AdviserVoiceTim Howard Archives - AdviserVoice https://www.adviservoice.com.au/tag/tim-howard/ Financial planner information & financial planner education/CPD - AdviserVoice Sun, 14 Jun 2026 21:30:32 +0000 en-US hourly 1 https://wordpress.org/?v=7.0 Separation surge, super and pensions: what’s top of mind for advisers https://www.adviservoice.com.au/2023/10/separation-surge-super-and-pensions-whats-top-of-mind-for-advisers/ https://www.adviservoice.com.au/2023/10/separation-surge-super-and-pensions-whats-top-of-mind-for-advisers/#respond Wed, 18 Oct 2023 20:55:01 +0000 https://www.adviservoice.com.au/?p=91907

Tim Howard

When clients separate, advisers face an ethics-related question: can they advise one or both? How can advisers manage a conflict of interest?

Since the COVID pandemic, BT’s Technical Services team have been fielding more queries around client separation. The most recent available national statistics on divorce are from 2021; in that year, the total number of divorces was 56,244, the highest number recorded since 1976.[1]

Questions on client separation were among the most frequently asked by advisers via the BT technical hotline during the July to September 2023 quarter. Also popular were questions on superannuation and the indexation of pension thresholds. More information on the topics that have been top of mind for advisers is below.

The BT Technical Services team field around 2,000 questions from advisers every quarter.

1. The ethics around client separation

“The pandemic and ensuing lockdowns may have unfortunately led to more relationship breakdowns,” said Mr Howard, Technical Consultant, BT.[2] “Since the pandemic, we’ve also seen higher inflation – with the accompanying rise in cost of living and then interest rates – placing financial pressure on families, and changing the financial circumstances of many clients.”3[3]

The breakdown of a relationship can have wide-ranging impacts on all the members of a family. In some cases, the parties’ interests align. For example, the living arrangements and education costs of young children are the agreed priorities and other financial issues fall into place around these – and a financial adviser can advise both parties. In other situations, there may be conflicting interests.

While advice practices may have specific policies that apply to client separation, advisers must always be guided by ethical principles, and their obligations under the The Financial Planners and Advisers Code of Ethics 2019, when faced with a potential conflict of interest. “Similar to legal advice, in some cases it is more appropriate or even necessary for each individual to seek their own independent financial advice,” said Mr Howard. “The next challenge for the adviser is deciding who, if any, to keep as a client, and approaching how they end a client relationship with empathy and sensitivity.”

2. Carry-forward concessional contributions

From July 2023, clients can look back and carry-forward their unused concessional contributions for the previous five financial years. “As the measure started from 1 July 2018, an individual could only look back to the ‘start’ and carry-forward one previous year from FY2020, then two years from FY2021 and so on,” said Mr Howard.

Clients are eligible to carry forward unused concessional cap amounts from previous years, and effectively increase their contribution caps in later years, if they have a total super balance of less than $500,000 at 30 June of the previous financial year, and have unused concessional contributions cap amounts from up to five previous years.

Advisers may wish to remind their clients that unused cap amounts are available for five years and expire after this time. If a client has an unused cap amount from the financial year ending 2019, and does not use that amount by the end of June 2024, it will expire.

3. Total super balance and bringing forward a non-concessional contribution

The BT Technical Services team are seeing a high demand for BT’s non-concessional contribution (NCC) calculator, which helps advisers cross-check clients’ eligibility to bring forward an NCC.

A client’s total superannuation balance (TSB) can impact eligibility; for example, a client’s NCCs across three years can total $330,000 if their TSB is below $1.68 million; or two years, $220,000, if below $1.79 million as at 30 June of the previous financial year. Advisers also need to consider the trigger age (less than 75 years on 1 July), timing of the acceptance by the trustee (must be before the 28th day of the month following the client’s 75th birthday), and using the client’s remaining cap space in following years.

“The calculation can be complicated,” said Mr Howard. “Advisers are asking questions on calculations more frequently, especially since the work test no longer applies for these types of contributions. They are confirming the ins and outs, and using tools such as our handy NCC calculator.”

4. Indexation of pension thresholds on 20 September

As the cost of living has continued to rise in the first six months of the calendar year,[4] indexation offers some respite to those who are impacted – with the rates of social security payments such as the maximum basic rates of age pension, disability support pension and carer payment increasing on 20 March and 20 September each year.

Also notable is the means testing thresholds for these payments have changed from 1 July 2023 due to the high rates of inflation, increasing since the previous financial year by almost 8%.[5] The increases may lead to clients receiving a higher rate of payment, given the same level of means before 1 July; or for those holding means above disqualifying limits prior to 1 July, they may suddenly be eligible.

“Receiving social security income support such as the age pension – even if it’s a small rate of payment – may give a client several ancillary medical and pharmaceutical benefits via the pensioner concession card, helping to ease cost of living pressures,” said Mr Howard. “Clients may also be able to receive a range of state government rebates.” For example, in NSW these include an electricity rebate of up to $285; plus there is a National Energy Bill Relief Household Payment of $500 for FY2024.[6]

5. Winding up self-managed super funds (SMSFs)

Advisers with SMSF clients have been asking questions on the implications of winding up SMSFs, such as on transferring SMSF assets to public offer funds or to a member. Most listed assets can often be transferred in-specie to a public offer fund. Other investments can be purchased from the fund by the fund’s members.

“SMSFs may need to be would up for many reasons, such as a relationship breakdown, and it’s good for trustees to be across the exit strategy and potential costs involved as their circumstances change,” said Mr Howard.

————

Notes:
[1] Australian Institute of Family Studies: https://aifs.gov.au/research/facts-and-figures/divorces-australia- 2023#:~:text=The%20crude%20divorce%20rate%20(divorces,of%20divorces%20recorded%20since%201976
[2] See note 1 above. Also comments from counselling services, for example, The Guardian, 30/7/2023: https://www.theguardian.com/lifeandstyle/2023/jul/30/while-life-has-largely-returned-to-normal-since-the-pandemic-many-relationships-have-not
[3] Selected Living Cost Indexes, Australian Bureau of Statistics: https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/selected-living-cost-indexes-australia/jun-2023
[4] See note 3.
[5] Department of Social Services, Indexation Rates July 2023 (1 July 2023).
[6] NSW Government, ‘Apply for the NSW Low Income Household Rebate (retail customers): https://www.service.nsw.gov.au/transaction/apply-for-the-low-income-household-rebate-retail-customers
]]>

Tim Howard

When clients separate, advisers face an ethics-related question: can they advise one or both? How can advisers manage a conflict of interest?

Since the COVID pandemic, BT’s Technical Services team have been fielding more queries around client separation. The most recent available national statistics on divorce are from 2021; in that year, the total number of divorces was 56,244, the highest number recorded since 1976.[1]

Questions on client separation were among the most frequently asked by advisers via the BT technical hotline during the July to September 2023 quarter. Also popular were questions on superannuation and the indexation of pension thresholds. More information on the topics that have been top of mind for advisers is below.

The BT Technical Services team field around 2,000 questions from advisers every quarter.

1. The ethics around client separation

“The pandemic and ensuing lockdowns may have unfortunately led to more relationship breakdowns,” said Mr Howard, Technical Consultant, BT.[2] “Since the pandemic, we’ve also seen higher inflation – with the accompanying rise in cost of living and then interest rates – placing financial pressure on families, and changing the financial circumstances of many clients.”3[3]

The breakdown of a relationship can have wide-ranging impacts on all the members of a family. In some cases, the parties’ interests align. For example, the living arrangements and education costs of young children are the agreed priorities and other financial issues fall into place around these – and a financial adviser can advise both parties. In other situations, there may be conflicting interests.

While advice practices may have specific policies that apply to client separation, advisers must always be guided by ethical principles, and their obligations under the The Financial Planners and Advisers Code of Ethics 2019, when faced with a potential conflict of interest. “Similar to legal advice, in some cases it is more appropriate or even necessary for each individual to seek their own independent financial advice,” said Mr Howard. “The next challenge for the adviser is deciding who, if any, to keep as a client, and approaching how they end a client relationship with empathy and sensitivity.”

2. Carry-forward concessional contributions

From July 2023, clients can look back and carry-forward their unused concessional contributions for the previous five financial years. “As the measure started from 1 July 2018, an individual could only look back to the ‘start’ and carry-forward one previous year from FY2020, then two years from FY2021 and so on,” said Mr Howard.

Clients are eligible to carry forward unused concessional cap amounts from previous years, and effectively increase their contribution caps in later years, if they have a total super balance of less than $500,000 at 30 June of the previous financial year, and have unused concessional contributions cap amounts from up to five previous years.

Advisers may wish to remind their clients that unused cap amounts are available for five years and expire after this time. If a client has an unused cap amount from the financial year ending 2019, and does not use that amount by the end of June 2024, it will expire.

3. Total super balance and bringing forward a non-concessional contribution

The BT Technical Services team are seeing a high demand for BT’s non-concessional contribution (NCC) calculator, which helps advisers cross-check clients’ eligibility to bring forward an NCC.

A client’s total superannuation balance (TSB) can impact eligibility; for example, a client’s NCCs across three years can total $330,000 if their TSB is below $1.68 million; or two years, $220,000, if below $1.79 million as at 30 June of the previous financial year. Advisers also need to consider the trigger age (less than 75 years on 1 July), timing of the acceptance by the trustee (must be before the 28th day of the month following the client’s 75th birthday), and using the client’s remaining cap space in following years.

“The calculation can be complicated,” said Mr Howard. “Advisers are asking questions on calculations more frequently, especially since the work test no longer applies for these types of contributions. They are confirming the ins and outs, and using tools such as our handy NCC calculator.”

4. Indexation of pension thresholds on 20 September

As the cost of living has continued to rise in the first six months of the calendar year,[4] indexation offers some respite to those who are impacted – with the rates of social security payments such as the maximum basic rates of age pension, disability support pension and carer payment increasing on 20 March and 20 September each year.

Also notable is the means testing thresholds for these payments have changed from 1 July 2023 due to the high rates of inflation, increasing since the previous financial year by almost 8%.[5] The increases may lead to clients receiving a higher rate of payment, given the same level of means before 1 July; or for those holding means above disqualifying limits prior to 1 July, they may suddenly be eligible.

“Receiving social security income support such as the age pension – even if it’s a small rate of payment – may give a client several ancillary medical and pharmaceutical benefits via the pensioner concession card, helping to ease cost of living pressures,” said Mr Howard. “Clients may also be able to receive a range of state government rebates.” For example, in NSW these include an electricity rebate of up to $285; plus there is a National Energy Bill Relief Household Payment of $500 for FY2024.[6]

5. Winding up self-managed super funds (SMSFs)

Advisers with SMSF clients have been asking questions on the implications of winding up SMSFs, such as on transferring SMSF assets to public offer funds or to a member. Most listed assets can often be transferred in-specie to a public offer fund. Other investments can be purchased from the fund by the fund’s members.

“SMSFs may need to be would up for many reasons, such as a relationship breakdown, and it’s good for trustees to be across the exit strategy and potential costs involved as their circumstances change,” said Mr Howard.

————

Notes:
[1] Australian Institute of Family Studies: https://aifs.gov.au/research/facts-and-figures/divorces-australia- 2023#:~:text=The%20crude%20divorce%20rate%20(divorces,of%20divorces%20recorded%20since%201976
[2] See note 1 above. Also comments from counselling services, for example, The Guardian, 30/7/2023: https://www.theguardian.com/lifeandstyle/2023/jul/30/while-life-has-largely-returned-to-normal-since-the-pandemic-many-relationships-have-not
[3] Selected Living Cost Indexes, Australian Bureau of Statistics: https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/selected-living-cost-indexes-australia/jun-2023
[4] See note 3.
[5] Department of Social Services, Indexation Rates July 2023 (1 July 2023).
[6] NSW Government, ‘Apply for the NSW Low Income Household Rebate (retail customers): https://www.service.nsw.gov.au/transaction/apply-for-the-low-income-household-rebate-retail-customers

The post Separation surge, super and pensions: what’s top of mind for advisers appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2023/10/separation-surge-super-and-pensions-whats-top-of-mind-for-advisers/feed/ 0 As EOFY approaches, what’s top of mind for advisers? https://www.adviservoice.com.au/2023/06/as-eofy-approaches-whats-top-of-mind-for-advisers/ https://www.adviservoice.com.au/2023/06/as-eofy-approaches-whats-top-of-mind-for-advisers/#respond Thu, 08 Jun 2023 21:50:22 +0000 https://www.adviservoice.com.au/?p=89398

Tim Howard

With the end of the current financial year fast approaching, BT is sharing the top questions advisers are asking its technical team.

