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14 Mar, 2024
Deciding to establish a Self-Managed Superannuation Fund (SMSF) often comes as a reaction to a specific investment opportunity or desire. It could be acquiring commercial property for your business, diving into the cryptocurrency market during a downturn, or investing in that often-discussed unlisted property fund. The motivations are varied, however, setting up an SMSF isn't solely for those nearing retirement or belonging to a particular demographic. An SMSF is a viable option for individuals at various income and investment levels. The question is: is an SMSF right for you? Five essential considerations for those contemplating an SMSF. 1. Age is just a number. Age does not determine the suitability of setting up an SMSF. Whether you're in your 30s, eager to proactively manage your retirement savings, or in your 60s, seeking control over your retirement funds, the appropriateness of an SMSF is determined by your specific needs and circumstances. What's imperative is having a well-thought-out plan tailored to your personal goals. 2. Cost & control. While an SMSF offers greater control over your retirement savings, it also incurs costs, notably the annual audit fee. These costs can significantly impact younger individuals or those with smaller superannuation balances. The Australian Securities and Investments Commission (ASIC) has indicated that an SMSF with less than $500,000 might yield lower returns, after expenses and taxes, compared to a regulated superannuation fund. However, having a strategic reason for choosing an SMSF can justify the costs, regardless of your super balance. 3. It’s a big commitment. Managing an SMSF requires dedication, and for some, it’s too much. Significant time and effort must be invested in researching and making informed investment decisions. For those in their 30s, the idea of taking active control of your super might be appealing, but it's crucial to consider whether you have the time or resources to commit. If not, exploring other avenues for engaging with your retirement planning might be more suitable. 4. Family dynamics. Including family members in your SMSF to share costs, especially audit fees, might seem advantageous. Yet, differing investment goals and retirement planning needs can introduce conflicts that could easily be avoided with a different superfund structure. Once someone is a member of an SMSF, removing them can be complicated, so it's essential to ensure that inclusion decisions align with your overall plan from the beginning. 5. Know your “why”. Establishing an SMSF shouldn't hinge on your age, marital status, or family involvement, but rather on a clear and personal "why". If you have a solid reason for starting an SMSF, it might be the right choice for you. Otherwise, sticking with your current retirement planning approach may be the best path forward. Call in the experts. Making an informed decision on whether an SMSF is the right choice for your retirement planning strategy is best made with a pro on your side. We have a network of trusted individuals we can connect you with so you can ensure a SMSF will set you up for success. To secure your future with an SMSF, contact us today .
14 Mar, 2024
As we approach retirement, the welfare of our loved ones is often a big part of planning ahead. While not everyone considers this a primary concern, for those who do, the potential for their hard-earned legacy to be squandered or misappropriated by beneficiaries is a real worry. This concern is amplified when considering beneficiaries who may be prone to overspending, are in unstable relationships, or are dealing with significant health challenges. The prospect of a family fortune vanishing into the hands of outsiders is a daunting one. Testamentary trusts could be the answer. The solution: testamentary trusts. Fortunately, there is a strategic approach to mitigating these risks, which not only preserves your estate but also offers substantial tax advantages. This strategy centers around the use of a testamentary trust — a legal mechanism that only comes into effect upon your passing, following the granting of probate. A testamentary trust is embedded within your will, with your estate bequeathed to the trust rather than to individuals. This setup provides a layer of protection against potential financial pitfalls such as bankruptcy and legal disputes arising from family law proceedings. The Role of a Lawyer A will that includes a testamentary trust is not a do-it-yourself task. It requires the expertise of a lawyer — one with experience in estate planning. The complexity of establishing a testamentary trust necessitates a detailed trust deed, which outlines the operational rules of the trust, the forms of investment it may engage in, and identifies the key players - including beneficiaries and trustees. Tax Benefits and Protections One of the hallmark advantages of a testamentary trust is its tax efficiency, particularly concerning the distribution of income to minors. Children under 18 who are beneficiaries of a testamentary trust are taxed at adult rates, allowing for a significant income distribution before tax liabilities arise. This can be particularly beneficial for funding education or other expenses tax-free. The key takeaway. In essence, testamentary trusts are a great solution for those concerned about the future stewardship of their estate. By incorporating a testamentary trust into your will, with the guidance of a skilled lawyer, you can provide a safeguard for your assets against unforeseen financial risks. This strategic approach not only protects your legacy but also affords significant tax advantages, ensuring that your descendants can benefit fully from your life's work. If you’d like support in this area, please don't hesitate to contact us today .
