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Dollar-cost averaging for millennial investors

It's hardly surprisingly that a personal finance article in Forbes magazine places the classic and straightforward investment practice of dollar-cost averaging high among a list of tips to help millennials become better, more disciplined investors in 2017.



Dollar-cost averaging simply involves investing the same amount of money into shares or other securities at regular intervals – whether prices are up or down.

Investors practising dollar-cost averaging automatically buy more, say, shares when prices are lower and fewer when prices are higher. In short, purchasing costs are averaged over the total period that an investor keeps on investing, thus the name dollar-cost averaging.

Yet the core attribute of dollar-cost averaging is not so much the price paid for securities; it is the adherence to a disciplined, non-emotive approach to investing that is not swayed by prevailing market sentiment.

Dollar-cost averaging can assist investors to focus on their long-term goals with an appropriately diversified portfolio while avoiding emotionally-driven decisions to buy or sell – in other words, trying to time the market. As Smart Investing repeatedly emphasises, investors would rarely succeed consistently at market-timing.  The Forbes article, Five tips to make you a better investor in 2017, reasons that dollar cost averaging strategy may be well suited to millennial investors given their long investment horizons and their perhaps relative inexperience in investment markets. As a financial planner quoted in the piece comments: “The logic here is, if you're in your late twenties or early thirties, the fluctuations of the market on one given day are unlikely to have serious consequences to the retirement money you'll need to withdraw 30 years from now.” Novice investors were “too easily” influenced by market movements.

And given their long investment horizons, millennial investors are well placed to benefit from the rewards of compounding as investment returns are earned on past investment returns as well as on the original capital. (See Save early, save often, Smart Investing, January 29.)

The use of dollar-cost averaging does not necessarily mean, of course that investments will succeed; nor does it protect investors from falling share prices.

Australian super fund members who have compulsory and/or voluntary contributions regularly paid into their super balanced accounts are practising a form of dollar-cost averaging. The higher the regular contributions, the greater the potential effectiveness of dollar-cost averaging over the long term.

The vast majority of investors practising dollar-cost averaging would invest regular amounts from their monthly salaries. Yet a related issue concerning dollar-cost averaging can occur when an individual has a large amount of money to invest, perhaps from an inheritance, a bonus from work or some other windfall.

Several years ago, a Vanguard research paper found that, given certain assumptions, investing a big lump sum all at once had a better chance of producing higher long-term returns than drip-feeding the money into the market using dollar-cost averaging. This finding was based on historic long-term returns from share and bond in Australia, US and UK. As the paper emphasises, investment of a lump sum gains exposure to the markets as soon as possible.

Another consideration is that dollar-cost averaging may address concerns of a risk-averse investor about investing a big sum into the market immediately before a possible sharp fall in prices. It is a way for such an investor to ease their way into the markets.
For most investors without a huge windfall to invest, a critical role of dollar-cost averaging is to help keep us focused on the long-term in a disciplined, non-emotional way. It is one of investment's emotional circuit breakers.


Robin Bowerman
​Head of Market Strategy and Communications at Vanguard.
19 March 2017

Big insto addresses CGT misconceptions

One technical consultant has stressed that while the CGT relief elections are technically only required before the lodgement of the tax return, there may still be critical action that needs to be undertaken before 30 June for segregated funds.



Speaking at an SMSF Association seminar, BT Financial Group senior technical consultant David O’Connell said while the ATO has said that elections should be made in the approved form by the date of the return for 2016-17, there may be critical preparation that needs to be done for clients with segregated funds before 30 June 2017.

r O’Connell said it is important to remember that the preparation for the CGT relief will be different depending on the structure of the fund.

“If the fund uses the segregated method, and you have to do something [to comply] before 30 June, then you need to prepare for it before 30 June,” he explained.

“When you’re dealing with the $1.6 million transfer balance cap and you have to commute out an amount as well, that’s the process you’re going to drive all the CGT relief from.”

