Happy Holidays from the TNR Wealth Management team!
The team at TNR Wealth Management wish you a safe and happy holiday period and we look forward to working with you during 2017.
Our offices will be closed from 5pm on Thursday, 22nd December 2016 and will reopen at 8.30am on Monday, 9th January 2017.Read More >>
Ok, so I’m guessing you may have missed this one like the rest of Australia, but there’s been some changes to superannuation and it’s good to be across them if you want to look like you know your stuff at the next family BBQ.
Fundamentally though, superannuation is still the same tax effective investment vehicle, which has a maximum tax rate of 15% when the relevant rules are followed.
The super changes themselves can largely be categorised into two main themes – changes around contributions, and changes in retirement.
The changes to contributions don’t take effect until 1 July 2017. From that time, there will be a reduction in the amount that can be contributed annually, and if you have (or are approaching) a total super balance of $1.6 million, an additional restriction on your non-concessional (or after tax) contributions apply. If you have this good problem you may want to speak to a financial adviser to see how they can help make you more money.
Another change which comes through from 1 July 2017 is the annual limit for concessional contributions which falls to $25,000. This limit applies to everyone eligible to make or receive these pre-tax contributions, which generally comprise Super Guarantee (SG) amounts (the contributions your employer makes on your behalf) amounts salary sacrificed to super (additional contributions you make because you have too much money or “you know your stuff” when it comes to super) and, if you’re eligible, personal deductible contributions (google it). If all you receive is the minimum SG required from your employer, then the reduction in annual limits (from $30,000 or $35,000 this year depending on your age) won’t have an impact on you.
But if you also salary sacrifice, you may need to review your arrangements by 1 July 2017 to ensure you don’t inadvertently exceed the cap. Of course, the flip side is that if you aren’t maximising these contributions this year whilst the cap is higher, is there more you can do?
Your concessional contributions are generally taxed within the fund at 15%, however for high income earners there is an additional tax on their contributions making the effective rate 30%. The income threshold at which this extra tax applies has been decreased from $300,000 to $250,000 from 1 July 2017. Even though your concessional contributions are taxed at 30% it is still likely to be beneficial to continue contributing up to the cap as that tax rate would be significantly less than your marginal tax rate.
Up to now, if you were an employee and wanted to make extra concessional contribution you generally had to organise it as salary sacrifice through your employer. However, from 1 July 2017 you will also have the option of making concessional contributions directly to the fund. It will be important to consider which method is most appropriate for you, and for many, salary sacrifice will remain a valid option due to its relative simplicity.
For non-concessional, or after tax contributions, from 1 July 2017 the annual cap will be reduced from its current $180,000 to a lower limit of $100,000. The three-year bring forward provision still applies. What’s the three year bring forward provision I hear you cry. It’s basically a strategy which allows people (usually approaching retirement) to add up to three years’ worth of contributions in one year (provided they were under 65 at the start of the year).
With that limit reducing from 1 July 2017, the question again arises as to what you can do this year? Please note that you’ll need 3 ticks to “do more this year”. So, if you were under 65 (tick/cross) on 1 July 2016 (tick/cross), and you haven’t used the bring forward provision in the last 2 years (tick/cross), you actually have the ability to contribute up to $540,000 of after tax contributions this financial year and give your super a great kick before the limits reduce.
Another change taking effect from 1 July 2017 is that the requirements to be eligible for a tax benefit for making a non-concessional contribution for your spouse have been relaxed. Previously the spouse could earn no more than $13,800 for the contributing spouse to receive the benefit. From 1 July 2017, the receiving spouse can earn up to $40,000.
Changes in retirement
Despite all the talk about changes to super in retirement, there have been no changes to the rules around when you can actually access your super or, if it comes from an accumulation style fund, the way the payments are taxed. The existing rules continue to apply.
First, if you have commenced drawing on your super through a Transition to Retirement (TTR) income stream, or look to commence one from 1 July 2017, from that date, earnings on the assets in your super fund that support that TTR will no longer be tax free. Rather, those earnings in the fund will be taxed at the standard 15% tax rate in super, rather than being tax free in the fund. Remember, there is no change to your personal tax on the amounts you receive from a TTR.
