2018 Federal Budget Highlights

This year’s Federal Budget is overall positive, with the goal firmly on reducing national debt, creating jobs, and getting back into surplus over the next 3 years.

From a Financial Planning perspective, we have split our highlights between what the media are widely reporting on, versus our own hidden opportunities listed further below.

Please note that until the Budget is passed in Parliament, all the below discussion is still in the proposal stage.

Also please note that many proposals do not take effect until the following financial year starting 1 July 2019.

 

The main proposed points the media have focussed on:

From 1 July 2018

  • Introduction of Low and Middle Income Tax Offset (LMITO) – if you are earning less than $90,000 a year, you may qualify for up to $530 as a tax offset. This is a temporary concession ending 2022.
  • The 32.5% tax threshold will be raised from $87,000 to $90,000. The goal for the current government is to have this 32.5% tax threshold increased all the way to $200,000 before the maximum 45% tax threshold kicks in. This would be in place by July 2024.

From 1 July 2019

  • If you have inactive super accounts where no employer contributions are going in, and the balance below $6000, these will be transferred to the ATO for consolidation with an active account.
  • New super accounts for people under 25 and balances below $6000, will need to ‘Opt-In’ for life insurance cover, rather than have premiums automatically deducted from their balance when they join a new employer plan.
  • Expansion of Pension Loans Scheme. This allows pensioners to increase their income from Centrelink to a maximum of 150% of the maximum Age Pension through a combination of loan scheme and Age Pension. This is effectively a ‘reverse mortgage’ funded by the government, where they take security over your property. When you sell your house or pass away, the property is sold, and loan plus accrued interest (5.25% p.a. compounded) is paid back to the government.

Some hidden proposals not widely reported by the media:

From 1 July 2018

  • Small businesses can continue to instantly write-off eligible assets that cost less than $20,000 in one year, rather than depreciate these purchases over a number of years. This instant write-off allowing small businesses to claim a higher amount of deductions was due to end this financial year, but now has been extended another 12 months.
  • Employees who have multiple employers and are earning over $263,157, will be able to opt-out of super guarantee payments that would otherwise result in excess concessional contributions. For example, a doctor working at 2 different hospitals may now be able to negotiate a higher income in lieu of super guarantee contributions.

From 1 July 2019

  • Work test exemption for members age 65 to 74, who have balances less than $300,000, will be able to make voluntary contributions to super in the first year that they do not meet the work test requirements.
  • Self Managed Super Funds and small APRA funds will be able to increase the maximum number of members in the fund from 4 to 6. This may appeal to some larger families looking at intergenerational wealth transfers.
  • The government will introduce favourable means testing  (assets and income test) for retirees who choose to use new pooled lifetime income streams. Over the next year, we are likely to see the development of new comprehensive income products for retirement to give clients certainty of cash flow in retirement, as well as receiving more favourable treatment by Centrelink means testing.

Self Managed Superfund – Specialist Advisor accreditation

Congratulations to Sam for being awarded the SMSF Specialist Advisor accreditation from the SMSF Association.

This is highly regarded in the Financial Planning industry and It is only awarded to professionals that have appropriate SMSF advice experience and meet stringent criteria including a lot of study and the completion of a high level assessment.

“The SMSF Association Specialist logo is a symbol of excellence and demonstrates that the individual’s SMSF expertise has been independently endorsed by the Association.”
“The listed professionals are a trusted source of information and advice for anyone managing their own super, as they have gone through rigorous and independent accreditation.

The SMSF Association Specialist Advisor and Specialist Auditor programs not only test SMSF legislation and regulatory knowledge, but also assess business and ethical practices to ensure ‘best practice standards’. The SMSF Association believes in tight controls, accrediting and educating advisors and providing accurate and appropriate information to trustees as the best way to ensure that self-managed super funds continue to provide their promised benefits.”

“SMSF Association Specialists maintain their high level skills and knowledge through ongoing education. Their work practices, integrity, professionalism and ethical standards are reviewed on a regular basis to ensure they remain at the highest standard.”

Source: SMSF Association find a specialist webpage

Video: Importance of Values and Goal Setting


Sam & Choon talk about the Importance of Values and Goal Setting within the Financial Planning Process.

