What if I exceed my super contributions cap?

exceeding super contributions cap

What if I exceed my super contributions cap?

Making additional personal contributions to superannuation is a tax efficient way to boost your retirement savings. But there are strict caps or limits on the amount you can contribute each year and stiff tax penalties for exceeding them.

Even though the annual contribution caps went up on 1 July 2021, you still need to keep a close eye on how much you and your employer contribute.

If you do go over your annual caps, it could be a costly mistake come tax time.

Higher limits from 1 July 2021

It’s important to remember there are caps on both the concessional (pre-tax) and non-concessional (after-tax) contributions you can make each year.

From 1 July 2021, the cap on concessional contributions into super is $27,500, regardless of your age. In recent years this annual cap was only $25,000, so the new higher limit means you can add a little more of your pre-tax income to your retirement nest-egg.

It’s worth remembering that your $27,500 concessional cap includes any contributions made into your account by your employer and any salary sacrifice amounts. Also, your employer’s compulsory super guarantee amounts increased from 9.5 per cent to 10 per cent from 1 July 2021, so you may need to be extra careful about exceeding your cap.

If your super account balance could do with a little help and you haven’t used the entire amount of your annual concessional contributions cap in recent years, you may be eligible to contribute a larger amount using the ‘carry-forward’ rule.

The annual cap on non-concessional (after-tax) contributions also rose on 1 July 2021 from $100,000 to $110,000.

If you meet certain eligibility criteria, you may be able to contribute up to three years of non-concessional contributions caps (3 years x $110,000 = $330,000) in a single financial year, by ‘bringing forward’ up to two years’ contribution caps. The rules for doing this have recently become even more complex, so ensure you talk to us before making your contribution.

What happens if I exceed my caps?

In short, you could be up for additional tax. The actual amount of tax will depend on your age, the type of contribution and the financial year in which the contribution was made.

Exceeding your concessional cap

Going over your concessional contributions cap, generally means a bigger tax bill because the excess amount is counted as part of your assessable personal income.

Until 30 June 2021, you were also required to pay a penalty to the ATO called the excess concessional contributions (ECC) charge. This was removed from 1 July 2021, but you will still be up for additional tax.

If you exceed your annual concessional contributions cap, the ATO will notify you. Your excess contributions are then included in your assessable income, meaning they are taxed at your marginal tax rate, minus a 15 per cent tax offset to reflect the contributions tax you paid when the money entered your account.

You then have a choice:

• You can withdraw up to 85 per cent of your excess concessional contributions from your super.

• Or, if you choose to leave the contributions in your super account, they are counted towards your annual non-concessional contributions cap. This may create additional challenges if you have also made large non-concessional contributions.

Exceeding your non-concessional cap

Making non-concessional contributions that go over your annual cap also results in a larger tax bill, as these excess contributions are taxed at the top tax rate of 47 per cent (including the Medicare levy).

The ATO will notify you and you can then choose to withdraw your excess contributions and 85 per cent of the earnings on them. Generally, these earnings will be taxed at your marginal tax rate less a tax offset.

However, if you decide to leave your excess non-concessional contributions in your super account, they are taxed at 47 per cent, even if your personal marginal tax rate is lower. As non-concessional contributions are from after-tax money, this means you are paying double tax, because the tax amount must be paid from money in your super account.

Making additional voluntary super contributions is a great way to boost your retirement savings, but as you can see, it is important to know your limits.

If you would like more information about saving for your retirement and making some extra contributions into your super fund, call us today.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Investing lessons from the COVID pandemic

Investing lessons from the COVID pandemic

When the coronavirus pandemic hit financial markets in March 2020, almost 40 per cent was wiped off the value of shares in less than a month.i Understandably, many investors hit the panic button and switched to cash or withdrew savings from superannuation.

With the benefit of hindsight, some people may be regretting acting in haste.

As it happened, shares rebounded faster than anyone dared predict. Australian shares rose 28 per cent in the year to June 2020 while global shares rose 37 per cent. Balanced growth super funds returned 18 per cent for the year, their best performance in 24 years.ii

While every financial crisis is different, some investment rules are timeless. So, what are the lessons of the last 18 months?

Lesson #1 Ignore the noise

When markets suffer a major fall as they did last year, the sound can be deafening. From headlines screaming bloodbath, to friends comparing the fall in their super account balance and their dashed retirement hopes.

Yet as we have seen, markets and market sentiment can swing quickly. That’s because on any given day markets don’t just reflect economic fundamentals but the collective mood swings of all the buyers and sellers. In the long run though, the underlying value of investments generally outweighs short-term price fluctuations.