14 Mar, 2024
Thinking of selling? You probably know the typical scene involves properties being listed, advertised, and showcased through open houses. However, a different, quieter path exists for homeowners and buyers alike, offering exclusivity and a smoother journey from listing to purchase. This is the off-market sale, a unique approach where properties are sold without public listings, broad advertising, or the traditional open house fanfare. Understanding off-market sales. The essence of an off-market sale lies in its discretion and exclusivity. According to Damian Collins, Managing Director of Momentum Wealth, the fundamental difference in off-market is the absence of public marketing. This private nature makes off-market deals more exclusive and potentially less stressful, as the selling and buying process is not exposed to the broad public. However, Collins also notes that buyers must understand market values and remember that the asking price in off-market deals is not publicly tested. In other words, don’t automatically categorise an off-market property as a bargain… Why choose the off-market route? Cath Hart, CEO of REIWA, points out that privacy concerns, avoiding the hassle of preparing for home opens, and the luxury of waiting for the right offer are among the top reasons people opt for off-market sales. Sellers might not want the public to know they are selling or wish to test the market discreetly to see where buyers see value without the pressure of a formal listing. Pros and cons for buyers and sellers. Off-market sales have advantages and disadvantages for both parties. For buyers, a key benefit is accessing exclusive opportunities that aren't available through conventional channels, along with a more personalised and flexible negotiation process. This can lead to more favourable terms for the buyer. However, the lack of advertising means potential buyers may be unaware of the property's availability, reducing the competition but also the visibility. For sellers, a key “win” is the lack of hassle regarding marketing and advertising efforts. This makes listing generally more affordable. However, this also means the property’s visibility is far lower, and the home may not sell as fast as a result. The importance of trust and due diligence. Off-market transactions call for a high level of trust between the buyer and seller. Collins warns that the negotiation process might lack the transparency of advertised sales, emphasising the importance of due diligence and professional expertise to avoid overpaying for a property. Going off-market? Let us help with the tax stuff. For those looking to buy or sell outside the public eye, understanding the nuances of off-market transactions is key to navigating this less-travelled road successfully. For example, do you know what your tax obligations are here? At Ascent Property Co, we'll help you make the most out of off-market real estate deals and give sound advice around the tax implications. Contact us today .
14 Mar, 2024
Selling a rental property in Australia can have significant tax implications, particularly concerning Capital Gains Tax (CGT). Understanding your CGT obligations is crucial for property investors to navigate the financial outcomes of such transactions. This guide delves into the essentials of CGT on rental property sales, providing clarity and guidance to property owners. Understanding Capital Gains Tax (CGT). CGT is a tax on the profit (capital gain) you make from selling or disposing of an asset, such as real estate, which has increased in value. The key to CGT is determining whether you've made a capital gain or loss upon the sale of your rental property, which largely depends on when the property was acquired. Properties Acquired Before 20 September 1985 If you purchased your rental property before 20 September 1985, you're in luck. Such properties are exempt from CGT, reflecting the tax's introduction date. However, this exemption comes with a caveat. Any major capital improvements made to the property after 19 September 1985 may be subject to CGT if they meet specific criteria, such as constituting more than 5% of the sale proceeds or exceeding the improvement threshold. These improvements are considered separate CGT assets, and their cost base is compared to the attributable sale proceeds to calculate the capital gain or loss. Properties Acquired On or After 20 September 1985 For properties purchased on or after this date, the scenario changes. You may incur a capital gain or loss when you dispose of the property. The difference between the sale price (capital proceeds) and the cost base (essentially, what you've invested in the property) determines whether you've made a gain or loss. A sale price higher than the cost base results in a capital gain, while