Platinum Financial Platinum Financial Solutions Fri, 13 Oct 2017 03:09:57 +0000 en-US hourly 1 Platinum Financial 32 32 The Small Business Owner Superannuation Challenge Mon, 10 Jul 2017 01:19:44 +0000

A client who runs his own dry cleaning business came to see me last week. Barry was in a bit of a state.

He told me it had suddenly dawned on him he was getting closer to retirement and had been reading all these stories in the paper about how much a person needed to have in super for a comfortable retirement.


The final straw was when Barry started putting feelers out about selling the business he’d shed blood, sweat and tears over for so long. Buyers were only prepared to pay half what he thought it was worth.
Too busy managing his business; Barry hadn’t been paying much attention to his super. In fact, he didn’t even know how much he had before he came to see me.
Sadly, I have heard the same story so many times in recent years.

The many reasons



According to the Australian Bureau of Statistics, small business owners have the smallest superannuation balances of any sector. These are the most common answers I get when I ask why:
  • I want to reinvest profits back into my business;
  • I’d prefer to put my money into something I have control over; and the most common excuse,
  • I don’t believe in super.
Although these reasons sound good in theory, rarely do they help you retire in the style you have always dreamed of after years of hard work.

Take control of your retirement funding



Remember that super is just a tax structure, it’s not an investment in itself. You can still control where you put your hard-earned cash.

You can own a little bit of Australia’s other successful businesses, ones far bigger than your own, at a fraction of the cost.

You can park money in a term deposit or invest in property, if that’s appropriate. The key is to spread your investments.



Tax treatment is great for business owners



As a small business owner, you can claim a 100% tax deduction on what you contribute to super up to the allowed contribution limit.

Earnings are taxed at only 15%, and the government has also opened the door for the ‘co-contribution’ scheme to small business owners.



It’s not just for employees



You’re paying super for your employees so you need to follow suit and ‘pay yourself first’.

A simple way to start is to set up an automatic debit each month or quarter, just as you do for your loyal staff.



This is what I suggested to Barry



After I’d settled Barry down, we looked at his situation. He had left it a little late but it was still salvageable. He was 48 and had just $50,000 in super, built up from an earlier career.

I suggested he start contributing 9.50% of his salary from now. He paid himself a salary of $80,000pa so that equated to $7,600 a year towards his super.


Based on a net return of 7% pa (a typical ‘Balanced’ fund long-term average), a projection shows that Barry could end up with approximately $357,000 at age 65.

Not a bad outcome from such a small contribution and a good ‘back up’ to the eventual sale of his business.

Being able to contribute more would of course give him a better nest egg at retirement.

If your situation sounds similar to Barry’s and you would like some suggestions on how to grow your super without relying too much on your business, give me a call.

We’ll help you set up a plan to achieve this, as well as provide valuable budgeting and cash flow advice.

You’ve worked too hard not to enjoy the best retirement a healthy super balance can buy!
To Renovate or to Upgrade – Which is Best? Mon, 10 Jul 2017 01:15:53 +0000

Most of us will live in two or three family homes during our lives. You might find that over this time needs change as does your capacity to meet those needs.

So when the time comes for a change; is buying a new home a good idea, or is spending money on the existing home a better option?


By renovating you save the hassle and stress of moving to another home and location, plus the considerable expense involved.

Alternatively, buying a new home could require thousands of dollars just to cover agents’ commission, duties, legal fees and removal expenses.


However, don’t automatically think that renovation will necessarily increase the value of your property.


Generally, renovations that increase the size of the home will add to its value, while cosmetic features may not. Features that can add real value include:


  • Additional rooms – bedrooms, office or media room
  • Adding a secure garage
  • Re-modelling kitchens and bathrooms
  • Landscaping to reduce maintenance.

At the other extreme, swimming pools are noted for being poor investments. They take time and money to maintain, particularly with the increasing cost of water.

Also, a prospective purchaser may not want a pool, so you could limit your market.


You should also consider your location. Home values tend to be based upon others in the district and even if you have extra features it may be more difficult to sell if the asking price is higher than others around you.

Don’t make the mistake of making your property the best house in the worst street.

As always, doing good research is essential to making robust financial decisions.
Design Your Own Super Adventure Mon, 10 Jul 2017 01:13:36 +0000

A popular series of books originally published over a twenty-year period was the ‘Choose Your Own Adventure’ series.

As the name suggested, the reader could actually decide what the characters did at key moments in the story. They could choose (to a certain extent) how the adventure played out and how the story ended.


