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4 ways to manage risk later in life

All / 21.05.2021

4 ways to manage risk later in life

A health crisis can occur at any time of life, but the risks obviously increase as we age. Unfortunately, due to this increased risk of illness or injury the cost of insurance for those over 50 can be high. As a result, people in this age group are tempted to drop their insurance cover altogether just when the need is at its greatest.

If age 50 is looming, or recently passed by, it’s even more important to continue to protect both your income-earning ability and the financial security of any dependents. Here are some solutions to consider:

  • Review your level of insurance. As your investments and superannuation increase, you may be able to reduce your cover and still provide for your beneficiaries.
  • Life and disability insurance can be arranged through most superannuation funds. Premiums can be lower and are paid from the superannuation balance thereby reducing strain on the household budget.
  • If you have accrued a lot of annual or sick leave, you might want to increase the waiting period on your income protection insurance which can reduce your premiums. Depending on circumstances, this may allow you to retain an important benefit at a more affordable price.
  • Pay in advance. Prepaying 12 months’ worth of income protection policy premiums before 30 June may allow you to bring forward a tax deduction for next year into the current year. This can potentially reduce your taxable income and the tax you pay this financial year.

Everyone is different so there might be other solutions not mentioned here. If you’re not sure what to do, always talk to a licensed financial adviser before you make any adjustments to your insurance cover. We can help you achieve the right balance for your needs at any age.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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.
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If you think you’d never fall for a scam, read this..

All / 13.05.2021

If you think you’d never fall for a scam, read this…

If you are over 50, male, highly educated, financially literate and manage your own super, beware. You’re at a higher risk of being the target (and victim) of organised investment fraud.

This isn’t necessarily because your demographic is particularly gullible. Rather, it’s because you’re more likely to control higher levels of wealth, perhaps as the trustee of a self-managed super fund (SMSF); you’re accustomed to making financial decisions; and you’re actively looking for attractive investment opportunities. What scammer wouldn’t want to target you?

Scams take many forms but when it comes to superannuation, two stand out:

  1. fraudulent investment schemes, and
  2. schemes offering early access to superannuation.

Either way, the result can be a major financial loss and dreams destroyed.

Golden opportunity

One clear warning of a scam is an unsolicited approach. Someone contacts you, usually by phone or email, offering an investment that is ‘both safe and delivering high returns’. This person will often know a lot about you, reciting accurate personal details they claim you provided in a questionnaire you completed earlier. Their story is supported by an apparently authentic website and, enticed by the attractive returns and smooth sales talk, you make an initial investment. At the beginning you receive statements showing your investment is growing steadily prompting you to add further funds. Then things go silent. Their phone number is disconnected, emails bounce and the website disappears, along with any hope of recovering your funds. Your stomach lurches. A cold sweat saturates you. You’ve been scammed.

Wonderful as modern technology is, it makes it easier for fraudsters to appear legitimate and transfer money in an instant. They close down one operation and set up another with ease. It doesn’t help that we give away much of our personal information, and what isn’t available for free can often be purchased by criminals.

Early access

The other major scam that lures many who need money quickly is the promise of early access to superannuation. This is how it works.

Bob’s superannuation is just sitting there, the solution to his financial problems if only he could access it.

He searches the internet for options and an advertisement promising early access to super pops up. This puts Bob in touch with a ‘specialist’ who helps him set up a SMSF, telling him that as the fund trustee he will be able to get hold of his super money. Bob signs the paperwork to set up the fund and rollover his super, but the money doesn’t turn up where it should. Eventually Bob discovers that his retirement savings were transferred to a bank account controlled by the scammer then moved overseas.

Not only has he lost the lot, Bob now faces a big tax bill for accessing his super prematurely. The scammers didn’t tell him that early access to super is only available:

  • in cases of incapacity,
  • to pay for medical treatment if seriously ill,
  • if in severe financial hardship and can’t meet immediate living expenses, or
  • if terminally ill.

Protection is the best cure

A few simple precautions can help protect your super (and other savings) from scammers.

  • Hang up on unsolicited phone calls and delete suspicious emails.
  • Take care when sharing personal information.
  • Visit scamwatch.gov.au for updates on scams that are doing the rounds.
  • If you suspect a scam report it to Scamwatch, even if you haven’t lost any money.
  • Seek advice from a licensed adviser. Legitimate advisers and investment managers appear on ASIC’s list of Australian Financial Service Licence holders.
  • And beware of dating and romance schemes. They are more common than fraudulent investment schemes, result in bigger financial losses, and are targeted at the same demographic!

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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.

 

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Federal Budget Update 2021

All / 12.05.2021

Federal Budget Update 2021

On 11 May 2021, the Government handed down the 2021/22 Federal Budget. Whilst this marked a return to the traditional timing of the budgetary processes, the content of the 2021/22 Budget continues to remind us that our economy and way of life has still not returned to full normality post the events of COVID-19.


Continuing to provide for a safer environment and incentives to increase spending by taxpayers to stimulate the economy remained a consistent measure and is in line with the October 2020 Federal Budget. Whilst many measures had been announced prior to the formal delivery of the 2021/22 Federal Budget, there were a number of additional measures released that have the potential to impact on the wealth plans of a number of Australians.  Many of these announcements could be regarded as a soft start to an election campaign by the Government, with expected commencement dates of 1 July 2022 – which is later than when the next Federal election will be held.

