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Dear Colleagues and Friends,

It is with great sadness that I inform you of the passing of my co-director, Lance Milham.

Lance has touched many lives.  Many of our friends, clients and colleagues would know that Lance had battled illness on and off over the last few years.  Despite recent health complications, we did not expect to lose Lance so suddenly last Thursday evening.  The team at CB Financial is still coming to terms with the news as I suspect all of those who knew Lance are.

CB Financial was created in 2004 when David Gunthorpe brought team and clients from long standing business Corporate Benefits and joined forces in a service focussed financial advisory business with accountants Skaines Reeves & Jones.  It is at that time that I had the privilege of meeting Lance for the first time.  Lance was pivotal in mediating and assisting the transition and planning of the new venture.  It was plain to see at that early stage that he was the logical choice to lead, inspire and drive the venture forward.  Lance and I have worked together as co-directors since the company’s formation during which time I came to regard him as a good friend, trusted colleague and mentor.

Lance ran the business as though it were family and he was very proud that his children were key members of his team.  He was also a strong proponent of the writings of Jim Collins with meetings regularly comprising discussions about going from “Good to Great” and ensuring the business was “Built to Last”.  As Managing Director of CB Financial, Lance has guided the team to create the foundation of a business built to last and well on the way from good to great.  He would be very satisfied to know that he has left the business in good hands: the hands of those he has personally guided and grown.

Many of you have made contact with the team over the last few days and have asked to have thoughts, condolences and prayers passed on to Lance’s family.  Thank you.  Adrian tells me that the family have been overwhelmed by the number of people reaching out to them and take comfort from the messages they are receiving.

Lance’s funeral service and celebration of life will be held at 2pm Friday July 28 at the Lakeview Chapel, Albany Creek Memorial Park, 400 Albany Creek Road followed by drinks and memories shared at the Eatons Hill Tavern.  We encourage anyone who can come along and pay their respects to join us.  In the meantime we have the opportunity to reflect on Lance the colleague and friend.

Rest in Peace.

Shaun Reeves

Financial strategies and the Federal Budget

Federal Government handed down its annual budget on Tuesday evening and there has already been much commentary. It contained the following key points related to your financial planning strategies:

  • increased contribution flexibility
  • new lifetime non-concessional contributions cap
  • reduced concessional contributions cap
  • change to the taxation of transition to retirement income streams
  • $1.6 million cap on the amount that can be transferred into a tax-free retirement income stream.

Other significant financial planning-related items were:

  • increased income threshold where the 37% tax rate starts to apply for individuals
  • removal of the anti-detriment provisions for superannuation death benefit payments
  • a reduction in the company tax rate for small businesses earning below $10m
  • removal of barriers to innovation in retirement income stream products.

Clearly many of these changes will impact on your financial plans if they are implemented. Regardless there are actions that should be taken now, and others that should be planned for. Therefore we recommend a revision of your plans as soon as possible.

A more detailed review of the budget is available HERE.

To enquire about how the announcements may affect you, or to book an appointment for a review, please contact us on 07 3223 6000.

What are investment bonds

Investment bonds are a type of insurance policy primarily used as an investment vehicle. Available from a range of providers, investors can choose from a suite of underlying investments in much the same way as regular managed funds. Investment bonds shouldn’t be confused with interest-paying government or corporate bonds. They are a unique type of asset offering a range of advantages.

Popular in the days before compulsory superannuation, investment bonds fell out of favour as super became the preferred tax-advantaged environment. Now, with limits on the amounts that can be contributed to superannuation and for other reasons, they are worth a fresh look.

Tax advantages

The primary attraction of investment bonds is that earnings are taxed in the hands of the issuing company at a rate of 30%. Provided the bond is held for more than 10 years no further tax is payable when the bond is cashed in.

While 30% is more than the 15% tax rate that applies to superannuation, it is less than the marginal rates of 34.5% to 49%1 that apply to people with an annual taxable income above $37,000. The higher your marginal tax rate the more attractive investment bonds become.

What’s more, investment bonds don’t lock up your money for the long term as super does. You can access your money whenever you like, though you do need to be aware of some rules.