Many people treat their superannuation like the traditional story book, believing that their employer pays the contributions and someone else looks after the investments, and that’s how the story goes until the end of their working life.


But the reality is that superannuation funds allow members a level of choice in relation to how the money is invested, which means it can be up to you to create what your retirement adventure might look like.



What’s available?


The first step is to find out what investment options your super fund provides. There may be a couple of options, or there may be many. It all depends on the type of fund you are currently in or are looking to join.

Once you know what’s available, you can match it to your personal requirements.


The fund’s investment menu should show you where your money would be invested based on your selection. Typical characteristics of investment choices within super funds are:


  • Growth – aims for higher growth but accompanied by higher risk;
  • Balanced – aims for reasonable returns and more acceptable risk;
  • Conservative – focuses on lower risk which usually means lower returns;
  • Cash – aims to guarantee your capital but with little or no growth.

If you don’t choose a super fund, your employer must pay your super into a fund that offers “MySuper” – a default fund that provides only two investment options which depend solely on your age.

From 1 July 2017, MySuper will replace the existing default accounts offered by super funds. A default option may be a good strategy, but it is still best to compare it to others on offer rather than accepting it blindly.




What is your style?


There is also no single answer to determining which superannuation options are the best to invest in; there is no “one size fits all”.


Obviously from time to time shares will perform the best, while at other times it will be more beneficial to have a higher investment in cash or fixed interest. In reality, for most people the right allocation will be somewhere in between.


What’s right for you will depend on your age and timeframe; your attitude to fluctuations; and the level of certainty you need to fund your own retirement.


If you are close to retiring, think about how soon you want to access your super. On the other hand, if you won’t retire for 20 or more years and short-term share market fluctuations don’t bother you, then this will impact on your choice.


When it comes to your journey before and after retirement, don’t be afraid to choose your own adventure! Contact us to help you enjoy it.
Preparing for Tomorrow Mon, 10 Jul 2017 01:11:46 +0000

Imagine you were no longer able to look after your financial affairs, or, less dramatically, simply found it an increasing burden to manage your money. How easy would it be for a trusted family member to step in and help you?


There are many reasons why you might find it more difficult to manage your finances as you get older. On top of complex investment structures and a busy lifestyle you might find a normal, age-related decline in your memory creeping up on you.

Or it may be a major illness or the onset of dementia that leaves you unable to take proper care of your financial affairs.


To make life easier, both for you and your family, it’s crucial that you plan ahead.



Hope for the best, plan for the worst


While it’s more pleasant to think about long holidays, new adventures or spending time with grandchildren, you also need to plan for the worst. And as nobody can predict the future, the sooner you work up your financial management bucket list the better.


Here are some of the things you can do:


  • Simplify your finances. Close unnecessary bank accounts and opt for fewer credit cards.
  • Set up direct debit payments for regular bills.
  • Update your will. If you don’t have one, make one – soon!
  • Nominate beneficiaries for your superannuation. Super doesn’t form part of your estate, but you can nominate your estate as the beneficiary, in which case your superannuation will be distributed under the terms of the will.
  • If you have a self-managed superannuation fund, decide whether you still need it or if you need professional help in managing it.
  • Appoint an enduring power of attorney. This is someone who can act on your behalf, so it is critical you appoint someone whom you trust to act in your best interests. Most people select a spouse or adult child, but this role can be filled by the Public Trustee or a solicitor.
  • Nominate someone to make medical decisions on your behalf.
  • Create a file of all your important financial documents, including house deeds, will, birth and marriage certificates, personal insurance policies, health documents and a list of your financial investments. Store it in a safe place and tell your attorney where it is.
  • Make a list of key contacts. This will include your doctor, solicitor, financial adviser and accountant, but you could also add your dentist, gardener, and other service providers.



Talk to the people you care about


Most importantly, talk to the important people in your life. Make sure they understand how you want to be looked after and your affairs managed.

Consider having your attorney help you with the management of your finances while you are still able to be involved. This way they will be familiar with everything if you become incapacitated.


It’s also a good idea to introduce your attorney to your financial adviser. Your adviser can assist with many of the tasks on your list, particularly those related to investment structures, superannuation and personal insurance, and help make life easier for everyone.
Using Your Mortgage to Create Extra Wealth Mon, 10 Jul 2017 00:15:37 +0000

For many people, reducing the mortgage as fast as possible is a wise strategy to use on the path to financial security.

But if you think outside the square there are some options that might be available which involve maintaining or even increasing your level of debt for investment purposes.