One of the key lessons of the past 18 months is that ignoring the noisy doomsayers and focussing on long-term investing is better for your wealth.

Lesson #2 Stay diversified

Another lesson is the importance of diversification. By spreading your money across and within asset classes you can minimise the risk of one bad investment or short-term fall in one asset class wiping out your savings.

Diversification also helps smooth out your returns in the long run. For example, in the year to June 2020, Australian shares and listed property fell sharply, but positive returns from bonds and cash acted as a buffer reducing the overall loss of balanced growth super funds to 0.5%.

The following 12 months to June 2021 shares and property bounced back strongly, taking returns of balanced growth super funds to 18 per cent. But investors who switched to cash at the depths of the market despair in March last year would have gone backwards after fees and tax.

More importantly, over the past 10 years balanced growth funds have returned 8.6 per cent per year on average after tax and investment fees.ii

The mix of investments you choose will depend on your age and tolerance for risk. The younger you are, the more you can afford to have in more aggressive assets that carry a higher level of risk, such as shares and property to grow your wealth over the long term. But even retirees can benefit from having some of their savings in growth assets to help replenish their nest egg even as they withdraw income.

Lesson #3 Stay the course

The Holy Grail of investing is to buy at the bottom of the market and sell when it peaks. If only it were that easy. Even the most experienced fund managers acknowledge that investors with a balanced portfolio should expect a negative return one year in every five or so.

Even if you had seen the writing on the wall in February 2020 and switched to cash, it’s unlikely you would have switched back into shares in time to catch the full benefit of the upswing that followed.

Timing the market on the way in and the way out is extremely difficult, if not impossible.

Looking ahead

Every new generation of investors has a pivotal experience where lessons are learned. For older investors, it may have been the crash of ’87, the tech wreck of the early 2000s or the global financial crisis. For younger investors and some older ones too, the coronavirus pandemic will be a defining moment in their investing journey.

By choosing an asset allocation that aligns with your age and risk tolerance then staying the course, you can sail through the market highs and lows with your sights firmly set on your investment horizon. Of course, that doesn’t mean you shouldn’t make adjustments or take advantage of opportunities along the way.

We’re here to guide you through the highs and lows of investing, so give us a call if you would like to discuss your investment strategy.

i https://www.forbes.com/sites/lizfrazierpeck/2021/02/11/the-coronavirus-crash-of-2020-and-the-investing-lesson-it-taught-us/?sh=241a03a46cfc

ii https://www.chantwest.com.au/resources/super-funds-post-a-stunning-gain

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


How to manage difficult conversations

How to manage a difficult conversations

Saying or hearing the words, “We need to talk,” whether it’s in the workplace or in your personal life, can be a source of tension and conflict but there are ways to manage conversations that have the potential to be difficult.

Difficult conversations can range from speaking to a family member about concerning behaviour, to ending a romantic relationship, to navigating care options with elderly parents. In the workplace, challenging conversations include raising concerns about performance or unacceptable conduct, although predictably talking about remuneration has been ranked the most difficult conversation, with 33% of those surveyed stating that they avoided conversations about their pay.i

Can you remember a time when you’ve had to initiate a conversation you’d rather avoid? Or when someone approached you for ‘the talk’? Perhaps even now you have a challenging conversation looming that you need to have, but keep avoiding? You’re not alone, research has found that one in four people have been putting off a tough conversation for more than six months, while one in 10 have been doing so for a year.ii

The thing is, avoiding it usually doesn’t help. If handled the right way, an open conversation may even improve the situation or strengthen a relationship, and at the very least your perspective will be better understood. So, let’s look at some ways to tackle a hard topic.

Preparation helps

It helps to give some thought to what you are trying to achieve by having the conversation. Examine your motives carefully and be clear about what you would like as the ideal outcome.

It can be beneficial to do some “role play” in your head before the chat. To prepare yourself for what you think will be said and practice the best way of expressing yourself. Having said that, it’s impossible to prepare for all eventualities and you do need to accept the fact that you are entering into an open-ended dialogue that could go in any direction.

Active listening

While it’s always tempting to go straight in with your thoughts on the matter, it can be beneficial to start the conversation with some questions to obtain a sense of how the other party feels. Listen to their perspective with an open mind without interrupting and ask their permission to give you the opportunity to respond if you are finding it hard to get a word in.