If the bond is cashed out within eight years, all the growth in the value of the bond is included in your tax return. You will, however, receive a credit for the tax already paid by the issuing company. You won’t be double-taxed. Withdraw from a bond between eight and nine years and two-thirds of the gain is declarable; and between nine and ten years, one-third of the gain goes into your tax return.

Bonds can be purchased with a single lump sum or with regular additions. However, to keep the original start date, an annual contribution cannot exceed 125% of the previous year’s contribution. If it does, the clock starts again for the 10-year rule. Another option is to simply purchase a new bond.

Additional advantages

Insurance bonds can be useful estate planning tools. As a form of life insurance, if the owner dies the proceeds will be paid directly to nominated beneficiaries. The money doesn’t go through the estate and can be paid out quickly. In addition, the proceeds are not taxable in the hands of the beneficiaries, even if the bond is less than 10 years old.

Allowing for relevant tax rates, they may also be a good vehicle for saving for a child’s education or other long-term goal.

Timing

Due to their long-term nature, it isn’t just your current marginal tax rate that is important; it’s what your rate will be in the future. As many retirees pay little or no tax, particular consideration needs to be given to purchasing a bond that will be held until after retirement.

Suitability

Investment bonds aren’t for everyone, but they may suit investors who:

• have reached their concessional cap for superannuation contributions;

• do not wish to lock away their funds in super;

• are saving for a long-term goal and have a marginal tax rate above 30%;

• have specific estate planning needs.

There is much more about investment bonds than we can cover here. Contact us if you would like to learn more.

Footnote : 1 Including Medicare levy and Temporary Budget Repair Levy

 

Sources:

Technical Bulletin TB 33: Investment Bonds from OnePath (http://www.onepath.com.au/public/adviser_advantage_pdfs/TB33.pdf)

Finder.com.au: Insurance Investment Bonds (http://www.lifeinsurancefinder.com.au/post/insurance-types/life-cover-death-benefit/insurance-investment-bonds/)

Australian Executor Trustees: Investment Bonds (http://www.aetlimited.com.au/__data/assets/pdf_file/0005/74039/PLA-5066_Investment_Bonds_flyer_web.pdf)

https://www.moneysmart.gov.au/investing/complex-investments/investment-and-insurance-bonds

Please note: General Disclaimer Warning

The information provided in this bulletin is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs. We can assist you in determining the appropriateness of any product or information mentioned in this bulletin. You should obtain a Product Disclosure Statement relating to the products mentioned herein.

Is the economy really that bad?

These days, the share market is down more than up, the Aussie dollar is too, and last quarter the economy barely grew. China is cutting back on construction, the mining boom is over, and global share markets rise one day only to plummet the next.

Listen too much to mainstream media and it would be easy to conclude that we are going down the economic drain. And sure, there are sectors doing it tough. But the economy is a big and complex beast, so in times like these it’s important to keep all the gloomy economic news in perspective.

The real world

For most people, a little slowing in the economy is barely noticed. Most will keep their jobs or find new ones. Pensions will continue to be paid, the shops will be open, and life will pretty much continue as normal. Maybe incomes won’t go up as much as they might have, and some people may need to buy a little less stuff this year. On the other hand, a downturn may mean that some living costs ease, and for investors, the drop in share prices can be an opportunity to pick up some bargains.

Without trivialising the real pain that some people experience when the economy takes a dip, the old saying about clouds and silver linings holds true. To find out what some of these silver linings are we can look to some unusual economic indicators that point to what is going on in the real world.

Ties up, underpants down

Take the Men’s Underwear Index. When belts need to be tightened, sales of men’s underwear decline as blokes extract maximum value from their Y-fronts. On the other hand, sales of ties increase as men seek to maintain a professional image.

According to Leonard Lauder of Estee Lauder Inc., women’s collective view of the state of the economy is revealed by the Lipstick Index. Lipstick sales jump significantly during recessions as women opt for smaller, affordable luxuries rather than more expensive handbags and shoes.

Cinemas benefit from economic downturns with people escaping to the movies for some respite. The Movie Index might be related to the First Date Index. Data from online dating websites reveals that more people go looking for (and hopefully finding) love as the economy slows.