For many, the headline announcements may have centred on the extension of the low and middle income tax offset (worth up to $1,080) for another 12 months through to 30 June 2022, or the absence of any announcement of a change to the rate of super guarantee payments.  However, there were also a number of other superannuation announcements that could have a significant (and positive) impact on the wealth plans of many Australians.

Beyond wealth, the Budget did also have a focus on health issues for Australians, with measures announced to improve access to mental health services which, for a number of people, has had a heightened focus since the onset of COVID-19.  Additionally, a number of measures were focussed on women, with some aimed at addressing the retirement savings gap between males and females.

Below is an overview of some of the measures announced in this year’s Federal Budget. There may be others that impact on your personal situation.  A financial adviser can help outline what these measures may mean for you, and the opportunities available now, or in the future.

It is always important to remember that at this point, the Budget night announcements are only statements of intended change and are not yet law.

Personal tax changes

After the significant changes to personal taxation announced in the October 2020 Federal Budget, which largely took effect from 1 July 2020, it was no surprise to see no significant announcements on personal tax cuts in this year’s Budget.  The Government remains committed to its next stage of personal income tax reform that will take effect from 1 July 2024.

In the 2020/21 Federal Budget, the Government announced an extension of the low and middle income tax offset (LIMTO) for 12 months through to 30 June 2021.  In this year’s 2021/22 Federal Budget, the Government has further extended the availability of this tax offset for an additional 12 months.  Providing a maximum benefit (or tax saving) of $1,080 per person for those on taxable incomes between $48,000 and $90,000 and some benefit either side, before cutting out at a taxable income of $126,000 or above, the benefit of LIMTO is only gained when you lodge your income tax return for the financial year.

The Government also announced changes to the taxation of certain employee share schemes. Under certain arrangements, the taxation of an employee share scheme can be deferred to a point in time after the initial grant of the relevant shares, with a range of events noted that caused the tax to be assessed.  The Government is proposing to remove one of those taxing events, being cessation of employment, to remove any advantages that may have been obtained from terminating employment early.  This has the benefit for employers of being able to offer these remuneration incentives and retain key staff for longer periods of time.

Business taxation

In last year’s Budget, the Government announced that businesses with aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2022.  This has now been extended a further 12 months to eligible capital assets first used or installed by 30 June 2023.

In addition, another measure announced last year, allowing companies with an aggregated turnover of less than $5 billion to apply tax losses against taxed profits in prior years will be extended a further 12 months.  Under this arrangement, eligible companies will be able to carry back tax losses from the 2019/20, 2020/21, 2021/22 and now 2022/23 income years to offset previously taxed profits from the 2018/19 or later income years.

Superannuation

Perhaps one of the most significant announcements around superannuation was a “non-announcement”.  The Government made no comment on making changes to the rate of super guarantee that you can earn as an employee, meaning it will increase by 0.5% to a rate of 10.0% from 1 July 2021.  It is currently legislated to then increase at 0.5% per annum until it reaches a rate of 12.0% from 1 July 2025.

Taking it further, the Government did announce that they will legislate to remove the current $450 of wages per month that must be earned before an employer is obligated to make super guarantee payments for an employee.  Expected to take effect from 1 July 2022, this measure will allow more Australians to start to accumulate superannuation savings earlier.  This is also one of a raft of reforms the Government announced targeting women.

Beyond superannuation guarantee, there were also a number of other changes announced that increase the ability for Australians to further enhance their retirement savings via their superannuation savings.  These measures, which are expected to commence from 1 July 2022, include:

  • Reducing the qualifying age at which a downsizer contribution of up to $300,000 can be made to super, when selling a principal place of residence, from 65 to 60;
  • Deferring the commencement of the work test that needs to be satisfied to make a contribution to super from age 67 to age 75.  This will mean that up to the age of 75, you can make an after tax contribution of $110,000 (based on current thresholds that apply from 1 July 2021) each year without needing to meet a work test in that year.  There are still however limitations on how much you can have saved in the super system and still be allowed to make these contributions.

For a number of years, the Government has offered a First Home Super Saver Scheme – allowing prospective first homeowners the ability to access up to $30,000 of their accumulated super savings to be applied towards the purchase of a first home.  Whilst there are a range of conditions that will still need to be met to qualify, the amount that can be accessed will be lifted to $50,000.

Finally, the Government has also announced there will be a two-year window to allow retirees who are stuck in older superannuation retirement products (such as lifetime income streams) to elect to exit those income streams and invest their retirement savings in a more contemporary product, such as an account based pension.  These older (or legacy) products offered potential tax and social security benefits, and any previous benefits enjoyed will not need to be repaid.  However, any new products commenced will be assessed under the rules that apply at the time that new product is opened.  Whilst that may be a worse taxation treatment or could potentially lead to a reduction in age pension entitlements, this may be offset by the ability to now access capital that was previously locked away.

Housing assistance

In addition to the First Home Super Saver Scheme changes mentioned earlier, the Government has announced additional measures to help Australians secure ownership of their first home.  These include:

  • Establishing the Family Home Guarantee with 10,000 places from 2021-22 to support single parents with dependants to enter, or re-enter, the housing market with a deposit of as little as 2.0%, and
  • extending the First Home Loan Deposit Scheme to provide an additional 10,000 New Home Guarantees in 2021-22 to allow eligible first home buyers to build a new home or purchase a newly constructed home sooner with a deposit of as little as 5.0%.

