Pay Less Tax & Get more Super

The idea of working full-time one day and retiring the next is fast becoming a trend of the past. Many Australians are experimenting with different versions of retirement, such as working fewer hours or changing careers.

A popular option for those seeking a flexible retirement is a transition-to-retirement pension, or TRIP. It typically replaces taxable employment income with concessionally taxed income from a superannuation pension.

TRIPs are an innovative policy which support a gradual retirement. They are compelling because you can access your super savings without retiring and also benefit from super pension tax advantages.

The three most common variations of a TRIP are: continuing work as usual and boosting income with concessionally taxed super pension income; working fewer hours but maintaining lifestyle by supplementing lower work income with concessionally taxed super pension income; either maintaining or reducing hours worked and salary sacrificing into a super account to reduce taxable income and boosting the super account.

This third, and most popular, TRIP strategy can help you cut your income tax bill, while increasing your superannuation balance. The drop in disposable income is fully or partially replaced by pension payments sourced from the TRIP. I explain this option below.

How a TRIP works

A TRIP can provide a lot of flexibility depending on your age, income, how much super you have, and how much tax you pay.

The earnings on a TRIP pension account are exempt from tax, which means more money is retained in the pension account for your retirement. And the taxable component of super benefits paid out from the pension account to the fund member are eligible for a 15 per cent pension rebate for fund members under the age of 60, or are tax-free for members aged 60 years or older. If the pension benefit includes a tax-free component, that portion of the benefit is tax-free regardless of the age of the member.

Anyone considering taking a TRIP must have reached their preservation age. If you were born before July 1, 1960, your preservation age is 55 years. If you were born on or after July 1, 1960, your preservation age is at least 56 years and can be as much as 60 years. If you were born after June 1964, your preservation age is 60 years.

You must withdraw no more than 10 per cent of your TRIP account balance (as at July 1) each financial year and you must withdraw at least 4 per cent of your account balance each financial year.

Generally, you cannot convert your TRIP into a lump sum unless you retire, turn 65 or satisfy another condition of release. The restriction on taking lump sums means that the TRIP is non-commutable; that is, the fund member is not permitted to take a lump sum, or otherwise access the balance of the transition-to-retirement pension account.

The one exception to the non-commutable rule is when the fund member has some unrestricted non-preserved benefits in the TRIP account.

You could have these benefits if you were a fund member before July 1999. If so, the benefits are not preserved and can be accessed as a lump sum from the TRIP account, without breaking TRIP rules.

The amount of lump sum taken counts towards the minimum 4 per cent pension payment paid each year, but not towards the 10 per cent maximum payment limit.

The TRIP account must be kept separate from the superannuation account that accepts contributions for the fund member.

The tax benefits

Whether or not you reduce the hours you work, salary sacrificing super contributions into your fund up to your concessional contributions cap and replacing part or all of your sacrificed income with pension payments from a TRIP can save on tax.

For example, Stewart is 57 and earns $120,000 a year. He has $200,000 in his super account and starts a TRIP (see table). He must withdraw at least $8000 from his pension account each year. Stewart takes full advantage of his concessional contributions cap of $35,000 for the 2014-15 year (for those aged 49-plus at June 30, 2014).

Stewart salary sacrifices $23,600. Adding his employer’s 9.5 per cent contributions of $11,400 takes his total concessional contributions to $35,000. Stewart’s taxable income drops from $120,000 to $104,400 and he receives a 15 per cent tax rebate of $1200 on his $8000 TRIP income.

By salary sacrificing and starting a TRIP, Stewart receives a lower after-tax income, but accumulates a much larger superannuation benefit. He pays about $5800 less in income tax (but about $3500 more in super contributions tax), and increases his super account at the end of the year by $14,000 more than if he hadn’t used the TRIP strategy. If Stewart were 60 or older, he could potentially save an extra $1760 in income tax.

Trish Power

Trish Power is a columnist for Financial Review Smart Investor. She is one of Australia’s leading superannuation experts and has written eight books on superannuation and personal investment. Trish writes a monthly column on superannuation.

The 2 biggest expenses you will ever have – and why you want to make one BIGGER

The two biggest expenses you will ever have, and

You’ll want to make one BIGGER…  

In your lifetime you will encounter many, many expenses. Doctors and dentists, cars and houses, repairs and replacements but there are two expenses that dwarf them all.

Tax & Retirement

Retirement

Think about it, when you retire you stop working, that doesn’t mean your expenses stop rolling in. How much will you really need in retirement?

The average life expectancy for Australian males is approximately 80 years of age and 84 for females.