A case study…

The experience of James and Lisa shows just how restructuring your mortgage can bring your financial objectives within reach, in a way you never thought possible.


James and Lisa earn $135,000 a year between them but they have concerns as to how they could achieve their long-term personal objectives.


Lisa works part-time and with two very young children feels that if she went full-time the cost of childcare would be prohibitive. She also wants to be at home with the children until they reach school age.

Additionally, they have longer-term objectives of owning a holiday property and covering the costs of the children’s secondary education.


With the help of their adviser, the plan they could adopt begins with Lisa giving up work altogether.

They could borrow an additional $100,000 on their mortgage and invest this in a diversified portfolio. The result is:


  • Lisa can give up work to look after the children;
  • As Lisa no longer earns an income she is eligible to receive Family Tax Benefit B until their youngest child turns 13;
  • Due to the reduction in their combined income, they are now also eligible to receive a portion of the Family Tax Benefit A;
  • As a result of interest on the investment loan, their combined taxable income has reduced. This leads to a $3,000 tax refund which is applied to paying off the mortgage;
  • The investment portfolio will mature about the time the children commence secondary education and, in the meantime, generates a return of some $7,000 a year, which is also applied to reducing their mortgage.
  • They are now on track for their $275,000 mortgage to be paid out in 16 years instead of 30 years.

Without affecting their standard of living, James and Lisa have achieved their short-term family objectives, while also bringing them closer to their long-term goals.


Of course, no two scenarios are the same so it is vital to look at your own financial position and goals – including insurance needs, structuring the right investment portfolio and making sure your cash flow is planned out.

Talk to a licensed financial adviser to get the right advice for you.

Is Your Business Your Super? Mon, 10 Jul 2017 00:10:14 +0000

Many self-employed people view the sale of their business as their retirement fund – their superannuation.

So just like ensuring superannuation investments are being well managed, business owners need to plan ahead to ensure their business can continue to provide a reliable income after they retire.

One of our new clients, Dale, is a typical example of this expectation – he is an accountant working from his custom-built office attached to his house. He wants to retire in a few years, and has always assumed that he can sell his business and retire on the proceeds.

Although he advises his clients to plan ahead, amazingly he has failed to follow his own advice and has never documented a succession plan.



The value of a business



Dale understands the value of the loyal client list he has built up over 20 years. Those clients will continue to need good accounting advice in the future, and their fees will provide an ongoing income stream to the business that services those needs.

If Dale can transfer his clients’ loyalty to another accountant, then it represents an asset he can sell.

To plan his succession, Dale could explore a few options. He could employ a junior accountant to train up with a view to having him or her buy his business.

Or he might be able to sell the business to an established accounting firm and continue to work with his clients as he transfers their loyalty to the new owner.



What about tax?



Any sale proceeds Dale receives will be treated as a capital gain, which would normally be subject to tax.

However, a number of concessions are available to small business people, particularly when it comes to retirement.

These concessions are designed to reduce or eliminate any capital gains tax payable on the proceeds of the sale of the business.



Relinquishing control can bring rewards



Business succession confronts many small business operators. It’s not a case of one size fits all. The specifics of the succession plan will vary from business to business, and it may present a significant challenge for independently-minded owners.

After all, it means progressively giving up control and letting go of the day-to-day running of something they have created personally.

It’s sometimes a good idea to engage a business consultant to help design and guide the succession strategy.



Will your business fund your retirement?



For many people, converting a business into an asset that can be sold for a six or seven figure sum could be the most profitable use of their time between now and their ultimate retirement.

If you’re a small business owner, ask yourself, what does your retirement fund look like? If you don’t have an answer, talk to us sooner rather than later. Then you can get back to running your business knowing your ‘superannuation’ is being well managed.

Guaranteeing Your Children a New Home Fri, 07 Jul 2017 01:07:54 +0000

Many parents I speak to would love to help their kids buy their own home. (Usually, so they can have more privacy without a home filled with Millennials!)

With housing costs normally out of reach for most young adults, staying home until they might be able to afford a deposit places added financial pressure on Mum & Dad.


We usually discuss different options available, including allocating board the parents receive straight into an account so it builds up enough to gift back to their child helping them raise enough for the deposit.

That’s okay if parents don’t need that money to pay for the extra mouth/s to feed.


When we know that Mum & Dad have paid off their home and are just as excited about their children’s first home purchase as the “kids” themselves, we alert them to an alternative way to help them.