Social security

Whilst many social security recipients have enjoyed an increase in the base rate of their income support payments of $50 per fortnight since 1 April 2021, the Government has announced greater flexibility around the pensions loan scheme (PLS) for age pension recipients.

Currently the PLS allows recipients to receive (or borrow) an additional regular fortnightly loan amount with any ordinary Age Pension entitlement calculated under the means test.  Under the enhanced flexibility announced:

  • A ‘No Negative Equity Guarantee’ will apply, which will ensure that borrowers under the PLS, or their estate will not have to repay more than the market value of their property. This will align the Government scheme with that of private sector reverse mortgages.
  • Participants will be allowed to access up to two lump sum advances in any 12 month period, with the two instalments capped at a total value of 50% of the maximum annual rate of Age Pension.

Childcare

Announced prior to the formalities of the 2021/22 Federal Budget, and part of a wider range of announcements in the Budget that are targeted towards women, the Government will:

  • Increase the childcare subsidies available to families with more than one child aged five and under in childcare from 11 July 2022. This will be facilitated by increasing the potential subsidy percentage for the second or third child by 30%, but capped at 95%. Families must earn less than $353,680 to receive the additional subsidy. This is expected to benefit around 250,000 families.
  • Remove the $10,560 cap on the Childcare Subsidy from 1 July 2022. This cap is currently applicable to families who earn annual adjusted taxable income of more than $189,390. This is expected to benefit about 18,000 families.

Aged care

Several measures were announced in response to the Royal Commission into Aged Care Safety and Quality to establish a $17.7 billion investment in aged care over the next five years to implement a five pillar – five year plan. It is intended that these measures will ensure senior Australians will have access to high quality and safe care services, have more control and choice in their care arrangements.

Take the next step

As mentioned at the outset, the above reflects only a selection of the measures that were announced as part of the 2021/22 Federal Budget.  Many of the measures will not take effect until 1 July 2022 and most will require the passage of relevant legislation through Parliament.  However, it is never too early to start thinking about what sort of impact these announcements could have on your future financial wellbeing.

If you have questions or concerns regarding your personal circumstances please do not hesitate to contact us on 02 6626 3000.

This document has been prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac) and is current as at 12 May 2021.

The information in this document regarding taxation and legislative change is based on policy announcements which are yet to be passed as legislation and may be subject to future change.

This information 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.

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How much do you know about managing money?

All / 06.05.2021

How much do you know about managing money?

It might be safe to say that we are accustomed to the reality of having to work for a living. In fact, many of us are unlikely to know any different; because, since we can remember, Mum, Dad and other family members have been toiling to make ends meet and to provide for their loved ones.

At the same time though, we cherish the thought of reaching financial independence; that is, to adequately provide for our living expenses from our own accumulated resources. And, the quicker, the better, most might agree.

But, I hear you ask, how do I get from being a mere salary or wages earner, to a position where my wealth will be enough to cover my financial needs and dreams? This requires a focused and dedicated mindset; one where – by diligently taking control of your money – every cent of your earnings that is not spent elsewhere, is put towards reaching the goal of financial independence.

Are you financially diligent? Find out by answering our simple quiz.

Saving and investing is the same thing.
a) agree
b) disagree
c) sometimes

Using public transport is generally more expensive than having your own car.
a) agree – the longer journey time makes public transport more expensive
b) agree – my car is an asset, therefore it’s not an expense
c) disagree – after the ticket price, there are no further costs on public transport

Is taking lunch better than buying lunch?
a) yes – because it costs less to make your own
b) no – because buying lunch saves us time
c) no – because the ingredients cost the same anyway

Interest-free credit costs you nothing.
a) disagree
b) only if you pay the debt off in the interest-free period
c) agree

Rent-to-buy is the same as ownership.
a) sometimes
b) agree
c) disagree

Interest is the only expense when buying a property.
a) disagree
b) agree
c) it depends on the value of the property

By always paying the minimum instalment on my credit card, no interest is charged.
a) disagree
b) balances below my card limit are always interest-free
c) agree

Personal insurance is only important to older people.
a) agree
b) disagree
c) young people should avoid unnecessary costs like personal insurance.

ANSWERS & CALL TO ACTION

Saving and investing is the same thing.

disagree

Savings is the portion of your disposable income which you managed to put away without spending it. Investing, on the other hand, is the distinct and separate activity of purchasing an asset with the intention of receiving an income from it; or, to sell it later at a profit.

Using public transport is generally more expensive than your own car.

disagree – after the ticket price, there are no further costs on public transport

A study – which includes all the capital cities of Australia – found that driving was more expensive than taking public transport. However, the outcome may differ on a case-by-case basis depending on services available where you live.

Operating your own vehicle generally includes costs like fuel, CTP, registration, insurance, repairs, maintenance, and parking fees. Public transport, on the other hand, is highly subsidised in an effort to reduce traffic congestion on the roads; which effectively means that the government is paying a substantial portion of your travel costs.

Is taking lunch better than buying lunch?

yes – because it costs less to make your own

Reports show that ready-made meals could cost you as much as 47% more than making your own. And you will actually pay less tax by making your own lunch. There is no GST on most foods bought from the supermarket but that smashed avocado from the café gets hit with an extra 10% GST every time!

Interest-free credit costs you nothing.

disagree

Check the credit contract and you will find it stipulates that other fees can be payable; such as an application fee, monthly account fees and sometimes payment processing fees.