Use your words

When sharing your ideas, it can be helpful to use collaborative language such as ‘we’ or ‘us’ instead of ‘you’ and ‘me’. Acknowledge that you understand and appreciate the other parties’ perspective by using phrasing such as “so what you are telling me is…”.

It’s a good idea to use ‘I’ statements. So, instead of saying, ‘You don’t care about me!’, which can make the other person defensive, try: ‘I feel upset with when you…’.

Try not to talk in generalities. Get to the point, describe exactly what you want from the discussion – do you want an apology, your point of view acknowledged, or change in behaviour moving forward? This will help provide structure to the discussion and a clear way forward.

Look for solutions

The ideal outcome is a mutually acceptable solution to the problem at hand. To avoid the discussion becoming adversarial ask for ideas ie “What are your thoughts are on how we can move forward and work through this issue together?”

Of course, not all conversations are going to have a happy ending. There will be people, situations or behaviours that you just can’t talk through – and that’s okay. By agreeing to disagree you have both at least aired your respective viewpoints.

You should also be proud of yourself for taking part in a difficult conversation. It takes real courage. And remember each challenging conversation you have is a learning experience making the next one that little bit easier.

i https://www.managers.org.uk/knowledge-and-insights/news/top-10-difficult-conversations/

ii https://www.hrmonline.com.au/topics/management-of-workplace-issues/avoid-tough-conversation-quit/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Have you subscribed to the popularity of the podcast?

Have you subscribed to the popularity of the podcast?

Thanks to the internet we have so many options when it comes to the way we find information and how we choose to absorb it. The way we access content has also changed significantly over the past couple of decades.

Podcasts aren’t new, they predate the internet with the first known podcast, known as ‘audio blogging’, created back in the 1980s. This format allowed people to share their thoughts and opinions via an audible recording.

‘Podcast’ was coined by journalist Ben Hammersley in 2003 and exploded in 2005 when Apple™ added podcasting to iTunes and released a newer version of the iPod supporting audible content on-demand.i

Accessing content is easy

Podcasts are an easy and convenient way for us absorb information, especially when our lives and routines are busier than ever. Streaming is also easy - you can listen to them on different devices simply by downloading the app and episodes on your smartphone or via a web browser on your laptop, computer or tablet.

One of the most loved benefits, is that you can listen to a podcast virtually anywhere. If you are streaming a podcast on your smartphone you can listen to it on the go – whilst you’re exercising, cleaning the house, gardening, commuting to work, or driving in the car, and the good thing is, majority of the podcasts available you can download for free.

Some podcast creators will have advertising throughout their episodes which helps cover the cost of creating the podcast, allowing them to share their content for free rather than charging listeners to subscribe. Most popular podcasts release episodes weekly keeping their listeners engaged.

So many topics to choose from

With so many varied subjects and topics readily available, there is something for everyone - there are programs designed to improve your health and wellbeing, foster personal growth and professional development or you can simply download content specifically for entertainment purposes. For example, if you missed one of your favourite programs on a radio station, download it and listen on-demand, or rather than read a book you can download it and listen to an audible version.

Many businesses are also choosing podcasts as another way to communicate, educate and engage with their customers and clients. They can be short weekly episodes or longer and less frequent.

With the explosion in popularity, online communities have been formed for podcast creators and fans alike. This allows like-minded people to join a forum to discuss ways to create or improve their podcast or fans can chat to others about their favourite podcast.

Some of the most popular topics downloaded are - pop-culture, true crime, business and finance, comedy, health and wealth, news and sport, and technology-based podcasts – the choices are endless.

What are we listening to?

To give you an idea of what Australian’s are currently subscribing to, here are the most popular podcasts in the countryii:

West Cork – this non-fiction podcast focuses on the longest unresolved murder in Irish history.

Darling Shine – a weekly Q & A with Chloe Fisher & Ellidy Pullin for women about women.

Conversations (ABC) – with over 3000 episodes, this podcast covers topics from indigenous issues through to sporting triumphs.

Casefile – an award-winning true-crime podcast that investigates solved and unsolved cases globally.

Hamish & Andy – the comedic duo continues to make us laugh with their highly contagious podcast.

China – If You're Listening – this ABC podcast discusses the recent change in relationship between China and Australia and more.

She's on the Money – Victoria Devine hosts this highly relatable, easy to understand finance podcast for women.

Mamamia Out Loud – this covers a wide range of topics from beauty, pop culture through to parenting and the Kardashian’s.

Coronacast – stay up-to-date with the latest news and insights to help you live through the current pandemic.
As you can see, there is something for everyone!

