The Australian Taxation Office yesterday released a controversial draft Taxation Ruling, TR 2009/D8, in relation to the application of Division 7A to unpaid present entitlements. That is, distributions declared, but not paid, between a trust and a private company. Such unpaid entitlements will exist in almost every situation where a corporate beneficiary is utilised.
To date, most advisors have acted on the understanding that unpaid present entitlements were not considered to be a “loan” for the purposes of Division 7A. This was on the basis that there was no debtor/creditor relationship and instead the value of the distribution represented a new trust relationship.
However, in TR 2009/D8 the Commissioner has taken the view that, where there is a private company with an unpaid present entitlement to a trust, there will only be rare situations where this will be excluded from the operation of Division 7A. This is on the basis that most of these unpaid present entitlements will be considered loans.
We note that this draft ruling suggests it is providing an interpretation of the law as it has applied since 1997, and as such, the Australian Taxation Office considers the ruling would apply retrospectively.
Given this view is significantly different to the common view, what should your clients do now?
The ruling has only been issued in draft form at this stage. The final ruling may vary significantly from this draft. Further, it may be a long period from its release in draft format to its finalisation given the controversial nature of the ruling and the industry opinion (common in both the accounting and the legal professions) that it is overly stringent.
Our current advice is to be aware that this may be an issue to contend with in the future and be careful in structuring current transactions and with how trust distributions are dealt with in each future year. At this stage, we do not suggest that you amend prior returns to declare any historical unpaid present entitlements which you believe may be caught by the newly published opinion of the Australian Taxation Office. These issues may be a concern to be dealt with once the finalised opinion of the Australia Taxation Office has been released, together with any guidance on how to address currently existing issues.
Should you have any questions in relation to the above or other taxation matters, please speak to your financial advisor or solicitor.
Friday, December 18, 2009
Wednesday, December 16, 2009
Benefits of budgeting
A budget is the most fundamental and most effective financial management tool available to you. Regardless whether you are earning thousands of dollars a year, or hundreds of thousands of dollars a year, it is an extremely important tool used to give you an understanding on how much money you have to spend, and where you are spending it.
Budgeting is about planning. And planning is crucial to produce a desired result. A builder would never start work on a new house without a blueprint. You would not get in a car for a cross-country road trip without a map. The same should also be applied when it comes to your money, yet many of us find ourselves in the situation where we make, spend and invest money without a plan to guide us.
A budget is one way for you to plan, organize and control your financial resources. It can help you set and realize goals, and decide in advance how your money will work for you.
The basic idea behind budgeting is to save money up front for both known and unknown expenses.
Seven Benefits of Budgeting
1. It lets you know what is going on
Personal budgeting allows you to know exactly how much money you have, how your funds are being allocated, how they are working for you, what your plans are for them, and how far along you are toward reaching your goals. Knowing about your money is the first step toward controlling it.
2. Control
A budget is the key to enabling you to take charge of your finances. With a budget, you have the tools to decide exactly what is going to happen to your hard-earned money - and when. You can be in control of your money, instead of having your money limit what you do.
3. Organization
A budget divides funds into categories of expenditures and savings. It can also provide further organization by automatically providing records of all your monetary transactions. They can provide the foundation for a simple filing system to organize bills, receipts, and financial statements.
4. Communication
If you are married, have a family, or share money with anyone, having a budget that you both (or all) create together is a key to resolving personal differences about money handling. A budget is a communication tool to discuss the priorities for where your money should be spent, as well as enabling all involved parties to "run" the system.
5. Take advantage of opportunities
Knowing the exact state of your personal monetary affairs, and being in control of them allows you to take advantage of opportunities that you might otherwise miss. Have you ever wondered if you could afford something? With a budget, you will never have to wonder again - you will know.
6. Extra time
All your financial transactions are automatically organized when it comes round to the end of the financial year. Being armed with such information saves you time digging through old records.
7. Extra money
This might well be everyone's favourite benefit. A budget will almost certainly produce extra money for you to do with as you wish. Hidden fees and lost interest paid to outsiders can be eliminated. Unnecessary expenditures, once identified, can be stripped out. Savings, even small ones, can be accumulated and made to work for you.