Be aware that if you don’t pay the balance in full before the interest-free period expires, interest will be charged on the outstanding amount and can be as high as 29% per annum.

It’s also important to remember that if you pay only the minimum amount stated by the lender each month, you will not repay the entire balance before the deal expires. Work out the actual monthly payment required to clear the debt in the interest-free period, then set up automatic payments every month to pay out the full amount. Remember to include any monthly fees in this amount.

Rent-to-buy is the same as ownership.

sometimes

You are effectively the owner of the item or item from the beginning of the rent-to-buy contract. There is also a corresponding legal commitment on your behalf to make the contractual repayments to the supplier as agreed. If you don’t make all the payments in the agreed time, the supplier can repossess the item.

Check the repayment schedule before signing a contract. In most cases, you will end up paying more than the cash price of the item. There will also usually be fees and other charges associated.

Interest is the only expense when buying a property.

disagree

In addition to the interest payable on a home loan, there can also establishment fees, ongoing monthly or annual fees, stamp duty, discharge fees, and, if you don’t have a big enough deposit, lender mortgage insurance – to name but a few – that need to be considered when applying for property finance.

By always paying the minimum instalment on my credit card, no interest is charged.

disagree

The minimum instalment is the lowest payment that you are allowed to make within your credit card contract rules. However, even if you pay the minimum instalment, interest is still charged on the outstanding balance.

The only way to avoid interest being charged to your credit card account is by paying the full closing balance on your credit card statement by the due date every month. If you can’t do this, set up a payment schedule to pay more than the minimum instalment every month until the balance is cleared, but be aware that the outstanding balance will accrue interest every month until the card is paid in full.

Personal insurance is only important to older people.

disagree

The type and level of personal insurance required depends on your age and commitments (including dependants). As such, age is not the sole determinant for personal insurance cover – for example, as you get older and financial commitments decrease, your insurance needs may also reduce.

Specific types of personal insurance, such as income protection, should be reviewed to help ensure you can still meet your commitments should you become ill or injured and unable to work.
Basic insurance cover is provided through most superannuation funds, but it may not be sufficient for every person’s needs. This is a key area where individual advice is recommended.

As the quiz may have highlighted, there are often factors which warrant closer attention as you go about making everyday financial decisions; and, perhaps more so when you are committed to reaching a goal of financial independence.

By taking control of your money, you often need to review the options to ensure that your choices and actions are aligned with the best possible financial outcomes.

However, with the high and ever-rising costs of living, saving more may be easier said than done. Replacing a propensity for spending with the habit of saving can often seem unattainable; yet, through determination and a focus on diligent budgeting, even from a seemingly insignificant start, your savings can soon grow into a substantial amount.

And, by leveraging the power of compound interest, your money works harder, forcing savings to grow faster.

There are many options available. By consulting with a qualified and licensed financial adviser on your journey to reaching financial independence, you will be better placed to ensure your decisions are better informed and aligned with the most appropriate investment opportunities to suit your specific needs and objectives.

Don’t wait another day – get started on the road to financial independence now!

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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.

 

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How much do you know about investing?

All / 28.04.2021

How much do you know about investing?

Investing is normally a topic that conjures up images of pin-striped executives and sophisticated financial markets.

But, in reality, the act of investing is part-and-parcel of our daily lives; all of us are doing it throughout the day, though we might not consciously stop to think about it.

By exercising and pursuing good eating habits, we invest in our health; taking good care of our families and looking out for friends is an investment in our relationships; and, commitment to education is an investment in our future.

These are but a few examples and many more can be found. The point is that – as a way of life – we consistently invest time, effort and other resources in matters that are important to us.

The largest investment for most of us is the countless hours spent on earning a living; a substantial part of our lifetime is absorbed by working to make ends meet.

Consider this basic truth: there are only two ways to earn a living – you must work for your money, or your money must work for you.

It’s important that our money works hard for us; both, on the way to financial independence, and thereafter, so that we can comfortably maintain the quality of life that we have become accustomed to.

So how does your financial savvy stack up right now? Try this quick quiz to find out.

How would you describe an asset?
a) something that suits my personal taste
b) something useful or valuable
c) only objects that I can see or touch

Is investment income taxed?
a) no, not at all
b) maybe, depends whether you have a job
c) yes

What is meant by “bull market”?
a) the farmers market
b) the price of meat
c) rising financial markets

What is a managed fund?
a) a pool of investors’ money controlled by professionals
b) investment opportunities only for high value individuals
c) managing your own financial affairs

What is a share?
a) a fund manager’s share of the investment profits made for clients
b) when industry professionals share the same client
c) ownership title in a company giving you the right to share in profits

Which is a riskier investment – property or term deposit?
a) property
b) term deposit
c) depends whether it’s short term or long term

What is a dividend?
a) when your investments are divided into cash and shares
b) when a company pays out profits to its shareholders
c) when your investments are divided into taxable and tax-free

What is negative gearing?
a) the opposite of a bull market
b) when advisers caution against a particular investment
c) when you borrow money to buy an investment asset that will result in a loss

ANSWERS & CALL TO ACTION

How would you describe an asset?

something useful or valuable

Investments, such as shares – are called assets because they are valuable and are intended to make our money grow. And physical items that can be put to good use –such as machinery – are also called assets because they may fulfil important roles; for instance, to manufacture consumer products.

Is investment income taxed?

yes

Investment income is taxable. An example is the interest that you receive on funds held with banks and financial institutions.