Beyond dollars and cents

Sometimes it’s easy to get the feeling that economists and politicians believe that the only valid measure of our collective well-being is Gross Domestic Product (GDP), but if that was the case Bhutan should be one of the unhappiest countries on Earth. Instead, this tiny nation developed the Gross National Happiness Index and found itself to be one of the happiest!

So, what’s the collective mood “down under”?

As it happens, Australia also does pretty well when to comes to contentment. In 2014 our overall satisfaction with life as a whole came in at 7.7 out of 10, significantly ahead of the OECD average of 6.6. And perhaps surprisingly, the older we get the more contented we tend to be.

Now there’s a thought that should help us all put short-term downturns into perspective.

Sources:

Wikipedia “Lipstick Index” en.wikipedia.org/wiki/Lipstick_index

Wikipedia “Men’s Underwear Index” en.wikipedia.org/wiki/Men’s_underwear_index

Trading Economics – Australia www.tradingeconomics.com/australia/gdp-growth

Business Insider – www.businessinsider.com.au/bhutan-gross-national-happiness-2011-8#quantitative-ranking-put-bhutan-as-one-of-the-happiest-places-in-the-world-in-2008-5

Australian Bureau of Statistics 4159.0 – General Social Survey: Summary Results, Australia, 2014 How do Australians feel about their life as a whole? ww.abs.gov.au/ausstats/abs@.nsf/mf/4159.0#Anchor3

Australian Bureau of Statistics 4159.0 – General Social Survey: Summary Results, Australia, 2010 www.abs.gov.au/ausstats/abs@.nsf/0/8D0713D229579D3CCA25791A0082C403?opendocument

Please note: General Disclaimer Warning

The information provided in this bulletin is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs. We can assist you in determining the appropriateness of any product or information mentioned in this bulletin. You should obtain a Product Disclosure Statement relating to the products mentioned herein.

Final benefit of superanuation

Here’s a question you might want to ask of your super fund: does it make anti-detriment payments? If not, your dependants may miss out on a boost to any future death benefit they might receive from your super.

What is an anti-detriment payment?

In a nutshell, prior to 1988 superannuation funds were taxed on exit at a rate of 30%. Death benefits paid to dependants were, however, tax-free. In 1988 contributions started to be taxed at 15% on entry and a further 15% on exit, which meant that death benefits would be reduced by the contributions tax paid. As a result the rules were altered to allow the contributions tax to be returned to beneficiaries. This tax refund is called an anti-detriment payment (ADP) and the amounts involved can be significant.

Take the example of Geoff who joined his super fund in 1990. Over the next 25 years his employer and salary sacrifice contributions added up to a total of $180,000. On his death in 2015 his super fund opted to pay an ADP, increasing the death benefit paid to his spouse by $27,000.

Who can receive an ADP?

ADPs are only payable when lump sum death benefit payments are made to eligible dependants of the deceased member. Eligible dependants are a spouse or former spouse, a child, including an adult child, or the trustee of the deceased’s estate. When paid to the estate, the amount of the ADP is determined by how much of the death benefit is paid to eligible dependants.

Where does the money come from?

Most large superannuation funds have accumulated reserves from which these payments can be made. They don’t come from other members’ accrued benefits. The super fund then claims a tax deduction against the earnings of the fund, so the ADP really is a genuine refund by the tax office.

Complex calculations

As Geoff had stuck with one fund that held all of his contributions, calculating the ADP was pretty straightforward. However many people move from fund to fund or have multiple funds, complicating matters. Fortunately there is a formula that super funds can use to calculate ADPs involving the taxable component and days of service. It’s a bit complicated, but don’t worry, we can assist you with this.

Self-managed challenges

It can be difficult for anti-detriment payments to be made from self-managed super funds (SMSFs). Most SMSFs do not have accumulated reserves, so they may simply lack the ability to make the payment. Although it might be permitted by the trust deed and desired by the members, ADPs cannot be made from the deceased’s account or the account of another member.

Seek expert advice

If you have dependants and are a member of a public offer or large superannuation fund, ADPs are a definite plus. It’s worth finding out if your fund pays them.
In the case of self-managed super funds, it is crucial to get expert advice on the pros and cons and the ways and means of making ADPs. Talk to your licensed adviser.


