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Are you paying Interest Only?

Until only recently recommending interest only loans for investment purposes was a standard wealth creation strategy; that is no longer always the case. If you are paying Interest Only on any loans, you need to review your strategy!

What does interest only mean?

A loan with a bank has a designated period. Residential mortgages are generally contracted over a 30 year term. If the entire term is “Principal plus Interest” (P&I), then each monthly repayment will be allocated to covering accrued interest plus an incremental allocation to paying down the principal loan balance. Interest Only (IO) loans however will have an initial period (for example 5 years) where the borrower pays only interest, with the principal repayment to start after the end of the interest only period (for example this means you pay the principal down over the last 25 years of the term).

Why Do That?

The primary benefit of this strategy is increasing the cash flow of the borrower, enabling re-allocation of funds to a more beneficial cause, such as paying off more expensive loans first, or for additional investment.

What Has Changed?

Whilst the interest rates applicable to P&I and IO were the same in the past, banks are now charging a higher interest rate for interest only lending, and the compounded difference to you could be thousands of dollars!

Does This Apply To You?

The Reserve Bank of Australia last changed interest rates in August 2016, decreasing rates at that time by 0.25%. Has your bank increased your interest rate this year? Possibly it has, given the changes in investment and interest only lending market rates are more segmented than they have been in the past.

What Should You Do?

It is an ideal time to review your current investment property and gearing strategy. A loan which has been suitable in creating wealth in the past may now comparatively not be as beneficial. If you would like to review your position please contact us as we do offer a no charge and no obligation review.

Please contact Nic Berry or Tom Bailey at Integrity One if you’d like more information on this topic.

Phone: (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrity@iplan.com.au

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Nicholas Berry Credit Representative Number 472439 and Thomas Bailey Credit Representative Number 472440 are Credit Representatives of Integrity Finance (Aust) Pty Ltd – Australian Credit Licence 392184.

This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. Please consult your adviser before making decisions using this information.

Extension of the $20k Instant Asset Write-off for Small Business

In the recent Federal Budget the $20,000 immediate asset write-off has been extended for 12 months to 30 June 2019.

Therefore, if you were looking to get a new asset before the end of the year, you are not restricted by making sure it was “ready-for-use” before 30 June this year. This may include getting a new motor vehicle or machinery built by this date.

The $20,000 immediate asset write-off means that a small business can claim a complete deduction for assets costing less than $20,000. In the past, assets of this size need to be written off over a number of years as depreciation.

Also, another year of the $20,000 write-off may mean that your business pool can be written off from 1 July 2018. The entire balance of the pool can be deducted in an income year when the balance before the calculation of depreciation is less than $20,000.

If you are in this position at 1 July 2018, an additional $20,000 write-off may be available to your business.

If you would like to go through the matter with us further, please do not hesitate to contact us.

Please contact Integrity One if we can assist you with any of your financial needs.

Phone: (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrity@iplan.com.au

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This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. Please consult your adviser before making decisions using this information.

Make tax-deductible super contributions

By making a personal super contribution and claiming the amount as a tax deduction, you may be able to pay less tax and invest more in super.

How does the strategy work?

If you make a personal super contribution, you may be able to claim the contribution as a tax deduction and reduce your assessable income. The contribution will generally be taxed in the fund at the concessional rate of up to 15%¹, instead of your marginal tax rate which could be up to 47%². Depending on your circumstances, this strategy could result in a tax saving of up to 32% and enable you to increase your super.

Note: From 1 July 2017, most people will be able to claim a tax deduction for personal super contributions, regardless of their employment status.

How do you claim the deduction?

To be eligible to claim the super contribution as a tax deduction, you need to submit a valid ‘Notice of Intent’ form. You will also need to receive an acknowledgement from the super fund before you complete your tax return, start a pension or withdraw or rollover money from the fund to which you made your personal contribution.