What is meant by “bull market”?

rising financial markets

When financial markets are upbeat and optimistic it’s referred to as a bull market. The opposite, when a market is pessimistic, is called a bear market.

What is a managed fund?

a pool of investors’ money controlled by professionals

Managed funds are vast amounts of money, made up by the contributions of many individuals placed together. The funds are invested in various assets and managed by experienced and skilled professionals.

What is a share?

ownership title in a company giving you the right to share in profits

Companies raise the money that they need for their operations – also called capital – by selling shares. The people and legal entities who have bought into a company are called shareholders. They have the right to vote on company matters and to receive a portion of its profits.

Which is a riskier investment – property or term deposit?

property

The return on your term deposit is guaranteed by the financial institution; whereas property investment returns fluctuate in line with property market values. The value of property can swing significantly and even fall.

What is a dividend?

when a company pays out profits to its shareholders

The directors of a company decide each year how much of its profit can go to the shareholders and how much should be held for the ongoing operations of the business. The portion of the profit that gets paid out to the shareholders is called a dividend.

What is negative gearing?

when you borrow money to buy an investment asset that will result in a loss

An example of negative gearing is through property – an investor finances a rental property through a mortgage. The interest and property maintenance costs are offset against the income. If these costs exceed the income, the property is negatively geared. In usual circumstances, one benefit of negative gearing is claiming tax deductions for the costs during the life of the loan and another when the property is sold and results in a profit. This practice should only be attempted in a rising property market.

So, how did you go?

Although it can be complicated, the financial markets can offer a great opportunity to make our money work hard for us. Sensible investments can mean the difference between reaching our financial goals, or not.

If the quiz shows that your own investment knowledge needs some work, we can help.

Financial advisers are qualified and licensed professionals who stay in touch with the fast-moving financial world and are able to provide solid guidance across all types of investing.

Contact us to see how investing can help you on the way to reaching your own financial objectives.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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.

 

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10 common financial mistakes before retirement

All / 22.04.2021

10 common financial mistakes before retirement

Many of us would like to think that ‘older’ means ‘wiser’, but when it comes to money that isn’t always the case. The complexity of Australia’s superannuation and pension systems doesn’t help. The upshot is that there are a number of common mistakes that retiring and retired Australians make.

What are those mistakes and how might you avoid them?

1. Underestimating how much you need

The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard calculates that a “comfortable” retirement for a couple costs $61,909 per year. For singles the figure is $43,687 per year. To fund these levels of income, the ASFA calculates that a couple will need a nest egg of $841,000, and a single $594,000 at retirement . Less than that and retirees become increasingly reliant on the age pension.

In 2015-2016, the average total superannuation balance for households headed by someone aged 60-64 was around $337,100 – well short of enough to fund a “comfortable” retirement.

2. Retiring too early.

Australians retiring today can expect to live until their mid-80s. For retirees in their mid-50s, that means finding a way to pay for a further 30 years of life.

The obvious solution to retiring too soon is to work longer. This provides a double benefit: it extends the savings period allowing a greater sum to be saved, and delays the point where withdrawals start to eat into accumulated funds.

Many people may also overlook the social benefits of work. They end up bored, and then could face the challenges of trying to re-enter the workforce as an older worker, or taking an extra risk by starting a business.

3. Not topping up super.

Making additional contributions into the tax-favoured superannuation environment can really boost super savings. Strategies involving salary sacrifice, spouse contributions and government co-contributions should all be in play well before retirement. Within the allowable limits of course.

4. Investing too conservatively.

A common view is that retirees should dial back on their investment risk by allocating more of their savings to cash and fixed interest, and less to shares and property. However, even 10 years is a long-term investment horizon, let alone 20 or 30. Cutting too far back on growth assets early in retirement may see savings dwindle too quickly.

5. Withdrawing super as a lump sum.

Superannuation can be withdrawn as a lump sum after retirement, and if you are over 60 it’s all tax-free.

But what then?

Common choices are to take that big trip or renovate the home.

Of course you’ll want to celebrate your retirement, but if you’re thinking of dipping into your savings in a big way, make sure you understand the potential implications for your future lifestyle.

Another option is to invest outside of super. This may be entirely appropriate. However, don’t forget that if you are over 60 and your super is in the pension phase, earnings and capital growth will be tax-free. Investing outside of super may see you paying more tax than you need to.

6. Expecting too much age pension.

Just because you’ve decided to retire doesn’t mean the government is ready to give you an age pension. To begin with you need to reach pension age, which is between 65 and 67 depending on your date of birth. If you haven’t yet reached your pension age, you’ll need to fund your lifestyle until you do.

Then there is an assets test and an income test. Too many assets (not including the family home) or too much income and the amount of pension you can receive will start to fall, eventually to nothing. It’s important to remember that these tests apply to the combined assets and income of a couple. If your partner is still working you may receive little or no pension.

7. Forgetting to plan your estate.

If you don’t have a current Will, haven’t granted someone you trust an enduring power of attorney, or made a binding death benefit nomination for your superannuation, you’re likely to leave a big headache for whoever will manage your affairs if you become incapacitated or die. The solution? Talk to a lawyer who specialises in estate planning matters sooner rather than later.