Whether you’re a tradie, a retiree, small business owner, or a podcast lover in general there are podcasts out there that will motivate, educate, inspire, or simply entertain us all. Happy listening!

i https://brandastic.com/blog/why-are-podcasts-so-popular/

ii https://www.podcastinsights.com/top-australian-podcasts/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Claiming small business CGT concessions: Mid 2021 update

Small Business CGT Concessions

Claiming small business CGT concessions: Mid 2021 update

The Government continues to tighten the eligibility rules for claiming tax concessions relating to small business capital gains tax (CGT) obligations. Of particular note are new rule changes impacting businesses letting out investment properties.

If you qualify, these concessions can have a big impact on how much of the profit from the sale of a business asset you get to keep, and how much goes to the tax man.

Ruling tightens eligibility

Selling an income-producing asset such as property, business equipment or shares at a profit, will create an assessable capital gain. This capital gain is then used to calculate your CGT obligation, which forms part of your annual income tax bill.

Business owners are permitted to use several tax concessions to reduce CGT, but the eligibility rules can be tricky to navigate.

A new tax determination (TD 2021/2) has further tightened them by clarifying that companies carrying on a business whose only activity is renting out an investment property are not eligible to claim the CGT concessions when the property is sold.

Small business and CGT

The four small business CGT concessions are in addition to the normal 50 per cent general discount on CGT when you have owned an asset for more than 12 months.

Generally, the concessions apply to any asset your business owns and eventually sells at a profit, provided your annual turnover is under $2 million.

The four small business CGT concessions are:

1. The 15-year exemption exempts the capital gain generated on a business asset you have owned for at least 15 years. The sale proceeds can then be contributed into your superannuation account (up to the relevant contributions limit). If you don’t qualify, you can still use the normal 50 per cent CGT general discount first, then use any of the remaining small business concessions for which you qualify.

2. The 50 per cent active asset reduction allows you to reduce any capital gain from the sale of an active business asset.

3. The retirement exemption applies if you sell an active business asset to retire, with a CGT exemption up to a lifetime limit of $500,000. If you are aged under 55, your profit must be paid into a complying superannuation fund. This exemption cannot be used for capital gains from passive investment assets.

4. The rollover concession can be used to defer your capital gain from the disposal of an active business asset to a later financial year. You must buy a replacement business asset or make a capital improvement to an existing asset to qualify.
If your business turnover is over $2 million but under $10 million, you may be able to use the small business restructure rollover concession. This permits the transfer of active assets – including CGT assets, trading stock and depreciating assets – from one business entity to another without incurring an income tax liability.

Qualifying for CGT concessions

You can apply for as many of the four special CGT concessions as you are entitled to. In some situations, this can reduce your capital gain to zero. Before applying, you need to meet the basic eligibility conditions for the CGT concessions.

Put simply, you must satisfy four basic conditions applying to all the concessions and then check if you meet the additional eligibility rules applying to each CGT concession.

The first condition requires you to be either a small business entity (SBE) with an aggregated turnover of less than $2 million; not carrying on a business but have a ‘passively-held asset’ used in the business as a connected entity; a partner in an SBE partnership; or satisfy the maximum net asset value ($6 million) test.

In addition, the business asset you are disposing of must satisfy the active asset test. If the asset is a share in a company or an interest in a trust, it must meet additional conditions.

The final step covers assets related to membership interests in a partnership. Each step must be considered in the set order before moving to the eligibility criteria for the individual concessions.

If you plan to take advantage of these concessions, ensure you check the qualifying requirements carefully – or speak to us – as the process is quite complex.

If you would like more information about the tax implications surrounding the disposal of your business assets, call us today.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Using Family Trusts To Manage Wealth And Save Tax

Family Trusts - a practical investment vehicle

Using Family Trusts To Manage Wealth And Save Tax

Family trusts are a popular and effective investment structure to manage and protect your family’s fortune, but you don’t have to be worth a fortune to benefit from having one.

Despite their appeal, they are not for everyone. Indeed, it is suggested that if your assets are less than $300,000, and that is not counting your super, then it may well not be worth your while.

But for those with sufficient assets, a family trust can be an effective way to protect your family’s assets and limit your tax liability at the same time. So how do they work?

What is a family trust?

A family trust is a discretionary trust, where assets are placed in the care of a third party, the trustee, who manages it on behalf of the beneficiaries.

Discretionary trusts are so named because the distribution each year of the income and capital gains earned by the trust to the beneficiaries is at the total discretion of the trustee.