If the fund is using the proportional method, on the other hand, or they have a transition to retirement income stream that can just continue to run and receive payments and there’s no new application for a pension, then there is more time to address the actions that need to be taken in response to the relief, Mr O’Connell said.

“In both cases, you actually tick the box beside the asset when you make the election so that is when you’re doing the return,” he said.

“So with a TTR where you don’t actually have to do anything before 30 June, you don’t have to actually have to do anything until you nominate the assets at the time of the return.”


Wednesday, 22 March 2017

SMSFs urged to review segregation clauses in trust deed

With the rules around segregation changing, SMSF trustees wanting to run separate investment portfolios for different members may need to check the current terms in their deed allow for this, says an SMSF admin firm.



Heffron SMSF Solutions head of customer Meg Heffron says while a fund’s ability to segregate its assets will change from 1 July 2017 for those with larger balances, this will not impact their ability to run different investment portfolios.

“It doesn’t change the trustee’s ability to allow members to choose specific investments to underpin their account. It just means that arrangement can’t be reflected in the fund’s tax return,” Ms Heffron said.

Many trust deeds treat segregation and member investment choice as the same thing. However, “ruling funds out of some valuable strategic planning opportunities,” she said.

“[The deed needs] to make it very clear that the two things are different and that you can run a different investment portfolio to someone else without segregating the asset.”


Monday, 20 March 2017

Fit for purpose? The super story so far…

We’ve come a long way since the mandatory superannuation guarantee was introduced in the early 1990s. 



Australia’s super system is now the world’s fourth largest private pension industry, with $2.1trn under management at June 2016.

But the super system is still immature. It took 20 years for SG to reach 9.5%, and will take until 2025 to get to 12%, assuming policy continuity. So it will be well into the 2030s before Australians have spent their full working lives with SG coverage of at least 9% of their salaries.

This means that for most of today’s retirees, the age pension continues to be the main source of retirement income, with approximately 80% coverage. But future retirees will be much more dependent on their own super savings, with social security falling back to more of a ‘safety net’ function over time. 

And this profound change in the dynamics of the super system is happening faster than many people expected.

From wealth accumulators to income generators

Until now, the primary focus for wealth providers has been maximising net investment returns through the accumulation phase. But things are changing, driven by the wave of baby boomers entering retirement.

Some stark numbers from the Government’s most recent Inter-Generational Report highlight the issues:

  • Longevity continues to increase, with male life expectancy at birth now 91.5 and female 93.6, with this projected to rise to 95.1 and 96.6 by 2055.
  • The ratio of workers to retirees continues to decrease, from 7.3 to 1 in 1975 to 4.5 to 1 in 2015 and a projected 2.7 to 1 in 2055.

These changes are leading to a greater focus on fiscal sustainability of the super system, exemplified by a number of recent policy changes.

  • Increased preservation age (from 55 to 60) and age pension eligibility (from 65 to 67).
  • Tightening of age pension means tests.
  • Various measures to rein in super tax concessions in the 2016 Federal Budget.
  • Promotion of longer workforce participation.

So as the super system matures and the population ages, the Government is looking to shift the industry’s focus from accumulating capital to generating income, from maximising returns to managing liabilities and from building wealth to drawing down.

Key changes emanating from the Financial System (Murray) Inquiry and other policy reviews are now poised to produce policy outcomes that will transform the retirement product landscape in Australia.

ABPs dominate the current scene

Currently, retirement product selection is almost entirely driven by the tax-free status of eligible retirement income streams from age 60.

However, there is only a very limited range of products that qualify, with the vast majority of these (around 95%) being account-based pensions (ABPs). While these offer great flexibility, investment choice, access to capital and bequest benefits, they expose investors to investment, longevity and sequencing risks. 

Some recent research also suggests that ABPs often lead to unnecessarily frugal drawdown behaviours, with retirees being anxious about the risk of outliving their savings. At an overall system level, the Government contends that super assets are not being efficiently converted into retirement incomes due to a lack of risk pooling and over-reliance on individual ABPs.