Sources:

Financial Planning Magazine www.financialplanningmagazine.com.au CPD-critical-thinking Superannuation Anti-detriment-payment

Financial Planning Magazine www.financialplanningmagazine.com.au CPD-critical-thinking Superannuation Anti-detriment-payment issues and considerations

Australian Financial Review www.afr.com Personal-finance – Superannuation-and-smsfs/when-its-worth-winding-up-your-diy-super-fund

Australian Tax Office website www.ato.gov.au APRA regulated funds – Paying Superannuation Death Benefits – Anti-Detriment Payment

Please note: General Disclaimer Warning

The information provided in this bulletin is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs. We can assist you in determining the appropriateness of any product or information mentioned in this bulletin. You should obtain a Product Disclosure Statement relating to the products mentioned herein.

Falling in love is a magical and wondrous experience, but once the heart flutters have settled a little and two people move towards a more serious relationship, various challenges may need to be addressed. Many of these challenges can be easily resolved when we’re young and carefree, but what happens when Cupid appears – or reappears – later in life?

Unlike earlier relationships, when love blossoms late in life careers have slowed down or ceased, the children have left home, and health and fitness may not be what it had been, meaning that a ‘lifetime’ of togetherness may not be as long as first anticipated.

From a less romantic perspective, the financial implications of beginning a relationship at this time of life are serious and need to be considered carefully. In many circumstances, the couple’s children are adults whose voices want to be heard, particularly in relation to matters of the will. Parents who re-partner without considering the broader families and important people who took part in their life journey are at risk of unknowingly creating negative repercussions. For example, ‘new’ partners who pass on their estates only to each other, leaving at least one of the couples’ children with nothing while the other partner’s children inherit all, can cause long-term hurt and pain. In many cases, this act may not be intentional.

Another financial aspect unique to this stage of life emerges when there is a high level of financial disparity between the two partners. While one partner has accumulated a lot of wealth, the other may have not. Questions are then raised in regard to how finances are distributed between the couple while they are alive and after one or both die.

Other implications can relate to health issues. They include questions such as who would be the primary carer for a sick partner? The sick partner’s children, or the new spouse? What are the role divisions between the children, other family members and the spouse?

Take advice and make a plan

Whilst every situation will be different, here are some guidelines for addressing the unique features of financial planning in later life. In particular, emphasis is given to the inter-generational and multi-stakeholder aspects of this relationship.

1: Involve everyone long before the will is read

For many years it was customary to not involve children and other relevant stakeholders in formulating a will. History books are filled with disputes and hurt feelings over wills that were read leaving the beneficiaries astonished and devastated over the deceased’s final decisions. Don’t wait until it is too late. Financial matters that can have serious impacts on the future lives of your loved ones need to be discussed well in advance with all relevant stakeholders. Preferably before your will is signed and sealed.

2: Plan for the present with a view to the future

New relationships require new financial arrangements. For example, if buying a property together, what are the consequences of sharing a dwelling?

Below are some examples:

a) When purchasing property consider the estate planning implications

When couples decide to purchase a property jointly it has immediate consequences for the beneficiaries of the couple following the death of a partner. This issue can be addressed by registering the property owners as “tenants-in-common”, ensuring that the deceased’s beneficiaries will inherit their appropriate share of the property. Couples may give themselves a “life interest” in the property to allow each to remain living there after their partner’s death. The implication of this for the beneficiaries is that they will only be allowed to receive their inheritance after both partners have died.

b) Potential age pension changes

An age pension payment will change as a consequence of living together. This can occur when one partner is still working and the other is retired and receiving the pension; or both partners have previously been eligible for a single pension. The difference between the age pensions for a single person is $860.20 per fortnight compared to $1,296.80 as a combined couple – $436.60 less per fortnight.

