Autumn Newsletter 2011 Money Works Financial Planning Pty Ltd March 2011
A Word from Chris Keith Abraham, the well know Australian Business mentor and motivator sent me this email, and I thought it so meaningful, I would like to share it with you.
An Autumn Greeting from DLTK
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There is a great quote.... “Life is to be enjoyed, not endured! I know life can be tough from time to time, but not all the time. Yes, I believe some things need to be tough as a test, as a character builder and to strengthen our resolve. However if it is tough all the time, is that not a message or a signal that maybe it is either time to change; time to do something different, or maybe you just need to change the method of how you do it? Pursuing what you love to do, working towards your overall plan and achieving your goals should give you joy. If it doesn’t, something needs to change. For as your pursue your passion you get into flow, find focus and the right circumstances are facilitated for your to enjoy. It is often said
that people are motivated to change because of the pain they’re in or the pleasure the changes provides them. The challenge is most people are rarely in enough pain or pleasure and they just endure circumstances that are uncomfortable and inconvenient. Inevitably, they miss out on the real joy that pursuing a passion provides. What do you want to stop enduring this year?” As you may know, we at Money Works Financial Planning take goal setting very seriously. It helps us spring out of bed in the morning, it’s never the “reaching our target” that is enjoyable it’s the journey there. So look at what you truly desire in all areas of your life and if you want to discuss your financial goals – call me. After all my role as your financial planner is to help and guide you towards your goals, possibly crack the proverbial whip and remind you that we need to stay motivated and focused.
Come," said the Wind to the Leaves one day. "Come over the meadow and we will play. Put on your dresses of red and gold. For summer is gone Children of Baby Boomers – How to Protect Their Inheritance and the days grow The solution An interesting concept in Alecia contracts Ross River cold." Although Alecia could not
Inside this issue: A Word from Chris 1 Children of Baby Boomers
1
Changed to TPD Insurance
2
What is a Hot Suburb?
3
Concessional Contributions
3
Motown
4
insurance has emerged and one that I had not considered. The concept of insuring adult children so they do not become a financial burden either by misfortune or misdeed. Let me explain with this example.
Fever after a recent holiday, she has been advised that she will improve after 12 months but in the mean time she is too exhausted to work. She needs to move back into home with her parents so they can care for her and although she has Alecia is a 25 year old Market- rented out her home the rent ing Manager who has been with does not cover the mortgage her current employer for 2.5 payment and other costs. Her years. She purchased and parents are covering the shortmoved into her first home 6 fall on Alecia’s property and months ago after saving madly paying her medical and living for 2 years while living at home expenses. This has placed a with her parents. Although she huge strain on the family’s has very little equity in her home financial situation and Karen and the payments are currently a is now contemplating trying to struggle, she is hoping for a pay find part time employment. rise soon and intends staying in This is not an uncommon the home for a number of years, situation, although the stories anticipating a rise in the value. may differ, the end result can Her mother Karen, who is 59, be the same. An accident, has ceased employment as there injury, loss of job or trauma are no other children at home experienced by an adult child and she and her husband Steven can be a huge financial strain feel they can manage on one on their parents. income as their needs are simple.
afford Income Protection Insurance, her parents could, and as the quotes below show, for as little as $55 per month Alecia could be receiving a benefit which would be advantageous to all. Zurich Income Protection $3,437 per month benefit, for 5 years, with a 30 day wait = $85.87p.m One Path I/P $3,437 per month benefit, for 6 years, with a 30 day wait = $54.64p.m Tower I/P $3,437 per month benefit, for 5 years, with a 30 day wait = $54.20p.m This may only be relevant to a number of you, but certainly something to think about. (Figures quoted correct as at 7th March 2011, produced from quoting software of individual companies.)
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Autumn Newsletter
Changes to deductibility of TPD Insurance post 30 June Background Currently, Total and Permanent Disability (TPD) premiums paid by the trustee of a superannuation fund are 100% tax deductible due to the operation of transitional rules. From 1 July 2011, TPD premiums will only be deductible to superannuation funds to the extent that the policy's definition of TPD equates to the tax law definition of 'disability superannuation benefit'1.
If you have any questions about your Life, TPD, or Income Protection Insurance, please call the office to make an appointment
Draft Taxation Ruling 2010/D9 The ATO has issued a draft tax ruling to assist trustees in determining whether or not an insurance premium would be partially or fully deductible. Importantly it is worth noting that in some cases the trustee may be required to obtain an actuarial certificate to determine what portion of the premium is eligible for the tax deduction. While this may not impose much of a cost burden in a large fund, a SMSF trustee may wish to consider, where possible, changing their TPD insurance policy to one that either: 1. is 100% tax deductible; or 2. separately identifies the premiums payable for each type of insurance cover offered under the policy where there are different types of TPD cover offered. Based on the draft ruling, from 1 July 2011 trustees of superannuation funds will
need to obtain an actuarial certificate identifying how much of a single premium is tax deductible where:  the TPD policy refers to an individual's 'usual' or 'own' occupation; or  the TPD policy includes cover for loss of limbs or sight; or the superannuation fund trust deed's definition of TPD is more restrictive than that contained in the policy document. 1 Depending on the exact wording of the policy, a trustee of a superannuation fund would not be required to obtain an actuarial certificate where the TPD policy is provides cover for 'any occupation' and the policy's TPD definition equates to the definition of a disability superannuation benefit under tax law, and: 1. the policy includes domestic duties2 cover; or 2. the policy includes a loss of independence cover; or 3. the policy includes death cover. In the above cases, the entire premium would be tax deductible. If 1, 2 or 3 do
Whoops, this may not end well!