So the government has recently expanded the definition of products that can qualify for tax-concessions in the retirement drawdown phase, and is planning to introduce Comprehensive Income Products for Retirement (CIPRs), as laid out in the long-awaited discussion paper released at the end of last year.

Like to know more?

I often wonder how the experience of Australian retirees (and those about to retire) compares with their counterparts in similar countries. A recent Vanguard research paper examines this in detail—take a look here. It makes for interesting reading.


Paul Murphy
08 March 2017


ATO finalises guidance on transfer balance cap

The ATO has released a final version of its law companion guideline on the transfer balance cap, which provides positive clarifications for the SMSF sector.



Late last week, the ATO issued the finalised LCG 2016/9 Superannuation reform: transfer balance cap.

You can access the full guide here.

Mostly, the finalised guidelines are a confirmation of what was already issued in the draft guidelines in November last year.

“It is positive from the point of view of ratifying what we already knew, it’s nice to have that confirmation,” said Perpetual’s Colin Lewis, who is generally pleased with the comprehensiveness of the LCGs issued by the ATO.

The final version of the guidelines appears to take a more cautious approach to the transitional rule, which applies to individuals who are over their transfer balance cap by less than $100,000 as at 1 July 2017 and remove the excess by 31 December 2017, explained SuperConcepts’ Peter Burgess.

“The draft guidelines said individuals with pension balances approaching $1.7 million should carefully monitor their pension balance and ensure it doesn’t exceed $1.7 million as at 1 July 2017. The final guidelines refer to $1.6 million as the relevant threshold,” Mr Burgess said.

“Essentially, what the final guidelines are saying is that whilst you will not be liable to pay excess transfer balance tax if you exceed the transfer balance cap by an amount equal to or less than $100,000, and you remove that excess by 31 December 2017, there may be other implication as a result of you exceeding the $1.6 million transfer balance cap,” he added.

“For example, you will not be eligible for any proportional indexation should you ever commence a second pension after 1 July 2017 and if you don’t remove the excess by 31 December 2017, you will be liable to pay excess transfer balance tax.

“So individuals should be cautious, ‘lower their eyes’ and focus on the $1.6 million as being the relevant cap rather than automatically factoring in the transitional $100,000 amount.”

Mr Burgess pointed to a positive development in the explanatory memorandum, which says any breaches of the transfer balance cap committed prior to 1 July 2018 do not count as a ‘first strike’ when assessing the 30 per cent tax rate to apply to any subsequent transfer balance cap breaches.

“Under the legislation, a tax rate of 30 per cent applies to additional excess transfer balance tax assessments the individuals receive, as opposed to 15 per cent for the initial breach. However, an assessment that applies to an excess transfer balance period beginning before 1 July 2018 does not count as an earlier assessment for the purposes of assessing subsequent breaches at the 30 per cent rate,” he said.

“So whilst an individual, who is eligible for the $100,000 transitional measure, may not be entitled to any future indexation of the cap, at least their excess pension balance won’t count for the purposes of determining the 30 tax rate to apply to any subsequent transfer balance cap breaches.”

The final guidelines also provide more details about how the transfer balance cap will be applied in the event of divorce and provide further confirmation that a reversionary pension must automatically revert in order to be eligible for the 12-month grace period.

“In other words, if the trustees have any discretion over how the death benefit can be paid, and they ultimately decide to pay the benefit as a death benefit pension, a credit will appear in the recipient’s transfer balance account on the day the pension commences and the credit value will be the value of the pension at that time. If the pension automatically reverts, the credit only appears in the recipient’s transfer balance account 12 months after the date of death and the value of the credit is based on the value of the pension as at the date of death,” Mr Burgess said.


Tuesday, 14 March 2017

ATO reports on top contravention areas for SMSFs

Important information:  The ATO has released data that shows where the highest proportion of contraventions occurred in the year leading to 30 June 2016, and how many were rectified.



As part of its statistical review for SMSFs, the ATO reported that for the year ending 30 June 2016, 7,900 SMSFs had auditor contravention reports (ACR) lodged with 20,500 contraventions. 