Case study: Moving In Together

Brian and Elizabeth recently moved in together. Brian is semi-retired and received a part-age pension from Centrelink. Elizabeth is still working full-time and earning a salary. When Brian informed Centrelink of his new living arrangement he had to provide detailed information about Elizabeth’s financial circumstances. Based on their combined assets and income, Centrelink assessed that Brian was no longer eligible for any pension, and his payments stopped. His concession card was also cancelled, so he no longer had access to a wide range of concessions with service providers and public transport. As the Centrelink assessment was completed weeks after he had moved in with Elizabeth, Brian had to repay Centrelink the overpaid pension amount.

c) Superannuation beneficiaries need to be reviewed

If new partners are members of a superannuation fund they need to review their instructions regarding which beneficiaries receive a death benefit. For example, if a couple has specified a “non-binding” nomination for their beneficiaries, this will be invalid now that they have partnered. This is a complex area of estate planning that requires personalised advice.

3: Design financial agreements suited to the partners’ financial circumstances

A happy relationship is a transparent one, particularly when it comes to money. A good start is to draw up a personal “balance sheet” listing the values of all assets each person owns (eg. property, superannuation, car, bank accounts, etc). All debts and liabilities, such as an outstanding mortgage, personal loans and credit card balances, should also be included.

After both partners are aware of the other’s current financial situation, and if appropriate, a “Binding Financial Agreement” could be considered. This is a legal document that sets out how their property and assets would be divided were they to separate. This is particularly appropriate when there is a high level of financial disparity between partners.

4: Plan health care prudently

Growing old together involves increasing health costs and risks of illness. It is recommended that the partners review their health insurances and redesign them to fit the new life arrangements. Redesigning may also reduce premium costs.

Health care plans need to involve relevant family members who may wish to take part in managing care at times of need. Planning in advance could reduce future friction between the cared one’s family and the new spouse regarding treatment strategies and expenses.

Planning and preparing financially should by no means lessen the excitement of a new love experience, but when addressed properly will allow the newly formed relationship to be a source of growth for the couple and their loved ones, in the present, and into the future.

It is recommended to discuss these matters with us – and perhaps an estate planning lawyer too – sooner rather than later. We are more than happy to help you, so please be in contact with us on (07) 3223 6000 or email our advisers using info@cbfinancial.com.au

Please note: General Disclaimer Warning
The information provided in this bulletin is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs. We can assist you in determining the appropriateness of any product or information mentioned in this bulletin. You should obtain a Product Disclosure Statement relating to the products mentioned herein.

Research shows that around one-fifth of Australians aged between 21 and 64 will suffer from a medical event, such as an accident, injury or terminal illness that will leave them unable to work.

Despite this alarming statistic, it is estimated that 95% of Australian families have inadequate levels of personal insurance cover in place, with many relying solely on the default cover held within super to protect them.

This is of great concern as insurance cover held through super can be very limited, with some types of cover prohibited from being held within the super structure.

What insurance cover can I hold within super?

You can hold:

  • Life,
  • Total and Permanent Disablement (TPD) with an ‘Any Occupation’ definition, and
  • ‘Indemnity Value’ Income Protection insurance cover within super without any potential problems.

However:

  • Trauma,
  • ‘Own occupation’ TPD, and
  • ‘Agreed Value’ Income Protection insurance cover is generally not available within super, as a result of legislation that came into effect from 1 July 2014. Since then trustees of regulated super funds (including SMSFs) can no longer provide insurance policies to members unless the benefits satisfy a condition of release such as death, terminal illness, temporary incapacity or total and permanent disablement, in the event of claim.

To address some of these restrictions, new styles of policies have emerged including flexi-linked Trauma and TPD, and income-linked Income Protection.

What is flexi-linking?

Trauma and ‘Own occupation’ TPD insurance cover can be ‘flexi-linked’ to Life and TPD insurance cover held within super. This is treated as one policy.

The way flexi-linked policies work is that the super fund trustee owns the portion of the policy that can be released from super in the event of a claim e.g. ‘Any occupation TPD’ or the attached Life insurance cover (which can be released from super in the event of death). Whereas the individual owns the portion of the policy which would not meet a super condition of release in the event of a claim e.g. ‘Own occupation TPD’ and Trauma insurance cover.

 What is income-linking?

Similar to flexi-linked policies, Income Protection insurance cover held personally can be linked to cover held within super via the ‘income-linking’ structure.