“This year-end, there is a mixed bag of topics advisers are discussing with clients, as there are upcoming changes relevant to just about everyone – from clients with high incomes and superannuation balances, to those who are eligible for social security,” said Tim Howard, Technical Consultant, BT.

“Impending tax cuts, changes to superannuation thresholds and the recent Budget announcements on social security are top of mind for advisers.”

Financial advisers regularly contact BT’s Technical Services team on technical topics regarding superannuation, tax and social security. The team fields over 8,000 queries from advisers each year. BT’s EOFY tips, based on the most popular advice themes raised by advisers in the June 2023 quarter, are outlined below.

1. Bear in mind FY2025 tax cuts when planning additional super contributions

Clients earning an annual income of more than $45,000 will benefit from tax cuts from July 2024.

The impending reduction to personal income tax rates means that, for some clients who earn more than $120,000 per annum, putting money into super can prove to be a more attractive tax effective strategy in the current financial year or FY2024, compared to waiting until FY2025.

The current tax rates are 32.5% for those with annual incomes between $45,001 – $120,000; and 37% for $120,001 – $180,000. In FY2025, an individual who has an annual income between $45,001 and $200,000 will be taxed at the flat rate of 30%.

Currently, the top tax rate of 45% applies to those on annual incomes of over $180,000. In FY2025, the top tax rate of 45% will apply to incomes over $200,000.

Mr Howard explained: “At the current marginal tax rates, and bearing in mind the 15% concessional tax rate within superannuation, the tax saving resulting from putting money into super in FY2023 or FY2024 is greater, compared to FY2025 when the reduced marginal tax rates take effect. To make the most of this benefit, clients may consider maximising their concessional contributions cap space, including any carry forward cap space they might have available.”

2. Remind clients about their cap space and forthcoming increase to the superannuation guarantee

Advisers generally remind clients about their available cap space as part of their year-end advice. ‘Cap’ refers to themaximum amount you can contribute to your super each financial year before paying additional tax. Clients should be made aware if they are at risk of going over their cap.

When discussing cap space, it’s worth mentioning that the superannuation guarantee is set to increase to 11% in the new financial year. Notably, the concessional contributions cap is not increasing, so the mandatory employer contributions into an employee’s super can eat into more of a client’s cap space.

If your client is a small business and has employees, they should adjust their SG payments accordingly.

3. Indexation may benefit those on the cusp of retirement

If your client is approaching retirement, and has around $1.7m to $1.9m in super, they may benefit from waiting until Julyto commence their pension.

This is because, on 1 July 2023, the general transfer balance cap will increase by $200,000 to $1.9m, due to indexation. The transfer balance cap is the amount of superannuation that can be transferred to a tax-free retirement income stream such as an account-based pension.

In addition, the maximum total super balance – which can limit the amount of non-concessional contributions you can make – is increasing to $1.9m from July.

4. Check if the social security measures announced in the Federal Budget are relevant

The legislation supporting the proposed increases to certain social security payments was introduced into Parliament in May, and is expected to become law and be implemented by 20 September 2023.

The base rate of working age payments will be increased, including Jobseeker and Youth Allowance. In recognition of the challenges that seniors face with finding employment, the higher rate of Jobseeker will be extended; currently those over age 60 are eligible, from September the age threshold will be reduced to age 55.

To help address cost of living increases, especially housing, rent assistance will increase by 15% – and this is in addition to the normal increase that occurs due to the rise in the Consumer Price Index. Mr Howard said: “This significant increase benefits more people than what some might expect; for example, clients who are living in retirement villages may qualify for rent assistance.”

Some parenting payments will also increase.

5. Two-year lead time to plan for increased tax relating to super balances exceeding $3m

As has been widely discussed, the government has proposed to reduce the superannuation tax concessions for those with total superannuation balances that exceed $3 million. Under the proposal, from 1 July 2025, these clients will pay an additional 15% in tax on earnings corresponding to the portion of their superannuation balance above $3 million. “While still only an announcement, this does mean advisers have two years to consider any changes for impacted clients,” Mr Howard said.

In addition to the above tips, it’s worth remembering that the preservation age for super will increase to 60 from 1 July for those born after 30 June 1964. Previously, the preservation age that applied was lower, depending on the year you were born.

Advisers may also wish to remind their clients that, from 1 July, the eligibility age for receiving the age pension from the government increases from 66.5 to 67.

Finally, it’s possible that the government will confirm whether the temporary reduction in minimum pension payments will continue into the new financial year. Mr Howard said: “These amounts were reduced during COVID, and it’s expected that we may return to full minimums from next financial year.”

]]>

Tim Howard

With the end of the current financial year fast approaching, BT is sharing the top questions advisers are asking its technical team.

“This year-end, there is a mixed bag of topics advisers are discussing with clients, as there are upcoming changes relevant to just about everyone – from clients with high incomes and superannuation balances, to those who are eligible for social security,” said Tim Howard, Technical Consultant, BT.

“Impending tax cuts, changes to superannuation thresholds and the recent Budget announcements on social security are top of mind for advisers.”

Financial advisers regularly contact BT’s Technical Services team on technical topics regarding superannuation, tax and social security. The team fields over 8,000 queries from advisers each year. BT’s EOFY tips, based on the most popular advice themes raised by advisers in the June 2023 quarter, are outlined below.

1. Bear in mind FY2025 tax cuts when planning additional super contributions

Clients earning an annual income of more than $45,000 will benefit from tax cuts from July 2024.

The impending reduction to personal income tax rates means that, for some clients who earn more than $120,000 per annum, putting money into super can prove to be a more attractive tax effective strategy in the current financial year or FY2024, compared to waiting until FY2025.

The current tax rates are 32.5% for those with annual incomes between $45,001 – $120,000; and 37% for $120,001 – $180,000. In FY2025, an individual who has an annual income between $45,001 and $200,000 will be taxed at the flat rate of 30%.

Currently, the top tax rate of 45% applies to those on annual incomes of over $180,000. In FY2025, the top tax rate of 45% will apply to incomes over $200,000.

Mr Howard explained: “At the current marginal tax rates, and bearing in mind the 15% concessional tax rate within superannuation, the tax saving resulting from putting money into super in FY2023 or FY2024 is greater, compared to FY2025 when the reduced marginal tax rates take effect. To make the most of this benefit, clients may consider maximising their concessional contributions cap space, including any carry forward cap space they might have available.”

2. Remind clients about their cap space and forthcoming increase to the superannuation guarantee

Advisers generally remind clients about their available cap space as part of their year-end advice. ‘Cap’ refers to themaximum amount you can contribute to your super each financial year before paying additional tax. Clients should be made aware if they are at risk of going over their cap.

When discussing cap space, it’s worth mentioning that the superannuation guarantee is set to increase to 11% in the new financial year. Notably, the concessional contributions cap is not increasing, so the mandatory employer contributions into an employee’s super can eat into more of a client’s cap space.

If your client is a small business and has employees, they should adjust their SG payments accordingly.

3. Indexation may benefit those on the cusp of retirement

If your client is approaching retirement, and has around $1.7m to $1.9m in super, they may benefit from waiting until Julyto commence their pension.

This is because, on 1 July 2023, the general transfer balance cap will increase by $200,000 to $1.9m, due to indexation. The transfer balance cap is the amount of superannuation that can be transferred to a tax-free retirement income stream such as an account-based pension.

In addition, the maximum total super balance – which can limit the amount of non-concessional contributions you can make – is increasing to $1.9m from July.

4. Check if the social security measures announced in the Federal Budget are relevant

The legislation supporting the proposed increases to certain social security payments was introduced into Parliament in May, and is expected to become law and be implemented by 20 September 2023.

The base rate of working age payments will be increased, including Jobseeker and Youth Allowance. In recognition of the challenges that seniors face with finding employment, the higher rate of Jobseeker will be extended; currently those over age 60 are eligible, from September the age threshold will be reduced to age 55.

To help address cost of living increases, especially housing, rent assistance will increase by 15% – and this is in addition to the normal increase that occurs due to the rise in the Consumer Price Index. Mr Howard said: “This significant increase benefits more people than what some might expect; for example, clients who are living in retirement villages may qualify for rent assistance.”

Some parenting payments will also increase.

5. Two-year lead time to plan for increased tax relating to super balances exceeding $3m

As has been widely discussed, the government has proposed to reduce the superannuation tax concessions for those with total superannuation balances that exceed $3 million. Under the proposal, from 1 July 2025, these clients will pay an additional 15% in tax on earnings corresponding to the portion of their superannuation balance above $3 million. “While still only an announcement, this does mean advisers have two years to consider any changes for impacted clients,” Mr Howard said.

In addition to the above tips, it’s worth remembering that the preservation age for super will increase to 60 from 1 July for those born after 30 June 1964. Previously, the preservation age that applied was lower, depending on the year you were born.

Advisers may also wish to remind their clients that, from 1 July, the eligibility age for receiving the age pension from the government increases from 66.5 to 67.

Finally, it’s possible that the government will confirm whether the temporary reduction in minimum pension payments will continue into the new financial year. Mr Howard said: “These amounts were reduced during COVID, and it’s expected that we may return to full minimums from next financial year.”

The post As EOFY approaches, what’s top of mind for advisers? appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2023/06/as-eofy-approaches-whats-top-of-mind-for-advisers/feed/ 0 Market conditions driving adviser-client conversations https://www.adviservoice.com.au/2023/01/market-conditions-driving-adviser-client-conversations/ https://www.adviservoice.com.au/2023/01/market-conditions-driving-adviser-client-conversations/#respond Tue, 17 Jan 2023 20:55:38 +0000 https://www.adviservoice.com.au/?p=86759

Tim Howard

Social security measures relating to the age pension are among the most popular regulatory topics for Australia’s financial advisers, based on the questions they are asking BT’s technical team.

Top of mind for advisers is the $4,000 increase to the ‘work bonus’ for pensioners, which incentivises Australia’s seniors to earn more income from work; as well as the eligibility rules for making downsizer contributions into super and the impacts on the age pension.

Tim Howard, Technical Consultant, BT, said, “The eligibility rules and concessions for the age pension have evolved over time. Overall, social security measures for senior Australians can be complex, so any updates to the regulations can result in the need for advice.”

The high inflation rate is also resulting in queries from advisers about the expected increases to the transfer balance cap and total superannuation balance threshold.

Financial advisers regularly contact BT’s Technical Services team on technical topics regarding superannuation, tax and social security. The team fields over 2,000 queries from advisers every quarter. The most popular topics raised by advisers in October to December 2022 are below.

1. Work bonus increased to ease of cost of living pressures and labour shortage

Older Australians who are eligible for the age pension can now earn up to $11,800 from working, without reducing their pension. The ‘work bonus’ income bank was previously $7,800 and has been temporarily increased to ease cost of living pressures on seniors, as well as encourage them to rejoin the workforce, to help relieve labour shortages.

Pensioners have up to December 2023 (extended from the original June 2023 deadline) to utilise the additional $4,000 in their income bank.

Mr Howard said: “While the increase to the work bonus income bank is a welcome one for many clients, how it actually works across this current financial year, and the next one, is resulting in queries from advisers. They are seeking clarity on how their clients are impacted individually.”

2. Inflation impacts on indexation

Regular indexation of certain legislated thresholds is designed to ensure the amounts stay in line with inflation. For example, recently, age pension payments were increased.

