VOLUME 2, ISSUE 6 SUMMER 2013 PH: 3360 9888 WWW.PEAKPARTNERSHIP.COM.AU THE PINNACLE THE PEAK PARTNERSHIP CLIENT NEWSLETTER When helping the kids can hurt Parents often like to lend a financial helping hand to their children, even when they are adults. But a good turn can sometimes have an unexpected and unfortunate twist. INSIDE THIS ISSUE When helping the kids can hurt Adding up aged care Going the SMSF way Shares investor or trader Take the recent case of a father who bought a townhouse at Mount Coolum for his adult son to live in. To guard against his son acting unwisely, the father had the property transferred to himself and his son as joint tenants. The son lived in the townhouse until 2007, and then moved into a house at Coolum Beach. The Coolum Beach property was financed through a loan from a major bank (which the father had no interest in), secured by a mortgage over both properties. In September 2007, the townhouse was sold and the proceeds of sale were used to reduce the debt to the bank. At the same time, the bank released the father from a guarantee he had given on the townhouse. Subsequently, the father was assessed for the 2007-08 year for Capital Gains Tax (CGT) on 50% of the net capital gain from the sale of the townhouse even though he did not receive any of the proceeds. His objection was disallowed by the ATO and his appeal was also rejected. Under tax law, individuals who own a CGT asset as joint tenants (like the townhouse in this case) are treated as if they each owned a separate CGT asset, constituted by an equal interest in the asset, and as if each of them held that interest as a tenant in common. That is, a 50:50 share by each of father and his son. The father argued that it was never his intention to profit from the sale of the townhouse. He said he only went on the title to protect his inexperienced son from doing something silly and selling the townhouse on a whim. While the father s motives were prudent and reasonable, tax law is strict. The best of intentions aside, getting involved in trying to help children with property can be fraught with potential traps tax and otherwise. The best approach is to get professional advice from your accountant before lending a helping hand to the kids.. Mortgage insurance - What you need to know Damian celebrates 25 years Tax matters small business update Leave a lasting legacy Be sure of work-related claims In the frame Angela Marsh HOT TOPIC Q2 IN 2012-2013 With Christmas just around the corner, businesses will be planning parties for customers and staff as well as bonus payments. It s always a fun time of year, but there could be a Fringe Benefits Tax sting to all the celebrating. Before you put your plans in place, visit our Client Centre on our website to download our Entertainment and FBT and our FBT: Christmas Functions and Gifts Fact Sheets these will help you understand your potential FBT obligations. Just go to peakpartnership.com.au/ financial-fact-sheets or phone us on 3360 9888 for advice. And then enjoy the festive season.
Adding up your Aged Care options It s possible that one day, you ll need to think about aged care options for your parents, in-laws, your partner or even yourself. Naturally, you ll want the best possible outcome for all concerned. However, this can be a very emotional time, and there s a lot to consider. In fact, you ll need to make some difficult and complex financial decisions which can affect the level of aged care fees, the pension payments that you or your loved ones receive, the timing of any sale of the family home and more. It s important to understand all of the fees involved and it can help to speak to a financial adviser about simplifying a move into aged care. AGED CARE OPTIONS The type of costs you ll pay will depend on the type of accommodation you move into. If you have simple needs, you ll probably need low level care (provided by hostels). Low level care homes offer accommodation services such as meals, laundry, additional personal care and limited nursing care. If you need assistance with most daily activities, it s more likely that you ll need high level care (ie. a residential aged care facility). These facilities provide 24 hour nursing care and generally provide meals, toiletries, mobility aids and most medical supplies. Your care needs will be assessed by a member of an Aged Care Assessment Team (ACAT). In fact, you cannot enter a home without being assessed and then approved by an ACAT member. FEES AND COSTS Once you ve been approved and then found a home, you ll be able to better understand the type of costs you ll be asked to pay. If you are entering a low level care home or a high level care home with extra services, you ll be required to pay an upfront accommodation bond. The accommodation bond, generally a one-off lump sum, is negotiated with the home at the time of entry, and will vary from facility to facility. Accommodation bonds can be in the hundreds of thousands of dollars, so naturally your first question after how much will I need to pay? is most likely how can I afford it? Unless you have substantial assets you can use to pay for the bond, your next option might be to sell the family home. While you may want to sell your home anyway, it s important to realise that there can be financial advantages to keeping it. Your financial adviser can help you make the right decision about what to do with your home. They can also help you to understand how you can afford ongoing aged care costs. There are several types of ongoing costs you could pay, usually depending on the type of home you enter and its services. If you re entering a high level home without extra services, you ll be asked to pay an accommodation charge in lieu of an accommodation bond. Like the bond, your charge will be negotiated