The benefits of linking

  • You can still fund the majority of your insurance premiums from your super fund whilst being able to access additional insurance features generally not available through super, including crisis benefits and specified injury benefits.
  • Premiums for flexi-linked Trauma and ‘Own Occupation’ TPD are generally cheaper than ‘stand-alone’ policies.
  • Rather than paying two sets of policy fees, you will only need to pay one, reducing the premiums.
  • You will generally be entitled to a tax deduction for the portion of your Income Protection insurance premiums funded via your personal cash flow.

The risks associated

  • In the event of a claim, any benefit paid under the flexi-linked policy reduces the linked cover by the amount paid.
  • The level of flexi-linked cover cannot exceed the level of linked Life cover.
  • If the cover held within super is cancelled for any reason, such as the non-payment of premiums, the linked cover is also cancelled.

If you’re looking for insurance cover and want to keep premiums affordable, a linked policy may be for you. Please contact your financial adviser for personalised information.

Please note: General Disclaimer Warning
The information provided in this bulletin is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs. We can assist you in determining the appropriateness of any product or information mentioned in this bulletin. You should obtain a Product Disclosure Statement relating to the products mentioned herein.

From 1 January 2015 Australian banks and financial institutions are required to maintain sufficient liquid assets to ensure they can survive one month in a financial crisis. The aim of this change is to strengthen our financial institutions and improve their resilience to short-term liquidity stress. The impact on investors has been a tightening in the conditions regarding access to money invested in term deposits.

What does this mean for you?

Typically, the benefit of a term deposit is that it provides you with a higher rate of return when compared to a cash account – if you are willing to forego access to your funds for the agreed term. Previously, you were provided with a safety net that allowed you to withdraw funds from your term deposit investments at any time. In return, you would be required to pay an administration fee and an interest rate adjustment.

However, as part of the new regulatory framework, investors who establish or reinvest their term deposits after 31 October 2014, must now give their bank 31 days’ notice if they need to access their money prior to the maturity date. Customers can submit a financial hardship request to retrieve funds earlier but this may be declined depending on individual circumstances.

This could create potential problems for investors should they urgently require access to their funds.

When combined with the historically low cash rate of 2% pa; term deposits are now being viewed as a less favourable investment with many investors turning to other options. Say, for example, you invest $10,000 into a 12-month term deposit at a rate of 2.9% pa. This would pay a return of $290 pa. Given the current inflation rate of around 1.3% pa, your real rate of return would be around 1.60% pa or $160 per annum.

Are there other options?

As an alternative to investing solely in defensive assets, investors could consider diversifying some funds into growth-based investments such as shares, managed funds or property. These types of investments are considered higher risk but can potentially provide higher returns. Before moving into growth-based investments it’s important to understand the trade-off between risk and return and be comfortable with possible negative returns over the short term.

Your financial adviser can determine your tolerance to risk, review your current portfolio and, if appropriate, provide you with information on any suitable alternatives. Furthermore, your adviser will warn you of any maturing term deposits well in advance to ensure you are given the opportunity to withdraw funds upon maturity if required.

Investors without a financial adviser will need to do their research and, in the case of an emergency, ensure they have sufficient cash reserves to cater for at least one month’s expenses. Should earlier access to term deposit funds be required, they will need to contact the product provider and complete a closure request.

Please note: General Disclaimer Warning
The information provided in this bulletin is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs. We can assist you in determining the appropriateness of any product or information mentioned in this bulletin. You should obtain a Product Disclosure Statement relating to the products mentioned herein.

We all know the feeling. The sun is shining, the waves are lapping peacefully on the shore, there’s a cool ocean breeze wafting gently through your hair and the crisp sand is etched between your toes.

Sometimes you wish your holiday romance could last forever.

Technically it could!

Hundreds of thousands of Australians own their holiday getaways. With the temptation to escape the daily grind, a holiday home can be a very rewarding purchase.

But do holiday homes make a good investment?

When it comes to investing in property, it’s easy to let your emotions rule. However, before you make any snap decisions you should consider the benefits and risks associated with this kind of purchase.

The Benefits

• Free accommodation when you go on holidays.