Indexation also applies to some superannuation thresholds. In January, it is expected to become clearer whether the general transfer balance cap (cap) will increase. Based on current inflation, it will be raised to as high as $1.9m from 1 July 2023, unless legislative changes are introduced.

The cap is the amount of superannuation that can be transferred to tax-free retirement income streams, and is currently at $1.7m.

Indexation of the cap is determined by reference to movements in the consumer price index (CPI). Increases to the cap occur in increments of $100,000. Because of the rapid increase in the level of CPI during 2022, it seems almost certain that there will be a ‘double indexation’ of the general cap (ie, 2 x $100,000).

Mr Howard said: “If you have clients who are planning to start a retirement income stream before 30 June 2023, it is worth considering if this would lead to the best outcome for them. Would they be better off delaying the commencement of the income stream until after 1 July 2023, so they can gain the maximum indexation benefit?”

Related to the cap is the total superannuation balance threshold (TSB). The TSB is used, amongst other things, to determine the level of non-concessional contributions that can be made by a client into super in a particular income year. The TSB threshold is an amount equal to the general transfer balance cap, so it is currently $1.7m but will increase to either $1.8m or, more likely, $1.9m from 1 July 2023.

3. Downsizers and age pension

The bill to reduce the eligibility age for downsizer contributions has now become law, effective from 1 January 2023.

Treasury Laws Amendment (2022 Measures No. 2) Act 2022 lowers the age (from 60 to 55 years) from which individuals can make downsizer contributions to their super fund from the proceeds of selling their home.

To be eligible, clients also need to have owned their home for 10 years or more. Downsizer contributions to a maximum of $300,000 do not count towards any of the contribution caps, and can still be made even if a person has a total super balance greater than $1.7m.

The consequences of selling the principal home on eligibility for Centrelink payments should be weighed up carefully, cautions Mr Howard.

“Downsizing can ease cost of living pressures for many Australians: not only does it free up money, the maintenance costs for a smaller home are also usually lower. In addition, the ability to make up to $300,000 in downsizer contributions to super tax-free can boost retirement savings significantly. However, as part of retirement planning, clients who are receiving an age pension, or expecting to down the track, should be made aware of how age pension means testing may be impacted.”

4. Increase to income thresholds for Seniors Health card now law

For the first time in over 20 years, the income thresholds for the Commonwealth Seniors Health Card have been raised (outside of indexation), with the passing of Social Services and Other Legislation Amendment (Lifting the Income Limit for the Commonwealth Seniors Health Card) Bill 2022, which became law on 28 October 2022.

Effective from 4 November 2022, the income thresholds for singles increased to $90,000 from $61,284; and for couples, the increase was $144,000, from $98,054.

Eligibility for the Commonwealth Seniors Health Card gives seniors access to valuable concessions, such as cheaper medicine under the Pharmaceutical Benefits Scheme. Additionally, card holders may also receive economic support payments.

5. Federal Budget announcement on increasing childcare assistance

Advisers with clients who have young families are taking into account the substantial increase to the Child Care Subsidy (CCS) rates, applicable from July 2023. CCS rates will increase from 85% to 90% for families with a combined income of less than $80,000. The CCS will reduce by 1% for each additional $5,000 of annual income.

A couple with a combined income of $120,000 would receive a CCS percentage of 82%, and couples with a combined income of $300,000 would receive 46%. Those with a combined income of $530,000 or greater will not be eligible for the CCS.

Mr Howard said: “Although the CCS increase is not effective for another six months, it’s not too early for busy parents to start planning for any adjustments to their household budgets and work commitments in the new year. Any extra support relating to childcare costs would be a welcome reprieve for many.”

Mr Howard added: “Another topic that advisers are raising questions about is the ability to exit retirement income legacy products. This was not addressed in the Federal Budget, and so we are waiting to see if it appears on the Government’s radar. Of course, advisers are also eagerly anticipating the final report from the Quality of Advice review, which was handed to the Government in December and may be made public soon.”

]]>

Tim Howard

Social security measures relating to the age pension are among the most popular regulatory topics for Australia’s financial advisers, based on the questions they are asking BT’s technical team.

Top of mind for advisers is the $4,000 increase to the ‘work bonus’ for pensioners, which incentivises Australia’s seniors to earn more income from work; as well as the eligibility rules for making downsizer contributions into super and the impacts on the age pension.

Tim Howard, Technical Consultant, BT, said, “The eligibility rules and concessions for the age pension have evolved over time. Overall, social security measures for senior Australians can be complex, so any updates to the regulations can result in the need for advice.”

The high inflation rate is also resulting in queries from advisers about the expected increases to the transfer balance cap and total superannuation balance threshold.

Financial advisers regularly contact BT’s Technical Services team on technical topics regarding superannuation, tax and social security. The team fields over 2,000 queries from advisers every quarter. The most popular topics raised by advisers in October to December 2022 are below.

1. Work bonus increased to ease of cost of living pressures and labour shortage

Older Australians who are eligible for the age pension can now earn up to $11,800 from working, without reducing their pension. The ‘work bonus’ income bank was previously $7,800 and has been temporarily increased to ease cost of living pressures on seniors, as well as encourage them to rejoin the workforce, to help relieve labour shortages.

Pensioners have up to December 2023 (extended from the original June 2023 deadline) to utilise the additional $4,000 in their income bank.

Mr Howard said: “While the increase to the work bonus income bank is a welcome one for many clients, how it actually works across this current financial year, and the next one, is resulting in queries from advisers. They are seeking clarity on how their clients are impacted individually.”

2. Inflation impacts on indexation

Regular indexation of certain legislated thresholds is designed to ensure the amounts stay in line with inflation. For example, recently, age pension payments were increased.

Indexation also applies to some superannuation thresholds. In January, it is expected to become clearer whether the general transfer balance cap (cap) will increase. Based on current inflation, it will be raised to as high as $1.9m from 1 July 2023, unless legislative changes are introduced.

The cap is the amount of superannuation that can be transferred to tax-free retirement income streams, and is currently at $1.7m.

Indexation of the cap is determined by reference to movements in the consumer price index (CPI). Increases to the cap occur in increments of $100,000. Because of the rapid increase in the level of CPI during 2022, it seems almost certain that there will be a ‘double indexation’ of the general cap (ie, 2 x $100,000).

Mr Howard said: “If you have clients who are planning to start a retirement income stream before 30 June 2023, it is worth considering if this would lead to the best outcome for them. Would they be better off delaying the commencement of the income stream until after 1 July 2023, so they can gain the maximum indexation benefit?”

Related to the cap is the total superannuation balance threshold (TSB). The TSB is used, amongst other things, to determine the level of non-concessional contributions that can be made by a client into super in a particular income year. The TSB threshold is an amount equal to the general transfer balance cap, so it is currently $1.7m but will increase to either $1.8m or, more likely, $1.9m from 1 July 2023.

3. Downsizers and age pension

The bill to reduce the eligibility age for downsizer contributions has now become law, effective from 1 January 2023.

Treasury Laws Amendment (2022 Measures No. 2) Act 2022 lowers the age (from 60 to 55 years) from which individuals can make downsizer contributions to their super fund from the proceeds of selling their home.

To be eligible, clients also need to have owned their home for 10 years or more. Downsizer contributions to a maximum of $300,000 do not count towards any of the contribution caps, and can still be made even if a person has a total super balance greater than $1.7m.

The consequences of selling the principal home on eligibility for Centrelink payments should be weighed up carefully, cautions Mr Howard.

“Downsizing can ease cost of living pressures for many Australians: not only does it free up money, the maintenance costs for a smaller home are also usually lower. In addition, the ability to make up to $300,000 in downsizer contributions to super tax-free can boost retirement savings significantly. However, as part of retirement planning, clients who are receiving an age pension, or expecting to down the track, should be made aware of how age pension means testing may be impacted.”

4. Increase to income thresholds for Seniors Health card now law

For the first time in over 20 years, the income thresholds for the Commonwealth Seniors Health Card have been raised (outside of indexation), with the passing of Social Services and Other Legislation Amendment (Lifting the Income Limit for the Commonwealth Seniors Health Card) Bill 2022, which became law on 28 October 2022.

Effective from 4 November 2022, the income thresholds for singles increased to $90,000 from $61,284; and for couples, the increase was $144,000, from $98,054.

Eligibility for the Commonwealth Seniors Health Card gives seniors access to valuable concessions, such as cheaper medicine under the Pharmaceutical Benefits Scheme. Additionally, card holders may also receive economic support payments.

5. Federal Budget announcement on increasing childcare assistance

Advisers with clients who have young families are taking into account the substantial increase to the Child Care Subsidy (CCS) rates, applicable from July 2023. CCS rates will increase from 85% to 90% for families with a combined income of less than $80,000. The CCS will reduce by 1% for each additional $5,000 of annual income.

A couple with a combined income of $120,000 would receive a CCS percentage of 82%, and couples with a combined income of $300,000 would receive 46%. Those with a combined income of $530,000 or greater will not be eligible for the CCS.

Mr Howard said: “Although the CCS increase is not effective for another six months, it’s not too early for busy parents to start planning for any adjustments to their household budgets and work commitments in the new year. Any extra support relating to childcare costs would be a welcome reprieve for many.”

Mr Howard added: “Another topic that advisers are raising questions about is the ability to exit retirement income legacy products. This was not addressed in the Federal Budget, and so we are waiting to see if it appears on the Government’s radar. Of course, advisers are also eagerly anticipating the final report from the Quality of Advice review, which was handed to the Government in December and may be made public soon.”

The post Market conditions driving adviser-client conversations appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2023/01/market-conditions-driving-adviser-client-conversations/feed/ 0 Seniors Health Card, property, inflation and work test are top of mind for advisers https://www.adviservoice.com.au/2022/09/seniors-health-card-property-inflation-and-work-test-are-top-of-mind-for-advisers/ https://www.adviservoice.com.au/2022/09/seniors-health-card-property-inflation-and-work-test-are-top-of-mind-for-advisers/#respond Tue, 20 Sep 2022 21:50:31 +0000 https://www.adviservoice.com.au/?p=84971

Tim Howard

More Australians are expected to be eligible for the Commonwealth Seniors Health Card soon, due to an imminent regulatory change aimed at easing cost of living pressures for seniors.

In addition, more Australians who are selling their homes will be able to make downsizer contributions into super, with the eligibility age reducing to 55 years, pending legislation which could come into effect in coming months.

Meanwhile, high net worth individuals planning to move to retirement phase might consider delaying their plans, as the maximum amount that can be transferred to tax-free retirement income streams is expected to be indexed to $1.8m, from the current $1.7m.

These are just some of the topics that are top of mind for financial advisers in this quarter, based on the questions they are asking BT.

Tim Howard, Technical Consultant, BT, said, “The upcoming regulatory changes can present advice opportunities, as many clients may not be aware of how the rules apply to their circumstances.”

Financial advisers seeking clarity on technical topics regarding superannuation, tax and social security regularly contact BT’s Technical Services team, who field over 2,000 queries from advisers every quarter. “Often, advisers are asking us about their clients on a case-by-case basis because the rules can be complex,” Mr Howard said.

The most popular queries raised by advisers so far in the July to September 2022 quarter are below.

1. Income thresholds for Seniors Health card increase by more than 50%

For the first time in over 20 years, the income thresholds for the Commonwealth Seniors Health Card will be raised (outside of indexation), pending legislation which is currently in Parliament.

If passed, the income thresholds for singles will increase to $90,000 from the current $57,761; for couples, the increase is $144,000, from $92,412 currently.

“Becoming eligible for the Commonwealth Seniors Health Card gives you access to valuable concessions, such as cheaper medicine under the Pharmaceutical Benefits Scheme. Visits to the doctors can potentially be bulk-billed and people can receive a refund of medical costs when they reach the Medicare safety net. Additionally, card holders may also receive economic support payments which were worth $1,000 across 2020 and 2021,” Mr Howard said. [1]

Around 44,000 more Australians are expected to qualify for the Seniors Health Card, if the bill passes.

