How the 2018 budget applies to you can be found via the following links.
Australian Federal Government
Click on the following links for more detail on the main components of the 2018 Federal budget.
Australian Federal Government
The Australian economy in its 27th year of consecutive growth.
Business conditions are at the highest level since the global financial crisis.
1,000 jobs a day on average over the past year.
Global growth at fastest pace in six years.
The budget focuses on 5 main areas:
Australian Federal Government
Determining retirement goals is undoubtedly at the core of most personal financial plans.
Ideally, the setting of at least broad retirement goals should begin early in our working lives – and then continue to be refined as we age and gain a better impression of our likely future retirement finances.
The rapid ageing of the population should act as one of the numerous prompts to determine and periodically review our retirement goals.
As Smart Investing discussed earlier this month, the recently-published report Vanguard’s roadmap to financial security: A framework for decision-making in retirement proposes a retirement plan that best aligns with retirees’ achieving their goals while mitigating their risks.
This plan has four parts: Determine your retirement goals, understand your risks, assess your financial resources and, finally develop a plan to achieve your goals and mitigate your risks. Over coming weeks, Smart Investing will take a closer look at each of these elements, beginning with determining your retirement goals.
“To achieve financial security,” the report comments, “investors must first establish and prioritise their unique goals for retirement. This provides them with a starting point for the planning process, from which they can then determine the appropriate allocation of resources toward meeting these goals and the potential risks that can derail them.”
Common goals of retirees include:
When setting your goals, consider reading the ASFA retirement standard report, published by the Association of Superannuation Funds of Australia. It provides a guide to the income needed for retirees to have what are termed as “adequate” or “comfortable” lifestyles. And an accompanying retirement budget report lists the types of expenses that retirees are likely to face.
Once your goals are listed, you can then decide which matter most to you. The setting of goals could be described as the backbone of sound retirement planning.
Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
26 April 2018
Many investors concentrate on accumulating wealth during their working lives to pay or help pay for their retirement, yet don't give enough attention to planning for a retirement that may last 25 years or longer.
A lack of retirement planning makes retirees more financially vulnerable than necessary in numerous ways.
The possibility of outliving retirement savings, overreacting to higher market volatility (as we are now experiencing), holding inappropriately-diversified portfolios and having insufficient savings set aside for unexpected costs, are a few of their potential financial vulnerabilities.
Some retirees who have not properly planned for retirement may have underestimated the amount required to finance their anticipated lifestyles, yet others may be living too frugally given their financial needs.
A recently-published research paper, Vanguard's roadmap to financial security: A framework for decision-making in retirement*, suggests a practical approach for creating a retirement plan that aligns with retirees' often-unique goals while mitigating their risks.
The retirement roadmap is based on the overall objective of obtaining financial security in retirement if possible. The report defines this financial security in the broad sense of gaining “peace of mind”: the point where retirees are confident that they have reached their financial goals and can continue to meet these goals in the future.
This is more than simply having a specific amount of income each month and/or having their portfolios continuing to grow in value. It has a strong emphasis on a retiree's personal circumstances.
The research paper's framework for moving towards financial security or financial peace of mind in retirement has four main elements:
Determine your retirement goals: These goals typically include having enough income to pay for basic living expenses, a contingency reserve (such as for medical treatment, home repairs and aged care) and discretionary spending (such as eating out and holidays). And you may plan to leave an inheritance. Once your goals are listed, retirees can then prioritise their importance.
Understand your risks: These include market risk, health risk, longevity and mortality risk, event risk (again such as medical treatment, home repairs and aged care), and tax and policy risk (changes to government policies and health care coverage). The research suggests that these risks should be addressed in the context of their impact on achieving their retirement goals.
Assess your available financial resources: This will help ensure that your capital is used as efficiently as possible. Financial resources include superannuation and non-superannuation savings, age pension if eligible, annuities, insurance, housing wealth, insurance, and any additional income if planning to work in retirement.
Develop a plan to achieve your goals and mitigate your risks: This is a matter of bringing together the various elements of your retirement planning. As the report comments: “The right mix of resources should be tailored each household or individual. It should take into account the relative importance of competing goals and the risks that a retiree may be susceptible or sensitive to.”
Few financial retirement goals matter more than obtaining peace of mind, keeping in mind that retirement could last at least a quarter of our lives.
*Vanguard's roadmap to financial security: A framework for decision-making in retirement by Colleen Jaconetti, Jonathan Kahler, Kelly McShane and Nathan Zahm.
Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
17 April 2018
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In a bid to avoid common basic errors in the lead up to June 30, BDO has released a checklist for SMSF professionals to be wary of.
The SMSF sector regularly averages a compliance standard of above 90 per cent with the ATO, but niggling and basic issues are often the downfall of even the most well-meaning trustees.
Partner at BDO, Paul Rafton, finds recurring themes each year in the lead up to June 30, which are often easily avoided.
Moving into the new financial year, the SMSF sector can expect the recurring priority item of non-lodgement to be at the top of the ATO’s agenda.
