According to Archicentre, the building advisory service of the Australian Institute of Architects, the Federal Government's move to cap superannuation contributions at $50,000 has stimulated interest in renovation and investment in negatively geared property.
In the latest Archicentre Consumer Sentiment Poll of over seven hundred respondents, approximatley 72% of respondents said they would be putting their extra funds into property. Approximately 40% said they would invest in renovation of their own home, while 32% said they would invest in a negatively geared property. Approximately 28% said they would use their extra funds by investing in shares.
Michael Cooper, Tasmanian State Manager of Archicentre said that with many Australians planning to top up their superannuation with equity in the family home or investment properties, the current rising house prices will have a significant impact on the lifestyles of hundreds of thousands of Australians.
The added bonus for people investing in the family home is that once completed and sold it is not subject to capital gains tax and they can enjoy the new renovations."
Mr Cooper said whilst this is a time of opportunity, people renovating their homes need to ensure they do their homework in relation to renovation and design to ensure they are in fact adding value.
"People purchasing an investment property can run into financial difficulty if they do not carry out a thorough inspection of the property", he warned.
"Last year, one out of three homes which underwent the independent pre-purchase inspection by Archicentre had faults which required attention allowing prospective buyers to factor in the costs of repair before making a bid.
"People who buy a 'lemon' are often confronted with unplanned borrowings to fix problems such as plumbing, wiring, rising damp and roof problems which can run to tens of thousands of dollars of extra funds cutting directly into the level of the superannuation returns."
According to Mr Cooper, the best defence against the loss of value in the family home as a superannuation asset is to get a professional, independent assessment of the property before purchasing and of any renovation before commencing.
For more information on how we can help you build your wealth through safe investments and still lead a comfortable retirement, speak to one of the financial advisors at Intellichoice.
Monday, November 30, 2009
Friday, November 27, 2009
A guide to self managed super
Do it yourself super via a self managed super fund (SMSF) is becoming an increasingly popular choice for investors who want to have control over how their super is invested.
What is an SMSF?
An SMSF is a trust where money or assets are held and managed on behalf of up to 4 members to provide benefits for their retirement. All members of an SMSF must be trustees of the fund or directors of the fund's corporate trustee (subject to certain exceptions).
Why should you establish an SMSF?
There are three key reasons for establishing your own super fund: control, flexibility and investment choice.
As a trustee of your self managed super fund, you decide on your fund's investment strategy and choose what your fund's assets are invested in. You can invest in almost anything and tailor your fund's investments to suit your specific needs - although it is subject to some limitations and legal restrictions.
Like all super funds, an SMSF receives concessional tax treatment. The top tax rate for the investment earnings of your SMSF is 15%. It's important to note that this tax concession is only available if your fund complies with all the rules and regulations that apply to SMSFs (a complynig fund).
Rules and obligations of an SMSF
As a trustee, you need to consider your fund's investment philosophy. Investing successfully takes time, effort and discipline.
How will you spread your money to manage risk? How long will you give an investment to prove itself? What's an acceptable rate of return? How much risk are you willing to take with members' retirement savings?
Another important consideration is your fund's performance - how is it performing relative to other funds after expenses? If it's not doing better, or at least as well, you may want to consider using a professional to manage your super fund.
Rules and obligations that apply to a self managed super fund are complex and even if you employ a financial advisor to help you with an investment strategy, compliance and administration, you will still be legally responsible for making sure your fund complies with all the rules under superannuation law.
Some of the rules and obligations include:
1. Sole purpose test
The sole purpose of your super fund must be to provide retirement benefits to your fund's members. If you use your fund for other purposes (such as running a business), your fund may be considered non-compliant and you risk losing the 15% maximum tax concession.
2. Compliance
Some key areas of compliance for an SMSF relate to:
You can't lend to (or invest in) a related party or related trust of the fund, or lease an asset of the fund to a related party of the fund, if the total of the related party investments or assets being leased is worth more than 5% of the market value of the fund's total assets.
4. Arm's length requirement
The arm's length requirement means that if you lease any asset that belongs to the fund to a related party, it must be at a commercial rate. Any asset purchased must be for market value.
5. Gearing in super
There is a general prohibition of borrowing in super, although certain exceptions do apply. You can, however, borrow funds (use gearing) to invest within an SMSF in certain limited circumstances. Gearing, where appropriate, may help you to accelerate the level of savings you have in super for your retirement. but you still need to consider the risks associated with gearing and the loan must be established on a 'limited recourse' basis.