Other key considerations

  • Personal deductible contributions count towards the ‘concessional contribution’ cap (which is $25,000 in the 2017/18 financial year) and tax penalties apply if you exceed the cap.
  • You can’t access super until you meet a ‘condition of release’. For more information, please visit the ATO website at ato.gov.au.
  • If you are an employee, another way you may be able to grow your super tax effectively is to make salary sacrifice contributions (see opposite page).
  • From 1 July 2018, if certain eligibility criteria are met, you may be able to carry forward unused concessional cap amounts. This may enable you to make concessional contributions in excess of the annual cap in a future year.

Make sure you can utilise the deduction

It is generally not tax-effective to claim a tax deduction for an amount that reduces your assessable income below the threshold at which the 19% marginal tax rate is payable. This is because you would end up paying more tax on the super contribution than you would save from claiming the deduction.

Seek advice

Please give us a call and we will help you determine if you could benefit from these strategies.

Notes

1. Individuals with income above $250,000 in 2017/18 will pay an additional 15% tax on personal deductible and other concessional super contributions.

2. Includes Medicare levy

Please contact Integrity One if we can assist you with any of your financial needs.

Phone: (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

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This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. Please consult your adviser before making decisions using this information.

Sacrifice pre-tax salary into super

Contributing some of your pre-tax salary, wages or a bonus into super could help you to reduce your tax and invest more into super for your retirement.

How does the strategy work?

With this strategy, known as salary sacrifice, you need to arrange for your employer to contribute some of your pre‑tax salary, wages or bonus directly into your super fund.

The amount you contribute will generally be taxed at the concessional rate of 15%¹, not your marginal rate which could be up to 47%².

Depending on your circumstances, this strategy could reduce the tax you pay on your salary, wages or bonus by up to 32%.

Also, by paying less tax, you can make a larger after-tax investment for your retirement, as the case study on the opposite page illustrates.

What income can be salary sacrificed?

You can only sacrifice income that relates to future employment and entitlements that have not been accrued.

With salary and wages, the arrangement needs to be in place before you perform the work that entitles you to the salary or wages.

With a bonus, the arrangement needs to be made before the bonus entitlement is determined.

The arrangement, which should be documented and signed by you and your employer, should include details such as the amount to be sacrificed into super and the frequency of the contributions.

Other key considerations

  • Salary sacrifice contributions count towards the ‘concessional contribution’ cap (which is $25,000 in the 2017/18 financial year) and tax penalties apply if you exceed the cap.
  • You can’t access super until you meet a ‘condition of release’. For more information, please visit the ATO website at ato.gov.au
  • Salary sacrificing may reduce other benefits such as leave loading, holiday pay and Superannuation Guarantee contributions.
  • Another way you may be able to grow your super tax-effectively is to make personal deductible contributions (see opposite page).
  • From 1 July 2018, if certain eligibility criteria are met, you may be able to carry forward unused concessional cap amounts. This may enable you to make concessional contributions in excess of the annual cap in a future year.

Seek advice

Please give us a call and we will help you determine if you could benefit from these strategies.

Notes

1 Individuals with income above $250,000 in 2017/18 will pay an additional 15% tax on personal deductible and other concessional super contributions.

2 Includes Medicare levy

Please contact Integrity One if we can assist you with any of your financial needs.

Phone: (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrity@iplan.com.au

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This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. Please consult your adviser before making decisions using this information.

Aged Care – Check the fees you are paying

Most fees in residential aged care are regulated by government, but more and more care providers are charging for additional services – so check what you are paying for.

When moving into residential care three categories of fees apply:

  • Accommodation costs – to pay for your room and access to the amenities where you live.
  • Daily care fees (basic fee and means-tested fee) – a contribution towards your basic living expenses (eg food, electricity, care staff, cleaning services).
  • Additional services – extra things that may add to your lifestyle or convenience (eg Foxtel, newspapers, meal selection, happy hours, transport services).