Many lenders offer a facility which enables parents to contribute to the purchase at no direct cost. Known under various names, a “family guarantee loan” enables parents, or another family member, to use their own home as security for up to 30% of the purchase price.


It not only ticks the boxes for Mum & Dad, but also for the young borrower, in particular:


  • Your kids may be able to afford a more appropriate property that will grow in value over time.
  • The loan can increase a current deposit or act as the full deposit.
  • Your kids won’t have to pay costly mortgage insurance (usually required when borrowing greater than 80% of the purchase price).
  • Your liability as the guarantor is limited to 30% of the purchase price and this is reduced as the mortgage is repaid.
  • When sufficient equity has built up in the property, you can be removed from the loan.

But we always point out that there are certain risks involved in this. Such as:


  • The lender will take out a mortgage over your home for the amount you are putting towards the loan.
  • If the borrower (your child) defaults on their repayments, the lender will sell the property to recoup the loan. If the sale price doesn’t cover the outstanding loan, you must make up the shortfall to the amount guaranteed. If you can’t meet that payment, the lender could take possession of your home to clear the debt.

Like all things you have to look at this type of loan with as little emotion as possible which is sometimes difficult when all you want to do is help out your kids – and have some peace and quiet at home.


Everyone has a different outlook but I suppose this might be better than your kids paying high rent to pay off someone else’s property when they could be paying off their own.
Buying Your Kids a Home – Good Idea or Bad? Fri, 07 Jul 2017 01:03:54 +0000

Owning your home has long been considered the Australian dream, but the changing property market is helping to ensure that it remains just that for many young people.

Even with initiatives such as the First Home Owner Grant scheme, housing ownership remains unaffordable to many.

Figures from the Australian Bureau of Statistics show that Australia’s property prices have rebounded since the dark days of 2008 by a staggering 62%.

Furthermore, the International Monetary Fund reports that Australia has one of the highest house price-to-income ratios in the world.

It is due to this lack of affordability that many younger prospective home buyers are asking their parents for assistance in fulfilling their home ownership dreams.

The pitfalls
Whilst parents who buy a house for their children do so with the best of intentions, there are hazards that may befall the unwary. These include:
  • Tax consequences – how the property will be treated for tax purposes depends on whether rent is charged. If the child pays rent, expenses will be tax-deductible, but capital gains tax will be payable if the property is sold.
  • Opportunity cost – many parents may not be doing themselves any favours if their own financial well-being and security is compromised by their generosity. Relying on retirement savings to purchase a property later in life could be a decision later regretted.
  • Government benefits – if the property is owned by the parents, both the asset and any income will be included when calculating eligibility for Centrelink entitlements. Alternatively, should the property be placed in the name of the child, it will be considered a gift, meaning that the amount over the gifting limit will be deemed for up to five years. This can affect the level of benefits the parents might receive.
Alternative options
It’s not all doom and gloom though. There are ways for parents to assist their children enter the property market that can also help to deliver valuable life lessons. These include:
  • Gifting a deposit – instead of buying the whole property, gifting the deposit can often be sufficient to help offspring obtain finance, with the child taking responsibility for loan repayments. Furthermore, this option can address Centrelink concerns, and lessen the impact on the parents’ financial security.
  • Acting as guarantor on a loan – this involves using the parents’ assets as security for all or part of their child’s home loan.
  • Buying the property together – this arrangement generally involves parents providing a deposit, with the ongoing costs of the property being split between the parents and the child.
Put it in writing

There is a range of legal issues to be considered before entering into these arrangements. The rights and responsibilities of each party should be clearly and formally documented and address key decisions.

These include, but are not limited to,

  • who is responsible for ongoing maintenance and costs on the property;
  • what to do if either party wishes to terminate the arrangement;
  • what happens if the child cannot meet repayments;
  • how the property will be held when/if the child marries/divorces; and
  • what happens to the property when the parents pass away.

Helping out your kids might seem like a good idea, but it is important that professional advice is sought first.

Your financial adviser can help you to explore the available options to ensure that you find the solution that best suits your family’s circumstances.

Borrowing to Invest Within Your SMSF Fri, 07 Jul 2017 01:00:04 +0000

Self-managed superannuation funds (SMSFs) open up a whole new world of investment opportunities for your retirement savings, including direct property.

But what if you simply don’t have enough money in super to buy an asset outright?


Traditionally, you may have had to consider borrowing the balance yourself and then becoming joint owner of the investment with your super fund.

Perhaps this would have been set up through a trust structure to give you flexibility later on.