not apply and there is an option for 'own occupation' cover, for which the additional premium is clearly identified, then the proportion of the premiums payable for this 'own occupation' cover would not be deductible to the trustee. No release date has currently been announced for the final ruling, however, it is intended to apply from 1 July 2011. A copy of the full draft tax ruling can be found at: law.ato.gov.au/pdf/pbr/ tr2010-d009.pdf Wrap Technical Update March 2011
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Autumn 2011
What is a “hot suburb” Peter Koulizos, The Property Professor A hot suburb:- is one which is considered to be undervalued now but forecast to have greater capital growth in the future than most other suburbs. There are great money making opportunities to be had by buying into a hot suburbs before everybody else realizes it. The capital growth of a property/ area is dependent on two main criteria– where is it and what is it. Where is it– For significant capital growth to occur, a property needs to be in the right location and have one or more of the following attributes: Proximity to the CBD, proximity to the sea, proximity to a prime suburb/area, other redeeming features, such as proximity to a regional shopping centre, being walking distance to a train station, or in the zone of a highly desirable high school. Proximity to the CBD is important as that is where the highest concentration of people work. As most people have to go to work every day, being relatively close to their work place is important as it cuts down on commuting time. Being close to the sea has become increasingly important in the
past 10 to 15 years. This passion for living close to the sea- ‘sea change” is driven by lifestyle preference. A Prime suburb is often too expensive to buy into but, at times, adjacent suburbs have similar characteristics to the prime suburb and are much cheaper. Redevelopment of an area, transforming it into a prime area, can also help increase the value of adjacent areas. The redeveloped areas may be too expensive to invest in but adjacent areas could be relatively cheap.
to a property, depending on what condition it is in and if it has been renovated/extended. This is because properties of this era are scarce and highly sought after. Such styles as Edwardian, Victorian, Federation or Californian bungalows are in demand from owner occupiers who fall in love with the architecturally appealing fronts, high and ornate ceilings, polished wooden floor boards and fire places.
Suburbs with a high proportion of period homes that are ripe for renovation are often sought out by An often touted selling point by agents is that a young professional workers who generally buy property is close to shopping and schools. with their heart and not their head, thus increasing Being within driving distance to a large regional the price of homes in these areas. Period homes shopping centre (e.g. Westfield shopping are particularly popular in Melbourne, Sydney and centre) or in the zone of a highly sought after Adelaide. A house with a lovely view will attract a school (such as Kew High School in premium, especially a property with a view of the Melbourne, or Norwood Morialta High School in water. Adelaide) can add tens of thousands of dollars So there you have it, a checklist of what to look to a property. for in your next ‘hot suburb’ investment - close to What it is—The attributes of the property itself, the city, close to the sea, highly sought after in particular the looks, also play a large part in schools, shops and public transport nearby, the rate of capital growth. cheaper than neighboring prime suburbs and a high concentration of period homes. If a house looks nice it can attract a premium. A character of period home can add great value Happy House Hunting!
Concessional Contributions cap post 30 June 2012 The transitional concessional contributions cap for those aged 50 and over, introduced with the Simpler Super reforms, ceases on 1 July 2012. In May last year, the Government announced it would allow those aged 50 and over to contribute $50,000 per annum from 1 July 2012, provided their superannuation account balances total less than $500,000. The $500,000 threshold will not be indexed.
The following options were proposed by Treasury for consideration: What should be included in the $500,000? 1. The account balance(s) plus any withdrawals from superannuation (indexed annually to AWOTE) 2. The account balance(s) but not withdrawals 3. Excluding those who have commenced drawing any of their superannuation from accessing the higher cap down. By Treasury has released an options paper on drawn down they mean both lump sum various methods of calculating whether a and pension draw downs. client has less than $500,000 and can Who will be responsible? access the higher $50,000 concessional Two options were outlined: contributions cap. The individual - under a full self The options paper looks at a range of issues assessment model, or when applying the $500,000 limit including: The ATO - it is expected that individual's would be able to rely on an ATO 1. What will be included when calculating on-line facility providing them with account whether the $500,000 limit has been balance information which will be made availreached or not able to them prior to the commencement of the 2. Who will be responsible for assessing financial year in which the higher cap applies. the $500,000 limit At what point will the $500,000 be as3. At what point in time will the $500,000 sessed? limit be assessed 30 June in the preceding year, or 4. What methodology will be used for 30 June two years prior to the relevant calculating account balances
financial year. In other words for the 2012/13 financial year, either the account balance as at 30 June 2012 or 30 June 2011 would be used. What methodology could be used to calculate account balances? For accumulation, defined benefit funds, and allocated/account based pensions it is proposed that the withdrawal value be used. For pensions that are not allocated/ account based, the family law methodology for valuation would be used. To prevent individuals from circumventing the rules, it is proposed that the following would be put in place: 1. Rollovers would not be permitted into funds where a TFN has not been quoted 2. SMSFs will need to report assets at net market value and include the members share of unallocated reserves The closing date for submissions on the consultation paper is 25 March 2011. It is expected that the higher concessional contributions cap will commence from 1 July 2012. Wrap Technical Update March 2011
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