So when did you say you wanted to retire?

It doesn’t matter how old or young you are its time to start taking your retirement seriously. Who knows, if you get quality advice now you may even be able to retire early! Or follow your passion and do what you love without having to worry about your pay packet.

Along the way you’ll have another HUGE expense…

Tax

This is the one you do NOT want to get bigger. Legally reducing tax is one of the best strategies for improving your financial position. Which, in-turn can help out with that retirement fund.

If you currently pay in tax $20,000 (which is the approximate amount of total taxes you would pay if you earned $82,500 in this financial year) and you speak to a skilled tax accountant (say for instance Firm Name), with some quality tax planning and depending on your circumstances they could help save you $1,100 after their fees. If this happened each year, and each yearly $1,100 was invested each year at 6.5% p.a., it would return more than $100,000 over 30 years, and that’s when you start from scratch (i.e. zero savings). That’s an extra $100,000 for doing NOTHING.

So how long can you afford to wait to get this sorted?

Contact us at peter@ditommaso.com.au to discuss your tax planning.

Borrowing through a SMSF door closing ?

Get in touch if you would like to discuss this opportunity before it goes away – peter@ditommaso.com.au

NEW REPORT: Borrowing Through Your SMSF could be BANNED.

 At the weekend David Murray handed down his ‘Financial Systems Inquiry Report’, which included 44 recommendations, one of which was the prohibition on direct borrowing by superannuation funds.

So let’s clear up some abbreviations. You may have read some TLA’s (Three Letter Acronyms) and FLA’s (Four Letter Acronyms) in the news over the weekend so let’s quickly cover them now.

FSI – Financial Systems Inquiry

LRBA – Limited Recourse Borrowing Arrangement

APRA – Australian Prudential Regulation Authority

RBA – The Reserve Bank of Australia

SMSF – Self-Managed Super Fund

CBA – Commonwealth Bank of Australia

OMG – Oh My God…

What’s the big deal?

Using your SMSF to borrow money directly can be an extremely well leveraged strategy to supercharge your SMSF.

How?

Without going into specifics, borrowing through your SMSF increases the amount of money you have exposed in the market. For example, if you have $1 million and invested to get a 10% return you will get a $100,000 return. However if you borrowed another $4 million on top you would have $5 million invested for a return of $500,000 so as long as the interest repayments on the $4 million were less than the additional $400,000 return then you’re in front.

So why do the G-Men want it banned?

Well first of all, it’s not the government that would like to see it gone, the FSI is an independent report chaired by former CEO of the CBA, David Murray. The Treasurer Joe Hockey states that this report poses questions to the government and not the other way around. Decisions are not expected to be made until March 2015 at the earliest.

As the report tackles SMSF’s it poses a warning that high levels of borrowing through SMSF’s could be detrimental to the financial system over time. Therefore, the recommendation from the report is that all LRBAs in superannuation funds should be banned.

What’s Next?

Although these recommendations are just that – recommendations do not constitute law. If all the pundits are to be believed, most of these recommendations will be accepted and implemented.

Therefore if you’re interested in this strategy or would like to know if it’s something that you could do, contact us today.

If these changes go through what will happen to my LRBA?

It is understood that all LRBAs implemented before this recommendation becomes law will be ‘grandfathered’ in, meaning they will carry on as always.

There are several approaches for this strategy and they can be very powerful, that being said they may not work for others. It is critical to get quality advice before taking action. Call us today to speak to one of our SMSF experts before this opportunity goes away for good.

Why Xero ?

Why Xero? We’re glad you asked.

From baking to bricklaying, consulting to crafting – whatever keeps you busy, Xero makes your business life easier. Xero is online accounting software that connects you with your numbers, your business and us, your advisors. Anytime, anywhere from any device.

1. COLLABORATE IN THE CLOUD

Bringing more heads to your books is easy with Xero. Just give us access and we’ll log in, look at your numbers and give you advice. Perfect for spotting opportunities and nipping problems in the bud.

2. MOBILE ACCESS

On the move? Access accounts, check balances, upload receipts and invoice customers from your smartphone or tablet (while kicking back at your favourite cafe) with Xero’s iPhone or Android app.

3. RECONCILE FROM ANYWHERE

Xero receives your bank statements automatically via a secure connection, making it a breeze to reconcile and gain a complete and up-to-date snapshot of your business from the breakfast table to your favourite coffee shop. And if something doesn’t look right, leave a comment. We’ll log in and give you a quick health check.

