Viewing posts from: September 2017

Salary sacrifice vs personal contributions to super

All / 28.09.20170 comments

Amongst the changes made to superannuation effective 1 July 2017 was the welcome and sensible move to give everyone who makes a personal contribution to super the option of claiming a tax deduction for it. Prior to this date, tax deductions on personal contributions could only be claimed by the “substantially self-employed”.

The upshot is that, if you are an employee, there are now two ways in which you can optimise the tax-effectiveness of your additional super contributions:

  • opt for a salary sacrifice arrangement, whereby your employer makes additional superannuation contributions beyond the compulsory superannuation guarantee (SG) amount from your pre-tax earnings and reduces your salary accordingly; or
  • make a personal contribution and claim a tax deduction when you submit your tax return.

Generally, higher income earners gain the greatest benefit from either of these strategies. Lower income earners may be better off not claiming the tax deduction and receiving a government co-contribution if eligible.

Which option?

For starters, employers don’t have to offer salary sacrifice. If they don’t, claiming a tax deduction is the only option.

Another thing to look out for: if salary sacrifice is available, will your employer still make SG payments on your pre-sacrifice salary? Legally, employers only need to pay SG on the actual salary amount, so for every $1,000 of salary sacrifice you would lose $95 in SG contributions. In this situation, you will most likely be better off claiming a tax deduction.

Fortunately, most employers do the right thing and don’t reduce their SG contributions. The federal government has also announced plans to ensure salary sacrifice does not result in a reduction in SG payments. If this happens, it will pretty much level out the playing field between salary sacrifice and tax-deductible personal contributions, but some subtle distinctions remain.

Let’s look at Jenny and Brian. They both earn $120,000 a year, and want to contribute an extra $12,000 pa ($1,000 per month) to superannuation as concessional (pre-tax) contributions. Jenny opts for salary sacrifice and will receive SG contributions based on her pre-sacrifice salary. Brian decides to make his own contributions and later claim them as a tax deduction.

Both will see their overall annual income tax bill* drop by $4,680. After allowing for 15% tax on the super contributions, they are both better off by $2,880 for the year.

The key difference is that Jenny will enjoy her tax benefit each payday. Brian needs to wait until the end of the financial year and submit his tax return before he can receive any benefit from his choice.

On the other hand, Brian’s regular pay will be more than Jenny’s as his gross income remains at $120,000 pa compared to her $108,000. This gives him more flexibility. For example, he can wait to make his entire contribution just prior to the end of the financial year – if he hasn’t been tempted to spend it in the meantime. However, if he makes regular contributions to his super fund, his net disposable income each month will be lower than Jenny’s. Only when he receives any tax refund might they be back on equal terms.

Beware the rules

While the greatest benefit of extending tax deductibility on personal contributions goes to employees who are unable to access salary sacrifice, it’s still a positive move that provides everyone with flexibility and choice. However, whether you opt for salary sacrifice or claiming a tax deduction, there are rules to be followed. Talk to your financial planner about the best superannuation contribution strategy for you.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.


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 circumstances.

*  Including Medicare levy

Read More >>

Invest for the future not the past

All / 20.09.20170 comments

Investing bears no resemblance to gambling and, unfortunately past ‘form’ seldom provides an indication of future performance.

Many investors are tempted to look at the best performing sector over the past year and then switch their investments accordingly. Beware this can be a recipe for disaster.

In many cases, last year’s poor performer can turn out to be this year’s best – for example, International shares in 2015/16 averaged -2.7% but in 2016/17 became the star performer at 18.9%.

Or vice versa – Australian listed property achieved an average return of 24.6% in 2015/16 but proved to be the worst performing sector in 2016/17 averaging -6.3%. Investors who changed their portfolios to chase those high returns from the previous year would have been seriously hurt.

The simple answer to this lack of form is to establish a portfolio with a mixture of the various investment assets that suits your own objectives and risk profile. Staying with this formula over the long term will invariably provide the most satisfactory outcome, irrespective of the performance of individual assets.

 

Contact us on 02 6621 8544 if you would like to review your portfolio to ensure it’s continuing to meet your needs.

 

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 circumstances.

 

Read More >>

When was your last financial review?