“Notably, following the passing of Queen Elizabeth II, Parliament was suspended for a short period,” Mr Howard said. “However, the effective date of the new income thresholds is expected to remain the same, 20 September 2022.”

2. Downsizers

More Australians are expected to be able to make a downsizer contribution into super – up to $300,000 – with the eligibility age expected to reduce to 55 years, from the current 60 years, in coming months.

“Advisers with clients who are about to turn 55 years of age, and are planning to sell their home, may wish to consider the timing of the legislation,” Mr Howard said. The legislation is currently in Parliament, and is expected to pass and receive Royal Assent – and come into effect – either on 1 October 2022 or 1 January 2023.

To be able to contribute proceeds from a property sale into their super, clients need to have owned their home for 10 years or more. A downsizer contribution doesn’t count towards any of the contribution caps, and can still be made even if a person has total super savings greater than $1.7m.

3. Home Equity Access Scheme

Considerably more senior Australians are participating in the home equity access scheme (HEAS),[2] and take-up is expected to increase due to recent changes which have made the scheme more flexible.

The HEAS allows Australians, who are of age pension age, to enhance their income in retirement by accessing the equity in a property they own. Prior to 1 July, an eligible person could only receive their loan amount as a fortnightly payment. Similar to what is generally available from a commercial reverse mortgage, lump sum advance payments are now also an option under the scheme. Any lump sum is capped at 50% of the participant’s maximum pension rate.

Alternatively, a scheme participant may choose to take a partial lump sum amount and then the remainder as a fortnightly payment.

“While the HEAS may suit some senior Australians, there are many considerations that should be weighed up,” Mr Howard said. “Using your existing property as security for a HEAS loan has the potential to impact on estate planning, so some Australians who are eligible may be hesitant about taking part in the scheme.”

4. Inflation set to increase transfer balance cap to $1.8m

Based on the current trajectory of the Consumer Price Index, the general transfer balance cap is expected to increase to $1.8m from 1 July 2023, unless legislative changes are introduced.

The transfer balance cap is the amount of superannuation that can be transferred to tax-free retirement income streams, and is currently at $1.7m.

“High net worth individuals who aren’t in a hurry to start a pension may want to hold off until then,” Mr Howard said. “However, it’s worth noting that, with Australia’s inflation reaching its highest level in over 20 years, there is a possibility that the Federal Government could freeze the indexation of certain thresholds such as the transfer balance cap.”

5. Work test requirements

The application of the work test rules is consistently one of the most popular technical topics among advisers.

Individuals aged between 67 and 74 who have recently retired may be eligible to make personal deductible contributions to super, if they meet certain eligibility criteria around their previous year of work and their total super balance.

Generally, to claim a deduction for a personal contribution, if a super fund member is between the ages of 67 and 74 they ‘must have been gainfully employed for at least 40 hours in any period of 30 consecutive days during the financial year in which the contribution was made.’ [3]

An exemption to the work test applies only if the person meets another set of criteria. People who have not been gainfully employed during the financial year can still make a personal deductible contribution if: they met the work test in the financial year immediately prior to the year of the contribution; and they have a total super balance of less than $300,000 at the end of the previous financial year; and they had not previously used the work test exemption in a previous financial year to make a contribution to any regulated super fund.

“In addition to these five popular topics, the Quality of Advice Review is top of mind for advisers; and the industry is anticipating potential regulatory changes to flow out of the recommendations,” Mr Howard said.

———

[1] Services Australia: https://www.servicesaustralia.gov.au/benefits-commonwealth-seniors-health-card?context=21966
[2] According to Services Australia, the number of participants in the scheme has grown to 6041 by 30 June 2022, compared with 768 three years ago, referenced by Sydney Morning Herald: Fitzsimmons, C (2022). ‘Soaring number of older homeowners take out government-backed reverse mortgages’, SMH, 7/8/2022: https://www.smh.com.au/money/borrowing/soaring-number-of-older-home-owners-take-out-government-backed-reverse-mortgages20220727-p5b536.html
[3] Income Tax Assessment Act 1997 – SECT 290.165 (1A) (a)
This information was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac) and is current as at 20 September 2022. The information provided is general information only and it does not constitute any recommendation or advice. It is intended to provide an overview or summary and should not be considered a comprehensive statement on any matter or relied upon as such. Any recommendation or opinion provided does not take into account your personal objectives, financial situation or needs, and you should consider its appropriateness having regard to these factors. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation.
]]>

Tim Howard

More Australians are expected to be eligible for the Commonwealth Seniors Health Card soon, due to an imminent regulatory change aimed at easing cost of living pressures for seniors.

In addition, more Australians who are selling their homes will be able to make downsizer contributions into super, with the eligibility age reducing to 55 years, pending legislation which could come into effect in coming months.

Meanwhile, high net worth individuals planning to move to retirement phase might consider delaying their plans, as the maximum amount that can be transferred to tax-free retirement income streams is expected to be indexed to $1.8m, from the current $1.7m.

These are just some of the topics that are top of mind for financial advisers in this quarter, based on the questions they are asking BT.

Tim Howard, Technical Consultant, BT, said, “The upcoming regulatory changes can present advice opportunities, as many clients may not be aware of how the rules apply to their circumstances.”

Financial advisers seeking clarity on technical topics regarding superannuation, tax and social security regularly contact BT’s Technical Services team, who field over 2,000 queries from advisers every quarter. “Often, advisers are asking us about their clients on a case-by-case basis because the rules can be complex,” Mr Howard said.

The most popular queries raised by advisers so far in the July to September 2022 quarter are below.

1. Income thresholds for Seniors Health card increase by more than 50%

For the first time in over 20 years, the income thresholds for the Commonwealth Seniors Health Card will be raised (outside of indexation), pending legislation which is currently in Parliament.

If passed, the income thresholds for singles will increase to $90,000 from the current $57,761; for couples, the increase is $144,000, from $92,412 currently.

“Becoming eligible for the Commonwealth Seniors Health Card gives you access to valuable concessions, such as cheaper medicine under the Pharmaceutical Benefits Scheme. Visits to the doctors can potentially be bulk-billed and people can receive a refund of medical costs when they reach the Medicare safety net. Additionally, card holders may also receive economic support payments which were worth $1,000 across 2020 and 2021,” Mr Howard said. [1]

Around 44,000 more Australians are expected to qualify for the Seniors Health Card, if the bill passes.

“Notably, following the passing of Queen Elizabeth II, Parliament was suspended for a short period,” Mr Howard said. “However, the effective date of the new income thresholds is expected to remain the same, 20 September 2022.”

2. Downsizers

More Australians are expected to be able to make a downsizer contribution into super – up to $300,000 – with the eligibility age expected to reduce to 55 years, from the current 60 years, in coming months.

“Advisers with clients who are about to turn 55 years of age, and are planning to sell their home, may wish to consider the timing of the legislation,” Mr Howard said. The legislation is currently in Parliament, and is expected to pass and receive Royal Assent – and come into effect – either on 1 October 2022 or 1 January 2023.

To be able to contribute proceeds from a property sale into their super, clients need to have owned their home for 10 years or more. A downsizer contribution doesn’t count towards any of the contribution caps, and can still be made even if a person has total super savings greater than $1.7m.

3. Home Equity Access Scheme

Considerably more senior Australians are participating in the home equity access scheme (HEAS),[2] and take-up is expected to increase due to recent changes which have made the scheme more flexible.

The HEAS allows Australians, who are of age pension age, to enhance their income in retirement by accessing the equity in a property they own. Prior to 1 July, an eligible person could only receive their loan amount as a fortnightly payment. Similar to what is generally available from a commercial reverse mortgage, lump sum advance payments are now also an option under the scheme. Any lump sum is capped at 50% of the participant’s maximum pension rate.

Alternatively, a scheme participant may choose to take a partial lump sum amount and then the remainder as a fortnightly payment.

“While the HEAS may suit some senior Australians, there are many considerations that should be weighed up,” Mr Howard said. “Using your existing property as security for a HEAS loan has the potential to impact on estate planning, so some Australians who are eligible may be hesitant about taking part in the scheme.”

4. Inflation set to increase transfer balance cap to $1.8m

Based on the current trajectory of the Consumer Price Index, the general transfer balance cap is expected to increase to $1.8m from 1 July 2023, unless legislative changes are introduced.

The transfer balance cap is the amount of superannuation that can be transferred to tax-free retirement income streams, and is currently at $1.7m.

“High net worth individuals who aren’t in a hurry to start a pension may want to hold off until then,” Mr Howard said. “However, it’s worth noting that, with Australia’s inflation reaching its highest level in over 20 years, there is a possibility that the Federal Government could freeze the indexation of certain thresholds such as the transfer balance cap.”

5. Work test requirements

The application of the work test rules is consistently one of the most popular technical topics among advisers.

Individuals aged between 67 and 74 who have recently retired may be eligible to make personal deductible contributions to super, if they meet certain eligibility criteria around their previous year of work and their total super balance.

Generally, to claim a deduction for a personal contribution, if a super fund member is between the ages of 67 and 74 they ‘must have been gainfully employed for at least 40 hours in any period of 30 consecutive days during the financial year in which the contribution was made.’ [3]

An exemption to the work test applies only if the person meets another set of criteria. People who have not been gainfully employed during the financial year can still make a personal deductible contribution if: they met the work test in the financial year immediately prior to the year of the contribution; and they have a total super balance of less than $300,000 at the end of the previous financial year; and they had not previously used the work test exemption in a previous financial year to make a contribution to any regulated super fund.

“In addition to these five popular topics, the Quality of Advice Review is top of mind for advisers; and the industry is anticipating potential regulatory changes to flow out of the recommendations,” Mr Howard said.

———

[1] Services Australia: https://www.servicesaustralia.gov.au/benefits-commonwealth-seniors-health-card?context=21966
[2] According to Services Australia, the number of participants in the scheme has grown to 6041 by 30 June 2022, compared with 768 three years ago, referenced by Sydney Morning Herald: Fitzsimmons, C (2022). ‘Soaring number of older homeowners take out government-backed reverse mortgages’, SMH, 7/8/2022: https://www.smh.com.au/money/borrowing/soaring-number-of-older-home-owners-take-out-government-backed-reverse-mortgages20220727-p5b536.html
[3] Income Tax Assessment Act 1997 – SECT 290.165 (1A) (a)
This information was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac) and is current as at 20 September 2022. The information provided is general information only and it does not constitute any recommendation or advice. It is intended to provide an overview or summary and should not be considered a comprehensive statement on any matter or relied upon as such. Any recommendation or opinion provided does not take into account your personal objectives, financial situation or needs, and you should consider its appropriateness having regard to these factors. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation.

The post Seniors Health Card, property, inflation and work test are top of mind for advisers appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2022/09/seniors-health-card-property-inflation-and-work-test-are-top-of-mind-for-advisers/feed/ 0 Top EOFY technical tips for advisers https://www.adviservoice.com.au/2022/06/top-eofy-technical-tips-for-advisers/ https://www.adviservoice.com.au/2022/06/top-eofy-technical-tips-for-advisers/#respond Wed, 01 Jun 2022 22:00:11 +0000 https://www.adviservoice.com.au/?p=82414

Tim Howard

In addition to the usual year-end to-do list for financial advisers, in the mix this year are changes regarding downsizer contributions, the superannuation guarantee and the Covid-related measure on minimum pension drawdowns.

Tim Howard, Technical Consultant, BT, said, “Despite signs of a slowdown, property is still changing hands at a relatively high rate in Australian cities, and some clients who have been contemplating downsizing will proceed with their plans to sell the family home. Placing some of the sale proceeds into super can be a tax-effective strategy for empty nesters. From 1 July, more Australians may access this strategy, with the eligibility age for making a downsizer contribution lowering.”

