End of year strategies
and opportunities
Speaker’s name
Title/department
April 2013
Disclaimer
This information was prepared by Securitor Financial Group Ltd, ABN 48 009 189 495 AFSL &
Australian Credit Licence (ACL) 240687 (Securitor) and is current as at January 2013.
Material contained in this presentation is an overview or summary only and it should not be
considered a comprehensive statement on any matter or relied upon as such.
This presentation contains general information only and does not take into account your personal
objectives, financial situation or needs and so you should consider its appropriateness having
regard to these factors before acting on it.
All case studies and examples used in this presentation are for illustrative purposes only and
nothing in this presentation should be construed as an indication or prediction of future
performance or results.
Any taxation position described in this presentation should be used as a guide only and is not tax
advice. You should consult a registered tax agent for specific tax advice on your circumstances.
As the rules associated with the super and pension regimes are complex and subject to change
and as the opportunities and effects differ based on your personal circumstances, you should seek
personalised advice from a financial adviser before making any financial decision in relation to any
matters discussed in this presentation.
3
April 2013
Agenda
Super – it’s still super!
Transitioning to retirement
Other opportunities
Next steps
4
April 2013
Choose your tax rate!
Individual
45%
Company
30%
Super
15%
Pension
0%
•Up to 45% - Top marginal rate + 1.5% Medicare levy
•Discount of 50% on capital gains
•30% Company tax rate
•No CGT discount
•15% on earnings and deductible contributions
•10% on capital gains
•Tax free earnings within super when drawing a pension
•Tax free pension payments once you turn age 60
•15% tax offset on taxable pension payments if over 55 and under 60
5
April 2013
Super is a tax structure, not an asset class
No greater investment risk when
investing through super
Insurance
– you can invest in same
assets
– cash is an option
Cash
Bankruptcy protection
Low tax environment
SUPER
Property
6
April 2013
Shares
Fixed
Interest
Maximise your deductible contributions
More important to start salary sacrificing earlier than ever before!
– 9% compulsory super counts towards cap.
Proposed legislation to allow $50,000 cap for over 50s from 1 July 2014
where super balance is less than $500,000
Deductible contribution cap
2012/13
2013/14
Standard cap
$25,000
$25,000
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April 2013
Salary Sacrifice
Superannuation
Guarantee
Maximum salary
sacrifice
$100,000
$9,000
$16,000
16.0%
$125,000
$11,250
$13,750
11.0%
$150,000
$13,500
$11,500
7.7%
$175,000
$15,750
$9,250
5.3%
$200,000
$16,470*
$8,530
4.3%
Income
* SG is only required on first $45,750 of income per quarter ($183,000 p.a.)
8
April 2013
Maximum sacrifice
percentage
Personal contributions can help plug the gap
500,000
Case Study
Brad (age 55)
450,000
Employed on a
package of $180,000
plus SG
350,000
Was sacrificing up to
$50,000 cap.
400,000
300,000
250,000
200,000
150,000
100,000
From 1 July 12 only
have $25,000 cap
50,000
0
Year
1
2
3
4
5
6
7
8
Salary Sacrifice $34,225 (50K Cap)
Salary Sacrifice $9,225 (25K Cap)
Salary Sacrifice $9,225 plus $15,375 after-tax
Note: Assumes a return of 7% after fees and tax
9
April 2013
9
10
Maximise your personal contributions
No deduction is claimed
Personal contributions capped at $150,000 p.a.