Video: The Importance of Budgeting


The Importance of Budgeting from Resolution Wealth.

Video: Introduction to Resolution Wealth Partners

Introduction to Resolution Wealth Partners from Resolution Wealth.

Video: Why Specialise in Medical Professionals


Why Specialise in Medical Professionals from Resolution Wealth.

Superannuation changes

Superannuation changes
It is a fact that the rules around super are constantly changing. I understand that for a lot of
people including myself, this is frustrating and creates uncertainty. There have been a
number of changes that we have totally disagreed with and this includes the reduction in the
amount older Australians can contribute to their super tax effectively as well as the changes
to ‘Transition to Retirement’ pensions. Older Australians need to be given the chance to
build their retirement savings as they get closer to retirement.
There are however some new rules that are actually really good and we have decided to
provide some information on three of these in particular.

1. Downsizing & contributing to super policy
This has recently become law and it will allow a person or a couple to use some of the
proceeds from the sale of their home and contribute this to super. This takes affect from 1
July 2018. The eligibility criteria includes;
– A person must be over age 65
– It must be the from the sale proceeds of a home (not an investment property) and was
owned for at least 10 years
– The amount contributed to super is capped at $300,000 per person (i.e. $600,000 for a
couple)

The good thing about this rule is that it allows older Australians to downsize their home and
boost their super where in normal circumstances they are not able to add any more to super
due to occupation and age restrictions.
A person needs to be careful however that doing this does not adversely impact their
Centrelink entitlements (e.g. Age pension) and we encourage anyone thinking about this to
speak to an expert first.

2. Tax deductible super contributions
In very broad terms, prior to 1 July 2017, only those people who were self-employed
(meeting the 10% rule) and certain other individuals were able to make a contribution to
super and claim a tax deduction. The same ‘concessional’ contribution cap of $25,000
applies.
From 1 July 2017, this now applies to all people. This now provides a lot more flexibility. For
example, a person may choose not to make extra contributions from pre-tax income (i.e.
salary sacrifice) but instead wait until close to the end of the financial year and decide to top
up their super all at once by making a contribution (from savings) and then claiming a tax
deduction.
Another example may be where a person sells an asset during the financial year and incurs
CGT. They could then potentially use some of the sale proceeds and contribute this to super
(within the cap) and claim a tax deduction which will help improve their overall tax position.

3. Ability to make ‘catch up’ concessional contributions
Many people have either been self-employed, been out of the workforce for long periods or
have been earning a low income. They naturally will have a lower super balance and may
wish to catch up.
From 1 July 2018, a person with a total super balance of $500,000 or below will be able to
utilise the unused portions of their concessional caps ($25,000 pa) from previous years (up
to 5 years worth) in the following financial year, or future years.
For example, in the year 2023, Peter (age 50) has a super balance of $100,000 and now
wishes to build this up. He is self-employed and has not made any super contributions for
the last 5 years. He has sold some investments and now has $125,000 sitting in cash. He
can essentially use the ‘unused’ portion of his annual concessional cap ($25,000 pa) for the
last 5 years and contribute this all at once – i.e. $25,000 x 5 = $125,000.
This rule is available to all people who are eligible to make super contributions and there are
many different circumstances where this could apply.

Summary
The majority of the rule changes to super were made to make the system fairer for most
people. Some of the new rules can be very powerful if you meet the eligibility criteria and you
are in a position to take advantage of these. These and many of the other rules not detailed
in this article can have some complexity and we would encourage you to seek advice first.

Choon Kwa and Sam Pizzata are directors of Eight Financial Pty Ltd ABN 25 114 328 942 and Plexus Wealth Pty
Ltd ABN 58 108 336 705 trading as Resolution Wealth Partners and are authorised representatives and credit
representatives of Charter Financial Planning Limited ABN 35 002 976 294, AFSL and Australian Credit Licensee
(Charter). Australian Investment Solutions Pty Ltd ABN 14 124 764 576 and Catalworx Pty Ltd ABN 58 126 066
859 also trade under Resolution Wealth Partners.
This editorial contains information that is general in nature. It does not take into account the objectives, financial
situation or needs of any particular person. You need to consider your financial situation and needs before
making any decisions based on this information. Charter Financial Planning and its Authorised Representatives
do not accept any liability for any errors or omissions of information supplied in this editorial.