“This was a decrease from the previous year of 4 per cent in the number of SMSFs with an ACR and a decrease of 7 per cent in the number of contraventions,” the ATO said.

In the year to June 2016, just under half of all contraventions were reported as rectified, the report said.

“The most commonly reported contraventions continued to be loans or financial assistance to members at 22 per cent, while in-house assets and separation of assets constituted 19 per cent and 13 per cent respectively,” the ATO said.

“In monetary terms, the latter two contraventions represented 29 per cent and 25 per cent of the reported contraventions up to 30 June 2016 respectively.”

The ATO also revealed data on the investment performance of SMSFs in SMSFs: A statistical overview 2014-15 which shows the average return on assets for the year ended 30 June 2015 was 6.2 per cent.

The average SMSF member balance was $590,000 and the median balance was $355,000, an increase of 21 per cent and 26 per cent respectively over the five years to 30 June 2015. 

The average female member balance increased 24 per cent over the five-year period, while the average male balance increased 17 per cent over the same period.

Female member balances remained below that of males, however, at $498,000, with the average balance for male members at $633,000.

Over the five years, there was also a 7 per cent shift of funds moving into the pension phase. However, the majority of SMSFs remained in the accumulation phase at 52 per cent.


Tuesday, 28 February 2017

Some financial terms explained


Below are four important financial terms.  They are Transition to Retirement; Pension Phase; Allocated Pensions; and Estate Planning.




What does it mean?
A transition to retirement pension is a flexible way to move from work to retirement. On reaching your preservation age (generally 55, but is increasing over time and may be 60 if you were born after 30 June 1964), you can start accessing super (including the preserved portion) via a super pension while maintaining or reducing work hours.

Many individuals nearing retirement are looking for ways to boost their super savings. With the introduction of government’s simpler super reforms in July 2006, it is now possible to do exactly this by making the most of transition to retirement (TTR) rules.

You can take advantage of the transition to retirement rules by salary sacrificing part or all of your employment income into super, while at the same time beginning an allocated pension from your existing super funds. The pension provides an income while you continue working, and is tax free for individuals over 60, and carries a 15% tax rebate if you're aged between 55 and 60.

At the same time you're getting considerable tax benefits from salary sacrificing your income into super, paying only 15% contributions tax, as opposed to PAYE income tax rates of up to 45%.

So at what age is this strategy of most benefit? Most advisers agree that it best suits someone aged 60 or more, or at the very least age 55. Between now and 30 June 2012 an individual can take a pension income stream tax-free and make contributions (both salary sacrifice and employer contributions) up to $100,000 per annum.

To begin a TTR strategy, you must have reached ‘preservation age’, in order to access super benefits. This is age 55 if you were born before 1 July 1960, phasing to age 60 for those born after 30 June 1964.
Due to the reduced cash flow, anyone thinking about the TTR strategy should have no debt.

Not all super fund providers offer TTR arrangements.

The fees of setting up a TTR arrangement should be minimal – and if you are able to set up the scheme yourself, no costs should be incurred at all. Once you reach retirement age, the commutation of the TTR pension back to accumulation phase is also allowed and should be at a minimal cost.

Before deciding on whether to set up at TTR strategy, you firstly have to find out what your pension is worth, then check the numbers on your living costs and see if the after-tax income of the pension will cover your needs. Then you need to make an application to the super fund for the pension to commence, and notify your payroll office of your decision to salary sacrifice to superannuation.

The TTR strategy has the Australian Taxation Office stamp of approval, which has stated that it will not apply anti-avoidance provisions where this strategy is employed. The ATO notes: “We would only be concerned where accessing the pension or undertaking the salary sacrifice may be artificial or contrived.”

This information is of a general nature only and doesn't constitute personal investment advice.


What does it mean?
Many retirees convert their retirement savings to a pension upon retirement due to the considerable tax benefits available in the pension phase. .

Once retired, you have the choice of retaining your funds in super (in the accumulation phase) or converting your funds to a pension, such as an allocated pension.

