TAG Super Tips – Removal of Franking Credit Refunds

In the lead up to the Federal Election one item that has sent a shiver of fear through SMSF Trustees is the proposed removal of franking credit refunds. 
This announcement, first made in early 2018 was an early prelude to a campaign measure by Labor in light of this years Federal Election.

While this reform is designed to save cash for the Federal Budget – it has been promoted as only affecting the big end of town. But let’s consider the following example:
Here we have 2 individuals, both retired, each with their own SMSF. They invest their balances in listed shares (80%) and cash (20%). Fund A has a total member balance of $750,000, and Fund B has a member balance of $5,000,000.

Fund A Fund B
Total balance $750,000 $5,000,000
ECPI 100% 32% (i.e. $1.6m pension)
Dividend yield (fully franked) 4% cash (i.e. prior to franking credits)
Fund A Fund B
Dividend  $ 24,000.00  $ 160,000.00
Franking Cr  $ 10,285.71  $   68,571.43
Interest Income  $   3,000.00  $   20,000.00
less ECPI ($ 37,285.71) ($  79,542.86)
Taxable Income  $             –  $ 169,028.57
Tax @ 15%  $             –  $   25,354.29
Franking Cr  $             – ($  25,354.29)
Tax payable  $             –  $               –
Total benefit  $ 27,000.00  $ 205,354.29
Yield 3.60% 4.11%

You can see that Fund A loses all refunding of franking credits – therefore getting no benefit of any of these, as it has no taxable income (given the members balance is 100% in pension mode).

Fund B however, by virtue of its taxable income, actually has capacity to use some of its franking credits, and still lower its tax liability. As a result, while its overall yield is also lower under Labors policy, it is not as impacted as Fund A. Hard to argue that it is only a tax on the wealthy, when the hardest hit are those that can least afford it.

If you would like more information, please don’t hesitate to contact Jason Roccasalvo or Brenda Hutchinson.

 

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page.

 

TAG Better Business – The Importance of Cash Flow

In this short 3 minute video, Tony Rule explains the importance of cash flow management for business:

– The no.1 reason business fails.
– How can cash flow management help?
– The elements of good cash flow management.

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).

TAG Wealth Tips – Royal Commission | New Advisers

Financial Services Royal Commission

Kenneth Hayne is due to release his findings and recommendations about the banks and financial services industry in early February.

Naturally there was a lot of publicity during the Royal Commission which ran for around 6 months covering numerous aspects of the industry.

While disappointing, none of the revelations about fee for no service, advice not in the client’s best interests and rampant conflicts of interest were particularly surprising. Unfortunately for the industry, this was driven by incentive schemes for employees and management of large financial institutions based on greed and poor corporate cultures.

In a new era where consumers are more aware of their choices and seeking advisers that have their interests front of mind as opposed to being “sold” financial products, we believe at TAG we are well positioned for the future.

At TAG, our focus has always been about growing our client’s wealth. We are self-licensed which means our advisers are not employees of banks, selling the products of that bank. We have variety and choice and we design financial strategies that suit the needs of each client.

We offer an initial complimentary 1 hour consultation. This meeting focuses on you, your goals and if we can work together to help achieve the financial outcomes that are important to you. To book a time or just to have an initial chat, email ardens@tagfinancial.com.au or phone 9886 0800.

New Advisers

As TAG Financial Services grows, we are excited to introduce new advisers. We pride ourselves on having advisers that are highly qualified and experienced in delivering a personally tailored financial and investment strategy.

Our 2 newest advisers to our Investment Advisory and Wealth team are:

Arden Shaw – Manager / Adviser
Authorised Representative Number: 1270952

If you have a Self Managed Super Fund you may know Arden who previously worked in our Superannuation Advisory team.  Arden has successfully transitioned across to our Investment Advisory and Wealth team as Manager and Adviser. Arden now has “new strings to his bow” and can add more value to our client’s financial lives, utilising his technical, financial advisory and interpersonal skills.

Contact:  ardens@tagfinancial.com.au or on 03 9886 080

Sugul Rasakulasingam – Adviser
Authorised Representative Number: 1264321

Sugul is an excellent addition to our team and looks forward to assisting our clients with managing their financial strategies.

Contact:  sugulr@tagfinancial.com.au or on 03 9886 0800

 

 

 

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page.

TAG Super Tips – Productivity Commission Releases Key Recommendations

 

The Productivity Commission has released its final report assessing the efficiency and effectiveness of Australia’s superannuation system. The key recommendations regarding the SMSF sector are:

Minimum Balance for Self Managed Superannuation Funds (SMSF)

The Productivity Commission’s recommendation:

A minimum balance is too blunt an instrument, but advisers should be prepared to justify to ASIC why they are recommending any SMSF be established with a balance remaining under $500,000 beyond the initial establishment years.

In its draft report, the Productivity Commission recommended a mandatory SMSF minimum of $1 million balance. This was largely opposed by the superannuation industry that argued that lower balances can still generate good returns. In its final report, there is no mandatory minimum but the Commission suggests that balances under $500,000 will need to be explained.