Financial advisers seeking clarity on technical topics regarding superannuation, tax and social security regularly contact BT’s Technical Services team, who field over 2,000 queries from advisers every quarter. In the leadup to the EOFY, based on the number of questions coming through from advisers, the team has seen greater adviser focus on the downsizer contribution, as well as more complex tax and estate planning especially for SMSFs.

The most popular EOFY-related queries raised by advisers so far in the April to June 2022 quarter are below.

1. Downsizers

Clients looking to sell their homes may not be aware that the eligibility age for making a downsizer contribution into super is coming down in the new financial year, to 60 years. Prior to 1 July 2022, a person has to be 65 years or older to make a downsizer contribution.

“Notably, if your client is about to turn 60, it’s worth checking if they are eligible, bearing in mind that generally from the date of settlement of the property sale, the client has 90 days in which to make the downsizer contribution,” explained Mr Howard. “The crucial date is when the client puts the money into super. For example, at settlement, your client may be age 59, then turn 60 from 1 July. They will still be able to make a downsizer contribution from their birthday, if it falls within the 90 day-period.”

To be able to contribute proceeds from the property sale into their super, clients need to have owned their home for 10 years or more. A downsizer contribution – up to $300,000 maximum – doesn’t count towards any of the contribution caps, and can still be made even if a person has total super savings greater than $1.7 million. A client’s spouse can also make a downsizer contribution to their own super, of up to $300,000 from the same proceeds, even if they are not an owner of the property.

A separate point to note, for clients looking to sell an investment property, is to consider contributing some of the sale proceeds into super, to potentially reduce their capital gains tax (CGT) liability, with the tax rate in super at 15%, compared to paying CGT at the marginal rate, which could be as high as 47%.

2. Business owners making super guarantee payments

Advisers may wish to remind their business clients who have employees that the superannuation guarantee (SG) is increasing to 10.5% in the new financial year.

Furthermore, the $450 minimum threshold is disappearing. Currently, if an employee receives under $450 (before tax) in salary or wages in a calendar month, their employer does not have to pay the SG for them. From 1 July, employers must pay the SG regardless of how much employees are paid.

“The removal of the minimum threshold largely impacts younger workers, but also potentially older people working part-time,” Mr Howard said. “As many industries in Australia are experiencing labour shortages, former retirees who decide to return to work may be pleasantly surprised that they are earning super as part of their pay packet.”

3. Couples

Clients planning to make spouse contributions as part of their tax strategy should be reminded to do so before EOFY.

“Clients who typically benefit from this strategy are in a relationship where one person is in a high-income bracket, and the other person has a lower level of personal income,” said Mr Howard. “The person with the higher income is generally better off maximising their personal contributions first, as this is likely to reduce their taxable income. That person can then consider making an after-tax contribution into their spouse’s super fund to receive the spouse contribution tax-offset.”

It’s important to note that the receiving spouse is not precluded from also getting the government co-contribution, however they would need to make an additional personal after-tax contribution.

4. Superannuation members making personal contributions into super

More generally, anyone looking to claim a tax deduction for making personal super contributions in this financial year, should make the contributions before 30 June.

As always, advisers should keep in mind the cut-off dates for transactions to be reflected in year-end statements – each super fund or wealth management platform can vary, and the deadlines can be several days before 30 June.

To ensure personal contributions for clients aged 67 or over can be made, advisers should check clients’ eligibility to contribute, such as meeting the work test.

In addition, prior to lodging their income tax return for FY2022, super members must submit a notice of intent to claim a tax deduction for the amount of the contribution with the trustee of their fund, and receive acknowledgement that the notice has been accepted.

“Another point to note is that many clients will have carry forward contribution cap space available, particularly since they can carry forward unused amounts from the previous three years into the current year,” Mr Howard said. “That means clients may be able to make extra concessional contributions, without having to pay extra tax.”

5. SMSF trustees accepting personal contributions into super

SMSF clients may need to be reminded of their obligations as trustees in relation to accepting personal super contributions from members. A trustee must acknowledge the receipt from a member of their notice of intent to claim a deduction, to ensure the tax deduction for the contribution is processed correctly.

6. Pension members

Clients may be wondering whether superannuation-related policies introduced during the pandemic are still in place – such as the flexibility for pension members to keep more of their money invested.

The federal government had temporarily halved minimum drawdown amounts, so those who are in pension phase can choose to withdraw less of their retirement savings and keep a greater amount invested, while markets were volatile and interest rates were at historical lows. This policy has been extended to 30 June 2023.

7. Cash levels

Advisers may wish to review and look ahead to the level of cash in client accounts on wealth management platforms for the July and August period. Asset drawdowns to fund payments from platforms – such as pension payments – can be impacted after year-end, as trade settlements may take longer than usual, due to pending distributions from fund managers.

]]>

Tim Howard

In addition to the usual year-end to-do list for financial advisers, in the mix this year are changes regarding downsizer contributions, the superannuation guarantee and the Covid-related measure on minimum pension drawdowns.

Tim Howard, Technical Consultant, BT, said, “Despite signs of a slowdown, property is still changing hands at a relatively high rate in Australian cities, and some clients who have been contemplating downsizing will proceed with their plans to sell the family home. Placing some of the sale proceeds into super can be a tax-effective strategy for empty nesters. From 1 July, more Australians may access this strategy, with the eligibility age for making a downsizer contribution lowering.”

Financial advisers seeking clarity on technical topics regarding superannuation, tax and social security regularly contact BT’s Technical Services team, who field over 2,000 queries from advisers every quarter. In the leadup to the EOFY, based on the number of questions coming through from advisers, the team has seen greater adviser focus on the downsizer contribution, as well as more complex tax and estate planning especially for SMSFs.

The most popular EOFY-related queries raised by advisers so far in the April to June 2022 quarter are below.

1. Downsizers

Clients looking to sell their homes may not be aware that the eligibility age for making a downsizer contribution into super is coming down in the new financial year, to 60 years. Prior to 1 July 2022, a person has to be 65 years or older to make a downsizer contribution.

“Notably, if your client is about to turn 60, it’s worth checking if they are eligible, bearing in mind that generally from the date of settlement of the property sale, the client has 90 days in which to make the downsizer contribution,” explained Mr Howard. “The crucial date is when the client puts the money into super. For example, at settlement, your client may be age 59, then turn 60 from 1 July. They will still be able to make a downsizer contribution from their birthday, if it falls within the 90 day-period.”

To be able to contribute proceeds from the property sale into their super, clients need to have owned their home for 10 years or more. A downsizer contribution – up to $300,000 maximum – doesn’t count towards any of the contribution caps, and can still be made even if a person has total super savings greater than $1.7 million. A client’s spouse can also make a downsizer contribution to their own super, of up to $300,000 from the same proceeds, even if they are not an owner of the property.

A separate point to note, for clients looking to sell an investment property, is to consider contributing some of the sale proceeds into super, to potentially reduce their capital gains tax (CGT) liability, with the tax rate in super at 15%, compared to paying CGT at the marginal rate, which could be as high as 47%.

2. Business owners making super guarantee payments

Advisers may wish to remind their business clients who have employees that the superannuation guarantee (SG) is increasing to 10.5% in the new financial year.

Furthermore, the $450 minimum threshold is disappearing. Currently, if an employee receives under $450 (before tax) in salary or wages in a calendar month, their employer does not have to pay the SG for them. From 1 July, employers must pay the SG regardless of how much employees are paid.

“The removal of the minimum threshold largely impacts younger workers, but also potentially older people working part-time,” Mr Howard said. “As many industries in Australia are experiencing labour shortages, former retirees who decide to return to work may be pleasantly surprised that they are earning super as part of their pay packet.”

3. Couples

Clients planning to make spouse contributions as part of their tax strategy should be reminded to do so before EOFY.

“Clients who typically benefit from this strategy are in a relationship where one person is in a high-income bracket, and the other person has a lower level of personal income,” said Mr Howard. “The person with the higher income is generally better off maximising their personal contributions first, as this is likely to reduce their taxable income. That person can then consider making an after-tax contribution into their spouse’s super fund to receive the spouse contribution tax-offset.”

It’s important to note that the receiving spouse is not precluded from also getting the government co-contribution, however they would need to make an additional personal after-tax contribution.

4. Superannuation members making personal contributions into super

More generally, anyone looking to claim a tax deduction for making personal super contributions in this financial year, should make the contributions before 30 June.

As always, advisers should keep in mind the cut-off dates for transactions to be reflected in year-end statements – each super fund or wealth management platform can vary, and the deadlines can be several days before 30 June.

To ensure personal contributions for clients aged 67 or over can be made, advisers should check clients’ eligibility to contribute, such as meeting the work test.

In addition, prior to lodging their income tax return for FY2022, super members must submit a notice of intent to claim a tax deduction for the amount of the contribution with the trustee of their fund, and receive acknowledgement that the notice has been accepted.

“Another point to note is that many clients will have carry forward contribution cap space available, particularly since they can carry forward unused amounts from the previous three years into the current year,” Mr Howard said. “That means clients may be able to make extra concessional contributions, without having to pay extra tax.”

5. SMSF trustees accepting personal contributions into super

SMSF clients may need to be reminded of their obligations as trustees in relation to accepting personal super contributions from members. A trustee must acknowledge the receipt from a member of their notice of intent to claim a deduction, to ensure the tax deduction for the contribution is processed correctly.

6. Pension members

Clients may be wondering whether superannuation-related policies introduced during the pandemic are still in place – such as the flexibility for pension members to keep more of their money invested.

The federal government had temporarily halved minimum drawdown amounts, so those who are in pension phase can choose to withdraw less of their retirement savings and keep a greater amount invested, while markets were volatile and interest rates were at historical lows. This policy has been extended to 30 June 2023.

7. Cash levels

Advisers may wish to review and look ahead to the level of cash in client accounts on wealth management platforms for the July and August period. Asset drawdowns to fund payments from platforms – such as pension payments – can be impacted after year-end, as trade settlements may take longer than usual, due to pending distributions from fund managers.

The post Top EOFY technical tips for advisers appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2022/06/top-eofy-technical-tips-for-advisers/feed/ 0 Top 5 Budget-related technical topics for advisers https://www.adviservoice.com.au/2022/04/top-5-budget-related-technical-topics-for-advisers/ https://www.adviservoice.com.au/2022/04/top-5-budget-related-technical-topics-for-advisers/#respond Thu, 31 Mar 2022 20:55:57 +0000 https://www.adviservoice.com.au/?p=80896

Tim Howard

The Federal Budget’s focus was on addressing cost of living pressures and, although it was extremely quiet on superannuation, there was nonetheless healthy adviser interest in some of the proposed measures, including: the tax offset for low to middle income taxpayers, social security measures such as the $250 one-off cost of living payment, and extension of minimum pension drawdowns.

Questions about the Budget handed down this week were among the most frequently asked by advisers in their conversations with BT’s technical services team in the first quarter of the year. In addition, a technical topic that was amongst those that were top of mind during the 2021 Budget, the work test, has now been clarified, with the passing of legislation in February 2022 – and this has also attracted advisers’ attention.

Mr Tim Howard, Technical Consultant, BT, said, “Some in the wealth management and advice industries may have expected more proposed measures that would impact clients from this Budget; however, at the same time, the limited changes to areas related to advice will no doubt provide welcome certainty.”

BT’s Technical Services team field over 2,000 queries from advisers every quarter on topics relating to superannuation, tax and social security, with the volume of questions historically peaking in the days after Budget night.

More details on the most popular topics are below. [1]

1. Tax relief for clients with incomes below $126,000

The proposed increase to the low and middle income tax offset (LMITO), effective from 1 July 2021, provides additional tax relief for low and middle income taxpayers in response to the cost of living pressures experienced by Australian households. The proposal will increase the LMITO by $420, with the initial LMITO benefit increasing from $255 to $675 and the maximum LMITO benefit increasing from $1,080 to $1,500. All other features of the current LMITO remain unchanged.