Taxation payments will be higher if you leave your assets in a super fund compared to a pension. In the accumulation phase, earnings on a super funds are taxed at up to 15 per cent. But once a fund converts to paying a pension, there is no tax payable on the earnings. Additionally, if you are aged over 60, any pension drawdowns are also tax free.

Let's say that your account balance is $500,00 and generates 8 per cent ($40,000) assessable earnings. Assuming half of this is income, and the other half realised capital gains, then the tax payable would be around $5,000. If the account had been converted to the pension phase, then the tax would be nil.

One possible downside of commencing a pension is that you may not need the minimum level of income that you must draw down. For instance, you may have income from other sources, such as investments in your names or employment income.

And once a pension is commenced, it is no longer possible to add extra contributions.
The costs charged by the product provider when making the switch from accumulation to pension phase will vary, but are impossible to avoid once you've decided to cash in your super assets. But it is vital that you shop around when looking for a retirement income product, as fees and charges can range enormously.



What does it mean?
An allocated pension is a product purchased by retirees to convert their super savings into a regular income. Retirees use allocated pensions to pay themselves an income over a time period roughly equivalent to their life expectancy. Pension payments can be made monthly, quarterly, half yearly and yearly and are deposited directly into a retiree's bank account.

Allocated pensions are by far the most popular product around for retirees looking to live off their super savings in retirement.

So why are allocated pensions so popular? Why don't retirees just withdraw their funds out of super and dump the lot into a term deposit or savings account, or even use their super to buy other investments such as an investment property or shares?

The major reason here is tax. Allocated pensions save you tax compared to most other strategies in retirement. That's because any investment earnings in an allocated pension – interest, dividends, capital gains – are tax free (age 60 and above). In comparison, interest made on a term deposit or rent received on an investment property held outside the super environment are subject to tax at the retiree's marginal tax rate. 

When a retiree buys an allocated pension to house their super savings they don't have to say goodbye to the money forever. At any time, you can opt to withdraw all, or part, of your money from an allocated pension by simply filling in a couple of forms (check to see if there are any restrictions on the number of lump sum withdrawals allowed each year). You may use the money to buy a business or property, or to go on an overseas trip. Some retirees assist their children to buy a house. The allocated pension offers this needed flexibility. 

So how much does an allocated pension pay? Well, that depends on how much you have to start with, and how old you are. The Government sets minimum limits, which are calculated when the pension is established and recalcuated at the beginning of each financial year.

You can change the amount and frequency of your pension payments whenever you need to, but you can't turn an allocated pension on or off like a tap. Once started, you must receive at least the minimum payment each year. The pension ceases when the account balance hits zero.

Allocated pensions aren't just cash accounts. Retirees have a raft of investment choices at their fingertips including Aussie and international shares, managed funds, listed property, fixed interest and cash. The aim of an allocated pension is to not simply eat into your capital, but to actually make money in retirement as well. Retirees drawdown a combination of capital and investment earnings to live on. Cleary, the more money you make on your investments, the longer your retirement money will last – and the more holidays you can enjoy.

Allocated pensions are not just popular with retirees (those who are permanently retireed and have reached preservation age). Pre-retirees, over age 55, looking to boost their super before retiring completely often buy allocated pensions in order to undertake the transition to retirement strategy. You can read more about this popular strategy below.



What does it mean?
An estate plan sets out how your financial assets will be distributed after you die. Estate plans involve such things as a will, power of attorney and testamentary trusts.

It’s probably fair to say that the majority of people think estate planning involves drafting a will and perhaps buying life insurance. Unfortunately the checklist of estate planning items is considerably longer than this, and failing to tick all the boxes can produce a raft of unintentional consequences, including a big tax bill for your beneficiaries to pay, delays in probate and even the possibly of having your will contested.