More and more aged care providers are offering residents additional services for an extra daily fee. The range of services and the prices charged vary widely.

These fees are not published on the MyAgedCare website, so when deciding where you want to live, ask the provider for a schedule of available services and the prices for each one.

Check your resident agreement

When you are offered a place in residential care will be asked to sign a Resident Agreement. This should detail (amongst other things) the cost you have agreed for your room, the type of room and what additional service fees you have agreed to pay.

Read the details carefully to decide:

  • What services you are being provided and whether they are things you want.
  • The fee you need to pay for these services.
  • Whether you can opt-out and stop paying the fees if you no longer want to receive the services.

A recent court case

If the provider wants to charge you a fee for a service that you won’t receive the benefit of, this may not be allowed.

A recent court case found that aged care providers are not allowed to charge fees for asset replacement or the capital refurbishment of your room after you leave. These fees may apply in retirement villages, but not government-subsidised aged care services.

The judge ruled that these fees are not for the benefit of the paying resident but are for the benefit of the next resident. This means they are not allowed under the Aged Care Act.

Providers who have been charging these fees have stopped and may need to refund any fees previously paid for these purposes.

Next steps

Some simple rules may help you to understand your obligations and rights:

  • Always read your Resident Agreement carefully before signing.
  • If you are unsure about the fees specified, ask the service provider to explain the fees and help you understand what you are being asked to pay for.
  • Query fees for services you don’t think you need or want to see if they are optional and allowed under the Aged Care Act.
  • If you need advice, see your lawyer or ask us for help. We may be able to refer you to a lawyer who works with aged care contracts.
  • Complaints about fees can be referred to the Aged Care Complaints Commissioner.

Please contact Integrity One if we can assist you with any of your financial needs.

Phone: (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrity@iplan.com.au

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This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. Please consult your adviser before making decisions using this information.

Top-up your super with help from the Government

If your income is under a certain threshold, then making personal after-tax super contributions could enable you to qualify for a Government co-contribution and take advantage of the low tax rate payable in super on investment earnings.

How does the strategy work?

If you earn¹ less than $51,813 pa (of which at least 10% is from eligible employment or carrying on a business) and you make personal after-tax super contributions, the Government may also contribute into your super account.

This additional super contribution, which is known as a co-contribution, could make a significant difference to the value of your retirement savings over time.

To qualify for a co-contribution, you will need to meet a range of conditions, but as a general rule:

  • The maximum co-contribution of $500 is available if you contribute $1,000 and earn $36,813 or less.
  • A reduced amount may be received if you contribute less than $1,000 and/or earn between $36,814 and $51,812.
  • You will not be eligible for a co-contribution if you earn $51,813 or more.

The Australian Taxation Office (ATO) will determine whether you qualify based on the data received from your super fund (usually by 31 October each year for the preceding financial year) and the information contained in your tax return.

As a result, there can be a time lag between when you make your personal after-tax super contribution and when the Government pays the co-contribution.

If you’re eligible for the co-contribution, you can nominate which fund you would like to receive the payment.

Alternatively, if you don’t make a nomination and you have more than one account, the ATO will pay the money into one of your funds based on set criteria.

Note: Some funds or superannuation interests may not be able to receive co-contributions. This includes unfunded public sector schemes, defined benefit interests, traditional policies (such as endowment or whole of life) and insurance only superannuation interests.

Other key considerations

  • You can’t access super until you meet a ‘condition of release’. For more information, please visit the ATO website at ato.gov.au
  • You may want to consider other ways to contribute to super, such as salary sacrifice or personal deductible contributions.

Seek advice

Please give us a call and we will help you determine if you could benefit from these strategies.

Notes

1 . Includes assessable income, reportable fringe benefits and reportable employer super contributions, less business deductions. Other conditions apply.

Please contact Integrity One if we can assist you with any of your financial needs.

Phone: (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrity@iplan.com.au

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This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. Please consult your adviser before making decisions using this information.

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