to operate so much of your business without consulting guides, checklists or procedures. You built it, you ran it, you know how it works. And indeed, this may have worked for many years. However, now that someone other than you is preparing to run the business, getting those processes out of your head and onto paper is a critical task.Again, the time to do this is years before the transition. Ideally, documenting and implementing systems that explain your function in the enterprise should be done from day one. Even if you are not thinking of succession anytime soon, growing your business can prove frustratingly difficult if you’re constantly pulled back into operations because your systems are weak.

Finances

The final piece of the succession planning puzzle is financing, which will require a significant amount of outside expertise. Defining your equity, untangling your personal finances from the finances of the business, setting a price and determining a purchase structure can be daunting tasks. That’s where we come in. We understand the complexity and nuances of succession planning. We will work with you to create a customized approach, unique to your business and your goals for retirement.

While succession may be far in the future for you, the time to start building the systems to facilitate a successful handover is right now. We’d love to sit down with you to have a conversation about this process in more detail. Contact us to set up your appointment today.

Useful links

• The legal stuff

Federal Budget 2018-19 Summary

Prepared by Kristy Churchill - DC Advice 

As we all know, on 8 May 2018, the Government delivered the 2018-19 Federal Budget, and it would be reasonable to say that this Budget starts to lay a foundation for the next Federal election.

The focus of the budget was building a stronger economy by creating jobs and guaranteeing

essential services. As most households have had to tighten their budgets over the past few years, the Treasurer has announced that the Government must also live within its means. He said the Government has made real progress in getting the budget back on track and that it has stayed on track for a surplus for six successive budget updates.

The client budget paper, outlines the budget, from an advice perspective.  

If you have any questions about anything in the paper, contact us and don't forget to read "the legal stuff".