with the home at the time of entry. The charge is calculated daily and is set upon entry into the home, so it won t change while you re a resident. A basic daily fee is another ongoing cost payable by all residents for costs such as meals, cleaning, laundry and heating. For someone entering care today, the basic daily fee is $44.54 per day (this is indexed twice a year in line with the indexation increases to the Age/Service Pension). You may also be asked to pay an incometested fee on top of the basic daily fee. This fee amount is determined by your assessable income and should not be more than the cost of your care. To give you more flexibility and choice, a number of low and high level care facilities also offer extra services for an additional fee. These services may include a higher standard of accommodation, food and other services. MAKING THE RIGHT FINANCIAL DECISIONS If you have sold your home and have an amount of cash remaining after paying your accommodation bond, or if you have other investible assets, there are ways to structure your investments to minimise your ongoing aged care fees and get more from the Age/Service Pension. There are also special investments just for people in aged care, which can deliver a secure income stream, improve pension payments, give access to the Seniors Card and reduce ongoing aged care fees. The financial aspects to entering an aged care home can be complex. Mistakes can be costly at this stage and it may not be easy to think things through properly if you, or the person moving into care, is upset or unaware of the implications of a decision. That s why it is wise to always seek professional advice before making any commitments. Our Peak Wealth Design advisers are experienced in managing the transition into aged care living. If you or someone close to you is considering moving to an aged care facility, it is well worth your time to contact Pat Kelly or Ros Antrobus on 3360 9898.
Going the self-managed superannuation way Self-managed super is the largest and fastest growing super segment in Australia, with more than 2,000 funds established every month. A key factor behind the popularity of self-managed superannuation funds (SMSF) is the investment freedom this structure offers. You can set your own investment strategy and control how and where your super is invested. You can also choose from a wider range of investment options, including: all listed shares; some unlisted shares; residential and business property; and collectables eg artworks, wines, coins A SMSF potentially gives you tax savings, such as: taking greater control over the timing of tax events eg when capital gains or losses are realised on assets; transferring certain assets directly into your fund by making in specie contributions, where earnings are concessionally taxed; using your super to start a pension, potentially without triggering Capital Gains Tax. Borrowing is another advantage - SMSFs also buy investment assets such as shares and property, by using cash in the fund and borrowing the remainder allowing you to build your portfolio even if your fund doesn t have the available cash to buy an asset outright. With the additional benefits of a SMSF, there is also added responsibility. Whether you opt to set up your SMSF as individual members/trustees or as a corporate trustee, your obligations will include: meeting the sole purpose test ensuring your fund is maintained for the sole purpose of providing retirement benefits to members; developing, implementing and reviewing an investment strategy for your fund; keeping SMSF assets separate from personal and business assets; preparing and keeping proper records for the fund and there are quite a few; not lending money using SMSF assets; not borrowing money except in limited circumstances to purchase investments; and not releasing money earlier than the fund is legally allowed to. Professional advisers like The Peak Partnership can help with a number of these obligations, so understandably the costs of managing a SMSF can be seen directly by the fees we charge. As a general rule, SMSFs are cost-effective with a fund balance of $200,000 or more taking into account the effect of additional operating costs. However, if you have the time, knowledge and motivation to take control of your retirement financial planning, a SMSF is well worth considering. The Peak Partnership can help across all areas of SMSF, from fund establishment, investment planning and review, and ongoing compliance management of your fund. Feel free to contact us on 3360 9888 for more information about setting up your own self-managed superannuation fund. Shares - investor or trader? When it comes to buying and selling shares, sometimes the line between an investor and trader can be a little blurry especially for the person involved. In a recent court case, an individual was deemed to be a share investor and not a share trader as he had claimed. The full-time council employee claimed that he had an arrangement with his employer where he could trade his shares during business hours and then make up the time after hours. The ATO argued that he was not carrying on a business of share trading and therefore was not entitled to deductions he had claimed on the premise that a trading business existed. In arriving at the decision against the share investor, the ATO determined that the lack of a regular routine with buying and selling shares suggested transactions were being made on a speculative basis. Also, being in unrelated full-time employment went against the conduct of a share trading business. If a taxpayer is a share trader, losses may be deductible against other income. If the taxpayer is not a share trader, indexation or the Capital Gains Tax (CGT) 50% discount may apply to reduce the capital gain.