Probably the biggest mistake that people make is placing too much trust in the power of their will. In fact, the will is probably the weakest link in an estate plan, especially compared to the protection offered by family trusts and companies, and even super if structured correctly. Indeed, the beneficiaries named on super and insurance policies will override the terms of the will, and the distribution of assets in a family trust will be determined by the trust deed. Similarly, property that is held as joint tenant will automatically revert to the surviving joint tenant, regardless of what the will might say.

Putting it simply, a more complicated life – both personally and financially – makes for a more complex estate plan. Clearly, a person who has children to other marriages, an ex-spouse or spouses, a greedy son-or daughter-in-law, children under 18, or a family business to pass on is in greater need of an estate plan, than most. However complications can also arise in the most simple of cases when an estate plan is not thought out holistically – for instance, when the distribution of assets across beneficiaries is unequal or set out in a manner that is unsuitable (for example, a non-working spouse receives the house but no ongoing income, whereas a working child receives a super pension).

To some extent, an estate plan lets you dictate proceedings from the grave. As an example, you don’t trust your son-in-law and think he will leave your daughter and take her inheritance. To prevent this, you could set up a Testamentary Trust, which, if drafted correctly, should protect the inheritance from a family law dispute should your daughter eventually divorce her unlikeable other half. Furthermore, the Trust could dictate that your daughter receives her inheritance as an income stream rather than a lump sum, which would also prevent her from blowing it on a frivolous spending spree or a sinking business. In brief, a Testamentary Trust is a trust established under a will, which comes into existence on your death.

For some, the thought that a surviving spouse may remarry and use their inheritance to support a second family would cause them to turn in their grave. In this situation, a Testamentary Trust could be used to provide for the surviving spouse only. Further reasons for using a Testamentary Trust are for children under 18, since it enables estate income to be distributed to minors in the most tax-effective manner (normally children under 18 are subject to penalty tax rates on investment income).

As already mentioned, the will is only one aspect of an estate plan. Setting up Testamentary Trusts, listing your beneficiaries for insurance policies and super accounts, electing someone to be your enduring power of attorney – a person who is empowered to deal with your financial, personal or health matters should you become incapacitated – and naming guardians for your children, are all integral functions of an estate plan. You should also give some thought to the ownership structure of the family home and any investment properties to ascertain whether joint tenancy or tenants-in-common is the preferable option. In most cases, joint tenancy is preferable since it means that the surviving spouse skips the delays involved in probate, which is granted by the Supreme Court to the executor of the will enabling them to distribute the assets of the estate.

Business owners in a partnership structure should also have special arrangements in place in the event of their own, or their business partner’s, death. People in partnerships are encouraged to have a buy-sell agreement in place, which involves each partner taking out life insurance on the other partner’s life. Basically, this means that should one partner die, the surviving partner’s life insurance is used to buy out the remaining stake in the business – providing much needed funds to the deceased’s family, but just as importantly, ensuring the continuation of the business for the surviving partner.

Estate planners, financial planners and lawyers can be called upon to design an estate plan for you. Remember to update your estate plan – not just your will, but also your life insurance and super policies – after significant events such as separation, divorce or the birth of a new child.



Government urged to rectify ‘legislative shortcoming’ with CGT relief


The Tax Institute has called for an extension of the deadline for applying the CGT relief in respect to the segregated approach, amid concerns some SMSF trustees are at risk of missing out.



In a submission to Treasury on the most recent tranche of draft superannuation reforms, The Tax Institute recommended that the government extend the CGT election deadline by at least 12 months. 

“A key legislative shortcoming in the superannuation reforms is that a superannuation fund cannot elect to apply the transitional CGT relief for members with a TRIS and income streams in excess of the $1.6 million transfer balance cap unless, in respect of the segregated method, the member takes action before 1 July 2017,” the submission said.

“In the interests of simplicity and fairness for members that do not quickly become fully aware of the minutiae and full ramifications of the superannuation tax changes, the CGT election deadline should be extended to at least 30 June 2018.”

The Tax Institute said in the submission that it is aware of situations where advisers are booked up until 30 June 2017.

“This means that some advisers may not be able to provide advice on decisions their clients need to make before 1 July 2017,” it said.