8. Overlooking preservation age and conditions of release.

You can retire any time you like. You may even be able to access some of your super if you have an unrestricted, non-preserved component. Otherwise you need to meet a condition of release. This usually requires reaching preservation age, which is between 55 and 60, again depending on date of birth. If you’re under the age of 60 it also means ceasing gainful employment with no intention to being gainfully employed again. Between 60 and 65 it is sufficient just to cease an employment arrangement. All funds can be accessed from age 65, regardless of employment status.

One way to access super after reaching preservation age but without retiring is to start a Transition to Retirement pension. However, this must be paid as an income stream. Lump sum withdrawals are not allowed.

9. Carrying debt into retirement.

It can be hard enough keeping up mortgage, car finance or credit card interest payments even when you’re working. It can become a real burden in retirement.

Where possible, do your best to pay down debt. It may help to consolidate debts and pay off one loan at the lowest possible interest rate. Downsizing your home may also allow you to start retirement debt-free.

10. Paying for unnecessary insurance.

Free of debt and without financial dependants, you may not need to maintain the same level of life and disability insurance you once required. Also, premiums can become expensive as you get older. The run up to retirement is an ideal time to review your insurances, a task best done under the guidance of your financial adviser.

Invaluable advice.

While the expectation may be that life should get less complicated as you get older, this short list reveals that’s not always the case. Many of these mistakes come with a high price tag but can be avoided by seeking professional advice.

Your financial planner will be able to assess your specific circumstances and help you develop a plan for your retirement. But don’t wait until you actually retire. As you can see, it’s never too early to start planning.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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.
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How much do you know about superannuation?

All / 15.04.2021

How much do you know about superannuation?

If you’re an Australian resident over 18 and earning more than $450 in a calendar month, you are probably contributing to superannuation.

In a nutshell, super is a strictly regulated, tax effective way of putting money aside for your retirement. The government sets a minimum compulsory contribution amount, which your employer calculates based on your income and pays into your nominated super fund. You are encouraged to contribute money to your super in addition to your employer’s payments.

Government policy, our changing lifestyles and extended life expectancies see the structure of superannuation and its supervisory guidelines being routinely revised. The result is a very confusing super system.

You probably have a basic understanding of how super works: you put money in and leave it there until you retire, right? But you also know it is more complex than that.

It’s your money after all, so take our quiz and find out exactly how much you know about building your retirement fund.

Q1: What is the current Superannuation Guarantee employers must pay?

a) 12%
b) 9.5%
c) 5%

Q2: Can you make personal contributions to super?

a) Yes, but under certain circumstances
b) Yes, but only at tax time
c) No, only compulsory employer contributions can be made

Q3: What are concessional contributions to super?

a) Contributions made by people holding Centrelink Concession cards
b) Contributions that attract government concessions such as reduced fees
c) Contributions that are taxable

Q4: What is the annual limit for concessional contributions to super and what happens if you exceed it?

a) $250,000 for those retiring in the next financial year. Amounts exceeding the cap are forfeit.
b) $25,000 regardless of age. Penalties may apply to amounts exceeding the cap.
c) There is no cap. The purpose of super is to save.

Q5: How does the government’s co-contribution scheme work?

a) The government may contribute a one-off sum up to $500 to your super fund
b) You can contribute to your partner’s super if they contribute to yours
c) You can contribute to a cooperative (pooled) super fund to assist low income earners

Q6: Do you have control over how your super is managed?

a) Yes
b) No

Q7: At what age can you normally access your super?

a) Upon retirement regardless of age
b) Upon retirement at age 65
c) Upon retirement and depending on age

Q8: Is your super included in your estate when you die?

a) Yes
b) No

ANSWERS & CALL TO ACTION

Q1: What is the current Superannuation Guarantee employers must pay?

9.5%

The compulsory minimum superannuation contribution is often referred to as a SG contribution or Super Guarantee contribution. It is currently set at 9.5% of an employee’s ordinary time earnings (OTE). This includes what you earn for ordinary hours of work, over-award payments, commissions, allowances, bonuses and paid leave.

Q2: Can you make personal contributions to super?

Yes, but under certain circumstances

You can top up your super fund in a couple of ways: salary sacrificing and making personal contributions.
Salary sacrificing involves contributing pre-tax money directly into your super fund. You need to arrange this through your employer because it means foregoing part of your wages or salary and investing the money in superannuation.

Personal contributions are post-tax, one-off lump sums you make to your super fund. They are called post-tax contributions because they come from money in your take-home pay or money you have saved outside of super.

Voluntary contributions to super cannot be used in place of your employer’s Super Guarantee contribution.

Q3: What are concessional contributions to super?

Contributions that are taxable

These are contributions on which you or your employer has claimed a tax deduction. They are taxed at 15% within your super fund. If you earn more than $250,000 per annum you will be taxed an additional 15% on the concessional contributions above this threshold. Concessional contributions include:

  • Compulsory employer (Superannuation Guarantee) contributions.
  • Salary sacrificed contributions made from your pre-tax income.
  • Personal contributions on which you claim a tax deduction.

Q4: What is the annual limit for concessional contributions to super and what happens if you exceed it?

$25,000 regardless of age. Penalties may apply to amounts exceeding the cap

In the 2017/18 financial year, any person, regardless of age, may contribute up to $25,000 pre-tax funds into superannuation. Total contributions exceeding the cap may attract additional tax.

From 1 July 2018, if you don’t contribute up to the maximum concessional amount ($25,000) the unused portion may be carried forward to increase your concessional cap in the following financial year. Your overall superannuation investment balance must be less than $500,000, and unused concessional contributions must be used within five years.