All / 15.09.20170 comments

The months seem to fly past in a blink of an eye and although it feels like we were celebrating Christmas just a few months ago, it’s looming on the horizon again – another year gone!

Almost every year we see changes to our superannuation system, interest rates, the stock market and the property market.

All of this emphasises the need for regular reviews of your financial strategy and your investment portfolio. A full review should take place on an annual basis and cover such topics as:

  • Have your financial objectives changed as a result of changed business, job or family circumstances?
  • Are you on course to achieving your objectives in the planned timeframe or are adjustments needed?
  • Has there been new legislation or taxation changes which you need to factor into your plan?
  • How have your investments performed and are they appropriate for current market conditions, or would you benefit from rebalancing your portfolio?
  • Are you adequately protected against changing financial and personal risks?

If you’re looking after your own investments, it might be time to ask a professional adviser to take a look at your strategy and portfolio to ensure it’s continuing to meet your changing needs now and into the future. Give us a call.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.


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 circumstances.

Read More >>

It’s never too early to start

All / 05.09.20172 comments

When teaching your children to manage their money you are helping your kids grow into financially savvy adults. You might even learn something about your own money habits along the way.

Children see money nearly every day, and as they become old enough to recognise the currency value on coins and notes they’ll want to start counting – just be mindful that very small children and coins don’t mix well.

If you decide to give children pocket money or to pay them for doing age-appropriate chores, encourage saving by giving them a money-box. Get yourself a money-box as well and each time your child puts money away, do so yourself – and vice-versa. It could be fun!

As they get older, open their own bank account. Explain how interest works and talk about their savings goals. If, for example, they want to buy a new bike, discuss how much it will cost and how much they will need to save each week.

When your child is old enough, introduce them to their bank statement and point out any fees and charges. Children often assume that ATMs supply unlimited cash. When making a withdrawal, show them the receipt and explain how the balance has reduced.

Most kids today have mobile phones. This popular object is a great opportunity to teach them about meeting financial obligations. Show them how to put aside money for bills, and allocating the remainder for savings and spending.

Part-time jobs are a standard way for teenagers to earn money. If you believe they are handling their money responsibly you might consider a pre-paid “credit” card. These work similarly to a credit card except they use the owner’s money instead of credit and are an excellent tool for learning how “plastic” works – when there’s no more left, there’s no more left.

Learning early that plastic money is not limitless can avoid a lot of grief later in life. The Australian Securities and Investments Commission (ASIC) reports that the average Australian credit card holder owes close to $4,300 per card, on which they pay around $738 interest each year! However, not all debt is bad; few people buy a home without a mortgage.

Your child’s first debt will likely be a car. It’s tempting to help financially but you’ll probably do them a greater service by encouraging them to borrow. Not only will they earn their own credit history, they will understand the importance of borrowing, the effects of interest and price.

If you decide to lend them money, establish a repayment schedule and be strict.

Teaching your kids good money habits early is a lasting gift. And as the line goes – if you ever think no-one cares about you, try missing a mortgage payment!

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.


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 circumstances.

Read More >>
  • Service your future regularly

    Most of us take for granted that we have to get our car serviced regularly. It’s not something we look forward to, but we know we have to do it – or it will let us down when we most need it. A regular review of your financial plan is just as important – and […]

  • Holidays without financial baggage

    We all need something to look forward to and for many members of Generation X the lure of discount airfares and package deals are irresistible; others have luxury holidays high on the agenda. And why not? We all love a holiday and what’s more, happiness, apparently, is not just in the holiday itself, but in […]

  • Attention: SMSF Trustees

    When it comes to retirement funding, over one million Australians have established Self-Managed Super Funds (SMSFs) to take more control over this crucial stage of their lives. However, SMSF trustees take note – to protect your and your fellow members’ best interests, there are strict rules governing SMSFs which, if broken, attract strong penalties. The […]

  • 5 Ways to give your Christmas a makeover

  • Millennials & Money – your unique needs

    If you entered the world between 1980 and 1996 you’re part of the “millennial generation”. You’ve grown up in an age of unprecedented abundance and incredible technical innovation, and as a group, enjoy a greater wealth of opportunity – professionally, socially and recreationally – than any previous generation. Many goods and services have never been […]

TNR Wealth Management