If under 65 you can bring forward 2 years of cap and contribute up to
$450,000
10
April 2013
Don’t forget super for a low income spouse
Co-contribution
– Co-contribution up to $1,000*
– Income up to $31,920 for full benefit or up to $61,920 for partial
Spouse contribution tax offset
– Tax offset up to $540 for contribution of $3,000
– Spouse income up to $10,800 for full or $13,800 for partial
* The Government has proposed halving the co-contribution to $500 from 1 July 2012, thereby reducing the cut-out
income threshold to $46,920
11
April 2013
Insure pre-tax with super
Pre-tax
contributions
Life & TPD
Insurance
Super
Save up to 87% on pre-tax cost of funding Life and TPD premiums
Improve cash flow
Can hold through your SMSF
Taxable income Marginal tax rate
over
(inc. Medicare levy)
Pre-tax cost
outside super
Pre tax cost
in Super
Percentage
saving
$37,000
34.0%
$1,515
$1,000
34%
$80,000
38.5%
$1,626
$1,000
38%
$180,000
46.5%
$1,869
$1,000
46%
12
April 2013
Double the deduction on income protection
Income
protection
Personally
deductible
Income protection deductible personally
– Salary sacrifice – “otherwise deductible”
– Prepay 12 months in advance
Double up - Deductible contributions to super up to cap plus
personal deduction on income protection premium
Inside super – cash flow
Pre-tax
contributions
Super
13
April 2013
Maximise
contribution
cap
Transition to retirement
Transitioning to Retirement
If you’re 55+ you may be able to:
– Reduce your working hours
– Use super to supplement your income
OR
Maintain fulltime work
Salary sacrifice to super
Draw tax effective income from super
15
April 2013
Transitioning: Let’s take Ian, for example
Ian would like to boost his super without affecting his lifestyle
Salary $100,000 p.a.
Receiving $9,000 superannuation guarantee
Age 60
Ian
$16,000 salary
sacrifice
$9,840 income
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April 2013
Super
Ian’s super accumulates much quicker
Current
Gross salary
Less tax
$100,000
$ 26,447
Net salary
$ 73,553
Plus, benefit of 0% tax on
earnings when in pension phase
Proposed
Gross Salary (after SS)
$84,000
Net salary
$63,713
Pension income
(age 60 – tax free)
$9,840
Net income
$73,553
Benefit in Year 1
$3,760
Includes Medicare levy
17
April 2013
Other opportunities
Terry and Vicki
Both age 50 and happily married
Vicki’s an employee earning $200,000 p.a.
– maxed out concessional contribution cap
Terry no longer works due to poor health
They have recently sold an investment property
– Proceeds of $400,000
– Outstanding loan - $100,000
– Initially purchased 3 years ago for $300,000
19
April 2013
They seek advice
Repay property loan of $100,000
Put $100,000 into a margin loan in Vicki’s name
– Conservative portfolio of investments
– 50% LVR – borrow $100,000
– Prepay interest – assume rate of 10%
Surplus of $200,000 in term deposit (Terry’s name)
Vicki donates $2,000 to Cancer Council
Prepay premium of $3,000 on income protection
20
April 2013
The result...
Vicki
Terry
Gain ($100,000 split between two)
$50,000
$50,000
Assessable gain (after applying discount)
$25,000
$25,000
Prepay interest on margin loan
($10,000)
-
Prepay income protection premium
($3,000)
-
Donation
($2,000)
-
Assessable amount
$10,000
$25,000
$4,650
$1,222
Tax payable at marginal rate
Vicki’s assessable amount for this capital gain is $10,000 as opposed to
$25,000 if the strategy was not in place.
21
April 2013
Recycle your debt using home gearing
Borrow against equity in own home to invest in a growth portfolio
– Shares
– Property
– Managed fund
Income from portfolio used to pay non-deductible debt first
22
April 2013
How debt recycling works...
Family
Home
Interest
only
Principal &
Interest
Managed
funds
Investment
loan
(deductible)
Property
Home loan
(not deductible)
Income
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April 2013
Shares
Prepayments
Prepay interest (simplified tax system)
– Margin loans
– Investment property loans
– Equity access
Prepay other deductible expenses
– Income protection insurance
– Donations
Variation of tax
– Section 15-15 notice
24
April 2013
Next steps
Next steps
Choose what tax rate you want to pay
Start salary sacrificing early
Reassess your insurance needs
Have a disciplined approach
Seek good quality advice
26
April 2013
Questions?