Treasurer nixes regular deeming rate check

Posted on 15 July 2019
Treasurer nixes regular deeming rate check

Katina Curtis and Marnie Banger
(Australian Associated Press)

Hundreds of thousands of pensioners will soon discover how much extra money they will receive each fortnight, with the Morrison government weighing imminent changes to the income test.

But Treasurer Josh Frydenberg has nixed suggestions the system could soon be kept at arm's length of politicians.

Cabinet's expenditure review committee is now weighing up whether to lower deeming rates, which are used to estimate how much some pensioners are earning on their financial investments.

But Mr Frydenberg rejected calls from peak seniors bodies and MPs to take that process out of the hands of ministers.

"We believe we've got a proper process in place and the minister continues to review it as appropriate," the treasurer told Sky News on Tuesday.

Council on the Ageing chief executive Ian Yates argues the rates should be reviewed every six months against a pre-determined set of benchmarks, similar to how the pension is indexed.

"Why is it that this one component of the pension system, which is deeming rates, is not related to an objective basket of measures that gives us a benchmark to adjust it on?" Mr Yates told AAP.

"It would take the uncertainty for a part-pensioner out of what they're going to earn."

Labor says it's long past time the government acted.

"Scott Morrison and Josh Frydenberg don't deserve a pat on the back for looking into deeming rates, they deserve a kick in the backside," shadow treasurer Jim Chalmers told reporters in Brisbane.

He said the too-high rate had "smashed the household budgets of thousands of Australian pensioners".

The deeming rates were last dropped in 2015 and are as high as 3.25 per cent, depending on individual circumstances.

For those with smaller financial holdings, the rate is 1.75 per cent.

Those changes were worth about $83 a year to more than 770,000 part-pensioners.

Since then, the Reserve Bank of Australia has cut the official cash rate five times to a new record low of one per cent, meaning savings stashed in bank accounts are earning less interest.

But Mr Frydenberg said it didn't necessarily follow that the deeming rate should also drop by 1.25 points since it applies to a whole range of financial assets.

"It's not a straight-line equation, it's not about looking what has the interest rate done and then reducing the deeming rate the same amount," he told reporters.

"For example if you've got shareholdings I mean, the ASX 200 shares have gone up around 12 per cent over the last 12 months."

Deeming rates affect about one-in-four pensioners.

Posted in: News  

What are the best investments for your retirement?

Posted on 27 June 2019
What are the best investments for your retirement?

Money and Life
(Financial Planning Association of Australia)

When it comes to investing for retirement, what are your options? Whether you're retired or still working, our complete guide to retirement investments will help you with making the right choices for your future in retirement.

Your investment options

In the simplest terms, investing your money means buying an asset with the expectation of earning returns from ownership of that asset. If you own an investment property, for example, you can expect to receive rent as income. But if you then sell the property for a higher price than you paid, you've increased your returns from your asset even more.  This is known as a capital gain the growth in value of an asset over time.

Different types of investments are grouped together into asset classes a group of investments with similar characteristics, such as term deposits, bonds, property or shares/equities. When it comes to choosing between different investment options, they generally fall into two broad categories, defensive and growth assets. Defensive assets offer less opportunity for growth, but more stability and security for your original investment. A term deposit is an example of a defensive asset the interest you'll earn is fixed but you're guaranteed to get your original deposit back at the end of the term. Growth assets, such as shares, carry more risk but offer more potential to grow your wealth over time.

Why diversification is important

When choosing growth assets and defensive assets to invest in you're looking at how much you can expect to earn compared with the risk of losing some of the original sum invested. Diversifying your investments can be a good way to strike a balance between risk and reward. Because different asset classes behave differently at different times, spreading your money across a number of assets can help you earn more stable investment returns overall.

Investing costs

Every type of investment comes with costs. For buying and selling shares, you'll pay brokerage fees for each transaction. When you buy and own property, there are upfront and ongoing costs such as stamp duty, agency fees and maintenance costs. Plus, you'll be liable for tax on the income from your investments and on any capital gain you earn when you sell assets. These are all things you need to take into account when looking at different investment options.

Should you invest in a super fund?

You can invest in all sorts of assets outside of super, either directly or through managed funds. Most super funds will also offer a wide range of choices for investing your money, including their own blended investment options, such as growth, conservative (defensive) or balanced.  So should you be investing your retirement savings in super or look elsewhere?

A key benefit of investing through your super fund is the potential savings on the tax on your investment income. Any investment earnings in your super fund are taxed at a maximum rate of 15%, regardless of the marginal tax rate on the rest of your income. The main drawback of investing in super is the money you invest and the investment earnings are locked away until you reach your preservation age and/or meet a condition of release. If you need access to the money you're investing in the short or medium term, then your super fund isn't the right place for it.