To learn more about managing a budget, speak to a financial advisor from Intellichoice about a savings and debt management strategy to help you achieve your financial goals. Please feel free to use the free budgeting calculator to get started on managing your money.
Budgeting is about planning. And planning is crucial to produce a desired result. A builder would never start work on a new house without a blueprint. You would not get in a car for a cross-country road trip without a map. The same should also be applied when it comes to your money, yet many of us find ourselves in the situation where we make, spend and invest money without a plan to guide us.
A budget is one way for you to plan, organize and control your financial resources. It can help you set and realize goals, and decide in advance how your money will work for you.
The basic idea behind budgeting is to save money up front for both known and unknown expenses.
Seven Benefits of Budgeting
1. It lets you know what is going on
Personal budgeting allows you to know exactly how much money you have, how your funds are being allocated, how they are working for you, what your plans are for them, and how far along you are toward reaching your goals. Knowing about your money is the first step toward controlling it.
2. Control
A budget is the key to enabling you to take charge of your finances. With a budget, you have the tools to decide exactly what is going to happen to your hard-earned money - and when. You can be in control of your money, instead of having your money limit what you do.
3. Organization
A budget divides funds into categories of expenditures and savings. It can also provide further organization by automatically providing records of all your monetary transactions. They can provide the foundation for a simple filing system to organize bills, receipts, and financial statements.
4. Communication
If you are married, have a family, or share money with anyone, having a budget that you both (or all) create together is a key to resolving personal differences about money handling. A budget is a communication tool to discuss the priorities for where your money should be spent, as well as enabling all involved parties to "run" the system.
5. Take advantage of opportunities
Knowing the exact state of your personal monetary affairs, and being in control of them allows you to take advantage of opportunities that you might otherwise miss. Have you ever wondered if you could afford something? With a budget, you will never have to wonder again - you will know.
6. Extra time
All your financial transactions are automatically organized when it comes round to the end of the financial year. Being armed with such information saves you time digging through old records.
7. Extra money
This might well be everyone's favourite benefit. A budget will almost certainly produce extra money for you to do with as you wish. Hidden fees and lost interest paid to outsiders can be eliminated. Unnecessary expenditures, once identified, can be stripped out. Savings, even small ones, can be accumulated and made to work for you.
To learn more about managing a budget, speak to a financial advisor from Intellichoice about a savings and debt management strategy to help you achieve your financial goals. Please feel free to use the free budgeting calculator to get started on managing your money.
Tuesday, December 15, 2009
Avoid a January credit card hangover
Christmas is usually a time of extra spending, between all of the gifts, functions, food and travel, so it can be all too tempting to charge a little Christmas cheer to your credit card. However, help is at hand: if you’re keen to avoid waking up with a hectic credit card hangover in the new year, follow these tips...
Tip 1: Make a list and check it twice
Ever wandered into a shop with a specific purpose, and then walked out an hour later with four bags full of goodies you never knew you wanted? Part of it is psychological: once you’ve picked up one item and committed to the purchase, you know you have to go through the “hassle” of paying, so you’re more likely to throw in a couple of impulse items on the way to the register. Resist the urge and stick with your list; you’ll feel so much lighter for it.
Tip 2: Pay with fantastic plastic – the other kind
There’s a slight thrill that goes with paying by credit card: you get to walk away with your new goods and you don’t have to hand over any cash, so the whole transaction almost feels like you’re using play money. Paying with cash, on the other hand, is a much more realistic experience. You immediately experience the repercussions of your purchase – ie, less money in your wallet – which gives you a clearer picture of your spending habits.
Tip 3: Lower your credit limit
Do you have a high credit card limit, or an extra credit card that you keep “in case of emergencies”? At Christmas time we tend to get a little busy and stressed, so it can become harder to distinguish between “emergency purchase” and “cocktail dress that would be perfect for my work Christmas party!”. Consider chopping the credit limits right down to the bare minimum so you can avoid temptation. If you don’t have it, you can’t spend it.