4. PAINLESS PAYROLL

Being an accounting and payroll solution in one, Xero turns the old days of manual entry on its head. Super payments and tax updates are automatic, plus a special portal gives you a complete snapshot of your payroll and leave.

5. INVOICING HELPS YOU GET PAID FASTER

Login and send an invoice the minute a job is done. You get notified when your customer opens the invoice, and he or she can pay you online right away. And we know that staying on top of your old invoices is hard work. So we’ll check in from time to time and make sure you’re getting paid as much and as fast as you deserve.

Rachel and Bridget are amongst the thousands of small business-owners across Australia enjoying the benefits of Xero:

“#Xero is amazing – total control is just a click away!!!!” – @RachelProsser

“Xero has really cut my accounting time by 80%. It gives me goosebumps thinking about all that extra time I have.” – Bridget Labus, Retail

Starting from just $25 per month, Xero has been designed to make it simple to run your business and access the information you need.

Want to get involved?

Get in touch with us today to give Xero a go. Beautiful.

Are You the Tax Man’s Target ?

Client Alert!September 2014 

 Are you the Tax Man’s Target?

If you work then the answer is probably YES.

Unlike recent years, instead of a specific industry, this year the ATO intends to target specific work related expenses.

These areas include:

 

  1. Claiming a computer, phone or other electronic device as a work-related expense
  2. Transporting bulky tools and equipment
  3. Overnight work-related expenses

 

This pretty much covers everyone.

If you use a computer, phone, tablet or ‘other electronic device’ the good news is that there’s a good chance you can make a claim. However, it does mean that your claim must be accurate and you must be able to prove it.

The ATO’s big push this year is to claim the right amount. No More. No Less.

Be warned though, MyTax will pre-populate some fields to make it easier to lodge but it may not maximise your return.

Tax Planning is an excellent strategy to consider to reduce your tax, here are 5 of our top strategies:

 

  1. Salary sacrifice into your super
  2. Explore a protected share portfolio strategy
  3. Salary package your car
  4. Debt optimisation
  5. Establish a SMSF

 

If you haven’t already, make sure you contact our office to make sure you’re claiming the right amount, no more, no less. We always want to work with you to give you better advice now for a beautiful financial future.

Strategy Consultation – Book NOWTo help reduce your taxes and start your journey to a beautiful financial future, contact us TODAY on (07) 3285 1388 or peter@ditommaso.com.au for a consultation.We can clearly explain our top 5 strategies and ensure you’re claiming the right amountDon’t delay. The sooner you get started with the right advice, the sooner you will grow your assets to have a better financial future!  

Protect yourself from making emotional financial decisions

Who will PROTECT you from your emotional decisions?
We all do it, we make irrational decisions based on emotion. So how can we protect ourselves from, well, ourselves?
It is SO important to have someone watching your financial back. To look at the big picture and give you sound advice on the market. This could protect you from irrational decisions (more like reactions) to random short term swings in the market. Or investment decisions made on pretty names.
Want to BOOST your net worth? Get an advisor
Long term studies show that there is a strong positive correlation between the use of a professional advisor and subsequent net worth. What’s more interesting is that the significance is stronger for those who have used an advisor for 10 years or more.
Going steady with your advisor
Choosing a professional financial advisor is a big decision and should be treated as such. You should view this as a long term business relationship for your personal wealth. No one will care more about the outcome than you, however, you need a professional to bring you the facts without the emotion.
I say this should be a long term relationship as you may not see the real benefits in the first year. It may take several years for the true benefits to shine through. So it’s important to pick an advisor and stick with them.
What if I back the wrong horse?
Although you should take your time in choosing your advisor and then stick with them, this doesn’t mean that their performance shouldn’t be reviewed regularly. Agree on a long term plan upfront and then review it regularly. Stipulate some KPI’s that you need to achieve, and ask your advisor what they think they need to achieve for you. Write ALL of this down and use it as an agenda for your reviews.
Who’s on YOUR side?
As your wealth grows it will pay to have a team that you can rely on, an advisor, accountants and in some cases solicitors.
Peter Di Tommaso Chartered Accountants take a team approach: we have a team of accountants, financial planners, loans and leasing experts as well as our support team all going in to bat for YOU. This gives you peace of mind in knowing that there is no ‘single-point-of-failure’ you have a team of people working for you and we use the latest software to track and ensure all of your projects are progressing as expected. PLUS with so many of us we’re always quick to respond whenever you need.

PETER DI TOMMASO CHARTERED ACCOUNTANTS
821 Gympie Road, Lawnton Q 4501 | P: (07) 3285 1388
Email: peter@ditommaso.com.au

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