a sale price lower than the reduced cost base may lead to a capital loss. Calculating the Cost Base. The cost base of a property includes various elements. It's important to note that certain deductions and adjustments apply, especially concerning depreciable assets and capital works deductions, which can affect the cost base and, subsequently, the CGT calculation. Purchase Cost: The total money or property value given to acquire the asset. Incidental Costs: Expenses related to acquiring, selling, or disposing of the asset, such as stamp duty and legal fees. Ownership Costs: Ongoing costs like insurance, rates, and land taxes. However, for CGT purposes, the reduced cost base substitutes ownership costs with the balancing adjustment amount related to depreciable assets. Improvement Costs: Costs incurred to enhance or preserve the property's value or to install or relocate assets. Title Defense Costs: Legal fees spent defending your property's ownership, except when they've been claimed or are claimable as tax deductions. Exclusions for Certain Costs Certain costs associated with your property cannot be included in your CGT calculations if: For All Properties: You have already claimed, or are eligible to claim, a tax deduction for these costs in any tax year. This eligibility remains as long as the option to amend the relevant income tax assessment has not expired. For Properties Acquired Before 21 August 1991: In addition to the general exclusion criteria, costs associated with assets acquired before 21 August 1991 are specifically excluded, reflecting historical tax legislation nuances. For Properties Acquired After 31 May 1997: Costs are excluded if you have claimed, or can claim, a tax deduction for them in any income year. This is particularly pertinent to assets acquired post-31 May 1997, aligning with specific tax rulings introduced at that time. Calculating the Reduced Cost Base Incorporate All Cost Base Elements With Modifications. Include all original cost base elements but replace the third element (costs of owning the CGT asset) with the balancing adjustment amount. This adjustment is typically related to the sale of depreciable assets within the property, providing a more accurate reflection of your investment's cost. Exclude Indexation. Avoid applying indexation to the reduced cost base elements. This simplification ensures a straightforward calculation by maintaining current dollar values without adjusting for inflation over time. Accounting for Capital Works Deductions If your property was acquired after 13 May 1997, capital works deductions play a significant role in your CGT calculation. Deduct any capital works deductions you have claimed or are entitled to claim. This adjustment is necessary whether you've already claimed these deductions in any income year or if the option to claim them remains open due to an unexpired amendment period for your tax assessment. Managing Depreciating Assets Depreciating assets within your property are treated distinctly from the property itself for CGT purposes. When calculating your capital gain or loss, you must exclude the value of depreciating assets at both the time of purchase and sale from the property's cost base and capital proceeds. Planning for CTG with Ascent Accountants. Effective planning and understanding of CGT can significantly impact your financial outcomes when selling a rental property. Awareness of how to calculate your capital gain or loss, considering all relevant costs and improvements, is essential. Additionally, being familiar with tax legislation and seeking professional advice will help maximise your investment's potential, while minimising its tax liability. You deserve peace of mind when it comes to selling your property. To talk about this, contact us today .
14 Feb, 2024
As a business owner, understanding and staying on top of your ATO requirements is crucial. This involves lodging forms, reporting to the ATO, and making ATO payments — but it doesn't have to be a daunting task. At Ascent Accountants, we're here to make navigating the tax landscape as seamless as possible.
14 Feb, 2024
We're thrilled to announce some major upgrades rolling out from 13 November 2023 that will strengthen the way we interact with clients and the ATO. This change is all about strengthening security in the ever-evolving digital landscape (staying one step ahead of nefarious activities is non-negotiable!). See what impact it has for you and your business.
14 Feb, 2024
Staying motivated to effectively manage finances and reach financial goals requires clarity, commitment, and resilience. For a lot of people, that doesn’t come naturally. And that’s okay! Whether you're aiming to save for a dream vacation, buy a house, or achieve financial independence, we’re here to support you.