Q5: How does the government’s co-contribution scheme work?

The government may contribute a one-off sum up to $500 to your super fund

If you earn less than $51,813 this financial year and you make personal (after-tax) contributions to your super fund, based on your eligibility the federal government may make a contribution of up to $500 to your fund on your behalf.

The ATO will determine if you are eligible for a co-contribution and the amount after you lodge your annual tax return.

Q6: Do you have control over how your super is managed?

Yes

You can take a certain amount of control of your super by selecting the fund as well as how your money is invested. Depending on your employer you can choose from retail, corporate or industry funds. Compare fees, investment options and additional benefits such as insurance to decide which fund is right for you.

Alternatively, if you prefer to have total control, you might consider a Self-Managed Super Fund (SMSF). This is a private super fund run by its members. You can manage a SMSF yourself for up to four members although many people find the amount of administration, reporting and regulatory work prohibitive and costly.

An SMSF allows you to have complete control, however strict regulations govern the funds and members’ actions. As a member, you are personally liable for non-compliance and hefty fines will apply if your fund is deemed non-compliant by the ATO.

Q7: At what age can you normally access your super?

Upon retirement and depending on age

Your superannuation is preserved until you reach retirement and you meet certain age criteria:

  • If born before 1 July 1960 you can access super at age 55.
  • Between 1960 and 1961: age 56
  • Between 1961 and 1962: age 57
  • 1962 and 1963: age 58
  • 1963 and 1964: age 59
  •  From 1 July 1964, access super at age 60

Q8: Is super included in your estate when you die?

No

Superannuation is governed by tax law therefore it does not form part of your estate when you die. For this reason, it’s very important that you contact your superannuation fund to nominate a beneficiary.

In the event of your death, the super fund must pay your superannuation to the individual(s) you nominate.

If you don’t nominate a beneficiary, the trustee of the fund will decide which of your dependants are to receive your superannuation, or pay it to your executor for distribution according to your will.

So, how did you go?

There’s no doubt that Australia’s superannuation system is complex, yet its legislative structure makes it one of the most secure and highly regulated of its type in the world.

After completing this quiz, you may find you know more about super than you originally thought, or perhaps you found out a few things you didn’t know.

Either way, superannuation is not a set-and-forget investment; it needs regular management and review as your circumstances change.

Through the different stages of your life, superannuation is going to be there. Even when you’re young, perhaps buying your first home and having a family, the right super fund for you is chugging away in the background.

Later in life when the kids have left home and retirement is approaching, depending on how you have managed it, your strategy should have created a solid foundation on which to grow your savings and bring your retirement plan to fruition.

It’s never too early – or late – to dream of a worry-free, financially secure retirement. Speak to your financial adviser today to ensure your super strategy will bring those dreams alive.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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.
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Sacrifice your mortgage to build wealth

All / 08.04.2021

Sacrifice your mortgage to build wealth

Back in the days of “normal” interest rates the simple answer to the question “what do I do with any surplus savings?” was “pay off debt”. That’s still a sound strategy for anyone paying high rates of interest on credit cards or personal loans.

But if your only debt is your mortgage, and if mortgage interest rates are at the lowest they’ve ever been, does paying it off more quickly provide a good bang for your buck? And if not, what are the alternatives?

Taking down the mortgage

Trish is a 55-year-old senior manager and following a pay rise she estimates that she will be able to commit $1,000 per month of her pre-tax income to building her wealth. She has a mortgage on her home that has 15 years to run. With an outstanding balance of $220,000, an interest rate of 2.25% p.a. and monthly payments of $1,441, Trish examines the outcome of following the traditional advice of adding her new savings capacity to her monthly home loan repayments.

But how much can she really save? Her marginal tax rate is 39%, including Medicare levy, so after the tax office takes its bit Trish is left with just $610 per month to add to her current mortgage repayments. Even so that’s enough to see her home loan paid off in 10 years, allowing her to retire debt-free at her preferred retirement age of 65. Knocking five years off her loan will save her a lot of interest, but is there a better alternative?

A super idea

Trish examines the option of letting the home loan take care of itself for a while and to exploit some of the wealth creation opportunities offered by superannuation.

Under a salary sacrifice arrangement Trish could contribute $1,000 of her pre-tax income to her super fund. The tax office will still take its cut, but at just 15% Trish will be left with $850 per month to actually invest. That’s a handy boost right there.

Then there’s the investment return. Paying down her mortgage provides Trish with an effective investment return on her after-tax savings of 2.25% p.a. With ten years to go until her preferred retirement date it’s appropriate for Trish to invest her super in a balanced or balanced-growth portfolio with good expectations of significantly higher returns. So let’s see how things turn out if Trish’s super fund achieves a net return of 6% p.a. after fees and tax.

First, the mortgage: after ticking along with minimum payments of principal and interest for ten years it still has an outstanding balance of $81,712 – hardly the debt-free status that Trish was aiming for. But what about the super savings strategy? Due to the combination of tax advantages, higher returns and the power of compounding interest, Trish’s super fund is worth $139,297 more than it would have been if she had opted for the pay down debt strategy. After withdrawing $81,712 tax free from the fund and paying out her mortgage, Trish is $57,585 better off under the super strategy.