6. Acquiring assets from related parties
the trustees of SMSFs in general are prohibited from acquiring assets from related parties of the SMSF. This rule generally prohibits such parties from selling most assets to their SMSF, or from contributing assets in-specie. Some assets such as listed securities (shares, units or bonds listed on the approved stock exchange) or business real property are exempt from this rule.
7. Seperation of assets
Your super fund must maintain its assets seperately from those of a business involving one or more of your trustees. If a trustee were to hold assets in their own name instead of the fund, the fund risks losing the asset if that trustee is declared bankrupt or if their business goes into receivership.
8.Investments
Tho help ensure that the assets of an SMSF will be available to provide retirement income, SMSFs are restricted in the investments they can make. However, one concession that SMSFs enjoy is their ability to invest up to 100% of the fund's assets in business real property.
While there are no restrictions on SMSFs investing in collectibles, such as art, members can't benefit from the investment prior to reaching their preservation age (for example, a trustee shouldn't display a piece of art belonging to the fund in their home or office).
9. Fiduciary responsibilities
Meeting fiduciary responsibilities is also important, particularly in relation to your SMSF having its own bank account, rather than banking being done through personal accounts of one or more of the trustees, and not overdrawing that account.
Aside from the initial set-up costs, the cost of sound administration of an SMSF, including compliance with all the regulations, generally means that fund members collectively need a minimum amount of between $200,000 and $250,000 to invest for an SMSF to be worthwhile.
We recommend that you speak with a financial advisor from Intellichoice to discuss in detail what super options are available and whether a self managed super fund is the best solution to meet your investment needs and circumstances. Call us on (07) 3624 1900 or email us and one of our financial planners will be only too happy to answer your queries.
What is an SMSF?
An SMSF is a trust where money or assets are held and managed on behalf of up to 4 members to provide benefits for their retirement. All members of an SMSF must be trustees of the fund or directors of the fund's corporate trustee (subject to certain exceptions).
Why should you establish an SMSF?
There are three key reasons for establishing your own super fund: control, flexibility and investment choice.
As a trustee of your self managed super fund, you decide on your fund's investment strategy and choose what your fund's assets are invested in. You can invest in almost anything and tailor your fund's investments to suit your specific needs - although it is subject to some limitations and legal restrictions.
Like all super funds, an SMSF receives concessional tax treatment. The top tax rate for the investment earnings of your SMSF is 15%. It's important to note that this tax concession is only available if your fund complies with all the rules and regulations that apply to SMSFs (a complynig fund).
Rules and obligations of an SMSF
As a trustee, you need to consider your fund's investment philosophy. Investing successfully takes time, effort and discipline.
How will you spread your money to manage risk? How long will you give an investment to prove itself? What's an acceptable rate of return? How much risk are you willing to take with members' retirement savings?
Another important consideration is your fund's performance - how is it performing relative to other funds after expenses? If it's not doing better, or at least as well, you may want to consider using a professional to manage your super fund.
Rules and obligations that apply to a self managed super fund are complex and even if you employ a financial advisor to help you with an investment strategy, compliance and administration, you will still be legally responsible for making sure your fund complies with all the rules under superannuation law.
Some of the rules and obligations include:
1. Sole purpose test
The sole purpose of your super fund must be to provide retirement benefits to your fund's members. If you use your fund for other purposes (such as running a business), your fund may be considered non-compliant and you risk losing the 15% maximum tax concession.
2. Compliance
Some key areas of compliance for an SMSF relate to:
- in-house asset rules
- conducting all transactions at arm's length
- borrowing (or gearing) in super
- acquiring assets from related parties
- separation of assets
You can't lend to (or invest in) a related party or related trust of the fund, or lease an asset of the fund to a related party of the fund, if the total of the related party investments or assets being leased is worth more than 5% of the market value of the fund's total assets.
4. Arm's length requirement
The arm's length requirement means that if you lease any asset that belongs to the fund to a related party, it must be at a commercial rate. Any asset purchased must be for market value.
5. Gearing in super
There is a general prohibition of borrowing in super, although certain exceptions do apply. You can, however, borrow funds (use gearing) to invest within an SMSF in certain limited circumstances. Gearing, where appropriate, may help you to accelerate the level of savings you have in super for your retirement. but you still need to consider the risks associated with gearing and the loan must be established on a 'limited recourse' basis.
6. Acquiring assets from related parties
the trustees of SMSFs in general are prohibited from acquiring assets from related parties of the SMSF. This rule generally prohibits such parties from selling most assets to their SMSF, or from contributing assets in-specie. Some assets such as listed securities (shares, units or bonds listed on the approved stock exchange) or business real property are exempt from this rule.