Tip 4: Avoid store cards
Around the silly season, many department stores offer interest-free promotions so you can do all your Christmas shopping under a “buy now, pay later” scheme. The catch? Store cards typically have higher interest rates than standard credit cards once the interest-free period comes to an end: in some cases, rates can go as high as 29%.
Tip 5: Be creative with gifts
Rather than spending hundreds or thousands of dollars on countless Christmas presents, organise a “Secret Santa” program with your friends or family, so that each person only has to buy one present. Alternatively, give the gift of time or favours: some ideas might include car washes, hair cuts, babysitting, home repairs, home cooking, gardening or cleaning.
Tip 1: Make a list and check it twice
Ever wandered into a shop with a specific purpose, and then walked out an hour later with four bags full of goodies you never knew you wanted? Part of it is psychological: once you’ve picked up one item and committed to the purchase, you know you have to go through the “hassle” of paying, so you’re more likely to throw in a couple of impulse items on the way to the register. Resist the urge and stick with your list; you’ll feel so much lighter for it.
Tip 2: Pay with fantastic plastic – the other kind
There’s a slight thrill that goes with paying by credit card: you get to walk away with your new goods and you don’t have to hand over any cash, so the whole transaction almost feels like you’re using play money. Paying with cash, on the other hand, is a much more realistic experience. You immediately experience the repercussions of your purchase – ie, less money in your wallet – which gives you a clearer picture of your spending habits.
Tip 3: Lower your credit limit
Do you have a high credit card limit, or an extra credit card that you keep “in case of emergencies”? At Christmas time we tend to get a little busy and stressed, so it can become harder to distinguish between “emergency purchase” and “cocktail dress that would be perfect for my work Christmas party!”. Consider chopping the credit limits right down to the bare minimum so you can avoid temptation. If you don’t have it, you can’t spend it.
Tip 4: Avoid store cards
Around the silly season, many department stores offer interest-free promotions so you can do all your Christmas shopping under a “buy now, pay later” scheme. The catch? Store cards typically have higher interest rates than standard credit cards once the interest-free period comes to an end: in some cases, rates can go as high as 29%.
Tip 5: Be creative with gifts
Rather than spending hundreds or thousands of dollars on countless Christmas presents, organise a “Secret Santa” program with your friends or family, so that each person only has to buy one present. Alternatively, give the gift of time or favours: some ideas might include car washes, hair cuts, babysitting, home repairs, home cooking, gardening or cleaning.
Super funds to get simpler
Australian workers will have their superannuation guarantee payments from their employer sent to new, no-frills, low fee, default super funds under a plan outlined by the federal government’s superannuation system review.
The review proposes that the superannuation industry be overhauled because most people do not take an active interest in their superannuation. Super funds currently cost too much and provide too many investment options to provide low cost super to most people who do not take an interest in their super.
About 90% of workers are currently being placed in default funds chosen by their employer or as prescribed in industrial awards.
The review proposes that the superannuation industry be overhauled because most people do not take an active interest in their superannuation. Super funds currently cost too much and provide too many investment options to provide low cost super to most people who do not take an interest in their super.
About 90% of workers are currently being placed in default funds chosen by their employer or as prescribed in industrial awards.
Wednesday, December 9, 2009
Tips for coping with interest rate rises
With the interest rate rises of recent times, it is timely to reflect on how to make some adjustments to compensate. Here are some tips to reduce the household expenses without affecting your lifestyle.
Insurance
Having your insurance for the car and the household with the same provider can earn you a discount.
It is also always a good idea to shop around each year to check that you are still getting the best and cheapest coverage. Changing the excess and restricting the drivers to people aged over 25 can also make a difference.
For health insurance, again you should assess the level of cover as well as your provider. For example, there may be extras you are paying for that you never use.
You can also speak to one of the financial advisors at Intellichoice about finding you an insurance policy that suits your needs and circumstances. They will do all the research and legwork for you and find you an insurance policy that is best for you.
Petrol
Buy petrol on a Tuesday. According to the ACCC, petrol is usually cheapest on
Tuesdays in Australia’s metropolitan cities, except for Perth, where it is cheapest on Mondays.