Beneficiaries are members of the trust and might include parents, children, other close relatives, and their spouses. A beneficiary may also be a company.

Key benefits

As mentioned, the key benefits of a family trust are asset protection and tax minimisation. A trust provides protection from creditors in bankruptcy, but the contents of a trust can be included as part of the matrimonial pool when it comes to divorce.

All income of the trust, including realised capital gains, must be distributed each year. It is then included in the beneficiary’s assessable income and taxed at their personal tax rate.

As a result, a trust can work particularly well from a tax viewpoint, if you are on a high marginal tax rate but your beneficiaries are on low marginal rates. If all individual beneficiaries are on a marginal tax rate greater than the company tax rate, then a family trust may include a corporate beneficiary to reduce tax.

More flexibility

Another advantage of a family trust is that it offers a flexible, tax effective structure to accumulate wealth for retirement alongside superannuation.

Their flexibility also makes them particularly attractive for small business owners who may run the business through a company structure but hold shares in that company in a family trust. The trust can then direct different types of income such as rental income from your business premises, franked dividends from company profits or capital gains to different individuals.

A family trust can also help with succession, allowing you to pass control of the family trust to the next generation by changing the trustee, without triggering a tax event.

There are some disadvantages too. There is the loss of ownership as the trust now owns the asset, not you. Also, if the trust suffers an investment loss, those losses cannot be distributed to offset your personal tax liability but must remain inside the trust. And there are costs involved in setting up and managing the trust.

Setting up a trust

To set up a family trust you will need to consult a lawyer to create a trust deed. You will also need to do the following:

• Appoint a trustee and determine your beneficiaries

• Decide which assets to include in the trust (a wide range of assets including stocks, bonds, managed funds, cash, real estate, antiques and fine art can all be included)

• Apply for an ABN and a Tax file number (TFN) and open a bank account in the name of the trust.
It can cost some $2500 to set up the trust and there will be annual fees as you have to file with the Australian Tax Office each year. Stamp duty applies in both NSW and Victoria on establishment but not in other states.

What about testamentary trusts?

Another type of trust popular with families is a testamentary trust which is created within your Will and does not come into effect until your death. Similar to family trusts, they have the advantage in estate planning of providing tax and asset protection benefits for the future.

Family trusts are popular for good reason, but you need to make sure it is appropriate for your family’s circumstances. If you would like to know more, give us a call.

This advice may not be suitable to you because contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Making a gift of real estate to family members. Warning about tax implications.

What Do You Need to Know Before Gifting Real Estate?

Making a gift of real estate to family members. Warning about tax implications.

What Do You Need to Know Before Gifting Real Estate?

Are you considering gifting real estate property to a family member? Transferring a house or other property to family members can have various benefits, but there are some nasty pitfalls you’ll want to avoid.

Giving property to your heirs while you’re still alive may sidestep the probate process. Property transfer can also be part of an asset protection strategy.

But giving property to someone else can have financial and tax implications. Here’s what you need to know before transferring real estate ownership.

Can You Give Real Estate as a Gift?

Under Australian law, you can give real estate to a relative as an outright gift. When giving ownership to a third party, there is no exchange of money. The gifting process involves filing a Transfer of Land with your title office. Filing a gift deed may also be necessary.

In some cases, property gifting takes place as a sale. For instance, if you want to give a family member a house but need to cover costs, they can buy the property at a discounted price.

Who Should Be on Title for Property Gifted to Family Members?

When buying a property, you receive a Certificate of Title. This document outlines your rights and responsibilities as the property owner. When you sell or gift the property, the government will record the change on the property title. This official record contains all property details, including:

  • Ownership
  • Mortgages
  • Easements
  • Covenants
  • Caveats

After the property title transfer, your family member will be the owner of the property.

Is Gifted Real Estate Taxable?

Australia doesn’t have a federal gift tax for:

  • Cash gifts
  • Charitable gift donations
  • Immovable property

However, real estate may be a taxable gift. Depending on the type, location, and value of the property, the new owner may be liable to pay:

  • Stamp duty
  • Land tax
  • Absentee owner surcharge
  • Vacant residential tax

The new owner’s tax obligations depend on the relevant state’s tax laws.

What are the Tax Implications of Gifting Property?

Before you transfer ownership of a property, understanding the tax consequences is critical.