Balancing risk

While delivering lower returns during times of low interest rates, paying down debt does provide an effectively risk free return equivalent to the interest rate. Trish’s super strategy comes with a higher level of pure investment risk, and it is important that she is comfortable with the ups and downs that balanced and growth funds are likely to experience.

It’s also important to recognise that our situations are all unique. The same strategy won’t suit everyone, so talk to your financial planner about designing a savings strategy that’s right for you.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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.
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How to make your term deposits work harder

All / 01.04.2021

How to make your term deposits work harder

In 2011, the average term deposit could earn you around 6% per annum. Since then, the times, they have a-changed – and so have the returns on term deposits.

Despite average one-year term deposit rates paying around 0.9%, they still take an important role in most financial portfolios for the capital security and diversification components they offer.

The Reserve Bank of Australia (RBA) sets the cash rate via its monetary policy. The aim is to stimulate the economy by making savings accounts and term deposits unattractive and make borrowing cheap to encourage consumers to spend.

Generally this kind of monetary policy only lasts a couple of years which is why so few economists foresaw the protracted period of low rates we are experiencing.

Term deposits pay slightly higher rates depending on the length of the term. For example, investment over one year may attract 0.9%, while over three years the same investment may attract up to 1.3%.

Bonus saver accounts offer investors more attractive rates but you must read the fine print or better still, seek independent professional advice before committing. You could find that the ‘bonus’ may only apply for a short introductory period then revert to the standard cash rate, potentially lower than term deposit rates.

In other cases, bonus rates are only paid if a regular monthly contribution is made to that savings account.

Many people find these features work in their favour, but there can be traps for the unwary.

So if you’ve done your homework, and term deposits remain the most appropriate fixed interest investment for you, there are a few things you can do to maximise their potential.

Loyalty may get you nowhere

We Australians are a loyal bunch usually letting our insurance policies automatically renew each year – same with term deposits. Each time yours approaches maturity, shop around and see what other term deposits are available that will work better for you.

Eggs and baskets

Consider spreading your allocated funds across a variety of institutions with a staggered range of maturity dates. This might enable you to take advantage of better rates as your investments mature.

Interest payments

Many term deposits offer the earnings as a regular income, sometimes resulting in a lower interest rate. Consider reinvesting the interest for a higher rate, or, if you need some income, set up separate term deposits.

Set and forget

Term deposits are not everyday transaction accounts. While it’s possible to access money before the end of the term, it’s not advisable as heavy penalties apply, including fees and reduced interest rates. As with any financial decision, it’s important to seek advice from a licensed adviser to ensure you’re getting the best product and the best deal for you.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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.
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Low income earners: Six super hacks to retire richer

All / 25.03.2021

Low income earners: Six super hacks to retire richer

While it’s easy to be discouraged by superannuation and fear you will never have enough money saved to stop working, remember even a modest superannuation balance can make a big difference in retirement.

For every $100,000 saved in superannuation, you can expect these funds to generate a return of 6%, or $6,000, a year. When this is paid out as a pension, it equates to $500 a month tax-free. Of course, this is doubled if both you and your partner have $100,000 each in super. Depending on your overall financial situation, this can be paid in addition to you receiving a full age pension.

Here are six super hacks to help you maximise your super balance:

Hack 1. Consolidate your accounts

Consolidate all your superannuation accounts into one account best suited to your needs. The Australian Tax Office says some 6 million Australians have multiple super accounts, wasting millions of dollars in duplicated charges.

These unnecessary fees will needlessly erode your super balance. Consolidating multiple accounts is easy. Simply log on to the ATO’s website and with one click, choose one account to accept all your funds. This alone could save you thousands of dollars.

Hack 2. Review your super contributions.

Check your employer is contributing the right amount to superannuation from your wages each week. If you believe there is a shortfall, contact the ATO to investigate on your behalf.

Hack 3. Take advantage of co-contributions

If you earn less than $52,697 a year, consider making additional after-tax super contributions to take advantage of a matching contribution from the government, called a co-contribution. Under this scheme, you can contribute up to $1,000 of after-tax money and receive a maximum co-contribution of $500. This is a 50 % return on your investment.

The government will determine how much you are entitled to when you lodge your tax return, and if you are eligible, the government will then pay the co-contribution directly to your fund. You don’t need to do anything more than make the original contribution from after-tax savings.

Hack 4. Benefit from spouse contributions

Review whether you can benefit from making additional contributions to your partner’s super. If you do make contributions to your partner’s super and they are on a low income or not working, you may be able to claim a tax offset of up to $540 a year.

Hack 5. Contribute any long-term savings to super

There are rules concerning how much you can contribute to super, and when, but any savings put into superannuation will be held within a tax benign environment.

While your fund is in accumulation mode, these assets’ income and capital growth are taxed at 15%, rather than your marginal tax rate. Once you start receiving an income stream, these assets are held within a tax-free environment, making your superannuation your own personal tax haven.

And, if you are thinking of selling your family home to downsize to a smaller property, you can take advantage of the downsizer contribution rules, enabling you and your partner to contribute up to $300,000 each to superannuation. This one step can make a significant boost to your superannuation balance just when you need it, as you enter retirement.

Hack 6. Seek professional guidance

Of course, there are a raft of rules around superannuation that you must be aware of. To maximise your retirement nest egg, be sure to seek expert advice from a financial adviser or qualified accountant.

While it is never too early to start making additional contributions to super, it is also never too late. Even small steps towards the end of your working life can and will make a difference to the way you live in retirement.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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.
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