Grocery Shopping
Reduce the number of trips to the grocery store to once every week or fortnight and stick to a reasonable budget each time. Also make a shopping list before you go to the supermarket and this will help you to avoid impulse buying. Meal planning also helps you focus on the things you really need.
Store displays
Do not assume that the in-store displays, particularly at the end of the aisles and at the checkout are on special – compare their price with the same items that are not being promoted. Look up and down the shelves. Note that the more expensive items tend to be right in the line of sight, while cheaper or supermarket-own brands tend to be located on the higher or lower shelves.
No-name brands
Try no-name/generic and supermarket-own brands for staples, like sugar, salt and flour – they tend to be hard to pick from branded equivalents.
Treats and snacks
Buy treats and snacks in the supermarket instead of going to the convenience store.
Telecommunications
Telstra and Optus provide discounts if you have three or more telecommunication accounts with them.
VOIP
Voice Over Internet Protocol is quickly becoming a popular alternative for your home phone. It uses the internet to drastically reduce call costs.
Electricity/Gas
If you consolidate your gas and electricity to the one provider you can receive a 5% discount. Some providers also offer a ‘switching discount’ such as $50 off your first bill.
Think about installing a solar hot water system. Whilst the initial outlay (approx $3,500-$4,500) is more than your standard system, both the Federal and some State governments offer rebates, which can take $1,000-$2,000 off the cost.
Depending on your home’s location and water consumption, this could reduce your water heating costs by up to 80%.
BYO lunch
BYO lunch. If you bring your own lunch to work three to four times a week, you could save over $500 per year
Personal loans & Credit cards
Personal loans and the rates on offer can be renegotiated, especially on cars. For example, if you have a loan on your car that was arranged by the dealer you could be paying 5-8% more interest than necessary – so it is recommended that you shop around.
Credit card rates can also range from 9.95% to 18.99% and it is usually membership reward schemes, cash advances and other offers that bump up the rate. Work out what you really want from your credit card and change it to a lower rate card where possible.
If you have a few personal loans or credit card debts, we recommend that you speak with a financial advisor from Intellichoice about consolidating all your debts into one - you may end up paying a lower interest rate and save money at the same time.
All of these suggestions will have little or no impact on your lifestyle. However, taken together, the savings can be significant and can more than offset the recent interest rate rises.
Insurance
Having your insurance for the car and the household with the same provider can earn you a discount.
It is also always a good idea to shop around each year to check that you are still getting the best and cheapest coverage. Changing the excess and restricting the drivers to people aged over 25 can also make a difference.
For health insurance, again you should assess the level of cover as well as your provider. For example, there may be extras you are paying for that you never use.
You can also speak to one of the financial advisors at Intellichoice about finding you an insurance policy that suits your needs and circumstances. They will do all the research and legwork for you and find you an insurance policy that is best for you.
Petrol
Buy petrol on a Tuesday. According to the ACCC, petrol is usually cheapest on
Tuesdays in Australia’s metropolitan cities, except for Perth, where it is cheapest on Mondays.
Grocery Shopping
Reduce the number of trips to the grocery store to once every week or fortnight and stick to a reasonable budget each time. Also make a shopping list before you go to the supermarket and this will help you to avoid impulse buying. Meal planning also helps you focus on the things you really need.
Store displays
Do not assume that the in-store displays, particularly at the end of the aisles and at the checkout are on special – compare their price with the same items that are not being promoted. Look up and down the shelves. Note that the more expensive items tend to be right in the line of sight, while cheaper or supermarket-own brands tend to be located on the higher or lower shelves.
No-name brands
Try no-name/generic and supermarket-own brands for staples, like sugar, salt and flour – they tend to be hard to pick from branded equivalents.
Treats and snacks
Buy treats and snacks in the supermarket instead of going to the convenience store.
Telecommunications
Telstra and Optus provide discounts if you have three or more telecommunication accounts with them.
VOIP
Voice Over Internet Protocol is quickly becoming a popular alternative for your home phone. It uses the internet to drastically reduce call costs.
Electricity/Gas
If you consolidate your gas and electricity to the one provider you can receive a 5% discount. Some providers also offer a ‘switching discount’ such as $50 off your first bill.