What about SMSFs?

If you're looking for more flexibility in your choice of investments than you can expect from a super fund, a Self Managed Super Fund (SMSF) could be the answer. However, there are significant costs involved in setting up and managing an SMSF so your freedom to invest super savings in property or collectibles, for example, comes at a price.

Your superannuation investment strategy

There's no one-size fits all when it comes to investing. Whether it's your investment strategy for retirement or another purpose, there are lots of personal circumstances and preferences to think about. Some of these include your investment timeframe, your appetite for risk and how much you already know about different types of investments. Talking with a CERTIFIED FINANCIAL PLANNER® professional can help you narrow down the options and guide you towards a blend of investments that works best for you and your goals.

Investing after retirement

An investment strategy that works well for you whilst working full-time may need to change when your goal is having an income to rely on in your retirement years. You may want to limit your investment risk to be sure of having enough money to last throughout retirement, but also earn sufficient returns so that inflation won't reduce the value of your savings over time.

This is why it's important to get the right advice about changing your blend of investments when you retire. Plus, there are new types of investment opportunities available when you retire. Annuities and account-based pensions come with pros and cons and a CERTIFIED FINANCIAL PLANNER®professional can help you understand how products like these can work with your retirement investment strategy and financial plan.

Posted in: News  

Tax return tips

Posted on 20 June 2019
Tax return tips

MoneySmart
(ASIC)

Getting tax right

It's tax time again so here's our guide to what you can and can't claim in your 2018 tax return, and tips to make lodging your tax on time a breeze.

Records you'll need to complete your tax return

Before you sit down to do your tax, you'll need to gather all the right information. Here are some of the documents you'll need to complete your tax return.

  • Payment summaries - Outlines the income you have received from your employer, super fund or government payment like Centrelink and the Department of Veterans Affairs.
  • Bank statements - Details any interest you have earned during the period and fees you have paid. Your bank may have summarised these for you, either online or at the bottom of your bank statement.
  • Shares, unit trusts or managed funds statements - Information on dividends or distributions you've received. Dividends that you've elected to reinvest must be declared as income.
  • Buy and sell investment statements - Needed to calculate capital gains and losses. If you bought or sold any shares you can access the details on your online broking account or you can get them from your investment adviser or stockbroker.
  • Records from your rental property - If you use a property manager, you will probably get an annual tax statement that details income and expenses. Otherwise you will need to gather details of income received and expenses paid, including any capital gains or capital losses if you have sold the property.
  • Foreign income - Details of foreign pensions or other foreign income.
  • Private health insurance policy statement - Information needed to complete the private health insurance section of your tax return.

Income you must declare

You can do your tax online using myTax. You can access myTax through myGov or the Australian Taxation Office (ATO) website.

Smart tip

If you wait until mid-August, the ATO will pre-fill your tax return with most information from employers, banks, government agencies and other third parties. You just have to check the information, enter any deductions you have, and submit.

If you lodge your tax return before the information is pre-filled, here's a list of common types of income that must be declared on your tax return:

  • Employment income
  • Super pensions, annuities and government payments
  • Investment income (including interest, dividends, rent and capital gains)
  • Business, partnership and trust income
  • Foreign income
  • Income from crowdfunding (for example, donations received for a venture in which you intend to make a profit)
  • Income from the sharing economy (for example Uber or Air BnB)
  • Other income including compensation and insurance payments, discounted shares under employee share schemes, some prizes and awards

Visit the ATO's website for more information on income you must declare.

Tax deductions you can claim

When completing your tax return, you're entitled to claim deductions for some expenses, most of which are directly related to earning your income (called 'work-related expenses'). A deduction reduces your taxable income, and means you pay less tax.

To claim a deduction for work-related expenses:

  • you must have spent the money yourself and not been reimbursed
  • it must be directly related to earning your income
  • you must have a record to prove you paid for it.
When your expenses meet these criteria, here's a list of the things you may be able to claim.
  • Vehicle and travel expenses - This does not normally include the cost of travel between work and home but, if you use your car for work or work in different locations, then you may be able to claim a deduction.
  • Clothing, laundry and dry-cleaning expenses -To legitimately claim the cost of a uniform, it needs be unique and distinctive, for example it contains your employer's logo, or is specific to your occupation, like chef's pants or coloured safety vests.
  • Gifts and donations -  to organisations that are endorsed by the ATO as deductible gift recipients.
  • Home office expenses - Costs could include your computer, phone or other electronic device and running costs such as an internet service. You can only claim the proportion of expenses that relate to work, not private use.
  • Interest, dividend and other investment income deductions - Examples include interest, account fees, investing magazines and subscriptions, internet access, depreciation on your computer.
  • Self-education expenses - If the study relates to your current job, you can claim expenses like course fees, student union fees, textbooks, stationery, internet, home office expenses, professional journals and some travel.
  • Tools, equipment and other equipment - If you buy tools or equipment to help earn your income, you can claim a deduction for some or all of the cost. Examples include protective gear, including sunscreen, sunglasses and hats if you work outside, office equipment, safety equipment and technical instruments.
  • Other deductions - Other items you can claim include: union fees, the cost of managing your tax affairs, income protection insurance (if it's not through super), overtime meals, personal super contributions and other expenses incurred in the course of earning an income.

The ATO's website has more information about these types of expenses. They have also created a series of fact sheets explaining what expenses are tax deductible for specific occupations, including teachers, hospitality workers and tradies.

Make it easier for next year

The ATO's myDeductions app makes record keeping easier. The tool allows you to record deductions including work-related expenses, gifts and donations, interest and dividends. It also lets you store photos of receipts and record car trips. The myDeductions app can be used by individuals and sole traders (sole traders can use it to keep track of business income) and at tax time you can send your deductions to your tax agent or upload them directly to myTax.

What tax deductions are not allowed

The ATO is focused on helping taxpayers get their deductions right, but they're also on the lookout for red flags that identify people who are doing the wrong thing.

Here's a list of deductions you usually can't claim on your tax return:

  • Travel between home and work - which is generally considered private travel.
  • Car expenses - unless you are transporting bulky tools or equipment that your employer requires you to use, and you cannot leave it at work.
  • Car expenses - that have been salary sacrificed.
  • Meal expenses - unless you were required to work away from home overnight.
  • Private travel - including any personal travel portion of work-related travel.
  • Everyday clothes - you bought to wear to work (for example, a suit or black pants), even if your employer requires you to wear them.
  • The cost of laundering eligible work clothes - unless you can show how you calculated the cost.
  • Higher Education Loan Program - contributions charged through the HELP scheme.
  • Self-education expenses - where there is no direct connection to your current employment.
  • Phone or internet expenses - that relate to private use.
  • Tools and equipment that cost more than $300 - however, you can depreciate the cost over a number of years.

Test your understanding of income you must declare and what you can and can't claim with the ATO's tax time quiz. If you're still not sure what you can or can't claim visit the ATO or a registered tax agent.

Lodging your tax return

You can lodge your tax return online using myTax it's quick, easy, safe and secure. If you haven't already set up a MyGov account, you'll need to create one and then link to the ATO. Visit the ATO website to find out how to lodge online.

Smart tip

Check your super while you are logged into MyGov. Just click on the 'super' tab, to see how many funds you have. You can even consolidate your funds on the spot if you know which one you want to keep.

If you have a spouse you will also need details of their income and expenses to make sure your entitlements are correctly calculated.

Once you have lodged your tax return keep an eye on your myGov inbox for your notice of assessment and tax receipt.

Lodge your return before the deadline

If you're lodging your own tax return, you have until 31 October 2018 to lodge it. If you decide to use a registered tax agent, or are using a different agent from last year, you will need to contact them before 31 October.

Take a look at the ATO's video on lodging using myTax:

https://youtu.be/3d7kKpQt-BA

Get help from a registered tax agent

If you want to use a professional to do your tax return, make sure you use a registered tax agent. You can check if the agent is registered on the tax and BAS agent register.

Whichever way you choose to lodge your tax return, remember you are responsible for the claims you make, so make sure your deductions are legitimate and you include all your income before you or your agent lodges your return.

Make tax this year as easy as possible by getting organised and knowing what information you will need to lodge.

Posted in: News  

The real cost of retirement

Posted on 7 June 2019
The real cost of retirement

Money and Life
(Financial Planning Association of Australia)

When you're looking at saving and planning for retirement, it's important to know how much you can expect to be spending. The latest retirement standard figures and other data sources can give you an idea of the cost of retirement, but what else do you need to take into account to ensure your financial wellbeing?

Running the numbers the retirement standard

Since June 2006, the Association of Superannuation Funds of Australia(ASFA) have been monitoring the living costs associated with retirement. Every quarter they research and publish the average annual budget singles and couples aged around 65 can expect to spend when living a modest or comfortable lifestyle in retirement. This is known as the "retirement standard" and for some time it's been a popular yardstick for what it costs to live as a retired person in Australia.