THE PEAK PARTNERSHIP PH: 3360 9888 WWW.PEAKPARTNERSHIP.COM.AU In the frame Angela Marsh In August this year, Angela celebrated her tenth anniversary with The Peak Partnership a wonderful milestone for one of our outstanding staff members. A qualified Certified Practising Accountant (CPA), Angela has seen a lot of change at Peak and in the accounting profession. The industry is no longer just compliance-focused. While it s still a priority to ensure compliance is up-to-date and accurate, we need to provide a broader range of services to our clients, Angela told us. I think we do that well at Peak, with the range of advice and research tools we have. We can help our clients identify and fill the gaps in their personal financial and business plans. Angela says having good working relationships with clients is important to her, helping to give them peace of mind that their accounting, taxation and business affairs are in order. DAMIAN CELEBRATES SILVER Another year is almost gone.our office will close at 5.00 pm on Friday, 20 December and we ll be back ready for action on Thursday, 2 January 2014. It s now a well-established tradition for Peak to send our festive wishes to clients and friends via a Christmas e-card and using the cost-savings to donate much-needed funds to one of our preferred community partners, Act for Kids. Act for Kids does outstanding work in preventing and treating abuse and neglect amongst young people did you know that a child is abused in Australia every 17 minutes often by someone known and trusted by them. Ours is only a small contribution, but every dollar helps so many kids who are treated in ways they don t deserve. From all of us at Peak, have a Merry Christmas and a safe holiday season if you feel like sharing the spirit, donate at www.actforkids.com.au/donate. Damian Knoblanche, one of our longtime Partners at Peak, recently marked his 25th anniversary as a member of the Institute of Chartered Accountants (CA). To put that in perspective, Damian joined CA in the year of Expo 88 and the birth of the Brisbane Broncos. This is quite an achievement and due recognition for a career professional. Unfortunately we don t have a photo of his original induction, but we did snap Damian receiving his 25th Anniversary Certificate from CA National President, Tim Gullifer (at left). To cap off a big 2013, Damian recently celebrated his 20 years of service with The Peak Partnership. Merry Christmas & Office Closure MORTGAGE INSURANCE WHAT YOU NEED TO KNOW WHAT IS IT? In the world of home loans, Lenders Mortgage Insurance (LMI) protects a lender if the borrower defaults on the loan (ie. unable to make repayments) and the sale of the property doesn t cover the outstanding debt. LMI is usually required for loans the lender evaluates as risky eg. when the amount borrowed is more than 80% of the property's value. WHO PAYS? The lender pays the LMI premiums, but this cost is often capitalised into the loan amount to increase your monthly repayments. WHO WINS? The lender - it's really important to understand that only the lender is covered by this insurance. There s no protection for the borrower, even though you end up paying the premiums. THE RISKS? If you default on repayments and the lender sells the property for less than the outstanding debt, the Mortgage Insurer can pursue you for the shortfall even though the lender is fully reimbursed. A lot of borrowers pay thousands of dollars in LMI without really understanding how it works and their liability. If you want to know more about LMI, call Chris Coonan on 3360 9826 or email chrisc@peakpartnership.com.au The information in this newsletter is general commentary only and should not be considered to be advice. You should not act solely on the basis of the material in this newsletter. Also changes in legislation may occur quickly. Therefore, we recommend that our formal advice be sought before acting in any of the areas. This newsletter is issued as a general guide for clients and others. Liability limited by a scheme approved under Professional Standards Legislation. Peak Partnership Pty Ltd ABN 24 064 723 550.
SPECIAL EDITION FOR BUSINESS PH: 3360 9888 WWW.PEAKPARTNERSHIP.COM.AU TAX MATTERS AN UPDATE FOR SMALL BUSINESS THE PINNACLE THE PEAK PARTNERSHIP CLIENT NEWSLETTER The Federal Government has released an exposure draft of a bill and an explanatory memorandum addressing the repeal of the Minerals Resource Rent Tax (MRRT). If this winding back of the MRRT is legislated, it will impact a number of small business tax incentives which were to be funded from the revenue raised by the MRRT. Those incentives include: Loss Carry-Back Measures Small Business Instant Asset Write-Off Small Business Immediate Write-Off for Motor Vehicle This update outlines the possible changes that would accompany the repeal of the MRRT, and the impact on small business. REPEAL OF THE LOSS CARRY-BACK MEASURES FROM START OF THE 2013-2014 INCOME YEAR The exposure draft legislation provides for the repeal of the loss carry-back which allowed companies to carry back tax losses up to a $1 million threshold. The repeal is with effect from the start of the 2013-14 year and will thus not affect the claiming of a corporate loss carry back offset for the 2012-13 income year. REDUCTION OF THE SMALL BUSINESS INSTANT ASSET WRITE-OFF THRESHOLD FROM 1 JANUARY 2014 The exposure draft legislation provides for the reduction back to $1,000 from the current $6,500 threshold for depreciating assets, costs incurred in relation to depreciating assets, and low value pools under the small business entity capital allowance rules. With the exception of the changes in respect of the low value pool, the proposed amendments apply with effect from 1 January 2014. REPEAL OF SMALL BUSINESS RULES FOR MOTOR VEHICLES