Late last year, the ATO flagged that about 40,000 SMSFs could be on the chopping block, due to persistent non-lodgement issues.
By: Katarina Taurian
12 APRIL 2018
SMSF trustees are often unaware that if they move overseas for an extended period of time, their SMSF may fall foul of the ATO’s residency rules and they may face a heavy tax bill.
In order to satisfy the residency rules, SMSFs must meet three conditions:
Generally speaking, the first condition is readily satisfied, but the other two can cause problems if members move overseas for a period of time, usually defined as over two years.
If these conditions aren’t met, then the fund can lose its complying status, which has significant tax implications. They include:
So what are the options for SMSF trustees and members who are considering moving overseas temporarily or taking an extended trip?
If trustees know they will be away for more than two years, or even if they are planning a shorter trip but it may end up being permanent, they should take steps to protect their superannuation before heading off.
This could involve transferring their benefits to a public offer fund and winding up their SMSF.
Alternatively, if they want to keep their SMSF running, but do not currently have at least 50 per cent of trustees living in Australia to manage and control the fund, they should appoint additional resident trustees/members to the SMSF, for instance adult children.
They could also appoint a resident enduring power of attorney to act as SMSF trustee on their behalf while they are away. Or, if they have a corporate trustee, they could appoint an alternate director to act as trustee director in their absence.
The main difference between an alternate director and an enduring power of attorney is that the power of attorney can continue acting on behalf of the member in the event of their incapacity. However, the role of alternate director will cease if the trustee is incapacitated, that is, the role of director ceases.
They should also take steps to ensure the ‘active member’ condition is satisfied. Active members are those who are making contributions or rollovers to the SMSF. Therefore, even if the central management and control test is met, if an overseas SMSF member contributes to the fund, then the SMSF will become non-complying if the overseas members combined hold more than 50 per cent of the SMSF’s assets.
Contributions or rollovers for these overseas members can instead be made to a local public offer, retail or industry fund while overseas and then they can choose to transfer these benefits into their SMSF when they return to Australia.
In most cases, the best approach is for all members, local and overseas, to avoid making contributions or benefit rollovers to the fund while a fund member is overseas for an extended period.
While these steps are relatively straightforward, they need to be put in place before moving overseas. Therefore, SMSF trustees and members should ensure they talk with their advisers before undertaking any overseas moves.
Andrew Yee is director of superannuation and SMSF specialist at HLB Mann Judd Sydney.
By Andrew Yee
12 Apr 2018
On most days there are more dollars traded in Apple stock in the United States than on the entire Australian stock market.
It’s no wonder then that over 85 per cent of overseas shares bought by Australians are US purchases. A figure this high would indicate a keen appetite for overseas investing. But when it comes to SMSFs, in my opinion, the numbers are worryingly low.
Just 0.6 per cent of self-managed super assets are invested in overseas shares, compared to 26.7 percent of industry super funds. As a global trader, these statistics are concerning. Limiting investment to Australian shores alone means SMSFs are simply limiting their opportunities for returns and leaving themselves vulnerable and exposed for the future.
What's even more staggering is trustees continue to allocate too little overseas when the costs of investing globally are significantly lower than trading locally. At the same time, the potential opportunities overseas dwarf those at home. When you have control of your investments, wouldn’t you want to lower your costs and give yourself the best chance of success? It’s just better business.
Australian SMSFs vulnerable
Such low uptake in overseas investment opportunities wouldn’t be such a concern if SMSFs were thriving. Yet ATO SMSF statistics for 2017 showed almost half of them did not make any money. In fact, the 10 per cent of SMSFs with balances of less than $100,000 have lost money year-on-year since 2008.
SMSFs are failing to make gains and there’s little investment in overseas shares – it’s hard to see why the link between the two isn’t being made. Australians need to be investing where the rest of the world is. Failure to do so and keeping their investments on home turf will trap them in a cycle of loss.
Diversity redefined: looking beyond borders
Diversity is a much-used buzzword drilled into all client conversations (as well as being something you discuss with friends and family for that matter). Diversity is the key to minimise year-on-year investment loss. But as access to the global stock market rapidly becomes easier, the meaning of diversity is being redefined.
Diversity means investing beyond borders; exploring the emerging markets and beyond ‘traditional’ industries on the Australian Securities Exchange (ASX), such as healthcare, banking and mining. In a world where innovation is running the news agenda and the start-up industry has been given a new lease of life through rapid advancements in technology, diversity is taking on a whole new meaning.
Access to diverse opportunities
Let’s look at the most glaringly obvious reasons to invest in the US: emerging industries such as technology, robotics and semiconductors. Right now it is almost impossible to trade any of these industries on the ASX; there are just no major company listing in these areas.
Similarly, being able to access exchange-traded funds (ETF) that cover asset classes unavailable in Australia means investors can generate returns in any market conditions. Accessing ETFs over bonds, soft commodities, oil and volatility, and the ability to get simple inverse exposure to the market in the US mean those SMSFs that make the jump early to the US markets are light years ahead of their peers. The rest stay entrenched in our local market.