7. Seperation of assets
Your super fund must maintain its assets seperately from those of a business involving one or more of your trustees. If a trustee were to hold assets in their own name instead of the fund, the fund risks losing the asset if that trustee is declared bankrupt or if their business goes into receivership.
8.Investments
Tho help ensure that the assets of an SMSF will be available to provide retirement income, SMSFs are restricted in the investments they can make. However, one concession that SMSFs enjoy is their ability to invest up to 100% of the fund's assets in business real property.
While there are no restrictions on SMSFs investing in collectibles, such as art, members can't benefit from the investment prior to reaching their preservation age (for example, a trustee shouldn't display a piece of art belonging to the fund in their home or office).
9. Fiduciary responsibilities
Meeting fiduciary responsibilities is also important, particularly in relation to your SMSF having its own bank account, rather than banking being done through personal accounts of one or more of the trustees, and not overdrawing that account.
Aside from the initial set-up costs, the cost of sound administration of an SMSF, including compliance with all the regulations, generally means that fund members collectively need a minimum amount of between $200,000 and $250,000 to invest for an SMSF to be worthwhile.
We recommend that you speak with a financial advisor from Intellichoice to discuss in detail what super options are available and whether a self managed super fund is the best solution to meet your investment needs and circumstances. Call us on (07) 3624 1900 or email us and one of our financial planners will be only too happy to answer your queries.
Wednesday, November 18, 2009
Young people in perpetual debt
Generation Y (people aged under about 30 years of age) are likely to have more problems paying off debts than young people have had in the past. An increase in part time work and a fall in hours worked means they have less means to repay debt.
Often, a young person’s first debts today are likely to be ‘perpetual debts‘ such as credit cards and HECS, whereas in the past a young person’s first debt was more likely to be a fixed repayment schedule loan such as a car loan.
Being in perpetual debt is no longer something that many people think should be avoided.
"I don't think Gen Y has really had a great deal of experience in managing money and finances, or in establishing good savings practices," says KPMG demographer Bernard Salt.
"I am really quite concerned about their ability to manage all of this."
We recommend that you should have a plan to bring debt under control and debts with higher interest rates, such as credit cards, should be paid off first. If you require assistance with managing your debt, budgeting or need a debt consolidation loan, speak to one of the financial planners at Intellichoice. Please feel free to use our free budgeting calculator on the Intellichoice website for help managing your finances.
Often, a young person’s first debts today are likely to be ‘perpetual debts‘ such as credit cards and HECS, whereas in the past a young person’s first debt was more likely to be a fixed repayment schedule loan such as a car loan.
Being in perpetual debt is no longer something that many people think should be avoided.
"I don't think Gen Y has really had a great deal of experience in managing money and finances, or in establishing good savings practices," says KPMG demographer Bernard Salt.
"I am really quite concerned about their ability to manage all of this."
We recommend that you should have a plan to bring debt under control and debts with higher interest rates, such as credit cards, should be paid off first. If you require assistance with managing your debt, budgeting or need a debt consolidation loan, speak to one of the financial planners at Intellichoice. Please feel free to use our free budgeting calculator on the Intellichoice website for help managing your finances.
Tuesday, November 17, 2009
Australians keen to invest in property
More than 70 per cent of Australians over the age of 25 believe the time is ripe for property investment in Australia.
According to Citibank’s Australian wealth survey, 74% think now is a good time to invest in property, while 40% believe it is a bad time to invest in shares.
Citibank’s Andrew de Graaff said Australians were beginning to see property as relatively risk free.
“While a lot of people are saying now is a good time to buy and invest, it is another thing to actually do it,” he said.
Australia's property prices have held relatively firm while overseas markets, particularly in the US and Britain, plunged.
If you are looking at investing in property, speak to the financial advisors at Intellichoice about ways to grow your wealth in safe and relatively risk-free investments. We will be able to advice on an investment strategy that suits your short, medium and long-term goals.
According to Citibank’s Australian wealth survey, 74% think now is a good time to invest in property, while 40% believe it is a bad time to invest in shares.
Citibank’s Andrew de Graaff said Australians were beginning to see property as relatively risk free.
“While a lot of people are saying now is a good time to buy and invest, it is another thing to actually do it,” he said.
Australia's property prices have held relatively firm while overseas markets, particularly in the US and Britain, plunged.
