by Jodie | Dec 20, 2016 | Australian Economy, Debt Management, Finances, Wealth
Apparently, among richer nations, Aussies households are among the most in debt.
Research from LF Economics, using official data, shows that Australian household debt has risen to 123% of the nation’s economic output, pushing both Denmark and Switzerland into second and third place respectively. According to the Reserve Bank, household debt-to-income ratio reached a record 186% in 2015.
The housing boom is most often to blame forcing many buyers into large mortgages. But don’t stress just yet, it’s not all bad news.
Debt isn’t always a bad thing. Chances are by now you’ve heard of ‘good’ and ‘bad’ debt.
Good debt is usually used to produce an income and create wealth, whereas bad debt reduces our worth.
Utilising debt to purchase an investment property or share portfolio is usually seen as ‘good debt.’ Property value are expected to rise of the long term, and you receive an income in the form of rent. Shares are also expected to go up and dividends are often received along the way. Interest expenses are usually tax deductible and can often be claimed against income.
But don’t forget, investments and markets go up and down! Seek appropriate advice and consider your circumstances.
Bad debt is borrowed to buy goods that depreciate in value, don’t produce an income and usually aren’t tax deductible. The new car, jet ski, motorbike, caravan or loans for holidays are all included.
If things are getting out of hand for you and it’s time to start getting on top of your finances again, star first with your non-deductible debt and the one with the highest interest rate. It may feel good to lose the smallest credit card first, but you’re better off not paying the additional interest the other one is incurring.
Most people set goals for the new year that include getting on top of their finances in some way. I’d suggest you pick just one goal that you’re committed to and stick to it. Pay off that one annoying credit card in the coming 12 months, lose that personal loan or consolidate those super funds. Whatever is your biggest bug bear, I hope you get through it in 2017.
by Jodie | Nov 10, 2016 | Australian Economy, Debt Management, Self Managed Superannuation Funds
Recent years have seen a rush of investors buying property through super. But while the strategy has its advantages, there are also some potential risks to be aware of.
The pitfalls
While property has been a good performer in recent years, property investing still involves a number of risks.
Some hidden costs in owning direct property can catch buyers unaware, such as building maintenance costs and or levies. A property’s rental income may also not be sufficient to cover your mortgage payments or expenses, and what would happen if your property was vacant? Do you have enough disposable income to cover the costs yourself? And while interest rates are currently at record lows, an eventual switch in interest rate policy would lead to higher repayments.
In addition, past performance is not indicator of future performance so there are no guarantees your property will increase in value. You should also weigh up the impact of notoriously high entry and exit costs such as stamp duties, legal fees, agent’s fees and advertising costs on your investment.
One of the most important principles of investing is the benefits of diversification. So, if you invest the entirety or a large part of your SMSF in property you will have all or most of your wealth concentrated in the property market, leaving you highly exposed to a market downturn.
The pros versus the regulations
Investing in direct property, whether residential or commercial, can provide diversification benefits for a portfolio that may otherwise be dominated by listed shares, and offers the potential benefit of rental income and the opportunity for capital growth.
However, investing in property inside SMSFs is highly technical in terms of regulations and potential tax implications. In particular, there are strict rules around purchasing property through an SMSF specific to buying and or renting to “related” parties. As such, it’s prudent to seek professional advice on this area.
Commercial property
The strategy of using your SMSF to buy commercial property to lease back through their business is again subject to strict regulations and if you are thinking of replicating this you should discuss the regulatory requirements with your adviser.
According to the ATO, you can invest in commercial property, including your own business premises, through your SMSF, however the overall fund must still meet the sole-purpose test of providing retirement benefits to its members. When dealing with commercial property, an SMSF can generally buy the property and lease it back to a member or a related party of the fund – including the member’s business. Another regulatory hurdle to be particularly aware of includes having an arm’s length sale price and lease arrangement for the property in question when acquiring and or leasing the property to a member or related party of the fund.
Beware the Scammers
Unfortunately there have been instances of scammers operating in Australia using tactics such as:
• persuading people to access their super early to buy property;
• seminars where salespeople use pressure selling tactics to encourage you to make quick decisions; and
• cold calling from companies offering free financial advice or unreasonable returns on properties which are often located overseas.
What next?
Bricks and mortar can be a great long-term investment and may help to set you up well for retirement, but any such plan should be considered in the context of your overall financial plan and discussed at length with a trusted financial adviser. In addition, it is also prudent to do your own research by visiting the Australian Taxation Office’s webpage on self managed super funds.
Pros and cons of investing in property, Moneysmart.gov.au at: https://www.moneysmart.gov.au/investing/property#investment
Superannuation Industry (Supervision) 1993 Act and refer to a summary at the ATO website: https://www.ato.gov.au/super/self-managed-super-funds/investing/sole-purpose-test/
https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/Valuation-guidelines-for-self-managed-super-funds/?page=10
by Jodie | Sep 30, 2016 | Australian Economy, Budget, Economy, Self Managed Superannuation Funds, Superannuation
On 27 September 2016 the Government released another round of draft legislation implementing a number of the changes to superannuation it announced in the 2016 Federal Budget.