2. Supporting retirees with the extension of minimum pension drawdowns

The Government has announced a proposed extension of the 50% reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023. The reduction will allow retirees to avoid selling assets to satisfy the minimum drawdown requirements. This measure will also apply to clients who are in pension phase within self-managed superannuation funds.

3. No changes to the increase of the Superannuation Guarantee

Conspicuous by its absence on Budget night, the superannuation guarantee (SG) is set to continue to increase as planned. The SG is currently legislated to increase progressively from 10% to 12% by 1 July 2025. The rate of superannuation guarantee will increase on 1 July 2022 by 0.50% to 10.5%. The rate will increase by 0.5% each year until it reaches 12% on 1 July 2025. There was no announcement to change these legislated increases.

4. Social security measures

One of the social security measures that may impact clients is the one-off cost of living payment. From April 2022, eligible income support recipients and concession cardholders will receive a $250 payment; an individual can only receive one payment even if they qualify in multiple ways. The payments will be exempt from taxation and not count as income for social security purposes.

Meanwhile, parents in the paid workforce may benefit from the proposal to enhance paid parental leave. Parental Leave Pay and Dad and Partner Pay will be combined into Paid Parental Leave as a single scheme providing up to 20 weeks in a fully flexible, shareable scheme for eligible working parents. It will also mean that eligible single parents will benefit as they will have access to two additional weeks.

5. Work test amendments become law, bring forward clarified

Related to last year’s Budget, one of the technical topics that has been top of mind for advisers in recent weeks are the changes to the work test, with the passing of legislation in February which confirmed that the work test will no longer be required for voluntary member contributions, including non-concessional, bring-forward non-concessional and small business contributions up to the age of 75 – commencing from 1 July 2022.[1]

The amendments effectively simplify the rules for older Australians who would like to make additional contributions into their super.

With the passage of the Treasury Laws Amendment (More Flexible Superannuation) Bill 2021, it was also confirmed individuals aged under 75 at any time within a financial year will be eligible to trigger a bring-forward non-concessional contribution, subject to all other existing eligibility criteria being met, such as their recent contributions history, total super balance and timing around when they make the contribution if approaching age 75. The Australian Taxation Office has also recently issued a much-anticipated example, illustrating an individual aged 74 on 1 July, being eligible to trigger a bring-forward non-concessional contribution. [2]

———

[1] Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021 received royal assent on 22 February 2022, https://www.ato.gov.au/General/New-legislation/In-detail/Super/Flexible-super—Repealing-thework-test-for-voluntary-superannuation-contributions/
[2] https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-contributions—too-much-can-mean-extra-tax/?page=10
]]>

Tim Howard

The Federal Budget’s focus was on addressing cost of living pressures and, although it was extremely quiet on superannuation, there was nonetheless healthy adviser interest in some of the proposed measures, including: the tax offset for low to middle income taxpayers, social security measures such as the $250 one-off cost of living payment, and extension of minimum pension drawdowns.

Questions about the Budget handed down this week were among the most frequently asked by advisers in their conversations with BT’s technical services team in the first quarter of the year. In addition, a technical topic that was amongst those that were top of mind during the 2021 Budget, the work test, has now been clarified, with the passing of legislation in February 2022 – and this has also attracted advisers’ attention.

Mr Tim Howard, Technical Consultant, BT, said, “Some in the wealth management and advice industries may have expected more proposed measures that would impact clients from this Budget; however, at the same time, the limited changes to areas related to advice will no doubt provide welcome certainty.”

BT’s Technical Services team field over 2,000 queries from advisers every quarter on topics relating to superannuation, tax and social security, with the volume of questions historically peaking in the days after Budget night.

More details on the most popular topics are below. [1]

1. Tax relief for clients with incomes below $126,000

The proposed increase to the low and middle income tax offset (LMITO), effective from 1 July 2021, provides additional tax relief for low and middle income taxpayers in response to the cost of living pressures experienced by Australian households. The proposal will increase the LMITO by $420, with the initial LMITO benefit increasing from $255 to $675 and the maximum LMITO benefit increasing from $1,080 to $1,500. All other features of the current LMITO remain unchanged.

2. Supporting retirees with the extension of minimum pension drawdowns

The Government has announced a proposed extension of the 50% reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023. The reduction will allow retirees to avoid selling assets to satisfy the minimum drawdown requirements. This measure will also apply to clients who are in pension phase within self-managed superannuation funds.

3. No changes to the increase of the Superannuation Guarantee

Conspicuous by its absence on Budget night, the superannuation guarantee (SG) is set to continue to increase as planned. The SG is currently legislated to increase progressively from 10% to 12% by 1 July 2025. The rate of superannuation guarantee will increase on 1 July 2022 by 0.50% to 10.5%. The rate will increase by 0.5% each year until it reaches 12% on 1 July 2025. There was no announcement to change these legislated increases.

4. Social security measures

One of the social security measures that may impact clients is the one-off cost of living payment. From April 2022, eligible income support recipients and concession cardholders will receive a $250 payment; an individual can only receive one payment even if they qualify in multiple ways. The payments will be exempt from taxation and not count as income for social security purposes.

Meanwhile, parents in the paid workforce may benefit from the proposal to enhance paid parental leave. Parental Leave Pay and Dad and Partner Pay will be combined into Paid Parental Leave as a single scheme providing up to 20 weeks in a fully flexible, shareable scheme for eligible working parents. It will also mean that eligible single parents will benefit as they will have access to two additional weeks.

5. Work test amendments become law, bring forward clarified

Related to last year’s Budget, one of the technical topics that has been top of mind for advisers in recent weeks are the changes to the work test, with the passing of legislation in February which confirmed that the work test will no longer be required for voluntary member contributions, including non-concessional, bring-forward non-concessional and small business contributions up to the age of 75 – commencing from 1 July 2022.[1]

The amendments effectively simplify the rules for older Australians who would like to make additional contributions into their super.

With the passage of the Treasury Laws Amendment (More Flexible Superannuation) Bill 2021, it was also confirmed individuals aged under 75 at any time within a financial year will be eligible to trigger a bring-forward non-concessional contribution, subject to all other existing eligibility criteria being met, such as their recent contributions history, total super balance and timing around when they make the contribution if approaching age 75. The Australian Taxation Office has also recently issued a much-anticipated example, illustrating an individual aged 74 on 1 July, being eligible to trigger a bring-forward non-concessional contribution. [2]

———

[1] Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021 received royal assent on 22 February 2022, https://www.ato.gov.au/General/New-legislation/In-detail/Super/Flexible-super—Repealing-thework-test-for-voluntary-superannuation-contributions/
[2] https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-contributions—too-much-can-mean-extra-tax/?page=10

The post Top 5 Budget-related technical topics for advisers appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2022/04/top-5-budget-related-technical-topics-for-advisers/feed/ 0 COVID resurgence top of mind for financial advisers https://www.adviservoice.com.au/2021/10/covid-resurgence-top-of-mind-for-financial-advisers/ https://www.adviservoice.com.au/2021/10/covid-resurgence-top-of-mind-for-financial-advisers/#respond Mon, 18 Oct 2021 21:00:46 +0000 https://adviservoice.com.au/?p=77458 In the September 2021 quarter, COVID continued to be top of mind for advisers and their clients – and understandably so, as the Delta variant had forced, at one point, around 60% of Australians into strict lockdown.

Among the top five questions that advisers have asked BT’s technical team in the September quarter, two are related to COVID: the re-contributions of early release of super amounts and the extension of COVID relief for SMSFs.

The team field over 2,000 queries from advisers every quarter on technical topics relating to superannuation and investments. Advisers’ most frequently asked questions from the September quarter are as follows.

1. Re-contributing early release of super payments

Although personal freedoms had recently again been curbed in many countries and life has been far from normal, equity markets have continued to perform strongly during the pandemic. Investors who held their nerve during the pandemic’s troughs and peaks have been rewarded with very strong returns in the past 12 months.[1]

In addition, Australians’ savings have increased during the pandemic.[2] Those who may have drawn on their superannuation as part of the Federal Government’s early release of super program in calendar year 2020, may find that they are now in a position to be able to make additional contributions into their super.

“Some advisers are pleasantly surprised to learn that their clients can re-contribute the amounts they had withdrawn under the COVID-19 early release of super program, and that those re-contributions will not be counted towards their non-concessional contributions cap,” said Mr Tim Howard, Technical Consultant in BT’s Technical Services team. “What’s more, clients have until 30 June 2030 to make the re-contributions[3] – and so have a long period in which to get their retirement savings back to where they were.”

The new regulations regarding the re-contribution of COVID-19 early release amounts came into effect in July 2021, as part of an amendment stapled to the much awaited ‘bring forward’ legislation (Treasury Laws Amendment (More Flexible Superannuation) Act 2021).

2. Extension of COVID relief for SMSFs

Acknowledging the continuing impact of COVID particularly on travel and the property market, the Federal Government has extended a range of relief measures for SMSFs, to the end of the 2022 financial year.[4]

SMSF trustees and related parties who have been unable to return to Australia due to travel restrictions will not see their fund’s residency status impacted. If rental relief provided by an SMSF to a tenant happens to give rise to a contravention of the super laws, the Australian Taxation Office (ATO) will not take any compliance action against the fund, as long as the relief is offered on commercial terms due to the financial impacts of COVID.[5]

Similarly, if loan repayment relief is provided by an SMSF to a related or unrelated party, and the relief is offered on commercial terms and is due to the financial impacts of COVID, the ATO will not take any compliance action against the fund.[6]

Further the ATO is providing leniency to SMSFs exceeding the 5% inhouse asset threshold at 30 June 2021. The fund must still prepare a written plan to reduce the market value of the fund’s inhouse assets to below 5% by 30 June 2022, however will not face any compliance action if they have not executed the plan by 30 June 2022.[7]

3. More on SMSFs – the perennial question on owning property

Most advisers are aware that SMSF clients cannot personally make use of property owned by their fund, however this topic continues to be brought up by clients.

“Advisers are asking for certainty around what the alternate solution may be, although they may already know the answer,” said Mr Howard. “They are double checking with us, as clients who are about to retire are regularly asking advisers whether they can move into the property owned by their SMSF.”

Those clients mistakenly believe that, because they have met a condition of release, they can access the money in their SMSF or live in a property owned by the fund.

“The latter is not the case as the property would almost always cause an inhouse asset issue,” said Mr Howard. “To be able to live in it, title to the property must be transferred out of the fund. Stamp duty would need to be paid and capital gains tax may be payable. Overall, the tax consequences, in many cases, make this solution costprohibitive.”

4. Indexation of the transfer balance cap

As of 1 July 2021, every individual now has their own personal transfer balance cap of between $1.6 and $1.7 million, depending on their circumstances.[8]

Many advisers are asking how they can obtain this information and how to calculate a client’s transfer balance cap. (Information is available on the ATO.[9]) In particular, some advisers are concerned that a client who is rolling over between funds might accidentally push their transfer balance account over the threshold. “Rollovers should not inadvertently impact clients’ transfer balance caps,” explained Mr Howard.

5. Removal of the excess concessional contributions charge

From 1 July 2021, the excess concessional contribution charge (ECCC) no longer applies. This means that individuals who make contributions on or after 1 July which exceed their concessional contributions cap, will not have to pay the ECCC. “Making an excess concessional contribution is no longer as onerous an issue or cost to clients,” said Mr Howard.

Those who make an excess contribution will still be issued with a determination and taxed at their marginal tax rate on any excess (with a 15% tax offset to account for the contributions tax already paid by their super fund).