If you are looking at investing in property, speak to the financial advisors at Intellichoice about ways to grow your wealth in safe and relatively risk-free investments. We will be able to advice on an investment strategy that suits your short, medium and long-term goals.
Monday, November 16, 2009
A guide to managing debt
If you have a number of debts from various sources, there are ways to reduce or better manage them. We recommend that you speak with a financial advisor first, who can recommend the best option that suits your needs. Below are just some of the strategies you could use to better manage debt.
Budget
Take the time to complete a budget planner. A budget will help give you an idea of where you're spending your money, where you can potentially cut back and how much is left over after you've paid all your regular bills and living expenses. If you find that your income is greater than your expenses, you can use the extra money to pay off your debts.
Pay off higher-interest loans first
Credit cards or personal loans tend to have a higher interest rate, so it makes sense to repay these first. Pay at least the minimum monthly amount. We recommend that you budget carefully and try to keep money aside for extra repayments.
If you have more than one loan, make extra payments on the loan with the highst interest rate first. Once that has been paid off, focus on the next highest interest rate loan.
Reduce your mortgage
Any extra repayments you make on your home loan will reduce the interest you pay in the long run, potentially reducing your mortgage term by years. Before you make any extra payments on your home loan, check with your lender first, as some may charge you for paying more than you should or paying out the loan early. You should also check that your lender allows you to withdraw money from your home loan as this will give you peace of mind that you can get back any extra you've paid you need to, for example, to pay for emergency bills.
Combine your debts with a debt consolidation debt
Consider a debt consolidation loan to repay all your debts. This will make life simpler for you as you only need to make one payment each month now. And if the loan has a lower interest rate than your other debts, you save money.
Use your home loan redraw facility
Another option is to redraw funds from your home loan to pay off your personal loans or credit card debts. Home loans generally have lower interest rates, so redrawing money to pay off your outstanding debts will result in you paying less interest and having a lower overall repayment.
If you can maintain the monthly repayment at the amount you were paying on the individual debts, you'll reduce the loan even quicker.
You could also use your redraw facility as a savings account. Instead of keeping money in your bank account or a cash trust where you pay tax on the interest it earns, you'll reduce the amount of loan interest you pay while still having access to your money.
For more information on how to manage and pay off your debts quickly or if you need help with budgeting, speak to a financial advisor from Intellichoice on 1300 55 10 45. They will be able to recommend that best option for you based on your circumstances and needs.
Budget
Take the time to complete a budget planner. A budget will help give you an idea of where you're spending your money, where you can potentially cut back and how much is left over after you've paid all your regular bills and living expenses. If you find that your income is greater than your expenses, you can use the extra money to pay off your debts.
Pay off higher-interest loans first
Credit cards or personal loans tend to have a higher interest rate, so it makes sense to repay these first. Pay at least the minimum monthly amount. We recommend that you budget carefully and try to keep money aside for extra repayments.
If you have more than one loan, make extra payments on the loan with the highst interest rate first. Once that has been paid off, focus on the next highest interest rate loan.
Reduce your mortgage
Any extra repayments you make on your home loan will reduce the interest you pay in the long run, potentially reducing your mortgage term by years. Before you make any extra payments on your home loan, check with your lender first, as some may charge you for paying more than you should or paying out the loan early. You should also check that your lender allows you to withdraw money from your home loan as this will give you peace of mind that you can get back any extra you've paid you need to, for example, to pay for emergency bills.
Combine your debts with a debt consolidation debt
Consider a debt consolidation loan to repay all your debts. This will make life simpler for you as you only need to make one payment each month now. And if the loan has a lower interest rate than your other debts, you save money.
Use your home loan redraw facility
Another option is to redraw funds from your home loan to pay off your personal loans or credit card debts. Home loans generally have lower interest rates, so redrawing money to pay off your outstanding debts will result in you paying less interest and having a lower overall repayment.
If you can maintain the monthly repayment at the amount you were paying on the individual debts, you'll reduce the loan even quicker.
You could also use your redraw facility as a savings account. Instead of keeping money in your bank account or a cash trust where you pay tax on the interest it earns, you'll reduce the amount of loan interest you pay while still having access to your money.
For more information on how to manage and pay off your debts quickly or if you need help with budgeting, speak to a financial advisor from Intellichoice on 1300 55 10 45. They will be able to recommend that best option for you based on your circumstances and needs.
Wednesday, November 11, 2009
Do you have appropriate insurance cover to meet your family needs if anything happens to you?
By world standards, Australians are financially sophisticated. Between us we have almost one trillion dollars invested in superannuation and one of the highest rates of share ownership in the world.