Capital Gains Tax

From a tax perspective, capital gains can impact your financial situation. You need to pay capital gains tax (CGT) as part of your income tax assessment when disposing of a property. In other words, the proceeds from the sale form part of your taxable income.
In a sale, the capital gain is the property’s purchase price minus the selling price. If the property is a gift, the capital gain is the property’s fair market value minus the purchasing price.
When gifting a house, the Australian Taxation Office (ATO) assesses the capital gains tax bill using the market value on the transfer day. A professional valuer can determine the property value using objective and verified data.
In some cases, property owners can avoid capital gains tax. You can eliminate or reduce CGT if you are transferring:

  • Your primary residence
  • Investment property
  • Small business premises
  • Property you purchased before September 20, 1985

A rental property can be your place of residence. Under the temporary absence rule, the property remains your place of residence if:

  • You didn’t vacate the house for longer than six years and
  • You lived in the house for at least twelve months before moving out

Stamp Duty

Australian states levy stamp duty on a transfer, even if the property is a gift. Contrary to popular belief, stamp duty is not a one-off payment. Under tax law, buyers need to pay stamp duty on all property deed transfers.
Stamp duty falls under state tax. For example, in New South Wales and Queensland, you can transfer an interest in property to your spouse without paying stamp duty. You also don’t need to pay duty if, after the transfer:

  • You and your spouse own the entire property as joint tenants
  • The property is your permanent place of residence

Before beginning the transfer process, it's best to seek financial advice to learn more about the laws in your state.

Other Considerations When Transferring Property to Someone Else

Pension Payments

The consequences of gifting a house may extend beyond taxes. Before transferring a property to a child, elderly parents need to consider the impact of the transfer on their pension payments.
Centrelink assesses the income from a transfer using the property’s value and not the actual selling price.
For example, suppose you give a house with a value of $250,000 to your children. Even if you sell the property for $100, Centrelink will assess the proceeds from the sale as $250,000. In this case, you may lose your pension payments.

Home Loans

If the property you transfer has a mortgage over it, your relative has to take over the loan. Before commencing with the transfer, the lending institution holding the mortgage needs to approve the new owner.

Costs

In addition to taxes, various fees may apply to a property transfer. You may need to pay for an independent valuation that you will need when filing your taxes. You will also likely need to pay a solicitor to:

  • Provide you with legal advice
  • Draw up the necessary agreements and transfer documents
  • Transfer property titles

Before gifting a house to a relative, consider any additional costs carefully. You also need to ensure that the new owner can afford costs, such as the stamp duty.

Contact the Estate Planning Experts in Australia!

At House of Wealth Property Tax Experts, we can assist you in all matters relating to real estate taxes. We can provide you with professional advice and structure your taxable estate to lower your tax burden.
Are you planning on giving real estate to a relative as a gift? You may be eligible for an income tax deduction or federal estate tax exemption. Using our tax planning service, you can rest assured that you are not paying a cent in unnecessary tax.
Our other services include portfolio management, real estate tax accounting, and Centrelink advice. If you are looking to give real estate to a relative, contact us today to schedule a free consultation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Lease vs buy business assets in Australia. Which is best?

Lease vs buy business assets in Australia. Which is best?

If you're a business owner, you may be thinking about acquiring new equipment as conditions continue to improve in Australia. There are two main options for doing this: lease or buy. When weighing up which is best for you, you have a few factors to consider, including the need for future flexibility, your risk tolerance and the type of industry that you work in.

The question is, which way will provide your company with more value? In some cases, leasing may make more sense but in other scenarios purchasing may be a better option. Let's take a look at some of these different points so you can decide which route is best for you!

Whether it’s a new delivery van or a high-end digital printer, problem free equipment and tools are essential to keep your business running smoothly.

In the May 2021 Federal Budget, the government announced full write-off of eligible business assets will be available for another year, so the opportunity to tool up is even more attractive.

Issues to consider

Unfortunately, deciding the best way to acquire business assets is not always straightforward as you weigh up whether to buy outright or lease.

With leasing, you are able to use the plant or equipment under the terms of a contract and return it when your lease expires. Whereas buying means you purchase and own the equipment outright. If you have insufficient cash to buy an asset, you can also finance your purchase and repay the lender over time.

For both buying and leasing it’s not just the immediate costs and tax benefits you should bear in mind. You need to calculate the total costs, including ongoing maintenance, usage conditions, termination fees and equipment return.

You also need to review whether your business’s cash flow is steady and reliable, and allows you to commit to regular lease payments, or is subject to seasonal fluctuations.

Impact on your tax bill

A key factor to consider when it comes to the lease or buy decision is tax, as there can be valuable tax benefits if you buy an asset outright.