Your definition of comfortable

For a modest way of life, think essential living expenses, taking holidays in Australia only and limited spending on upgrades to cars, appliances and electronic items. Things like international travel, a new car from time to time and eating out on a regular basis are definitely the trappings of the "comfortable" lifestyle category.

Of course your idea of what a comfortable lifestyle looks like and the money it takes to live it could be quite different from the retirement standard definition and estimates. The amount you earn and spend in the lead up to retirement is just one of the things that can influence your budget and spending patterns after you've left work. How and where you plan to spend your retirement is also going to affect how much income you'll need.

The big ticket items health and energy

According to a recent media release from the ASFA, budgets for singles and couples living comfortably have risen 23% and 26% respectively in the decade since the first retirement standard figures were published. The increases for a modest lifestyle are considerably higher, at 33% for a single person and 36% for a couple[1]. As the ASFA have identified the rising costs of power, food, rates and health care as the main culprits for these changes[2], it's not surprising that the impact is greater for those living modestly. In any household budget, these four items would be considered essentials rather than luxuries.

The modest living retirement standard figures are running well ahead of the Consumer Price Index (CPI) increase for the same period which was 28.6%[3]. But while it might seem retired people living a simple life are worse off than they were 10 years ago, changes in the aged pension tell a different story. In real terms, the aged pension rose by 70% for a single person and 54% for couples[4] during this time, making it possible for retirees to cover their living costs, in spite of major price hikes for essentials.

Relying on the aged pension?

This is an important reminder of the significance of the Age Pension in supplementing income from your super. In fact, the latest quarterly Milliman Retirement Expectations and Spending report published in June 2017, claims the median annual expenditure of a couple aged 65-69 is just $34,858, which is only marginally higher than today's full aged pension allowance for couples of $34,819 per year.[5] But as January 2017 changes in assets and income tests for the age pension demonstrate, it's difficult to have certainty about your future entitlement to government benefits in retirement.

Taking home and health for granted

Something else to bear in mind when calculating your own personal retirement budget is whether you own your own home and how you're doing health wise. Retirement standard figures are based on two important assumptions you live in a home you own outright and you're in good health. So if you're likely to be renting for the rest of your life or spending on a mortgage or medical bills in the early years of retirement, you'll need to factor this into your budget.

Advice could make a difference

Even with the help of carefully compiled estimates, surveys and reports from the ASFA and Milliman, figuring out how much you should be saving for retirement and how best to invest it for a healthy return can be a challenge. Seeking advice from a CERTIFIED FINANCIAL PLANNER® professional can help you understand the super balance you're going to need to retire in comfort and come up with a strategy for working towards that target.

Whatever your plans are for retirement, a CERTIFIED FINANCIAL PLANNER®professional can offer valuable advice on making sure you have enough income to live comfortably and achieve your goals.

[1] ASFA Media Release Retirement cost increases driven by power prices, health care, food and rates 29 May 2017 "Between June 2006 and March 2017, the RS budget at the modest level for a single person increased by 33 per cent, while the single comfortable budget rose by 23 per cent. The budget for a couple at the modest level increased by 36 per cent and at the comfortable level by around 26 per cent." https://www.superannuation.asn.au/media/media-releases/2017/media-release-29-may-2017

[2] ASFA Media Release Retirement cost increases driven by power prices, health care, food and rates 29 May 2017 "Over the period, electricity costs increased by 124 per cent, health costs by 60 per cent, property rates and charges by 83 per cent and food costs by 24 per cent." https://www.superannuation.asn.au/media/media-releases/2017/media-release-29-may-2017

[3] ASFA Media Release Retirement cost increases driven by power prices, health care, food and rates 29 May 2017 "ASFA CEO Dr Martin Fahy said the figures compared to an overall 28.6 per cent increase in the Consumer Price Index (CPI)." https://www.superannuation.asn.au/media/media-releases/2017/media-release-29-may-2017

[4] ASFA Media Release Retirement cost increases driven by power prices, health care, food and rates 29 May 2017 "Over the more than 10 year period, the maximum Age Pension increased in real terms, by 70 per cent for a single person and 54 per cent for a couple."https://www.superannuation.asn.au/media/media-releases/2017/media-release-29-may-2017

[5] Milliman Retirement Expectations and Spending report Q2, 2017, 30 June 2017, page 8 "the Age Pension is expected to fund a large portion of household spend for many couples. The observed median annual spend for couples aged 65-69 is $34,858 which is only slightly higher than the full Age Pension."