• You will have a home-away-from-home with unlimited access (depending on tenancy arrangements).

• You can rent your holiday home out for the portion of the year that you don’t intend on staying there to help mitigate some of the costs. This can be particularly beneficial during peak seasons.

• Your holiday home may increase in value over time. The potential for capital growth on property investments is generally higher than that of cash and fixed interest investments.

• You can claim a tax deduction for expenses incurred in maintaining your holiday home for the period of time it is rented out.


The risks

• Occupancy rates fluctuate. Strong demand for holiday homes is on average around 8 to 10 weeks per year – and this is dependent on location. Demand for homes in a warmer climate is more consistent (especially if it’s beachfront).

• If you rely on income from peak holiday seasons you won’t be able to use your holiday home during these times, e.g. during school holidays.

• You may need to take on a significant mortgage as holiday homes can be quite expensive.

• On top of the initial purchase price you will also need to consider the costs of maintaining the property, including management fees.

• Any rental income or capital gain that you realise upon redemption of your holiday home will be added to your assessable income and taxed at your marginal rate in that financial year.

• If there is a property market downturn, holiday areas are generally the first to suffer and the last to recover. If you have chosen an area, do thorough research on past cycles and how they have affected local prices.

• You might get bored visiting the same place over and over. On top of this, you may even feel guilty if you holiday somewhere else!

Investing in any type of property is a big decision. When considering purchasing a holiday home, you should try and think a little less with your heart and a little more with your head. Seek professional guidance before making any big decisions.

The Australian Taxation Office defines a “small business” as one with an annual turnover of less than $2 million. According to the Australian Bureau of Statistics there are over 1.97 million such enterprises in Australia, representing 93.6% of all registered businesses.

With figures like these, it is no wonder the federal government consistently refers to the small business sector as the “engine room of the economy”.

Although they play a major role in the Australian economy, small businesses face a unique set of challenges and weak economic conditions in recent years have placed an additional burden on them.

As part of the strategy to stimulate the economy and boost employment levels, the government has targeted the small business sector with a package of tax incentives as follows.

1.5% tax cut for companies

For small businesses that operate as companies, the corporate tax rate is 1.5% less from 1 July 2015. This means incorporated small businesses will be paying tax at a rate of only

28.5%. Shareholders in such companies will benefit even further by being able to claim franking credits on their dividends at 30%.

$20,000 accelerated depreciation

All profitable small businesses will benefit from the changes to the accelerated depreciation rules. The changes will enable small businesses to immediately depreciate any eligible asset costing less than $20,000 purchased after 7.30pm, 12th May 2015 (Budget night). The value of eligible assets has been raised to encourage small businesses to invest in more capital equipment. There is no limit on the number of eligible assets that may be depreciated providing each individual asset costs less than $20,000 and has a direct relationship to how the business generates its income. These new rules are only a temporary measure and assets must be purchased before 30 June 2017 to be included.

Proposed 5% tax discount

Although not yet law, owners of small businesses that are not incorporated, such as sole proprietorships and partnerships, stand to gain from a 5% tax discount. However, this is not the same as a 5% reduction in the marginal tax rate. It means the amount of tax paid on business income will be reduced by 5%. For example, someone earning $80,000pa in business income would normally pay $17,547 in tax (excluding Medicare Levy). Applying the 5% tax discount will reduce this by $877.35. The total amount by which a business owner’s tax can be reduced under this scheme is capped at $1,000 each year.

Note: the legislation to bring this tax discount into effect is currently before Parliament and is not yet law.

If you are a small business owner, come and talk to us so we can help you take advantage of the government’s generosity – (07) 3223 6000 or info@cbfinancial.com.au

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Brisbane Office

Level 11 / 300 Ann St
Brisbane, 4001
Ph: (07) 3223 6000
Fax: (07) 3012 8399

Strathpine Office

Unit 3, 27 South Pine Rd
Brendale, 4500
Ph: (07) 3490 9988
Fax: (07) 3490 9984

Caboolture Office

Level 1, 11-13 Bertha St
Caboolture, 4510
Ph: (07) 5428 9555
Fax: (07) 5498 9320