Author: TAG Financial Services

Michelle Griffiths, Partner at TAG Financial Services has spoken to many parents who want to assist their children buying their first house. Michelle outlines the key elements that will make this a success.

Parents want to assist their children buying their first home for 2 main reasons:

1. Because housing is so expensive now – helping them may be the only way they can actually break into the housing market; and/or
2. They want to make sure they are not overcommitted and have a little bit of “breathing space” when they first buy their home, so they are not living from week to week because they have borrowed too much.

I have found that the WAY in which parents offer assistance is a KEY part of whether it is a successful strategy. Here’s my suggestion of the wrong way and the right way to go about this:

WRONG WAY:

Parent tells the child in advance (when they are house hunting) that they will contribute $50k to the purchase of their first home. The child then goes from looking at houses that they could afford of around $550,000 (based on their own savings and repayment capacity) and starts looking at houses worth $730,000 – because the extra deposit will allow them to borrow more. However the child is now in debt to the tune of $560k rather than the $440k that they were first shopping for – meaning that their monthly mortgage payments are going from $2,451 per month (paying total interest over the 25 years of the loan of $295,199) to $3,120 per month (paying total interest over the 25 years of the loan of $375,707). This gift has not achieved your objective – as whilst they were always going to be able to get into the market – they no longer have any additional “breathing space” and in fact they have LESS than what they would have had before the “gift”.

RIGHT WAY:

Parent lets the child go through their process of saving for a deposit and working out what their affordability for their home loan repayments are and therefore buy a house within their financial framework. Once the child has committed to the purchase and have their loans in place, the parent then comes in to offer some additional help – which can be used to take the edge off the home loan… this may be in the form of being able to reduce the home loan by say $30,000 but also paying for the curtains and new carpet that they really want. This means you have a very grateful child and also given them some additional breathing space on the loan – you potentially reduce the interest that they pay over the course of the loan by $20,000!

So have a really hard think about what the REASON for your gift and then get some advice around HOW you can do this in the best way so that you and your children are left in the best possible financial position.

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

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).

Start the new Financial year with our top five resolutions to boost your financial success:

1. Develop a budget – this is the most valuable tool for managing your finances. 

2. Manage your debts – chip away at your debts and you’ll spend less on interest

3. Improve your cashflow – have a look at your incomings and outgoings to see if there are ways to even out your cash flow.

4. Start saving – create a savings plan, remembering that every bit you put way adds up and makes a difference in the long run.

5. Focus on the future – get your finances under control and start  concentrating on your long-term investment strategy

Start now….  by watching our short video series:
Part 1 – Will I Have Enough to Retire?
Part 2 – Why Superannuation is Good for your Retirement
Part 3 – Are SMSF Worthwhile and When?
Part 4 – How to Build up my Super Balance?
Part 5 – Mortgage v Super – What is Best?
Part 6 – Pre-Retirement Strategies
Part 7 – How to Evaluate Good Advice

As the end of financial year approaches, it is important that you take the time to focus on tax planning and tax issues that affect you before 30 June 2018 arrives.

We have outlined some of the key tax considerations in our Tax Planning information sheets.  Click on the following links to download these:

Tax Planning for Businesses – 2018

Tax Planning for Individuals – 2018

Should you require further information or assistance in tax planning, please contact your TAG adviser on 03 9886 0800.

Together with the Council of the Ageing (COTA) Victoria, one of TAG’s clients was involved with writing a guide for Families on the Death of a Partner.

This is a practical guide about the people who you need to notify and the legal processes that follow after the death of a partner.  It also helps people navigate and deal with the red tape during this difficult and emotional time.

‘Death of a partner: A guide for families’ was launched at the Registry of Births, Deaths and Marriages in Melbourne last week as part of the Victorian Law Week activities.  For a copy of the guide, click here

For more information, visit https://cotavic.org.au

 

Treasurer, Scott Morrison, delivered his third Federal Budget on 8 May 2018 and the third budget of the Turnbull government. We have summarised the Federal Budget essentials for our clients including individuals and small business owners.

Personal Income Tax

A number of measures were announced that seek to reduce personal income tax over the next seven years.

From 1 July 2018

• A new non-refundable Low and Middle Income Tax Offset (LMITO) will be introduced to provide tax relief of up to $530 for taxpayers earning up to $90,000.
• The offset phases out from $90,001 to $125,333. This offset will be in addition to the existing Low Income Tax Offset (LITO).
• The Government will also increase the upper threshold of the 32.5% tax bracket from $87,000 to $90,000.

From 1 July 2022

• The LITO will be increased from $445 to $645, extending the upper threshold of the 19% tax bracket from $37,000 to $41,000.
• The upper threshold of the 32.5 % tax bracket will be increased from $90,000 to $120,000.

From 1 July 2024

• The upper threshold of the 32.5% tax bracket will increase to $200,000, removing the 37% tax bracket completely.

For taxable incomes exceeding $200,000, taxpayers will pay the top marginal tax rate of 45% (excluding the 2% Medicare Levy).

Business Taxation

$20,000 Asset Write-Off

Businesses with less than $10 million turnover can continue to immediately write-off asset purchases of less than $20,000. This has been extended to 30 June 2019.