At the moment, the government’s COVID-19 temporary full expensing provisions provide a significant tax incentive to buy new equipment. These instant write-off incentives allow you to claim the cost of your asset against your business’s tax bill in the year of purchase.

For many eligible businesses, these tax incentives could tip the scales towards buying rather than leasing between now and 30 June 2023.

GST and leasing

The rules around claiming GST credits also favour purchasing.

When you lease equipment for your business it’s similar to renting, so you can only claim GST credits for your lease payments, not the total cost of the asset. For example, if you purchase equipment valued at $66,000 (including GST) you can claim back $6,000 in GST credits in your next BAS, but only a couple of hundred dollars for each monthly lease payment.

If you purchase a vehicle for business purposes valued at over the annual car limit ($60,733 in 2021-22), the maximum amount of GST credit you can claim is one-eleventh of the limit ($5,521 in 2021-22). If you pay luxury car tax on a vehicle you purchase for your business, you are unable to claim GST on the tax paid.

Leasing is still attractive

Although buying can be sensible for some businesses, if you have insufficient cash to cover the cost of new equipment leasing still offers benefits, especially while interest rates are low.

Leasing also allows you to keep working capital within the business and available for other uses. For example, if you want to acquire an asset worth $120,000 and finance it at 4 per cent interest, your business retains the $120,000 on its balance sheet and still has access to it if required.

What’s more, you may be able to invest the $120,000 and achieve a return higher than 4 per cent.

In addition, leasing is often more appropriate for assets that rapidly become obsolete and need regular updating, such as IT equipment.

Leasing new equipment can also make it easier to match regular monthly loan repayments to your business cash flow, rather than having to make a large one-off outlay for the asset.

Making your decision

Whichever way you are leaning – buy or lease – it’s important to review your business cash flow, your future growth plans and the current business and economic outlook.

Your personal approach to your business is also a factor to consider. Some owners prefer the certainty of ownership and not having to worry about a lot of fixed costs. For others, it’s more important to have access to the latest equipment and to focus on rapidly expanding their operation.

If you would like to discuss whether buying or leasing would be best for your business in the current economic environment, call us today.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


What's up with inflation?

What's up with inflation?

Fears of a resurgence in inflation has been the big topic of conversation among bond and sharemarket commentators lately, which may come as a surprise to many given that our rate of inflation is just 1.1 per cent. Yet despite market rumblings, the Reserve Bank of Australia (RBA) appears quite comfortable about the outlook.

Inflation is a symptom of rising consumer prices, measured in Australia by the Consumer Price Index (CPI). The RBA has an inflation target of 2-3 per cent a year, which it regards as a level to achieve its goals of price stability, full employment and prosperity for Australia.

Currently the RBA expects inflation to be 1.5 per cent this year in Australia, rising to 2 per cent by mid-2023.i Until the inflation rate returns to the 2-3 per cent mark, the RBA has said it will not lift the cash rate.

US inflation rising

The situation is a little different overseas where inflation has spiked higher. For instance, US inflation shot up to an annual rate of 5 per cent in May, the fastest pace since 2008, up from 4.2 per cent in April.ii As experienced investors would be aware, markets hate surprises. So with inflation rising faster than anticipated, share and bond markets are on edge.

But just like the RBA, the Federal Reserve views this spike as temporary, pointing to it being a natural reaction after the fall in prices last year during the worst days of the COVID crisis. In addition, companies underestimated demand for their goods during the pandemic and as a result there are now bottlenecks in supply that are putting upward pressure on prices.

The central banks believe that once economies get over the kickstart from all the government stimulation, inflation will fall back into line. After all, most world economies went backwards last year, so any growth should be viewed as a good thing and more than likely a temporary event.

But markets are not convinced.

Inflation and wages

Market pundits argue that if businesses must pay more for materials and running costs such as electricity then these increases will most likely be passed on to the consumer.

That’s all very well if your wages also rise, but if your income remains static then your standard of living will go backwards as you will have to spend more money to buy the same goods.

This then becomes a vicious circle. If the cost of living rises, then you will seek higher wages; this will the put further pressure on the costs for businesses. They will then have to increase their prices further to cover the higher wages bill. Some companies may react by reducing staff levels which will lead to higher unemployment.

Impact on investment

Inflation can also have a negative impact on investors because it reduces their real rate of return. That is, the gross return on an investment minus the rate of inflation.