The reduction in minimum balance is welcomed as is the lack of a mandatory minimum. Client specific circumstances can be considered and a lower balance is appropriate in certain circumstances but appropriate financial advice is a must to ensure a client is fully informed.

Specialist Training

The Productivity Commission has recommended that SMSF advisers should have specialist SMSF training. The report stated:

Steps are in train to lift the qualification requirements of financial advisers, and this should be extended to require specialist training for those advising on SMSFs.

Specialist training, like that provided by TAG Financial Services annually to accountants across the country is welcomed, although any additional training load should be managed in light of the new FASEA reforms.

Clear Information for New SMSF

The Productivity Commission’s recommendation:

…. and when a member is being advised to set up an SMSF, the adviser should be required to give them a document that clearly explains key issues they need to consider (‘red flags’) in deciding whether an SMSF is right for them.

It is proposed that clients are given information that clearly explains the pros and cons of setting up a SMSF before they go ahead. We would assume that this already occurs when clients receive financial advice. The ATO also has a number of useful tools surrounding SMSF.

For the full report, go to: https://www.pc.gov.au/inquiries/completed/superannuation/assessment/report

If you have any questions, please don’t hesitate to contact us 

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page.

TAG Wealth Tips – Set Your Money Goals for 2019

January is a great time to set some financial goals for 2019.

ASIC has written an excellent article that outlines 5 tips to achieve your money goals (and includes some handy tools/calculators).

The 5 tips include:

  1. Making a plan for your money (includes a budget planning tool)
  2. Hone in on your savings (includes a savings goals calculator)
  3. Knock out your debts
  4. Take charge of your super (includes a super contributions optimiser)
  5. Invest in your future

To read the full ASIC article, click here.

 

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page.

Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).

Trustee Responsibility

When a Trustee is not solely responsible,
how does it impact Accountants and Auditors?

Two recent court cases, Cam & Bear and Ryan Wealth, each considered whether the actions of the SMSF auditor were appropriate in light of the investment activity that each SMSF undertook.

Cam & Bear saw the Fund provide money to a friend of the member to manage the SMSF investments.

Further, this close friend, via a company he owned, also acted as accountant/administrator for the SMSF. The friend’s investment company invested the fund assets in “cash and shares”. The SMSF accounts disclosed the cash assets as “Cash – LSL Holdings” in the financials. This cash asset was in fact an unsecured loan to LSL Holdings – a company owned by the friend.

Not sounding very friendly, and certainly should not have passed a “smell test”.

The SMSF auditor queried the entries but was told, via the Trustees friend (as accountant) that the Trustees were happy with the description. There was no direct communication between the SMSF auditor and the Trustee.

When the Trustee went to withdraw cash, they were unable to as LSL went into voluntary administration.

The auditor was sued for negligence, and found, after appeal, that responsibility for the losses suffered by the Fund be apportioned 90% to the auditor, and 10% to the Trustee.

The court found that the auditor was “clearly negligent” in that they did not make sufficient enquiry on the recoverability of the amounts.

Ryan Wealth again saw the auditor as being found negligent. In this case, the Trustee received financial advice from a licensed adviser. The adviser placed Fund monies into unsecured loans. Again, over a period of time a number of entities related to the adviser went into liquidation, with the ultimate result being the plaintiff suffered significant financial loss.

In both cases, the Trustees agreed to invest in private entities/loans with little or no understanding of the nature of the investments and provided significant reliance on others with respect to the investments.

It can be concluded that the auditors in each case did not make sufficient enquiry directly with the Trustees and it would appear they did not elevate their level of risk with respect to the investments.

Although it appears clear that in each case the SMSF was duped out of monies, this does not limit the culpability for loss to the fraudulent party – peripheral parties such as accountants and auditors are also capable of being assigned blame by the courts.

While these two cases highlight that auditors face a heightened level of risk, the same inference can be made of accountants and advisers, should they become aware of arrangements that don’t pass the “smell test”.

Practical Implementation – tips and traps:

• Auditors and advisers should consider the appropriateness of their engagements.
• Where assets are unable to be easily valued or verified, a heightened level of risk should be applied.
• Trustees should be made aware of the uncertainty of peculiar assets (be it recoverability, value or returns) and advisers/auditors should document these discussions with Trustees.
• The mere fact that a Trustee has engaged a financial adviser is not sufficient to rely on – the courts place emphasis on “direct” contact with a Trustee.

TAG Video – Super Investment Strategy

Whether you are 25 or 65, understanding the rules and choosing the right investment strategy within your super will influence how much money you’ll have in your retirement years.

In Part 1, Brenda Hutchinson discusses the new rules and regulations in Super and how they may impact you (35 minutes).

 

 

In Part 2, Leigh Jobling discusses the most up to date economic and market trends, investment options and Tips on investment strategies to maximise your financial goals (25 minutes)

 

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page.

Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).

The Block – Is this opportunity right for you?

We recently had the privilege of receiving a personalised walk-through of The Block’s Gatwick apartments by Greville Pabst, CEO of WBP Group and Buyers Advocate.