Second, for pensions paid in the ‘retirement phase’, which essentially refers to pensions payable to you after retirement or age 65, there is a limit on how much you can actually start these pensions with. From 1 July 2017, that limit will be $1.6 million. Amounts above that need to stay in accumulation phase, with the earnings on those accumulation amounts continuing to be taxed within the fund at the rate of 15%.
If you don’t have, and don’t expect to ever have a balance in excess of $1.6 million in your super account, these changes won’t impact you, other than if you run a TTR.
One of the major things that these recent super changes have shown is that it’s really important to understand what the changes mean for you. Super, as a concept, remains unchanged. The Government estimates that no more than 4% of the population will be impacted by these changes*.
Whether you are in that 4% or not, it’s always worth talking to a financial adviser just to see how you are paced in terms of your current plans, or if they should change.
For more information, please contact TNR Wealth Management on 02 6621 8544
Source: BT Financial Group
Disclaimer: Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstancesRead More >>
Economic Update December 2016
Please review the following Economic Update December 2016 from MLC
Please contact TNR Wealth Management for more information.Read More >>
Celebrating the Christmas Spirit
Thomas Noble & Russell and TNR Wealth Management had their annual 2016 Christmas Party on Saturday December 3 2016. The party was held at the Point Restaurant/Ramada Hotel in Ballina. (http://thepointballina.com.au/)
Despite the rainy weather, we all had a great night with a nice view overlooking the Richmond River, fine dining, great company and some of us even got down on the dance floor for a boogie. Overall it was a great atmosphere, and we even had Santa make a visit as he delivered presents to everyone!Read More >>
The Cost of Trying to Time the Market
Risk of missing the best days in the market 1996–2016
The bottom chart shows the daily gains and losses in the Australian stock market since 1996. Within that “noise” are the 100 top returning days to be invested.
The top chart shows the impact of being invested throughout the period compared with missing a varying number of the best investing days.
Investors who attempt to time the market run the risk of missing periods of exceptional returns, leading to significant adverse effects on the value of a portfolio. This top graph illustrates the risk of attempting to time the stock market over the past 20 years by showing the returns investors would have achieved if they had missed some of the best days in the market. The bottom graph illustrates the daily returns for all trading days.
Investors who stayed in the market for all trading days achieved a compound annual return of 8.3%. However, that same investment would have returned 5.5% had it missed only the 10 best days of stock returns. Further, missing the 100 best days would have produced a loss of 6.6%. Although the market has exhibited tremendous volatility on a daily basis, over the long term, stock investors who stayed the course have been rewarded accordingly.
The appeal of market timing is obvious – improving portfolio returns by avoiding periods of poor performance. However, timing the market consistently is extremely difficult. And unsuccessful market timing, the more likely result, can lead to a significant opportunity loss.
Returns and principal invested in stocks are not guaranteed. Holding a portfolio of securities for the long-term does not ensure a profitable outcome and investing in securities always involves risk of loss.
ABOUT THE DATA
Stocks in this example are represented by the S&P/ASX 200 index, which is an unmanaged group of securities and considered to be representative of the Australian stock market in general. An investment cannot be made directly in an index. The data assumes reinvestment of income and does not account for taxes or transaction costs.
It is very tempting to believe that you can enhance your investment returns by jumping in and out of the market at the right times.
This belief is emboldened by looking at previous market booms and busts and re-assessing them as predictable in advance. (This is known as hindsight bias.)
In reality, the ability to consistently and accurately predict the best times to buy into or sell out of the market is a very valuable skill, but not one many (if any) people possess.
The benefits of successfully “timing the market” can be immense, but must be considered alongside the potential downside, being out of the market at the wrong time.
As the top chart shows, there were more than 5,000 investing days over those 20 years and missing just the top 1% of them would turn a 9% gain into an 0.5% loss, missing the top 2% would result in a substantial loss.