Rising prices and interest rates also impact company profits. With companies facing higher costs, the outlook for corporate earnings growth comes under pressure.

But not all stocks are affected the same. Companies that produce food and other essentials are not as sensitive to inflation because we all need to eat. Mining companies also benefit from rising prices for the commodities they produce. Whereas high growth stocks like technology companies traditionally suffer from rising interest rates.

Markets current fear is that central banks will tighten monetary policy faster than expected. Interest rates will rise, money will tighten, and this will fuel higher inflation.

Bond market fallout

Expectations of higher inflation has already seen the bond market react, with the 10-year bond yield in both Australia and the US on the rise since October last year.

If yields rise, then the value of bonds actually fall. This is particularly concerning for fixed income investors. Not only are you faced with the prospect of capital losses because the price of your existing bond holdings generally falls when rates rise, but the purchasing power of your income will also be reduced as inflation takes its toll. Investments in inflation-linked bonds should fare better in an inflationary environment.

Inflation is part of the economic cycle. Keeping it under control is the key to a well-run economy and that is where central banks play their role.

Call us if you would like to discuss how an uptick in inflation may be impacting your overall investment strategy.

i https://www.rba.gov.au/media-releases/2021/mr-21-09.html

ii https://tradingeconomics.com/united-states/inflation-cpi

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


15 minutes a day to achieve financial success through better habits

15 minutes a day to achieve financial success through better habits

If you're looking to grow your wealth and build financial security for your retirement, don't try to rely on willpower. Instead work on establishing better habits. In just 15 minutes a day, you can take the first steps towards greater wealth and improved living standards.

The new financial year offers an opportunity for taking an ‘out with the old, in the new’ approach, making a fresh start in relation to your financial affairs, it’s also a good opportunity to re-examine other aspects of your life.

This is a particularly good idea if the New Year’s resolutions you made in January have fallen by the wayside over the past few months. If that’s the case, you’re certainly not alone. In fact research by the Journal of Clinical Psychology reported that around 54% of people who resolved to change their ways, failed to make the transformation last beyond six months.i

Imagine if you could change your habits, so you did not have to rely on willpower alone ever again?

Willpower is not enough

We all tend to think that willpower is the key to achieving success, that sheer determination will get us to our goals. Certainly the will to succeed is a critical component, but research has shown us that people who score high on self-control are successful, not because of their superior willpower, but because they have better systems in place for forming new habits to meet their goals.ii

Start small

So how do you get started? Why not start with an incredibly small habit and build from there. Set your timer to 15 minutes and spend the time on a task you have been putting off. Why just 15 minutes? It’s too small a goal to fail at. It may take a few days to complete the task but you will get there eventually and have the satisfaction of ticking off that annoying task that’s been on your ‘do list’ for ages.

Do it... again and again and again

New habits take time to form. The most common timeframe is 21 days to make a new habit, and the key to forming a habit is repeating the action, over and over again until it becomes increasingly effortless. To that end, it’s important to allocate the necessary time to support your new habit.

Another good tip to help you commit to the new habit is to “anchor” the habit to your existing routine in some way. Make those sales calls, or do some other task that takes a bit of effort, straight after your morning coffee every day and you won’t be tempted to put it on the back burner.

Aim for incremental improvement

While it is certainly important to ‘dream big’, it is equally important to have a series of milestones in place when it comes to those lofty goals.

If you are aiming for a certain figure in terms of your businesses revenue, make sure to have some incremental steps in place in the form of monthly sales targets and a solid sales and marketing plan to help you get there.

Put some processes in place

It’s helpful to think about implementing processes to support the habits and behaviours you want to put into place. These processes can provide a solid foundation, enabling you to progress towards your end goal.

If you are wanting to change your saving and spending behaviour to work towards a longer term retirement savings goal, you may wish to consider setting up a salary sacrificing arrangement, in order to build your nest egg while you go about your day-to-day.

Breaking bad habits

It’s not just establishing good habits that you need to focus on, we often have a few bad habits preventing us from reaching our end goal. The key to breaking bad habits is replacing them with good ones.

If you are prone to procrastination and it’s interfering with your productivity, get into the habit of scheduling time for those things you tend to put off and setting alarms or prompts to give you that extra push you need to get you started.

Speaking of pushes, here is your prompt to have a think right now about what you need to put into place to foster good habits and set yourself up for success this financial year.

i https://pubmed.ncbi.nlm.nih.gov/11920693/

ii https://behavioralscientist.org/good-habits-bad-habits-a-conversation-with-wendy-wood/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.