Thoughts on the recent share correction

In the last few days we have all heard the news regarding the stock market. I saw headlines with the
words ‘Bloodbath’, ‘Carnage’ & ‘Crash’ to name a few.

Of course, each headline is accompanied with statistics and facts about the size of losses and or
records broken. In fact, one of the radio stations had a news report that stated that the losses were
due to fear of a US recession but I am simply not sure how they formed this conclusion.

The stock market is falling but this is both normal and expected. The Australian stock market has
done very well in the last 6 months. In fact, the ASX 200 rose from 5,650 points on the 3 rd of October
2017 to 6,120 points on the 3 rd of February 2018 and this represents an increase of over 9% over a 4
month period. The US stock market has gone up even more and in fact went up over 7% in January
alone.
Investment markets simply don’t keep rising and pull backs are very normal. Where they become a
concern is when the markets go into free fall like what happened during the GFC but even then they
slowly recovered all of their losses.

It is important to remember that stock markets are ‘leading indicators’ and this means that their
movement is generally a reflection of where investors expect an economy to be going as opposed to
where it is now. Therefore, it is not uncommon to see stock markets go up significantly in the middle
of slow economic times simply because investors are basing their purchasing decisions on what they
perceive a company’s profit will be as opposed to what it is now (i.e. you are buying based on future
potential growth).

Shares will be sold off and markets will correct usually once investors have data that confirms both
current and likely future economic conditions. This is why stock markets sometimes fall when the
economic news seems to be good.
The US economy is not only the largest economy in the world but also the most influential. Their
unemployment rate is now very low (below that of Australia), their economy is growing and picking
up speed and for the first time in a very long time, wages are starting to increase. Lastly, they have
recently passed tax cuts and the expectation is that this will inject an added boost to their economy
in the years ahead.

So why the sell off? The US economy is now doing well and this is improving the global economy.
Maybe it is because investors are now starting to get concerned about inflation. Higher wages are
great but they do lead to higher prices. Higher prices can cause inflation and this is usually followed
by higher interest rates. Higher interest rates and higher wages then eventually result in lower
profits for companies as their borrowing costs increase as do their staffing costs.
Bond yields are now starting to increase (first sign of rising interest rates) as investors demand a
higher interest rate for longer duration bonds to combat expected future inflation. There is also the
expectation that the US federal reserve will increase interest rates maybe 4 or 5 times this year.
Therefore this sell off is likely more to do with a re-pricing of shares based on new economic data
combined with profit taking of investors who have done well over the last year. Most economists are
not predicting a recession and in fact still feel that shares will continue to move higher albeit with
some corrections as is happening now.

We have attached an article written by Shane Oliver that explains all of this in a lot more detail for
those who are interested. ( Click here for the article in PDF )

As always, we are happy to chat about this or anything else should you have any questions and or
concerns.

Superannuation Changes 2017

Dear Clients,

As we are now a few weeks into the new financial year we felt it was important to remind you of the contribution cap changes to superannuation that applies from 1 July 2017.

Essentially, the ‘Concessional contribution cap’ (e.g. pre-tax contributions which include employer SG, salary sacrifice, personal tax deductible etc) has now been reduced to $25,000 for all people regardless of their age (assuming they are eligible to make super contributions). Therefore if you were salary sacrificing pre-tax income into your superannuation then you may need to ensure that this same amount does not breach this limit.

This change may also impact employees on high incomes that continue to receive employer superannuation guarantee (SG) contributions (i.e. 9.5%) on their full salary. If the SG amount is greater than $25,000 then you may wish to discuss this issue with your HR/Payroll department.

Lastly, the ‘Non-concessional contribution cap’ has also been reduced to $100,000 pa for anyone considering making after tax contributions. 

Australian Indian Medical Association (WA) Presentation

One of Australia’s most recognised economists, 
Shane Oliver recorded a video for this event.