Non-Compliant PAYG withholding

From 1 July 2019, businesses/employees will be unable to claim tax deductions for wages and contractor payments (where the contractor does not provide an ABN), where they have not withheld any amount of Pay-As-You-Go (PAYG) from these payments.

Limiting Tax Deduction for Vacant Land

From 1 July 2019, income tax deductions will be denied for expenses associated with holding vacant land, such as interest expenses and rates. These costs may be added to the Capital Gains Tax cost base of the land where they would ordinarily be an element of the cost base. This is an integrity measure to discourage land owners from holding vacant land, a process more commonly known as ‘land banking’.

Other Business Announcements

From 1 July 2019, a limit of $10,000 will be introduced for cash payments made to businesses for goods and services. This will not apply to transactions with financial institutions or consumer-to-consumer non-business transactions.

Single Touch Payroll

Single Touch Payroll will be introduced from 1 July 2018 for businesses with 20 or more employees and from 1 July 2019 for business with less than 20 employees.

It was announced that from 1 July 2019, there will be additional funding for small business to transition to Single Touch Payroll reporting.

Private Taxation

It was announced that there will be no changes to the Small Business CGT concessions themselves, but indicated a specific integrity measure where partners in partnerships that alienate their income by assignment in rights to future income of the partnership will no longer be able to access the Small Business CGT concession on the capital gain made in relation to the right.

Unpaid Present Entitlements (UPEs) to be treated as loans under Division 7A

While the ATO currently applies Div 7A to UPEs the budget announcement is that they will legislate the ATO interpretation.

It is unclear how the new legislation will treat quarantined UPEs which the ATO have previously accepted in their ruling that the quarantined UPE are outside the scope of the ruling.

The changes announced in the 2016-17 Budget in relation to Div 7A loans have been deferred to 1 July 2019.

Superannuation

No. of Members in a SMSF

The maximum number of members within SMSF will be increased from four to six from 1 July 2019 to allow for greater succession planning.

SMSF Audits

For SMSFs with a good compliance record, the requirement for annual audits will be changed to a three-yearly requirement. To be eligible, SMSFs need to have a clear audit history and a record of lodging returns on time for three consecutive years

Work Test Exemption for Retirees

From 1 July 2019, for those aged 65 – 74 years will not be required to satisfy the work test in order to make personal contributions to superannuation in the first year that they would otherwise not satisfy the test. To qualify, the individual must also have a balance of less than $300,000.

 Superannuation Guarantee opt-out

From 1 July 2018, individuals who have multiple employment arrangements, and where those arrangements result in employer superannuation contributions exceeding the $25,000 concessional contribution cap, will be able to nominate to exclude earnings from the superannuation guarantee regime.

 Measures to Limit the Erosion of Member Balances

From 1 July 2019, there will be a:

• 3% annual cap on passive fees on low balance accounts (less than $6,000);
• a ban on exit fees;
• changes to insurance arrangements for low balance accounts, members under 25 or accounts that have been inactive for 13 months; and requiring the transfer of all low balance inactive superannuation accounts to the ATO.

Trusts

Testamentary Trusts

From 1 July 2019, an integrity measure for minors receiving income from testamentary trusts will be introduced. The concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets. Income received by minors from testamentary trusts is currently taxed at normal adult tax rates rather than the higher tax rates that normally apply to minors.

Round Robin Distributions

The specific anti-avoidance rule that applies to closely held trusts that undertake circular trust distributions in a “round robin” manner will be extended to family trusts.

From 1 July 2019, these types of arrangements will give rise to tax on such distributions at a rate equal to the top personal tax rate (plus Medicare Levy).

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.

More Information

For all the Federal Budget’s key initiatives, visit the Federal Government budget website at Federal Budget 2018-2019.

If you have any questions after reading this please contact your TAG Financial Services adviser on (03) 9886 0800 or via email.

What is being brought to light by the Banking Royal Commission is disturbing, but for us in the industry it’s not surprising that some of the big institutions have not always acted in their clients’ best interest. Nearly 3 years ago, we made the move to obtain our own financial planning licence, so we are not tied in any way to a big institution. Even though the expense in obtaining and maintaining our licence is high, at least we are controlled by our own Board and can provide the services that clients need and want, with full disclosure of fees.

There are two things that really worry us about the consequences of the Royal Commission. Firstly, the bad behaviour of a few could seriously affect the next generation as they avoid the industry all together and don’t seek out quality financial advice. Secondly, the addition of another level of red tape that will add to the administrative burden and make the service more expensive. The result will be that another group will be excluded from seeking financial planning services because they simply cannot afford it.

The regulator should deal with the perpetrators in a manner that would act as a deterrent. This would allow the rest of the industry to move forward and talk about the good things that financial planning does for client outcomes. We have a lot of great stories and we have clients referring their family members and friends to our service. It’s a great service that is important to the financial security of our clients and shows how a good adviser can make a real difference.

The element of the financial planning industry (sadly quite significant) which is focused on bonuses for selling products and not on great client outcomes is a blight on our industry which is incredibly rewarding when done professionally and ethically.

If you would like to find out more about TAG:

• Come to our Investor Update information Session on Tuesday, 15 May 
• Go to our website
• Contact me

Leigh Jobling, Partner, Investment Advisory and Wealth