14 Feb, 2024
Buying a home (or selling one) is one of the most significant decisions in life. Amidst the excitement, it's essential to approach the process with a critical eye — understanding the intricacies of your buyer’s or seller’s contract is paramount. We’re going to explore the importance of clauses, their role in protecting you, and the necessity of legal comprehension in the homeowner journey. The importance of clauses. When examining a home contract, it's not uncommon to ask for modifications before finalising the deal. You’re entitled to do so, and your real estate agent may even advise it. Including specific clauses empowers you to address concerns and ensure inspections or necessary fixes are completed before ownership transfers. These may include inspections for structural integrity, termite assessments, or verification of council approvals (particularly critical in WA). The role of real estate agents. While you can propose clauses as a buyer, you can’t breach legal requirements. Real estate agents typically aid in safely incorporating these clauses into the contract, offering guidance on pertinent additions. Real estate companies commonly provide standard forms for additional clauses, streamlining the process. However, buyers often forgo legal counsel, relying solely on the agent's assistance. Agents, bound by ethical standards, should highlight crucial property aspects and propose standard conditions, such as ensuring the functionality of utilities and conducting structural assessments, but they don’t always. Make sure you know what you’re reading and agreeing to before you sign! You can add an extra layer of protection and scrutiny by seeking third-party legal advice on your contract. Understanding what you’re looking at is paramount as it’s common for misunderstandings may arise. For instance, a structural report only obligates fixes to structural defects, not cosmetic issues, and many people don’t know this until they’ve already signed. Legal considerations. Even if you’re an experienced home buyer or seller, understanding your contract's nuances is crucial because WA lacks a cooling-off period. This calls for thorough scrutiny before signing — after all, no two contracts are the same. Attempting to exit the contract by failing to secure financing is also prohibited. Once signed, buyers must diligently fulfill conditions to finalise the transaction. Understanding the risks. In navigating home contracts, a grasp of clauses and legal obligations is invaluable. Seeking legal counsel offers an added layer of assurance, especially for those unfamiliar with the intricacies of real estate law. Ultimately, informed decision-making is key to a successful home-buying journey. We can help with the tax implications and responsivities that comes with buying or selling property. To get started, contact us today .
15 Jan, 2024
If you’re interested in investments, you’re probably seeing a lot of hype around the classic asset class of "fixed interest". Fixed interest, loosely referred to as bonds, is an asset class many Australians don't know much about. Whether bonds are a good investment for you depends on your financial goals, risk tolerance, and overall investment strategy. Bonds can be a valuable addition to an investment portfolio for several reasons, but their suitability varies from person to person. Bonds and term deposits: what’s the difference? Most people get this asset type confused with term deposits. A term deposit is locking up money for a term (usually months or years) with a bank, in return for a guaranteed interest rate. Fixed interest (or bonds) is one of four main investment asset classes. Going from low risk to high, they are: cash, fixed interest, property, and shares. Bonds in action. Bonds are financial instruments that represent a loan made by an investor to a borrower. They are a form of debt security, and when you invest in bonds, you are essentially lending your money to the issuer in exchange for periodic interest payments and the return of the principal amount at the bond's maturity date. Bonds can be cheaper than borrowing from a bank and come without the restrictions banks love to put on loans. Coupons. Banks issue bonds for a certain period (such as five, seven or 10 years), make regular cash payments (looks like interest, but is referred to as “coupons”), and then repay the debt at the end of the term. While the coupon paid on the bond might be 4%, the value of the bond might have fallen 6%, giving a -2% return for the year. The same in reverse — the value of the bond could rise by 6%, making a total return for the year of 10%. But, bonds aren't as volatile as shares or property, which can move more dramatically in shorter periods. Cash. Cash is when you give your money to the bank, and the bank decides who to lend it to. Bonds are riskier than cash because they’re often issued at $100, usually in $500,000 lots. But, the value of the bond will move up and down, depending on the health of the company/government issuer, interest rates and inflation, and overall economic health. As a result, they can have negative returns. Bonds at the moment. Through an investment cycle, income streams from bonds (coupons) usually sit below the income streams from shares (dividends). Recently, this has inverted. The future expected dividends from shares have fallen well below the more certain coupon payments from fixed interest. This is partly because of the fall in bond prices. Since the bottom of the interest rate cycle at the end of 2020, the overall average value of Australian bonds has fallen as much as 20%, while international bonds as an asset class have fallen about 30%. Rising interest rates have been the main reason — when interest rates rise, the capital value of bonds tends to fall. So, the hype around bonds —with their guaranteed income streams and falls in capital value — has some merit where, comparatively, they believe they are a "no-brainer" over a few years. Making a return on your investment when you own bonds. Interest income: As a bondholder, you receive periodic interest payments from the issuer based on the coupon rate. This interest income is typically paid semi-annually or annually, depending on the bond's terms. You can make a return by collecting these interest payments. Capital gains: If you buy a bond at a price below its face value (at a discount) and hold it until maturity, you will receive the full face value when the bond matures. The difference between the purchase price and the face value is your capital gain. Selling in the secondary market: You can also make a return by selling your bond before it matures in the secondary bond market. If the bond's market price has increased since you purchased it, you can sell it at a higher price than you paid, resulting in a capital gain. Conversely, if the market price has fallen, you may incur a capital loss. Yield to maturity (YTM): YTM is a measure that considers both the interest payments and any potential capital gains or losses if you hold the bond until maturity. It represents the annualised return you can expect from the bond if all payments are received as scheduled. Understanding the risks. Like any investment, bond investments come with risks, including interest rate risk, credit risk (the risk of issuer defaulting on payments), and market risk (price fluctuations). Understanding these risks and conducting thorough research is essential before investing in bonds— we can help. To get started, contact us today .
