Franking credits and your SMSF

You may have noticed significant media coverage recently regarding the Australian Labor Party’s proposed policy to stop SMSFs from receiving tax refunds for the franking credits they receive in conjunction with the dividends paid from Australian companies they own. 

First of all, what are franking credits and how do they benefit SMSFs? 

Under the Australian tax system companies pay 30 per cent tax on their profits. When these profits are then passed on to their shareholders in the form of dividends, the company also hands the shareholders a credit for the tax the company has already paid (the “franking credit”). The individual shareholder then pays tax on the profit they received from the company less the credit for the tax the company has already paid. The franking credit ensures that the company profits are taxed at a shareholder’s marginal tax rate. 

For SMSFs in retirement phase which generally have a zero tax rate, this means they can receive a full refund of the tax already paid by the company on their behalf. 

SMSFs who have members in accumulation phase benefit from franking credits reducing the tax they pay on their SMSF’s earnings and may receive partial refunds of their franking credits depending on the fund’s overall tax liability. 

Labor, if elected, will change the law so that SMSFs and other low tax paying entities will no longer be able receive a tax refund for the franking credits they receive. This will affect all SMSFs that own Australian shares, especially funds that have received tax refunds in recent years. 

This could have a significant impact on the retirement income of many SMSF members in retirement. For example, an SMSF with $500,000 in retirement phase with 40 per cent of assets held in Australian shares could lose around $4,285 per year in tax refunds from their franking credits. This impact could be a significant hit to your annual retirement income. 

How can we help? 

SMSF Specialist advisors can help you understand how a change in the tax treatment of franking credits may impact your SMSF portfolio and retirement income. Please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements in more detail. 

Also, if you are concerned by the franking credit policy and want to ensure your voice as an SMSF trustee is heard in Canberra on this and other important superannuation issues, then I recommend that you consider joining the SMSF Association as an SMSF trustee member to support their advocacy for SMSFs. (http://trustees.smsfassociation.com/). The SMSF Association strongly opposes the proposed change to the tax treatment of franking credits and is looking to resist the introduction of this policy for the benefit of all SMSFs.

If you would like more information about this article please contact us.

Useful Links

• SMSF Myths Busted - Fact Sheet
• Personal Superannuation Contributions - Fact Sheet 

This information is of a general nature only and has been provided without considering your objectives, financial situation or needs. Because of this you should consider whether the information is appropriate considering your objectives, financial situation and needs.

Women flock to work, but super still needs work

Originally written by Nicki Bourlioufas for Morningstar

Australia's female labour force participation rate reached an historic high of 60.5 per cent in January 2018 and continued growth could help to grow women's superannuation balances, which still significantly lag those of men.

Average superannuation balances in 2015-16 for people aged 15 and over were $111,853 for men and $68,499 for women, according to data from the Australian Bureau of Statistics.

Moreover, women are still retiring with substantially lower savings. Average superannuation balances at the time of retirement (at ages 60 to 64) in 2015-16 were $270,710 for men and $157,050 for women. This falls well short of the $545,000 needed for a comfortable retirement, according to the ASFA Retirement Standard for a single person.

Even more worrying is that one in three women reported retiring with no superannuation savings in 2015-16. That compares to 27 per cent of males who reported nil superannuation. 

According to the Association of Superannuation Funds of Australia (ASFA), there are several reasons women have less superannuation. Women spend more time out of the paid labour force for family reasons, including caring for children as well as parents. Women are also more likely to be employed in part-time and lower-paid jobs. 

ASFA CEO Dr Martin Fahy says lifting the Superannuation Guarantee (SG) to 12 per cent needed to happen sooner rather than later to adequately address the lack of sufficient superannuation held by women. 

"Security for women in retirement is an important issue. Despite increasing workforce participation by women, there still remains a significant disparity between the retirement incomes of men and women. There are a number of factors that contribute to this, including broken working patterns," Fahy says. 

"While this is not confined to women, given that caring for children, parents, and other family members is more often than not performed by women, this results in both breaks in employment, and frequently, significant periods of part-time employment. 

"The gender pay gap and the increasing casualisation of the workforce also contribute to the gap. While this is not unique to women, this does have a tendency to affect roles which predominantly employ women, such as the caring professions, hospitality, and retail." 

Dr Fahy recommends women make the best use of the federal government's tax concessions for superannuation contributions. 

"There is a $25,000 annual concessional contribution cap and the ability to make catch-up contributions from 1 July 2018, using previously unused cap amounts on a rolling five-year basis for anyone with less than $500,000 in super," he says. 