Think about installing a solar hot water system. Whilst the initial outlay (approx $3,500-$4,500) is more than your standard system, both the Federal and some State governments offer rebates, which can take $1,000-$2,000 off the cost.
Depending on your home’s location and water consumption, this could reduce your water heating costs by up to 80%.
BYO lunch
BYO lunch. If you bring your own lunch to work three to four times a week, you could save over $500 per year
Personal loans & Credit cards
Personal loans and the rates on offer can be renegotiated, especially on cars. For example, if you have a loan on your car that was arranged by the dealer you could be paying 5-8% more interest than necessary – so it is recommended that you shop around.
Credit card rates can also range from 9.95% to 18.99% and it is usually membership reward schemes, cash advances and other offers that bump up the rate. Work out what you really want from your credit card and change it to a lower rate card where possible.
If you have a few personal loans or credit card debts, we recommend that you speak with a financial advisor from Intellichoice about consolidating all your debts into one - you may end up paying a lower interest rate and save money at the same time.
All of these suggestions will have little or no impact on your lifestyle. However, taken together, the savings can be significant and can more than offset the recent interest rate rises.
Tuesday, December 8, 2009
Wealthy investors look to expand their property portfolio
Confidence in the real estate sector is returning among high-net-worth individuals according to new survey from Barclays Wealth.
According to the Barclays Wealth survey, over the next two years, 35% of respondents said they plan to increase the proportion of their portfolios dedicated to real estate, excluding their primary residences.
The average allocation to real estate among respondents was 28% internationally and 23% in the US. Investors in nine out of ten countries expect to increase their allocation to real estate by 1% to 4% over the next two years, raising the global average allocation to 30%.
Investors who plan to increase their real estate stakes believe that the asset class holds better long-term prospects than other more complex financial instruments, which many blame for igniting the financial crisis. Additionally, thanks to the recent turmoil in nearly all real estate markets around the world, investors believe there are many bargains to be had in the property sector.
According to the report, investors are less enthusiastic about commercial real estate, due to rising unemployment rates worldwide, but 45% of respondents believe there are significant opportunities in residential markets, although tight credit markets are inhibiting their ability to take advantage.
The survey found that more than three-quarters of respondents predominantly invest in their domestic market. However, when asked what other markets are attractive to them right now, the US ranked number one, followed by China, the U.K and India, in that order. US real estate is particularly appealing because of recent price declines, the falling dollar and long-term positive prospects for the US economy.
The report, commissioned by Barclays Wealth and written by the Economist Intelligence Unit (EIU), was based on a survey of more than 2000 individuals in 10 countries with over $800,000 in investable assets.
According to the Barclays Wealth survey, over the next two years, 35% of respondents said they plan to increase the proportion of their portfolios dedicated to real estate, excluding their primary residences.
The average allocation to real estate among respondents was 28% internationally and 23% in the US. Investors in nine out of ten countries expect to increase their allocation to real estate by 1% to 4% over the next two years, raising the global average allocation to 30%.
Investors who plan to increase their real estate stakes believe that the asset class holds better long-term prospects than other more complex financial instruments, which many blame for igniting the financial crisis. Additionally, thanks to the recent turmoil in nearly all real estate markets around the world, investors believe there are many bargains to be had in the property sector.
According to the report, investors are less enthusiastic about commercial real estate, due to rising unemployment rates worldwide, but 45% of respondents believe there are significant opportunities in residential markets, although tight credit markets are inhibiting their ability to take advantage.
The survey found that more than three-quarters of respondents predominantly invest in their domestic market. However, when asked what other markets are attractive to them right now, the US ranked number one, followed by China, the U.K and India, in that order. US real estate is particularly appealing because of recent price declines, the falling dollar and long-term positive prospects for the US economy.
The report, commissioned by Barclays Wealth and written by the Economist Intelligence Unit (EIU), was based on a survey of more than 2000 individuals in 10 countries with over $800,000 in investable assets.
Monday, December 7, 2009
Plan for Christmas debt now
Credit card debts are expected to soar in the next few weeks as consumers stock up for Christmas. Financial counsellors warn that February is often a month of misery for many as they try to deal with debts racked up over the summer.