However, changes to legislation now permit SMSFs to borrow money directly to help purchase investments such as direct property and shares. As with any SMSF investment, for this to be allowed, strict criteria must first be met.



Compliance is essential

The burgeoning growth in SMSFs combined with low interest rates has encouraged more SMSF owners to invest in property.

Although these combined factors have made it more appealing, the need to comply with the borrowing rules is essential, specifically:


  • Only commercial property or residential property used for investment purposes can be purchased and these transactions need to be made at “arm’s length” on a strictly commercial basis.
  • Any property must be purchased as a single asset.
  • Loans used for purchasing property need to be made on a non-recourse basis.
  • The property title must be held in the name of the trustee of a Bare Trust, not the trustee of the SMSF or any member of the SMSF.

To assist in enforcing compliance the Australian Taxation Office is armed with a range of powers including the imposition of administrative penalties and rectification and education orders against SMSF trustees.



How it might work

We will use a case study to demonstrate how this might work for small business owners.


Owners of CSJ Architects, Craig and Sarah James, currently lease their business premises. They want to buy the premises but with their current home mortgage, they don’t have the available money to do so.


Craig and Sarah’s SMSF has a balance of $430,000. They are interested in how they can use some of these savings to purchase the premises (valued at $500,000); eliminating future rental payments whilst building up a sound asset in their fund.



Can their SMSF borrow?

In this example, one of the benefits of investing through their SMSF is that the couple can use a portion of their existing superannuation balance as a deposit on the purchase of the business premises.


On these types of loans, banks are not likely to lend up to 80% or 90% of the property value as with normal investment loans. The deposit is more likely to be around 30% to 40%.


Here, the SMSF has borrowed $200,000 from the bank to make up the difference between the James’ deposit of $300,000 (60%) from their super fund and the purchase price of the premises.

Over time, the SMSF will use rental income, plus super contributions received from Craig and Sarah, to repay the debt to the bank.

The remainder of their SMSF balance is invested across other asset classes to meet their Fund’s investment strategy.



Is it better to borrow personally if you can?

Within the SMSF environment, the tax benefits of negative gearing are not so obvious. The excess deductions cannot be claimed by the individual members, only by the fund itself.

This outcome should be weighed against the advantages of SMSF borrowing, as well as having a sufficient deposit as noted above.

Like Craig and Sarah, the decision you make depends on your particular financial circumstances and arrangements.

Don’t get caught up in all the marketing hype.

Always consult a qualified SMSF adviser to ensure your fund has the most appropriate structure and investments for your retirement.

How the Family Home Can Affect Aged Care Fees Fri, 07 Jul 2017 00:51:32 +0000

Residential aged care is playing an increasing role in helping many older Australians enjoy comfortable and carefree lives.

However, one of the tasks for anyone assisting an elderly relative with the move into aged care is to investigate the various fees and charges, some of which are subject to both assets and income means tests.

As the family home is often the largest asset and can be a source of income if rented out, it’s particularly important to understand how it is treated in relation to these tests.



Assets test

For individuals entering aged care after 1 July 2014 the value of the family home is notcounted as an asset if it is occupied by:

  • a partner or dependent children,
  • a carer who is eligible for government income support and who has been living there for at least two years, or
  • a close relative who is eligible for income support and has been living there for at least five years.

However, even if that is not the case, the value of the family home that is counted as an asset is capped at $162,087 (as at 20 March 2017). If the actual value is less than the cap then market value applies.

For a couple where neither partner is living in the family home, half of the net market value of the home will be included as an asset for each of them, up to the cap.



Income test

For people who entered aged care between 1 July 2014 and 31 December 2015, rent on the family home is exempt from the income test only if they are paying some level of daily accommodation payment.

Where aged care commenced after 1 January 2016, net rental income is assessable.



Split by health

Eric, 85, and Wendy, 87, own a home valued at $650,000. In February 2016 poor health made it necessary for Eric to move into aged care. Wendy remained in the family home so the house was exempt from the assets test, and as there was no rental income, there was no impact on the income test.




In March 2017 Wendy’s increasing frailty also saw her entering residential care, fortunately in the same nursing home as Eric. Their former home was rented out and became assessable as an asset.

As the value of the home is more than twice the current cap, they each have $162,087 included in their assessed assets.

Under the income test, half the net rental income is applied to each of their assessments.



Expert help

Aged care is a complex area requiring important decisions to be made at a time of high emotional stress. Expert advice can help to reduce that stress so talk to your qualified financial adviser early in the process of moving a loved one into aged care.

It will make everything just that little bit easier for all concerned.