"You may also be eligible for a super co-contribution from the government of up to $500 if you make personal super contributions and earn less than $51,813. The Low Income Super Tax Offset (LISTO) provides a refund of contributions tax for anyone earning up to $37,000, up to a maximum of $500. 

"If you have received a large windfall (such as from an inheritance) or sold an investment property, think about putting the proceeds into super. You can make a $100,000 after-tax annual contribution if your super balance is less than $1.6 million as at 30 June of the previous financial year." 

Financial adviser Jay Adamson with countplus one says women need to take a greater interest in their superannuation. 

"It is 9.5 per cent of your salary and it is important. Make sure you are invested in the right asset allocation to achieve your objectives. Check on fees and charges and find a fund that meets your current needs (and this may change over time)," she says. 

Salary sacrificing is also important. "Ask your employer to contribute part of your pre-tax salary directly to your superannuation fund. For example, if your taxable income is $80,000 a year, a superannuation contribution of $100/week will reduce your net take home pay by only $59/week," she says. 

"If you are self-employed, don't neglect to make superannuation contributions--they are a tax deduction for your business." 

She also recommends working with your spouse. "If you earn less than $40,000, then your partner can get a tax offset of up to $540 on contributions made to your complying superannuation fund. There may also be advantages for you in 'superannuation splitting' where part of your spouses' superannuation can be transferred to top up your own superannuation account," says Adamson. 

ASFA recommends other policy changes that would further improve superannuation outcomes. These include payment of superannuation contributions linked to paid parental leave. 

In addition, removal of the $450 a month threshold for payment of Superannuation Guarantee contributions would also benefit women, say Ross Clare, director of research, ASFA, in a recent research paper.

If you would like more information about this article please contact us 

This information is of a general nature only and has been provided without considering your objectives, financial situation or needs. Because of this you should consider whether the information is appropriate considering your objectives, financial situation and needs.

Super Health Check

Before long your baby is an adult

Article first published by Colonial First state - 1 March 2018.  


It’s never too early to start planning for your retirement, so here’s some useful tips to boost the health of your super today for a more comfortable lifestyle in the future.

Even if retirement feels a long time away, it’s important to start thinking about when you’d like to retire, the type of lifestyle you want in retirement, how much debt you have and what assets (including your super) you will have when you finish working.

Are you retirement ready?

If you’re planning your financial future, a great place to start is to understand where you are today.

Our retirement calculator helps you estimate your projected retirement income from your super and other assets, to help you work out if you’re retire ready.

By entering in details such as your age, salary, super balance and other income, the calculator estimates how much income you could have per year when you retire.

You can then compare this estimated income to your desired annual income in retirement. If you have a shortfall, you can learn about strategies to help grow your retirement income.

Take the first step towards becoming retire ready by visiting our retirement calculator today.

While an online calculator can never replace personalised advice from an expert, it will help you get a clearer idea of where you stand today and how you could change your situation for the better.

If you’re planning your financial future, a great place to start is to understand where you are today.

How to boost your super

Want to see your super grow faster? Here’s five ways you might be able to add to your super savings today.

1. Salary sacrificing

Salary sacrifice is when you make additional contributions to your super from your pre-tax salary. These pre-tax contributions can help reduce your taxable income, meaning you can potentially pay less tax.

This portion of your income is generally taxed at just 15 per cent, which can be less than your normal marginal tax rate – helping you save money for your retirement.

Once you have worked out how much of your income you can comfortably contribute to your super, you need to arrange for your employer to regularly redirect this amount to your super instead of your bank account.

But it’s important to keep in mind that there are caps on the amount you can contribute to your super.  To find out more about the cap, contact us on (07) 4616 9000 to speak to our Specialists.

2. Consolidating your super

It’s a good idea to make sure all your super is in the same place. If you’ve changed jobs, different employers might have made your super guarantee payments to different funds over the years. This means you could have ‘lost super’ in accounts you’ve forgotten about.

If your super is in multiple funds, you also have to pay separate administration fees to each fund, which eats into your retirement savings.

On the other hand, if you roll over all your super into a single fund, you’ll not only save on fees but you’ll also find it easier to keep an eye on your money.

If you think you might have lost track of some super from past jobs, search for it online via the Australian Taxation Office website and consolidate it all into one fund to minimise fees.

Before making a decision, it makes sense to compare the costs, risks and benefits of your other funds against your current super fund. You should also consider whether you will lose any existing insurance cover upon rolling over and whether any cover you may have will be sufficient.

3. Don’t forget spouse contributions

If your partner earns less than $37,000 a year, you may be able to claim a $540 tax offset when you make a $3,000 contribution to their super fund.