The 5 apartments are to be auctioned on Saturday 27th October and a summary of each apartment may be found at https://www.domain.com.au/the-block/

If you are interested in exploring the opportunity further, we can provide rental estimates, depreciation schedules, a statement of information for each apartment and an assessment of your borrowing capacity.

Contact us for a copy of the information and to organise a personal inspection.

 

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page.
TAG Finance and Loans Pty Ltd ABN 25 609 906 863 Credit Representative Number 483873
National Mortgage Brokers Pty Ltd ABN 88 093 874 376 Australian Credit License 391209

To fix or not to fix?

With some lenders having already raised interest rates and speculation others will follow…..is now the time to fix your home loan?

Fixing your home loan provides repayment certainty. Locking in a fixed repayment for a period of time, usually 1, 2, 3 or 5 years can assist with household budgeting. This provides peace of mind and may protect you against interest rate rises during that time. The downside of fixing your home loan includes additional repayment limitations, economic break costs should you wish to sell your property or change the loan and forgoing potential savings should interest rates decline during the fixed period.

Variable rate loans provide greater flexibility and additional benefits, geared to help you save money and repay your home loan sooner. The benefits include unlimited repayments, offset accounts and portability just to name a few. The main downside of variable rate home loans is exposure to upward pricing pressure on interest rates created by market forces and other economic factors.

Generally, investors favour fixed rate loans to secure a consistent yield for a period of time, whereas owner occupied borrowers tend to gravitate towards variable rate loans or a blend of both to hedge their position.

If you are considering to fix or not to fix, please don’t hesitate to contact us.

Complimentary Loan Review: for a complimentary review of your individual circumstances, contact us at loans@tagfinancial.com.au or phone 03 9886 0800.

More information: go to www.tagfinanceandloans.com.au

Disclaimer: The information contained on this page is general in nature. Professional advice should be sought before acting on any aspect on this page.
TAG Finance and Loans Pty Ltd ABN 25 609 906 863 Credit Representative Number 483873
National Mortgage Brokers Pty Ltd ABN 88 093 874 376 Australian Credit License 391209

Do you Really Need $1m to Start a SMSF?

TAG financial planning

Unless you’re a millionaire, is a SMSF worth it for you?

There has been a lot of talk in the media recently, driven largely by the uncovering’s of the Royal Commission as well as the Productivity Commission findings, surrounding the appropriateness of Self-Managed Funds.

Do you need $1m in super to have an SMSF?

If you believe the Productivity Commission recommendations, then yes. But that would also have you believe that the data they used as part of their findings is consistent across sectors.

SMSF data, provided by the ATO, included items such as contributions tax and insurance in its net earnings figures, while APRA data did not.

If there is to be an accurate comparison across the superannuation sector, then consistent data must be used before providing statements as controversial as this.

A minimum account balance of $1,000,000 would also mean that far more superannuation wealth will be held by retail and industry funds, whose performances in acting in the interests of their members have globally been challenged via the findings throughout the ongoing Royal Commission into the sector.

So why would someone start a fund with a lower balance?

We note ASIC’s long held stance that an SMSF should have a minimum balance of at least $200,000 and would agree that, from a cost perspective, the costs to obtain advice, implement an establishment, and maintain the fund on an ongoing basis, would be higher under circumstances where a lower balance exists.

However, costs are not the only factor at play with our clients.

Many clients may have a contribution plan in place, or they may aspire to acquire direct property via their superannuation.

They may want to undertake a Limited Recourse Borrowing or hold a commercial property to lease to their business.

Many clients like the control that an SMSF provides them over their retirement wealth, and the additional asset types and classes that they can invest in.

These factors are important to consider, rather than placing a roadblock in front of individuals aspiring to grow their wealth.

As advisers, we must always act in our client’s best interests and by providing the full variety of options, allow our clients to make informed decisions.

Practical Implementation – tips and traps

• The amount available in superannuation should not be the only consideration when deciding whether a SMSF will be right for your clients. Costs do form part of the consideration but it is far from the only consideration.
• As well as the costs involved in maintaining a SMSF, other considerations, such as flexibility, wealth accumulation and retirement planning should also form part of the decision making process. All of these factors combined, will help your client’s determine what is the right structure for them.
• So that our clients can make an informed decision, it is important that the information they are considering is comparable. If considering what costs are involved in running an SMSF compared to leaving their superannuation in a retail or industry fund, it is vital that all costs are compared.

Disclaimer: The information contained in this document is general in nature only. Professional advice should be sought before acting on any aspect of this document. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees . TAG Financial Services Pty Ltd (ABN 67 075 374 686).

TAG Super Seminar – hear what our attendees said….

At the TAG Super Seminar this year, we asked some of the attendees what they thought of the seminar.
Here’s what they have to say….

The annual TAG Superannuation Strategies Seminar offers clever strategies and technical knowledge to accountants and financial advisers. Michelle Griffiths and Brenda Hutchinson backed by the TAG team, are considered industry experts when it comes to superannuation. We have over 400 attend the seminar, with many coming back each year to hear our practical solutions to technical problems. Our seminar has now been running for over 20 years and is Australia’s longest running and most successful superannuation seminar.