“We recommend at least a 12-month period leading up to 30 June 2018 for the community and advisers to be educated about the transitional CGT relief and for any election to be made.”

The institute said this would give SMSF trustees 12 months from 1 July 2017 to obtain advice and make their election.

It also recommended that the government amend the definition of a transition to retirement income stream so that an account-based pension that is started as a TRIS ceases to be a TRIS once the superannuation fund becomes aware that a full condition of release has occurred.

“That would mean that members who started a TRIS but have already reached age 65 would not need to take action before 1 July 2017 to stop and restart their income stream.

“The member could then lodge the relevant forms with the ATO.”

Friday, 24 February 2017

Jump-start your retirement savings


Unfortunately, many people would reach their mid-fifties and conclude that their savings are not on track to finance a satisfactory lifestyle in retirement. 



Fortunately, worthwhile steps can often be taken to boost their nest-eggs in the countdown to retiring.

Perhaps family obligations and/or work circumstances made it difficult to put aside enough money towards retirement. Perhaps, inertia or procrastination played a part.

Ideally, you should begin to save for retirement as early as possible in your working life. (See the recent Smart Investing blog 'Save early, save often'.)

Early savers have the formidable advantage of compounding over the long haul as investment returns are earned on past returns as well as the original capital (including super contributions). And saving early may ease the pressure of a late dash to save as much as possible in the final years before retiring.

Ways to potentially boost lagging retirement savings for those aged 50-plus include:

  • Consider delaying retirement if possible given your circumstances. From a financial aspect, a longer working life provides an opportunity to save more for what will be a shorter retirement. And a shorter retirement is obviously less costly. (Perhaps think about working part-time if possible as an alternative to outright retirement.)
  • Re-evaluate your ability to save after your children leave home. Parents aged in their fifties or so often have the ability to save more once their adult children are finally independent – and once their mortgages are finally paid off.
  • Remind yourself how much you can save each year without overshooting the concessional (pre-tax) and non-concessional (after-tax) contribution caps. Although, for instance, the annual concessional cap – compulsory, salary-sacrificed and personally-deductible contributions – is reduced to an indexed $25,000 from 2017-18, numerous fund members may be able to afford to contribute more than at present and remain with the cap.
  • Look at ways to reduce your investment management costs. High annual fees keep compounding over time to markedly erode the benefits of compounding returns. In other words, compounding costs and compounding returns work in opposite directions.

Maybe the bottom-line is to face reality. Preferably, you should have started to save seriously much earlier. Now It is a matter of saving as much as possible while still in the workforce.

Robin Bowerman
​Head of Market Strategy and Communications at Vanguard.
05 February 2017

Government pushes forward with multinational tax measures


The Australian government has introduced legislation to Parliament to implement a new string of tax measures to prevent multinationals from profit shifting.



Planned to commence on 1 July, the diverted profits tax (DPT) will give the ATO new powers to combat contrived arrangements and multinational tax avoidance, targeting multinationals with global income in excess of $1 billion and Australian income over $25 million. 

Under the new tax the ATO will be able to apply Australia’s anti-avoidance provisions, with companies in question required to pay a 40 per cent penalty tax rate immediately.

The DPT will restrict multinationals’ ability to use transfer pricing rules and will strengthen existing anti-avoidance rules, according to a statement issued by Treasurer Scott Morrison’s office.

Foreign pension funds, sovereign wealth funds, managed investment trusts and similar foreign entities will be exempt from the tax, with the government saying it wishes to avoid increasing the compliance burden for these “low-risk”, “passive” and “widely held” entities. 

The legislation includes two additional measures to strengthen compliance and increase transparency.

The first aims to increase the maximum penalty for multinationals that fail to lodge tax documents on time to $525,000, while also doubling the penalty for those found to have provided misleading information.

The second will amend the current transfer pricing laws to make them concurrent with the 2015 OECD recommendations, ensuring analysis fairly reflects the transaction and making the pricing of intangibles more transparent.


Friday, 10 February 2017

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