The offset available reduces as your spouse’s income exceeds $37,000 or if your contribution is lower than $3,000, and phases out once your spouse’s income reaches $40,000.

But, this isn’t just about tax. The spouse contribution – which can also be made on behalf of a de facto partner or same sex partner – is a good way to boost the retirement savings of a partner who earns less or has taken time out of the workforce to care for children.

4. Get government assistance

Also, if you earn income up to $37,000, you may be eligible to receive a low-income super tax offset (LISTO) contribution into your superannuation account. This is a refund on the tax paid on your concessional superannuation contributions up to a cap of $500.

And if your spouse earns a low income, you could receive a tax offset up to $540 by contributing to their super fund for them. Find out more at the Australian Taxation Office website.

5. Know your limits

It’s important to keep in mind that there are caps on the amount you can contribute to your super.

The government imposes different caps on contributions depending on your age and contribution type. Additional tax applies if you exceed the contributions cap.

Find out more about super contributions caps.

Get the right advice - contact us today.

This information is of a general nature only and has been provided without considering your objectives, financial situation or needs. Because of this you should consider whether the information is appropriate considering your objectives, financial situation and needs.

Tax Planning - Minimise your business tax

Imagine what you could do with tax saved? 

IS YOUR BUSINESS A “SMALL BUSINESS” ENTITY? 

Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected / affiliated with you) of less than $10 million and be operating a business for all or part of the 2018 year. 

REDUCTION IN COMPANY TAX RATES FOR SMALL BUSINESSES 

The company tax rate for businesses with less than $10 million turnover is 27.5%. 

If you use a Trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 27.5% for the 2018 year. Note that this company must have business operations to qualify for the reduced company tax rate. 

INSTANT DEDUCTION FOR ASSETS LESS THAN $20,000 

If your business is a Small Business Entity, the following tax concessions apply: 

• Depreciating assets valued at less than $20,000 will be immediately deductible 
• Depreciating assets valued at more than $20,000 will be depreciated in one pool at a rate of 15% in the first year and 30% in future years 
• If your pool balance at the end of the year is less than $20,000 before applying any other depreciation deduction, the entire pool balance can be written off. 

You should buy these assets before 30 June 2018. 

If your business is not a Small Business Entity, you will need to depreciate all assets purchased over $300. Any assets purchased for $300 or under can be immediately deducted. 

MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS 

The concessional superannuation cap for 2018 is $25,000 for all individuals. Do not go over this limit or you will pay more tax! 

Note that employer super guarantee contributions are included in these caps. Where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge. 

For the contribution to be counted towards the employee’s 2018 contribution cap, it must be received by the fund by 30 June 2018. 

TOOLS OF TRADE / FBT EXEMPT ITEMS 

The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit. 

Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones. 

If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased. 

You should buy these items before 30 June 2018. 

PAY EMPLOYEE SUPERANNUATION NOW 

To claim a tax deduction in the 2018 financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June 2018. 

You should avoid making last minute superannuation payments as processing delays may cause them to be received after year-end. If for any reasons you end up having to make last minute payments and you would like to claim them as deductions for the current year, contact us immediately and before you make any payments for possible resolutions. 

DEFER INCOME 

If possible, defer issuing further invoices and receiving cash/debtor payments until after 30 June 2018. This strategy pushes tax payable to future years. 

BRING FORWARD EXPENSES 

Purchase consumable items BEFORE 30 June 2018. These include marketing materials, consumables, stationery, printing, office and computer supplies. Spend the money now and get the deduction this year. 

REPAIRS & MAINTENANCE 

Make payments for repairs and maintenance (business, rental property, employment) BEFORE 30 June 2018. 

DEFER INVESTMENTINCOME & CAPITAL GAINS 

If possible, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2018. 

The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date! 

MOTOR VEHICLE LOG BOOK 

Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2018. You should make a record of your odometer reading as at 30 June 2018 and keep all receipts/invoices for motor vehicle expenses. 

An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method. 

INVESTMENT PROPERTY DEPRECIATION 

If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property. 

PRIVATE COMPANY (“DIV 7A”) LOANS 

Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2018. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual. 

YEAR-END STOCKTAKE / WORK IN PROGRESS 

If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2018. Review your listing and write-off any obsolete or worthless stock items. 

Talk to us about your different options for valuing Stock, and how they affect your tax payable. 

WRITE-OFF BAD DEBTS 

Review your Trade Debtors listing and write-off all bad debts BEFORE 30 June 2018. Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June 2018. 

SMALL BUSINESS CONCESSIONS - PREPAYMENTS 

“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June 2018 and obtain a full tax deduction in the 2018 financial year. 