But did you know that:
- In 2009, over 9,000 Australians will be diagnosed with leukaemia, lymphoma and myeloma. That’s one every hour
- Every year, 8,000 Australians discover they have melanoma, and 1,000 die each year. Australian five year survival rates are the highest in the world
- Yesterday, 32 women were told they have breast cancer. 32 women will be told today…and tomorrow...Approximately 88% will survive
- Heart disease affects 2 out of 3 families
- 400 Australians are paralysed by spinal cord injury each year. Their average age is 25. Long-term care costs exceed $500 million annually
- An estimated 106,000 new cases of cancer are diagnosed each year
- Each year, around 4,400 parents with dependent children die
a stroke occurs in Australia every 11 minutes, resulting in 48,000 strokes each year
Unfortunately, many Australians don't think that any of the above could apply to them. Studies have found that around 80% of Australians are underinsured. Don't take the risk. If you had an accident and were not able to work, or if you died due to some unforeseen event, your partner and family would be faced with the burden of debt.
Research on Australian attitudes to life insurance also revealed some startling information about the Aussie psyche.
But did you know that:
- In 2009, over 9,000 Australians will be diagnosed with leukaemia, lymphoma and myeloma. That’s one every hour
- Every year, 8,000 Australians discover they have melanoma, and 1,000 die each year. Australian five year survival rates are the highest in the world
- Yesterday, 32 women were told they have breast cancer. 32 women will be told today…and tomorrow...Approximately 88% will survive
- Heart disease affects 2 out of 3 families
- 400 Australians are paralysed by spinal cord injury each year. Their average age is 25. Long-term care costs exceed $500 million annually
- An estimated 106,000 new cases of cancer are diagnosed each year
- Each year, around 4,400 parents with dependent children die
a stroke occurs in Australia every 11 minutes, resulting in 48,000 strokes each year
Unfortunately, many Australians don't think that any of the above could apply to them. Studies have found that around 80% of Australians are underinsured. Don't take the risk. If you had an accident and were not able to work, or if you died due to some unforeseen event, your partner and family would be faced with the burden of debt.
Research on Australian attitudes to life insurance also revealed some startling information about the Aussie psyche.
- 41% would sell the family home
- 47% would look to the broader family for financial support.
- 49% said that their partner would have to go back to work or continue to work
- 63% would use their superannuation
Friday, November 6, 2009
Super investors will get slugged
Superannuation investors may be slugged by higher tax rates said the Treasurer Wayne Swan yesterday. In a wide ranging speech on tax issues in Melbourne, Mr Swan said some Australians would lose and some would win from the reforms coming out of the Henry Tax Review.
High income earners could lose some tax concessions now available through superannuation. Tax payers with simple tax affairs could also be spared the need to complete a tax return under the proposed changes.
High income earners could lose some tax concessions now available through superannuation. Tax payers with simple tax affairs could also be spared the need to complete a tax return under the proposed changes.
Tuesday, November 3, 2009
Aussies are stashing their cash
The first national study by Westpac into the social effects of the global financial crisis shows more than 32% of Australians are cocooning in the suburbs and even cancelling their Christmas travel. Over 80% are cautiously stashing their cash in a major shift away from a decade of stress and excess.
Westpac spokesperson Jason Yetton, General Manager - Westpac Retail Banking, said the research reflects a cultural change in attitudes after a tough 12 months.
“We’ve had the sea change and the tree change and now we see a trend towards people getting back to basics in the suburbs, and making it a lot more about them and their needs,” he said.
52% are spending what money they do have supporting their local businesses, with 26% opting to eat at neighbourhood restaurants and drinking at the corner pub.
A further 15% of people are looking to find a job closer to home. Australians attribute the shift to “think local, act local” to losing out in super and property values in the last twelve months. 40% of those who had received bad advice from rogue advisors blamed them for the downturn in their personal finances.
Westpac spokesperson Jason Yetton, General Manager - Westpac Retail Banking, said the research reflects a cultural change in attitudes after a tough 12 months.
“We’ve had the sea change and the tree change and now we see a trend towards people getting back to basics in the suburbs, and making it a lot more about them and their needs,” he said.
52% are spending what money they do have supporting their local businesses, with 26% opting to eat at neighbourhood restaurants and drinking at the corner pub.
A further 15% of people are looking to find a job closer to home. Australians attribute the shift to “think local, act local” to losing out in super and property values in the last twelve months. 40% of those who had received bad advice from rogue advisors blamed them for the downturn in their personal finances.
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