Many of these changes will apply from 1 July 2017 so it might be sensible to for you to start thinking of how your superannuation will be impacted by the changes now and whether you might need to change any of your SMSF’s arrangements.
Included in the latest legislation were amendments relating to:
• Implementing the Government’s $1.6 million transfer balance cap, which places a limit on the amount an individual can hold in the tax-free retirement phase from 1 July 2017.
• Lowering the concessional contributions cap to $25,000 per year for all taxpayers from 1 July 2017.
• Reducing the income threshold at which individuals are required to pay an additional 15 per cent contributions tax, from $300,000 per year to $250,000.
• Providing greater flexibility for those with broken work patterns by allowing individuals with balances of less than $500,000 to ‘carry forward’ unused concessional cap space for up to five years.
• Removing the tax-free treatment of assets that support a transition to retirement income stream.
Some of these changes may require you to adjust your investment, contribution, pension and estate planning strategies going forward.
This will most likely be the case if you have a superannuation balance of over or close to $1.6 million, were planning on making significant contributions to superannuation in the next few years, are a high income earner or have a transition to retirement pension in place now.
How can we help?
If you are concerned that the Government’s changes to superannuation are going to affect you, please feel free to give me a call at the office on 07 5593 0855 to arrange a time to meet so that we can discuss your particular requirements in more detail.
by Jodie | Sep 28, 2016 | Insurance & Protection
What if you could reverse diabetes with chickpeas, fish and olive oil? A new study from Newcastle University links a very-low-calorie diet with the cessation of type 2 diabetes.
Type 2 diabetes is a progressive condition, at first managed by diet or surgery, and then by medication or insulin injections. But a new study indicates this doesn’t have to be the case.
A study conducted in March this year by Newcastle University in the United Kingdom placed 30 individuals with type 2 diabetes on a very-low-calorie diet for eight weeks and stopped all diabetes medication and insulin injections. A dozen participants experienced lower blood glucose levels and their diabetes went into remission for at least six months. The research team believes major weight loss can return insulin levels to normal.
While research needs to continue, the study provides hope that type 2 diabetes may not be a lifelong condition – and that’s great news for the 1.7 million Australians who suffer from it.
Inspired by the study, documentary-maker Dr Michael Mosley has suggested that the Mediterranean diet may help control diabetes. The diet is mainly vegetarian, with a few servings of oily fish a week. Olive oil is the primary added fat, and the diet also includes fresh fruit, yoghurt and legumes.
Researchers around the world have been studying the Mediterranean diet due to its remarkable effects on health. A recent study presented at the American Society of Clinical Oncology meeting in Chicago found the diet could help prevent the return of breast cancer. Other studies have suggested it can reduce the risk of heart disease and dementia.
According to Diabetes Australia, 280 people develop diabetes every day. That’s one person every five minutes, and makes it the fastest growing chronic condition in Australia. If you suffer from diabetes, would like to lose weight or would like to improve your overall health, the Mediterranean diet may be for you. But always check with your healthcare professional first.
Diabetes can affect your ability to be covered by insurance due to the long term effects of the condition so early diagnosis and management is vital.
by Jodie | Sep 22, 2016 | Finances, Investments, Money, Wealth
When you donate to charity, your gifts may be a tax deductible donation that can boost your tax refund.
There are many charities in Australia that rely on donations to continue their good work and nine out of 10 of us give to charity each year*. Here we provide a guide to making your gift go further and claiming your donation back at tax time.
What are some ways to give?
According to consumer group Choice, some great ways to give to charity are to give directly or to volunteer. More than 30% of Australia’s adult population volunteer with various not-for-profit organisations, giving an average of 56 hours per year. If you are interested in volunteering some of your time, visit the Go Volunteer website to find out about opportunities in your area.
Less effective ways to give are charity dinners and balls, as the cost of the venue and catering can eat into your donation. Charity telemarketers also take a cut of the money you give.
Tips for claiming charitable donations
Charitable donations are generally tax-deductible but before claiming any donations on your tax return, here are a few tips:
- The charity must be classified as a deductible gift recipient (DGR). To check, visit the Australian Business Register.
- To qualify for a tax refund, your gift must be greater than $2. Keep receipts for any donations you make.
- The gift must truly be a gift – a voluntary transfer of money where you receive no benefit or advantage. You cannot claim items such as raffle tickets; items such as pens or chocolate
or membership fees.
Two favourite charities that Wealth Planning Partners are proud to support financially, and with our time, are The Hunger Project, who aim to eradicate chronic, persistent hunger by 2030 and Hands Across the Water, helping orphaned and disadvantaged children in Thailand.
*Charity donations guide, Choice, September 2014