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Joined up finances

Posted on 6 June 2019
Joined up finances

Money and Life
(Financial Planning Association of Australia)

If things are getting serious with your partner, is merging your finances a natural next step?  Learn about different ways to manage money as a couple so you can decide on the right approach for your relationship.

Being open about money is pretty important in a successful relationship. Secret spending and other forms of financial infidelity can become issues serious enough to threaten your whole relationship. Working towards shared financial goals, on the other hand, is almost guaranteed to help both partners feel more positive about a future together.

Getting on the same page with your budget and savings doesn't have to mean merging your finances completely. This might be an ideal approach for some people, but there are many other ways to share your income and expenses. Here are three alternatives to consider when you're looking at ways to manage money as a couple.

1. Equality rules

With this approach, both of you contribute the exact same amount to your shared expenses like the rent and bills for your home, groceries and your car if you use the same one. You'll keep the rest of your income to spend on yourself, regardless of who earns more.

Pros

This is a pretty simple way to run things and might suit you best if you're just moving in together or in the early stages of a relationship. All you'll need to do is set up a joint bank account for your weekly or monthly contribution, set up direct debits to pay regular outgoings and each have a debit card for food shopping and other shared costs.

It's also a great way to go if you see yourselves as equal partners in your relationship. If one partner earns more, they won't feel like they're subsidising their other half and the lower-earning partner won't be losing their sense of independence.

Cons

This way of joining-up finances relies on trust. It's likely neither of you will have the time or interest to take a microscope to bank statements just to check that all spending from your joint account is for legitimate, shared expenses.

It definitely helps if neither of you have big debts to manage and are in the habit of living within your means. It's a bit much to expect a partner to share the burden of repaying debts you ran up before getting together. But on the other hand, you could end up feeling like you're missing out on all the fun if you can't afford to join in on a night out with friends or pay your share of a weekend away with your beloved. This could also be the case if one of you earns substantially more than the other.

Making it work

If something changes like one of you losing your job, choosing to go part-time,taking time off to study, travel or both deciding to start a family it's important to talk about how you're going to manage financially. When you're both prepared to talk about other options, you'll have a better chance of adapting your approach to sharing, without risking the relationship.

2. Fair shares

This money sharing system is similar, but instead of making the same contribution to the household budget, each half of a couple base their share on what they earn. So if you're on an annual salary of $40k and your partner earns $80k, they'll put twice as much towards your shared expenses.

Pros

Budgeting on the basis of ability to pay can bring you the advantage of sharing a better lifestyle as a couple. When one partner is contributing more to a mortgage or holiday because they can afford it, you both get to enjoy living in the home and having the experiences you really want.

As a middle-ground method for money management, this approach can work well for many couples. You both benefit from sharing finances for your lifestyle, while keeping some income to spend as you wish or save towards your own goals.

Cons

The main drawback here is the higher earning person can start to feel that they're being exploited by this way of dividing up income. And if they don't trust their partner to only spend joint income on what's needed for their household, arguments about who pays for what can start to creep in.

Making it work

The important thing here is to keep communicating so any hard feelings about finances can be addressed early on, before they lead to serious conflict. So if you're being interrogated for every dollar you spend from a shared account or your partner is a bit too generous with the money you share, take time to talk and listen to these issues with an open mind.

3. Spend one, save the other

Under this model, you'll cover all living expenses everything from household bills to holidays from just one of your two incomes, and save all of the other. Unless you're really good at being frugal, it's likely your larger or more stable income will be the one you live on. If one of you is on a salary and the other is freelance, for example, it's the freelance earnings you'll save.

Pros

If you're both 100% ready to commit to a long-term future together, this could be the right money solution for you.  And if raising kids is part of the plan, getting used to living on a single income can free up one of you to stay home without much impact on your lifestyle.

Making significant savings on a regular basis will also give you more options for making other positive changes to your lifestyle. Whether it's a career change, mini-retirement or leaving work for good, having enough saved to replace full-time earnings can open up a world of opportunities for you, as individuals and as a couple.

Cons

As with the other two money strategies, this approach relies on consensus and commitment from both partners to make it work, as well as discipline.  And if you're coming at this with very different feelings about money, and what it means to you when you spend or save it, you might find one of you struggles to stick to your strict savings regime. And that can pave the way for resentment and arguments.

Making it work

Even when both of you belong in a gold-star category of committed savers, it can be hard to feel like you're really enjoying life in the here and now when so much of your income is being saved for the future. If you can plan to put just a small portion of that second income towards some spontaneous spending now and again, you can strike a balance between savings goals and the quality of your current lifestyle.

 

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