———-

[1] For example, net returns for the MSCI World Index in the 12 months to September 2021 was 28.82% https://www.msci.com/documents/10199/149ed7bc-316e-4b4c-8ea4-43fcb5bd6523
[2] The household saving to income ratio was 9.7% in the June 2021 quarter, well above pre-pandemic levels. In contrast, the ratio was 3.6% in the December 2019 quarter. Australian Bureau of Statistics:  https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditureand-product/latest-release https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditureand-product/jun-2020 Also see news article: Australians are sitting on a $140b postpandemic war chest, AFR, 30/6/21.
[3] The re-contribution of the COVID ‘early release’ funds can be made between 1 July 2021 and 30 June 2030, cannot exceed the total amount of super accessed under the early release program, and cannot be claimed as a personal superannuation deduction, https://www.ato.gov.au/Super/APRA-regulated-funds/In-detail/News/Re-contribution-ofCOVID-19-early-release-super-amounts/
[4] https://www.ato.gov.au/super/sup/covid-19-relief-for-smsf-trustees-extended-to-2021-22-financial-year/
[5] ibid.
[6] ibid.
[7] ibid.
[8] https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-using-your-super/Indexation-of-Transfer-balancecap/
[9] ibid.
]]> In the September 2021 quarter, COVID continued to be top of mind for advisers and their clients – and understandably so, as the Delta variant had forced, at one point, around 60% of Australians into strict lockdown.

Among the top five questions that advisers have asked BT’s technical team in the September quarter, two are related to COVID: the re-contributions of early release of super amounts and the extension of COVID relief for SMSFs.

The team field over 2,000 queries from advisers every quarter on technical topics relating to superannuation and investments. Advisers’ most frequently asked questions from the September quarter are as follows.

1. Re-contributing early release of super payments

Although personal freedoms had recently again been curbed in many countries and life has been far from normal, equity markets have continued to perform strongly during the pandemic. Investors who held their nerve during the pandemic’s troughs and peaks have been rewarded with very strong returns in the past 12 months.[1]

In addition, Australians’ savings have increased during the pandemic.[2] Those who may have drawn on their superannuation as part of the Federal Government’s early release of super program in calendar year 2020, may find that they are now in a position to be able to make additional contributions into their super.

“Some advisers are pleasantly surprised to learn that their clients can re-contribute the amounts they had withdrawn under the COVID-19 early release of super program, and that those re-contributions will not be counted towards their non-concessional contributions cap,” said Mr Tim Howard, Technical Consultant in BT’s Technical Services team. “What’s more, clients have until 30 June 2030 to make the re-contributions[3] – and so have a long period in which to get their retirement savings back to where they were.”

The new regulations regarding the re-contribution of COVID-19 early release amounts came into effect in July 2021, as part of an amendment stapled to the much awaited ‘bring forward’ legislation (Treasury Laws Amendment (More Flexible Superannuation) Act 2021).

2. Extension of COVID relief for SMSFs

Acknowledging the continuing impact of COVID particularly on travel and the property market, the Federal Government has extended a range of relief measures for SMSFs, to the end of the 2022 financial year.[4]

SMSF trustees and related parties who have been unable to return to Australia due to travel restrictions will not see their fund’s residency status impacted. If rental relief provided by an SMSF to a tenant happens to give rise to a contravention of the super laws, the Australian Taxation Office (ATO) will not take any compliance action against the fund, as long as the relief is offered on commercial terms due to the financial impacts of COVID.[5]

Similarly, if loan repayment relief is provided by an SMSF to a related or unrelated party, and the relief is offered on commercial terms and is due to the financial impacts of COVID, the ATO will not take any compliance action against the fund.[6]

Further the ATO is providing leniency to SMSFs exceeding the 5% inhouse asset threshold at 30 June 2021. The fund must still prepare a written plan to reduce the market value of the fund’s inhouse assets to below 5% by 30 June 2022, however will not face any compliance action if they have not executed the plan by 30 June 2022.[7]

3. More on SMSFs – the perennial question on owning property

Most advisers are aware that SMSF clients cannot personally make use of property owned by their fund, however this topic continues to be brought up by clients.

“Advisers are asking for certainty around what the alternate solution may be, although they may already know the answer,” said Mr Howard. “They are double checking with us, as clients who are about to retire are regularly asking advisers whether they can move into the property owned by their SMSF.”

Those clients mistakenly believe that, because they have met a condition of release, they can access the money in their SMSF or live in a property owned by the fund.

“The latter is not the case as the property would almost always cause an inhouse asset issue,” said Mr Howard. “To be able to live in it, title to the property must be transferred out of the fund. Stamp duty would need to be paid and capital gains tax may be payable. Overall, the tax consequences, in many cases, make this solution costprohibitive.”

4. Indexation of the transfer balance cap

As of 1 July 2021, every individual now has their own personal transfer balance cap of between $1.6 and $1.7 million, depending on their circumstances.[8]

Many advisers are asking how they can obtain this information and how to calculate a client’s transfer balance cap. (Information is available on the ATO.[9]) In particular, some advisers are concerned that a client who is rolling over between funds might accidentally push their transfer balance account over the threshold. “Rollovers should not inadvertently impact clients’ transfer balance caps,” explained Mr Howard.

5. Removal of the excess concessional contributions charge

From 1 July 2021, the excess concessional contribution charge (ECCC) no longer applies. This means that individuals who make contributions on or after 1 July which exceed their concessional contributions cap, will not have to pay the ECCC. “Making an excess concessional contribution is no longer as onerous an issue or cost to clients,” said Mr Howard.

Those who make an excess contribution will still be issued with a determination and taxed at their marginal tax rate on any excess (with a 15% tax offset to account for the contributions tax already paid by their super fund).

———-

[1] For example, net returns for the MSCI World Index in the 12 months to September 2021 was 28.82% https://www.msci.com/documents/10199/149ed7bc-316e-4b4c-8ea4-43fcb5bd6523
[2] The household saving to income ratio was 9.7% in the June 2021 quarter, well above pre-pandemic levels. In contrast, the ratio was 3.6% in the December 2019 quarter. Australian Bureau of Statistics:  https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditureand-product/latest-release https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditureand-product/jun-2020 Also see news article: Australians are sitting on a $140b postpandemic war chest, AFR, 30/6/21.
[3] The re-contribution of the COVID ‘early release’ funds can be made between 1 July 2021 and 30 June 2030, cannot exceed the total amount of super accessed under the early release program, and cannot be claimed as a personal superannuation deduction, https://www.ato.gov.au/Super/APRA-regulated-funds/In-detail/News/Re-contribution-ofCOVID-19-early-release-super-amounts/
[4] https://www.ato.gov.au/super/sup/covid-19-relief-for-smsf-trustees-extended-to-2021-22-financial-year/
[5] ibid.
[6] ibid.
[7] ibid.
[8] https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-using-your-super/Indexation-of-Transfer-balancecap/
[9] ibid.

The post COVID resurgence top of mind for financial advisers appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2021/10/covid-resurgence-top-of-mind-for-financial-advisers/feed/ 0 Advisers focus on getting back to business as COVID relief ends https://www.adviservoice.com.au/2021/04/advisers-focus-on-getting-back-to-business-as-covid-relief-ends/ https://www.adviservoice.com.au/2021/04/advisers-focus-on-getting-back-to-business-as-covid-relief-ends/#respond Mon, 26 Apr 2021 21:55:15 +0000 https://adviservoice.com.au/?p=73716 Advisers are focusing on proactive strategies for clients, with superannuation and particularly contributions top of mind, as social security measures take a back seat.

In the March quarter, the top five questions that advisers asked BT’s technical team indicate that advice priorities are similar to those pre-COVID.

“From our conversations with advisers, the dominant theme is they are getting back to business – to what the business of advice looked like before COVID. Most of the additional social security measures have ended as expected and advice priorities are once again on longer term retirement planning and building wealth,” said Tim Howard, Technical Consultant in BT’s Technical Services team.

The team fielded over 2000 adviser queries from January to March 2021. The most frequently asked questions in the March quarter have been on the following topics.

1. Bring-forward contributions

The most pressing issue for advisers is the proposed legislation regarding clients’ ability to make bring-forward non-concessional contributions into their super. Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 remains in the Senate, following proposed amendments which are yet to be debated.

Importantly, it should be noted these proposed amendments are not in relation to the part of the legislation which changes the bring-forward age (from under 65 to under 67), but are additional proposals around employer contributions, concessional contribution limits, and COVID-19 early access integrity measures. “While it is unlikely that the age increase will be opposed, nonetheless, the delay serves as a reminder to be cautious about providing clients with any advice outside of what is the law at the time,” said Mr Howard.

The delay has resulted in advisers having to consider hypothetical scenarios, particularly for clients who are about to turn 67 years old. Currently those clients would have a non-concessional limit of $100,000. Should the rules change, effective from 1 July 2020, as proposed, they may have a non-concessional limit of $300,000 – if their total super balance is below $1.4 million.

2. Indexation of the transfer balance cap

Due to existing indexation, the general transfer balance cap will increase to $1.7 million from 1 July 2021 (up from $1.6 million). “There’s confusion around how much of the increase applies to each client, as the indexation takes into account the highest transfer balance cap amount a client has previously attained,” said Mr Howard.

In simple terms, clients who have not used any of their cap previously will benefit from the new maximum; those who have only used some of the previous cap will benefit from the increase proportionally; and those who have previously transferred up to the $1.6m maximum will not be able to take advantage of the increase.

 

3. Indexation, more broadly

Related to the above point is the indexation of other key superannuation caps, applicable from 1 July 2021: for example, the concessional cap increases to $27,500; and non-concessional cap to $110,000. Meanwhile the superannuation guarantee increases to 10%.

“The indexation of various thresholds is all due to existing legislation, and not any recent changes,” said Mr Howard. “Existing legislation provides guidance on the indexation requirements, without providing an actual dollar figure. Fortunately, the ATO has just updated their Key super rates and thresholds webpage, which provides advisers with additional certainty around the dollar value of these various indexation outcomes.”

Additionally, the superannuation preservation age will increase for those turning age 59 from 1 July 2021, and the age pension qualifying age will also increase to 66 years and 6 months.

4. Fee consent and ongoing fee arrangements

From 1 July 2021, advisers will be required to obtain annual client consent for ongoing fee arrangements, for all clients. ASIC has recently provided additional clarity regarding the processes for obtaining consent.

ASIC’s legislative instruments have clarified that advisers may incorporate the disclosure and consent requirements into existing processes. For example, if the fee disclosure statement provided to clients is clear in regard to the services, and also the amount the client will be charged, these do not have to be provided again, or restated in the annual consent form itself.

For non-ongoing arrangements, such as the deduction of fees from a client’s super account for initial advice on their retirement and super planning, it may be possible to include an extract from the Statement of Advice as an attachment to the consent form.

ASIC has also clarified that consent may be obtained electronically.

However further clarity is needed to address privacy concerns on providing details of multiple accounts with different providers. In this case, one consent form is not practicable, and a possible solution may require the use of multiple forms.

5. Property transfers relating to SMSFs

Lastly, with property values rising across many parts of the country, tax planning related to the sale of properties held within SMSFs has also been a hot topic.

Advisers are also asking about the impacts of transferring property into a client’s SMSF, with the intention to have an asset of value appreciate over time in a concessionally taxed environment. In addition, limitations and considerations related to transferring property out of SMSFs to allow clients to use the property personally, generally at retirement, are generating queries from advisers.

]]> Advisers are focusing on proactive strategies for clients, with superannuation and particularly contributions top of mind, as social security measures take a back seat.

In the March quarter, the top five questions that advisers asked BT’s technical team indicate that advice priorities are similar to those pre-COVID.

“From our conversations with advisers, the dominant theme is they are getting back to business – to what the business of advice looked like before COVID. Most of the additional social security measures have ended as expected and advice priorities are once again on longer term retirement planning and building wealth,” said Tim Howard, Technical Consultant in BT’s Technical Services team.

The team fielded over 2000 adviser queries from January to March 2021. The most frequently asked questions in the March quarter have been on the following topics.

1. Bring-forward contributions

The most pressing issue for advisers is the proposed legislation regarding clients’ ability to make bring-forward non-concessional contributions into their super. Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 remains in the Senate, following proposed amendments which are yet to be debated.

Importantly, it should be noted these proposed amendments are not in relation to the part of the legislation which changes the bring-forward age (from under 65 to under 67), but are additional proposals around employer contributions, concessional contribution limits, and COVID-19 early access integrity measures. “While it is unlikely that the age increase will be opposed, nonetheless, the delay serves as a reminder to be cautious about providing clients with any advice outside of what is the law at the time,” said Mr Howard.