Previously, barriers to overseas markets, including high trading fees, significant paperwork and complex platforms, meant local investors couldn’t access these opportunities simply and affordably.
This loophole is being closed with fintech start-ups disrupting the market and opening up access to overseas stock markets. We’re seeing this at Stake.com.au with over $30 million transacted on-site. This is just the start.
The 99.04 per cent of Australians with SMSFs who are not investing in the world beyond Australia are limiting their potential for returns and leaving themselves vulnerable to an uncertain future. To be truly diverse, SMSFs should follow the growing trend of Australian investors using new tools to take their investment out of their backyard and onto the global market.
By Matthew Leibowitz (co-founder of Stake)
11 Apr 2018
Sizeable cryptocurrency transactions will “come to the attention of the ATO” under new rules that came into effect this week, so a mid-tier firm has put together a checklist of key considerations to keep SMSF investors compliant.
As of today, all cryptocurrency exchanges must be signed up to a new Digital Currency Exchange Register. Transactions exceeding $10,000 must also be reported to AUSTRAC to meet existing rules for bank transfers and cash transactions.
“People will need to be ready to explain not only where the money came from, but also to show that they have followed the ATO’s rules,” said partner at HLB Mann Judd, Peter Bembrick.
“A critical aspect for an SMSF’s compliance is having the right documentation to establish that the investment has been made by the fund, as well as keeping track of the market value annually and recording disposals, gains and losses,” Mr Bembrick told SMSF Adviser.
Ignorance of the tax-related consequences of cryptocurrency exchanges is not adequate defence, particularly given the very public campaigning of the ATO about cryptocurrency in the lead up to tax time.
“There are a number of areas that may catch people by surprise, if they haven’t done their research. It’s never a good idea to fall foul of the ATO and, as always, ignorance of the rules is not considered an adequate defence for failing to pay the appropriate tax.”
Mr Bembrick prepared a checklist for professionals with clients who hold cryptocurrency, as follows:
The tax implications of mining cryptocurrency
Generally speaking, the ATO would treat activities to acquire cryptocurrency by mining additional units as a business, and the value of units acquired would be assessable income in the year of acquisition.
“On the assumption that the cryptocurrency units are treated as either trading stock or CGT assets, however, then any further unrealised increased in the value of units held will not be taxable until they are eventually realised on a later disposal,” Mr Bembrick said.
“In addition, if there are direct costs such as electricity or the depreciation of equipment dedicated to cryptocurrency mining activities, these should be tax deductible against the income received from the cryptocurrency mining business,” he said.
Claiming a personal use exemption
The ATO will accept that cryptocurrency is a personal use asset if it can be shown that it was acquired purely to hold and then exchange for other goods and services, and not with the intention of making a profit or in the course of carrying on a business, Mr Bembrick said.
A personal use asset — with examples including a car, boat or holiday home — is exempt from CGT if it costs less than $10,000.
“However, the question of intention can be quite subjective and is not always so easy to prove,” Mr Bembrick said.
Tax payable if someone is paid using cryptocurrency
Contrary to some client chatter, if someone is paid in cryptocurrency for goods or services they provide in the course of carrying on a business, this payment is still taxable.
“The ATO views this in just the same way as being paid with other goods or services, that is, as a form of barter arrangement. The taxable amount is the AUD value of the non-cash consideration for the goods or services at the time of the transaction,” Mr Bembrick said.
“Similarly, if cryptocurrency is used to pay for goods and services in the course of carrying on a business, the AUD value of the payment would be treated for tax purposes in the same way as if you had paid the equivalent amount in cash,” he said.
Capital gains tax
As the ATO indicated in its guidance note last year, there is a taxable capital gain when a cryptocurrency unit is sold for more than the purchase price, and a capital loss when it is sold for less than originally paid.
“The capital gain or loss needs to be recorded on the personal tax records, just as any other investment such as shares,” Mr Bembrick said.
“For Australian residents who have held the cryptocurrency for at least 12 months, a 50 per cent CGT discount can be claimed, meaning they only pay CGT on half of the actual gain,” he added.
Further, it’s important clients are aware of the difference between investor and trader for tax purposes.
“Just like other investments, be aware that the ATO may treat some investors as a trader or speculator. This means that, if the purpose of buying and selling cryptocurrency was for short-term profit rather than long-term capital growth, then any gains would simply be taxed as personal income, without any access to the CGT discount and without the ability to offset any capital losses from other investments against the cryptocurrency gains,” Mr Bembrick said.
“The only good news is that trading losses can be offset against other types of income,” he added.
Not a currency
Cryptocurrency, such as bitcoin, is not a currency, but rather is treated as an asset for tax purposes.
Consequently, the price in Australian dollars will change over time, which is important because it means that there are tax consequences from the purchase or sale of a unit of cryptocurrency.
“As with other investments, the exact nature of the tax implications will depend on the taxpayer’s related activities as well as their intention when they acquired the cryptocurrency,” Mr Bembrick said.
By: Katarina Taurian
03 APRIL 2018