15 Jan, 2024
If a business owner told you that they run their business without a budget, you’d probably have doubts about the longevity of that business. How do they track expenses and income, and plan for unforeseen events? You might even think they were incompetent, or lazy. In any case, it’s a safe bet that we can all agree: running a business without a budget is a very bad idea. A huge number of families run their households with no budget. Now, we know a family and business are two completely different ball games. However, financially running your family “like a business”, has its merits. Not convinced? We reckon we’ll change your mind by the end of this article. The family unit as a “mini business”. In a sense, your family is kind of like a mini business. You have regular expenses, you have income, you have emergencies and unplanned events. You probably have savings, or want to have some, and maybe want to invest as well so you can set your family unit up for success. Here comes the pep talk... Money is a tool that enables you to reach many of your goals in life — travel, homeownership, personal spending, cruisy retirement, and other financial freedoms. The reality is, until you know where your money goes, it’s impossible to make informed decisions about how to use it effectively. A budget shows you exactly where your money goes and provides a clear plan that lets you save for the things that are important to you. And that’s exciting! Whatever you decide you want to save for and achieve, you can — with the right financial focus, budget, and discipline. The biggest roadblocks to budgeting. It’s overwhelming to think about and plan, or families don’t know where to start. A budget takes time to establish. A budget calls for new habits and financial discipline. Fears around limited financial freedoms. Don’t want to know the realities of how bad the financial situation is (ignorance is bliss!). Have tried it before and it didn’t stick or was too hard. The good news is, the pros outweigh the cons. Clarity on your existing financial situation (even if it’s not what you were hoping for or expecting). Gives fiscal direction and helps you stay (or get back) on track. Comfort in knowing when your money is coming in and when it’s going out. Save for things you want. Build a “financial cushion” for emergencies (healthcare, pet care, car problems, last-minute flights). Three tips for an effective household budget. So, just like running a business, creating an effective household budget is essential for managing your finances and achieving your financial goals. Here are three tips to help you create and maintain an effective household budget. 1. Track income and expenses. Start by tracking all sources of income, including your salary, rental income, dividends, and any other sources of money coming into your household. A clear understanding of how much money you have available to work with is essential. Next, track your expenses meticulously. Categorise your expenses into fixed (e.g., rent or mortgage, utilities, insurance) and variable (e.g., groceries, dining out, entertainment) categories. You can track day-to-day expenses by entering them into a spreadsheet, or better yet, with a purpose-built tool such as Pocketsmith that automatically pulls from bank feeds to save you a lot of manual data entry. 2. Set clear goals and prioritise them. Determine your financial goals, both short-term and long-term. Examples of short-term goals might include paying off credit card debt or saving for a vacation, while long-term goals could be buying a home, saving for retirement, or funding your child's education. Prioritise your goals and allocate your income accordingly and realistically. Depending on your income, you might be able to save for multiple goals at once, or you might prefer to save for one thing at a time to reach your goal faster. Either way, ensure that you are also setting aside money for essentials like housing, utilities, and debt repayment. 3. Create and stick to a realistic budget. Based on your income, expenses, and goals, create a detailed budget that allocates your money each month. Be sure to include allocations for savings and emergencies. Your budget should be realistic and sustainable. It should cover your essentials, pay down debt, save for your goals, and still have some space to spend for enjoyment. Review and adjust your budget regularly. Life circumstances change, and it's important to adapt your budget accordingly. If you find that you're consistently overspending in certain areas, consider making adjustments to ensure you stay on track. Consult a financial advisor. Remember that budgeting is an ongoing process, and you probably won’t get it right the first time. That’s normal and okay! If you need more advice and accountability, we highly suggest engaging a financial advisor. These guys really know budgeting and are passionate about helping you succeed. Please don't hesitate to contact us , and we can connect you with an exceptional financial advisor from our inner circle.
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