TRUSTEE RESOLUTIONS 

Ensure that the Trustee Resolutions are prepared and signed BEFORE 30 June 2018 for all Discretionary (“Family”) Trusts. Please see us for more information about these resolutions. 

Talk to us TODAY, before the 30 June 2018 deadline for assistance to reduce your tax!

This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.

Personal insurances: Completing a pre-assessment

Article originally written and accurate as at: Mar 07, 2018 Current Stats & Facts inShare

You never know when this might happen!

In terms of the personal insurance process, prior to the recommendation of advice and subsequent formal insurance application, a great deal of time is spent conducting research into insurers (and their offerings).

As it stands, numerous insurers operate in the personal insurance space. Whilst the insurer offerings can often be quite similar to one another in terms of form and function (e.g. types, levels, features and structures available), there can frequently be differences in how insurers assess an individual’s formal insurance application. The reason that these differences can arise are mainly due to the specific underwriting guidelines that each insurer has in comparison to one another.

For example, one insurer may assess a particular individual’s circumstances (e.g. occupational duties, pastimes, current health and medical history – including family history) as a medium to high risk. Whereas, another insurer may assess these same circumstances as a low to medium risk. The potential outcomes regarding an assessment of an individual’s formal insurance application can be that the former may apply revised terms (e.g. a loading, exclusion or decline on cover), whilst the latter may accept at standard rates.

Leland Van Lew - Along Came Polly 

Despite the above example, it’s important to note that this may not always be the case. In some instances, insurers may view a particular individual’s circumstances in a similar way or with only a slight deviation. For example:  

• Similar way e.g. each insurer may either apply revised terms or accept at standard rates.
• Slight deviation e.g. one insurer may apply a 25% loading, whilst another may apply a 50% loading.

These differences and/or similarities with regards to insurers are important to consider when it comes to recommending which insurer (and their offering) may be appropriate for you and managing expectations around potential outcomes of a formal insurance application. Consequently, an important step in the personal insurance process can often be the completion of a pre-assessment.

Pre-assessments

A pre-assessment is an informal way of finding out how insurers may view your formal application. It involves answering various questions on a form and then sending this information onto multiple insurers for their assessment; however, it does not require you to undergo medical examinations, such as blood tests or blood pressure readings.

As you may have already guessed, completing a pre-assessment can be of particular relevance to individuals with potentially hazardous occupational duties or pastimes, a pre-existing medical condition, or family history of a medical condition.

The questions asked on a pre-assessment form are not as in-depth as those found in a formal insurance application; however, there are often some similarities. For example, here are some of the common questions asked on a pre-assessment form:

General

• What is your age and gender?
• What cover is being applied for?
• Type (e.g. Life, Total and Permanent Disability, Trauma and/or Income Protection).
• Sum insured, premium style and relevant features (e.g. comprehensive/standard options, occupation definition, waiting/benefit period/benefit type etc.).
• Do you intend on traveling overseas within the next 12 months and if so, what is the destination and length of the trip?

Occupation and pastimes

• What is your occupation, as well as the time spent in that current role, hours worked per week and percentage of time spent doing manual labour?
• Do you perform any hazardous occupational duties (e.g. working at heights)?
• Do you intend on changing your occupation in the next 12 months?
• Do you participate in any pastimes/pursuits/sports and if so, how often and at what level?

Health

• What is your height and weight and smoker status?
• What is your alcohol consumption per week?
• Do you take any medications?
• Do you have any pre-existing medical conditions?
• Do you intend to seek any medical advice, test, investigation or treatment (including surgery) in the near future?
• Do you have a family history of any particular medical conditions?

Although this list of questions may appear confronting, it’s important to note that pre-assessments are anonymous where possible and are completed with sensitivity and understanding with regards to the personal and sensitive information that you disclose.

Once a pre-assessment form is completed and you have provided authorisation for the information to be passed on, it is then sent to the underwriting teams of multiple insurers. With this information, they then make an assessment based on your individual circumstances. Whilst the results obtained from a pre-assessment are not a guarantee of the terms that will be offered by insurers upon the completion of a formal application, they can provide a strong indication of the potential outcomes.

Moving forward

The completion of a pre-assessment can be an important part of the personal insurance process. It aids in the in-depth comparison of multiple insurers, which in turn helps with:

• Making informed decisions regarding which insurer (and their offering) may be appropriate for you.
• And, managing expectations around potential outcomes (i.e. revised terms or standard rates) of a formal insurance application.

If you would like to know more about what is involved in a pre-assessment, please contact us for further information.

This information is of a general nature only and has been provided without considering your objectives, financial situation or needs. Because of this you should consider whether the information is appropriate considering your objectives, financial situation and needs.