FROM 1 JANUARY 2014 The exposure draft legislation provides for the repeal of existing rules where a small business entity can claim a special deduction in respect of a depreciating asset that was a motor vehicle in the income year in which the motor vehicle was first used, or installed ready for use, for a taxable purpose. The deduction is equal to the taxable purpose proportion of the first $5,000 value of the motor vehicle plus 15% of any additional value. The remaining value of the vehicle would then be allocated to and depreciated as part of the small business entity s general small business pool. As a result of the proposed change, motor vehicles will be depreciated by small business entities in the same manner as other depreciable assets. The proposed amendments apply with effect from 1 January 2014. OUR VIEW FROM THE PEAK Our suggestion is that, if your small business entity is considering the purchase of a depreciating asset that costs less than $6,500 or a motor vehicle for business purposes, you should make that decision before 1 January 2014. Otherwise, you could miss out on the current tax savings. While it is disappointing that the abolition of the MRRT will come at a cost to small business in the way of reduced tax benefits, the MRRT has not delivered the expected tax revenue from the mining sector to fund these initiatives. As a consequence of these potential tax changes, small business operators may need to re-assess their plans to purchase new depreciating assets and equipment. The proposed reduction of the small business instant asset write-off limit applies to depreciating assets that are first used or installed ready for use for a taxable purpose on or after 1 January 2014. A similar starting date applies in respect of the cancellation of the small business rules for motor vehicles, if these changes are legislated in their current form. FOR MORE INFORMATION Contact one of our Partners by phone on 3360 9888, or email: JOHN EALES johne@peakpartnership.com.au SALLY PORTLEY sallyp@peakpartnership.com.au DAMIAN KNOBLANCHE damiank@peakpartnership.com.au
Leave a lasting legacy not lingering legal bills We all like to think we ll leave a lasting legacy. But without a valid Will, there s a good chance your most memorable legacy could be a costly court battle over your estate. Departing this world without a professionally drafted, up-to-date Will opens the door to the confusing and often expensive world of intestacy. It s a world in which lawyers could be the key beneficiaries while family, friends and even business associates are left emotionally and financially drained. A valid Will specifies how you would like your personal assets (or estate ) distributed following your death. It works in concert with the rest of your estate plans, which can be used to make provisions for children as well as yourself while you are alive, through various powers of attorney and guardianship. Despite the importance of a Will, it s estimated that around 45 per cent of Australians don t have one. Among those that do, many could find their Will doesn t meet strict legal requirements, effectively leaving loved ones no better placed than if there was no Will at all. Having a watertight Will plays a vital role in wealth management. Yes, there is a cost involved in having your Will written by a skilled legal representative, but this could be a tiny fraction of the costs racked up by loved ones if they have to fend off unexpected claims on your estate. Knowing that your final wishes are set in cement can bring priceless peace of mind to those who matter in your life. If you don t have a Will, take a few minutes to call one of our Financial Advisers on 3360 9898 to point you in the right direction and next steps. Or you can email them to get started - there s: Pat Kelly: patk@peakpartnership.com.au Ros Antrobus: rosa@peakpartnership.com.au Vale Mick Portley 16/12/1957-23/11/2013 It was with great sadness that we recently announced the loss of one of our PEAK family. Sally Portley s husband Mick passed away on 23 November following a prolonged period of illness. Throughout his illness, Mick maintained the stoic attitude and positive outlook that so many of us knew were his trademark. Given the nature of Mick s illness, Sally and her family have requested any financial donations to be directed to The John Trivett Foundation for Research into the auses of Primary Brain Tumours. Donations can be made through www.johntrivettfoundation.com.au From all of us at The Peak Partnership, our thoughts are with Sally, John and Robert at this difficult and sad time. Be sure of your work-related expense claims A taxpayer has recently been stung with a penalty equal to 50 per cent of the tax shortfall amount arising from deduction claims for work-related expenses that were unsubstantiated. The individual worked as a car salesman and in his 2011 2012 tax return made various claims for work-related expenses amounting to around $34,300. The ATO determined that most of the claims were unsubstantiated and imposed a penalty of around $6,100 - representing 50 per cent of the tax shortfall. Interestingly, the car salesman had made similar claims in previous years. The individual did not dispute that the claims were unsubstantiated, but argued that the penalty was severe and that he was unable to pay an outstanding portion of the penalty of $1,400. It was determined that the individual did not retain invoices or receipts, or provide satisfactory evidence to substantiate his claims. Ultimately, the ATO was of the view that his conduct was more serious than mere failure to take reasonable care, maintaining that the penalty imposed was appropriate. This case proves that it s essential to have sufficient proof to support your work-related expense claims.