Debt ratings agency Veda Advantage recommends that consumers set a spending limit and stick to it. “We are not saying don’t use your credit card, that is what they are there for, to spread out lumpy purchases like Christmas – but plan your repayments before you go out and spend the money.”
We have also included some tips to help you save money during Christmas, yet keeping it fun for the whole family.
Make it fun
Christmas shopping shouldn't be a chore. Variations of gift exchanging include:
Homemade gifts demonstrate caring, creativity and passion.
Debt ratings agency Veda Advantage recommends that consumers set a spending limit and stick to it. “We are not saying don’t use your credit card, that is what they are there for, to spread out lumpy purchases like Christmas – but plan your repayments before you go out and spend the money.”
We have also included some tips to help you save money during Christmas, yet keeping it fun for the whole family.
Make it fun
Christmas shopping shouldn't be a chore. Variations of gift exchanging include:
- Secret Santa - If you have a group that’s keen on the idea, Secret Santa can be a fun and inexpensive way to participate in the holiday season on a minimal budget
- Gift Themes - Choose a theme — travel, computers, food, whatever — and encourage everyone in the group to base their gifts around it
- Draw names - This is an excellent way to cut down costs while still participating in a gift exchange. You can draw another person’s name from a hat and give this person a nice gift. This is similar to secret santa
Homemade gifts demonstrate caring, creativity and passion.
- A hand-assembled collection of gourmet salts, complete with written description of each.
- Biscuits, cakes, muffins
- Art. (Do you dabble in photography? A framed print of your nephew is a great gift for your sister-in-law.)
- Home-made jams and jellies
- Hampers for example a cheese and wine hamper, or a hamper made up of someone's favourite foods including chocolates, fudge, shortbread and jams
- Send postcards or a letter instead ofChristmas cards
- Save your children’s (or grandchildren’s) holiday crafts and artwork from school each year and use the artwork as Christmas decorations for around the house or on the Christmas tree
- Cuting up old Christmas cards can make wonderful gift tags too
Tuesday, December 1, 2009
Australian pensioners to face poverty
New research has shown that Australians have only saved enough money to last just three or four years into retirement. This lack of wealth creation looks set to have many Australians facing the unenviable situation of experiencing a life of poverty in their old age.
Not only is the average Australian working less and living longer, but they are also not doing enough to provide for themselves in retirement – approximately 85% of men and 92% of women are now expected to live 20 years beyond the age of 65.
The recently released report from AMP also states that almost 60% of men are leaving the workforce before reaching the age of 65. Due to these circumstances, AMP has called on the government to raise the super guarantee (SG) from 9% to 12%.
Australians have very high retirement expectations but are not saving enough to even afford a comfortable retirement let alone one that meets their expectations.
Research has found that the savings of those retirees currently aged 65 and over - an average of $107,500 for men and $81,600 for women - are only enough to last three years for women and four years for men. According to AMP, those that retire on average earnings would need $40,475 each, per year, for a comfortable retirement.
This shows that people need to take charge of their future financial security.
If you would like to find out more about planning for retirement and how you can create wealth in a safe way, speak to one of the financial advisors at Intellichoice.
Not only is the average Australian working less and living longer, but they are also not doing enough to provide for themselves in retirement – approximately 85% of men and 92% of women are now expected to live 20 years beyond the age of 65.
The recently released report from AMP also states that almost 60% of men are leaving the workforce before reaching the age of 65. Due to these circumstances, AMP has called on the government to raise the super guarantee (SG) from 9% to 12%.
Australians have very high retirement expectations but are not saving enough to even afford a comfortable retirement let alone one that meets their expectations.
Research has found that the savings of those retirees currently aged 65 and over - an average of $107,500 for men and $81,600 for women - are only enough to last three years for women and four years for men. According to AMP, those that retire on average earnings would need $40,475 each, per year, for a comfortable retirement.
This shows that people need to take charge of their future financial security.
If you would like to find out more about planning for retirement and how you can create wealth in a safe way, speak to one of the financial advisors at Intellichoice.
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