The delay has resulted in advisers having to consider hypothetical scenarios, particularly for clients who are about to turn 67 years old. Currently those clients would have a non-concessional limit of $100,000. Should the rules change, effective from 1 July 2020, as proposed, they may have a non-concessional limit of $300,000 – if their total super balance is below $1.4 million.

2. Indexation of the transfer balance cap

Due to existing indexation, the general transfer balance cap will increase to $1.7 million from 1 July 2021 (up from $1.6 million). “There’s confusion around how much of the increase applies to each client, as the indexation takes into account the highest transfer balance cap amount a client has previously attained,” said Mr Howard.

In simple terms, clients who have not used any of their cap previously will benefit from the new maximum; those who have only used some of the previous cap will benefit from the increase proportionally; and those who have previously transferred up to the $1.6m maximum will not be able to take advantage of the increase.

 

3. Indexation, more broadly

Related to the above point is the indexation of other key superannuation caps, applicable from 1 July 2021: for example, the concessional cap increases to $27,500; and non-concessional cap to $110,000. Meanwhile the superannuation guarantee increases to 10%.

“The indexation of various thresholds is all due to existing legislation, and not any recent changes,” said Mr Howard. “Existing legislation provides guidance on the indexation requirements, without providing an actual dollar figure. Fortunately, the ATO has just updated their Key super rates and thresholds webpage, which provides advisers with additional certainty around the dollar value of these various indexation outcomes.”

Additionally, the superannuation preservation age will increase for those turning age 59 from 1 July 2021, and the age pension qualifying age will also increase to 66 years and 6 months.

4. Fee consent and ongoing fee arrangements

From 1 July 2021, advisers will be required to obtain annual client consent for ongoing fee arrangements, for all clients. ASIC has recently provided additional clarity regarding the processes for obtaining consent.

ASIC’s legislative instruments have clarified that advisers may incorporate the disclosure and consent requirements into existing processes. For example, if the fee disclosure statement provided to clients is clear in regard to the services, and also the amount the client will be charged, these do not have to be provided again, or restated in the annual consent form itself.

For non-ongoing arrangements, such as the deduction of fees from a client’s super account for initial advice on their retirement and super planning, it may be possible to include an extract from the Statement of Advice as an attachment to the consent form.

ASIC has also clarified that consent may be obtained electronically.

However further clarity is needed to address privacy concerns on providing details of multiple accounts with different providers. In this case, one consent form is not practicable, and a possible solution may require the use of multiple forms.

5. Property transfers relating to SMSFs

Lastly, with property values rising across many parts of the country, tax planning related to the sale of properties held within SMSFs has also been a hot topic.

Advisers are also asking about the impacts of transferring property into a client’s SMSF, with the intention to have an asset of value appreciate over time in a concessionally taxed environment. In addition, limitations and considerations related to transferring property out of SMSFs to allow clients to use the property personally, generally at retirement, are generating queries from advisers.

The post Advisers focus on getting back to business as COVID relief ends appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2021/04/advisers-focus-on-getting-back-to-business-as-covid-relief-ends/feed/ 0 Delayed plans to downsize now in sight for Australian retirees https://www.adviservoice.com.au/2021/01/delayed-plans-to-downsize-now-in-sight-for-australian-retirees/ https://www.adviservoice.com.au/2021/01/delayed-plans-to-downsize-now-in-sight-for-australian-retirees/#respond Tue, 26 Jan 2021 20:45:37 +0000 https://adviservoice.com.au/?p=71983 COVID-19 continued to be a dominant theme in Australians’ conversations with their financial advisers in the final quarter of 2020, as clients realise their plans to downsize for lifestyle or health reasons.

“Clients who are looking to sell the family home are asking their advisers about what the impacts may be on their superannuation and age pension,” said Tim Howard, Technical Consultant in BT’s Technical Services team. One of the most frequently asked questions from advisers to the team, who fielded over 2000 adviser queries from September to December 2020, was on the financial repercussions of selling a client’s main residence.

“During the worst of the pandemic, it seems many retirees stayed put and delayed any decision to move,” Mr Howard said. “With the pandemic situation mostly under control in Australia, along with positive news about the development of viable vaccines, retirees have been feeling more confident and are putting their plans in motion.”

The effects of COVID-19 have also flowed through to the delay in the passing of legislation relating to changes to bring-forward contributions; while travel restrictions have caused some Australians to review their foreign assets and income streams.

Those are among the top 5 topics on which advisers have sought technical advice from BT’s Financial Literacy and Advocacy team in the past quarter.

1. Downsizer contribution to superannuation

Clients who are over the age of 65 may be eligible to make a downsizer contribution to their super fund, following the sale of their main residence. Advisers have been asking BT about the details on the eligibility criteria of this measure.

The downsizer contribution will not count towards a client’s non-concessional contributions cap, so it can still be made even if they have a total super balance greater than $1.6 million. The contribution is however limited to $300,000 or the proceeds of sale, whichever is the lower amount.

Advisers should keep in mind that clients need to make the contribution within 90 days of receiving the sale proceeds. While this time may seem sufficient at first, the process of buying and selling a home, along with tasks such as making family and healthcare arrangements, can mean that taking advantage of this contribution strategy is placed on the backburner.

“Moving house can be a busy and challenging period,” said Mr Howard, “so the key is to plan ahead. Advisers can encourage their clients to discuss early in the process whether a downsizer contribution to super should be part of their financial plan.”

2. Exempting the proceeds from the sale of the principal home

Another consideration for clients who are downsizing is the impact of selling the family home on their eligibility for the age pension. If a client has sold their principal home, and is intending to use the sale proceeds to buy, build or renovate a new principal home, then the proceeds can be exempt under the assets test for 12 months – and therefore the sale may not adversely affect their age pension entitlement during that time.

3. Superannuation guarantee amnesty

Under a one-off amnesty which ended on 7 September 2020, employers could self-correct historical underpayments of the superannuation guarantee (SG). The catch-up payments have resulted in some employees exceeding their concessional caps, leading to questions on how to resolve this problem.

Advisers can apply to the ATO to disregard or re-allocate the payment/s to the financial year in which the contribution should have been made, for cap purposes. “Importantly, if a client receives an excess contribution notice this year, they need to respond within the time prescribed,” Mr Howard said. “If they know they are going to go over the cap, it’s best to make an application for an excess contributions determination ahead of time, and not wait for the notice.”

4. Bring-forward contribution changes

Although it has an effective date of 1 July 2020, the legislation on the proposed measure to increase the age – to 67 years old – for an individual to make a bring-forward non-concessional contribution to super, still has not passed Parliament.

The volume of adviser queries on this subject remains high, as advisers question whether the start date will be amended and whether a grace period will be put in place, and even whether the proposed legislation is still expected to become law.

“The legislative process has been delayed, however there is still a high level of confidence that the critical component, regarding the bring-forward non-concessional contribution to super, will pass, as it’s not contentious,” Mr Howard said. “It’s more a matter of when.”

Parliament is currently due to reconvene in February 2021.

5. Treatment of foreign assets, pensions and income streams

Many Australians maintain links to another country. Some own property overseas or receive a pension from a foreign government where they may have previously worked. Normally, they may travel to that country regularly and perhaps use their foreign sourced income to fund their trips. Due to the restrictions on travel during COVID-19, some may be leaving their income streams as is, while others are looking into selling their assets. Advisers are being asked how these will be treated by Centrelink in relation to clients’ eligibility for the age pension.

Broadly, foreign assets and income streams are captured in Centrelink’s assessment for eligibility, however the treatment can be different depending on the country so, as always, it’s best to thoroughly check each client’s situation.

]]> COVID-19 continued to be a dominant theme in Australians’ conversations with their financial advisers in the final quarter of 2020, as clients realise their plans to downsize for lifestyle or health reasons.

“Clients who are looking to sell the family home are asking their advisers about what the impacts may be on their superannuation and age pension,” said Tim Howard, Technical Consultant in BT’s Technical Services team. One of the most frequently asked questions from advisers to the team, who fielded over 2000 adviser queries from September to December 2020, was on the financial repercussions of selling a client’s main residence.

“During the worst of the pandemic, it seems many retirees stayed put and delayed any decision to move,” Mr Howard said. “With the pandemic situation mostly under control in Australia, along with positive news about the development of viable vaccines, retirees have been feeling more confident and are putting their plans in motion.”

The effects of COVID-19 have also flowed through to the delay in the passing of legislation relating to changes to bring-forward contributions; while travel restrictions have caused some Australians to review their foreign assets and income streams.

Those are among the top 5 topics on which advisers have sought technical advice from BT’s Financial Literacy and Advocacy team in the past quarter.

1. Downsizer contribution to superannuation

Clients who are over the age of 65 may be eligible to make a downsizer contribution to their super fund, following the sale of their main residence. Advisers have been asking BT about the details on the eligibility criteria of this measure.

The downsizer contribution will not count towards a client’s non-concessional contributions cap, so it can still be made even if they have a total super balance greater than $1.6 million. The contribution is however limited to $300,000 or the proceeds of sale, whichever is the lower amount.

Advisers should keep in mind that clients need to make the contribution within 90 days of receiving the sale proceeds. While this time may seem sufficient at first, the process of buying and selling a home, along with tasks such as making family and healthcare arrangements, can mean that taking advantage of this contribution strategy is placed on the backburner.

“Moving house can be a busy and challenging period,” said Mr Howard, “so the key is to plan ahead. Advisers can encourage their clients to discuss early in the process whether a downsizer contribution to super should be part of their financial plan.”

2. Exempting the proceeds from the sale of the principal home

Another consideration for clients who are downsizing is the impact of selling the family home on their eligibility for the age pension. If a client has sold their principal home, and is intending to use the sale proceeds to buy, build or renovate a new principal home, then the proceeds can be exempt under the assets test for 12 months – and therefore the sale may not adversely affect their age pension entitlement during that time.

3. Superannuation guarantee amnesty

Under a one-off amnesty which ended on 7 September 2020, employers could self-correct historical underpayments of the superannuation guarantee (SG). The catch-up payments have resulted in some employees exceeding their concessional caps, leading to questions on how to resolve this problem.

Advisers can apply to the ATO to disregard or re-allocate the payment/s to the financial year in which the contribution should have been made, for cap purposes. “Importantly, if a client receives an excess contribution notice this year, they need to respond within the time prescribed,” Mr Howard said. “If they know they are going to go over the cap, it’s best to make an application for an excess contributions determination ahead of time, and not wait for the notice.”

4. Bring-forward contribution changes

Although it has an effective date of 1 July 2020, the legislation on the proposed measure to increase the age – to 67 years old – for an individual to make a bring-forward non-concessional contribution to super, still has not passed Parliament.

The volume of adviser queries on this subject remains high, as advisers question whether the start date will be amended and whether a grace period will be put in place, and even whether the proposed legislation is still expected to become law.

“The legislative process has been delayed, however there is still a high level of confidence that the critical component, regarding the bring-forward non-concessional contribution to super, will pass, as it’s not contentious,” Mr Howard said. “It’s more a matter of when.”

Parliament is currently due to reconvene in February 2021.

5. Treatment of foreign assets, pensions and income streams

Many Australians maintain links to another country. Some own property overseas or receive a pension from a foreign government where they may have previously worked. Normally, they may travel to that country regularly and perhaps use their foreign sourced income to fund their trips. Due to the restrictions on travel during COVID-19, some may be leaving their income streams as is, while others are looking into selling their assets. Advisers are being asked how these will be treated by Centrelink in relation to clients’ eligibility for the age pension.

Broadly, foreign assets and income streams are captured in Centrelink’s assessment for eligibility, however the treatment can be different depending on the country so, as always, it’s best to thoroughly check each client’s situation.

The post Delayed plans to downsize now in sight for Australian retirees appeared first on AdviserVoice.

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