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Considered Wealth

Issue 06 - November 2016

 

Changes to the Assets Test For Centrelink Age Pensions From 1 January 2017

Changes to the Assets Test for Age Pension that were announced in the 2015 Federal Budget apply from 1 January 2017.

If you are over 65 and in receipt of a full or part Age Pension, then you need to be aware that for every $1,000 owned above the assets test free amount, your pension may be reduced by $3 (this was previously reduced by $1.50 for every $1,000). Age Pension eligibility is determined by reference to both an Assets Test and an Income Test. If you are assessed under the Income Test, these changes may not affect you.

The thresholds that apply are dependent on whether you are single or a couple, own your own home or not, and are either in receipt of a full or part pension.

The current and new asset thresholds for full pension entitlements are as follows:

current and new asset thresholds for full pension entitlements

The current and new asset thresholds for part pensions cut out as follows:

current and new asset thresholds for part pensions

What assets are included in the threshold?

The market value of most of your assets are taken into account when calculating your Age Pension. This includes, but is not limited to, things such as:

• Property (excluding your home)

• Motor vehicles, boats and caravans

• Financial investments

• Superannuation (once you are over Age Pension age)

• Business assets

• Household contents and personal effects

For some retirees, there will be little or no effect at all. For others, these changes may impact on your spending patterns and the quality of life you are looking at in retirement.

Commonwealth Seniors Health Card

If you lose your Age Pension entitlement on 1 January 2017, you will be issued with a Commonwealth Seniors Health Card and this card is exempt from the usual income test requirements indefinitely.

How can we help?

If you are concerned that the Government's changes to the Age Pension are going to affect you, please call us to arrange a time to discuss your circumstances in more detail.


Government Releases More Superannuation Legislation

On 9 November 2016, the Government introduced to parliament three superannuation bills announced in the 2016 Federal Budget.

Many of these changes will apply from 1 July 2017 so you might need to start thinking about how your superannuation will be impacted by the changes now and whether you might need to make any changes to your own super strategy.

Included in the latest legislation were amendments relating to:

  • Implementing the Government's $1.6 million transfer balance cap, which places a limit on the amount an individual can hold in the tax-free retirement phase from 1 July 2017 and the ability to make further non concessional contributions.
  • Lowering the concessional contributions cap to $25,000 per year for all taxpayers from 1 July 2017.
  • Reducing the income threshold at which individuals are required to pay an additional 15 per cent contributions tax, from $300,000 to $250,000 per annum.
  • Providing greater flexibility for those with broken work patterns by allowing individuals with balances of less than $500,000 to 'carry forward' unused concessional cap space for up to five years from 1 July 2018.
  • Removing the tax-free treatment of assets that support a transition to retirement income stream from 1 July 2017.

Some of these changes may require you to adjust your investment, contribution, pension and estate planning strategies going forward.

This will most likely be the case if you have a superannuation balance of over or close to $1.6 million, especially where you were planning to make significant contributions to superannuation in the next few years. You will also be impacted if you are a high income earner or have a transition to retirement pension in place now.

How can we help?

If you are concerned that the Government's changes to superannuation are going to affect you, please call to arrange a time to meet with us so that we can discuss your particular requirements in more detail.

 

ATO Takes Aim At Using SMSFs As Part Of A Business Succession Plan

Last year the ATO issued a determination that an SMSF would contravene the sole purpose test (i.e. that the core purpose of the fund relates to providing retirement and death benefits for the members of the fund) where the SMSF purchases a life insurance policy over the life of a member as a condition and consequence of a buy-sell agreement entered into with co-owners of the member's business.

The ATO have stated that an SMSF should not participate in a buy-sell agreement by purchasing a life insurance policy if it does not wish to put the super fund's complying status at risk.

The ATO have the opinion that the intended effect of a buy-sell agreement is the acquisition of the member's equity interest in their business, on the death of the member, by the surviving co-owner for no personal outlay by the co-owner. They believe that the fund would not have otherwise purchased that life insurance policy.

The ATO believes that the calculation of the insured amount is based on the valuation of the member's share of the business rather than on the future needs of the member's spouse. Further, whilst the spouse would receive a death benefit as a result of the member's death, the payment represents compensation for their expected inheritance of the member's interest in the business.

There is no doubt as to the ATO's views on this type of arrangement, that is, an SMSF will breach the sole purpose test if the trustee holds insurance as a condition of a business succession plan.

Should you have such an arrangement within your SMSF, we strongly recommend that these arrangements be reviewed (and possibly terminated) to determine if alternative arrangements need to be made to reduce your SMSF's exposure to being made 'non-complying' by the ATO.


Are You Really Ready To Retire? And Will You Be Able To Pay For It?

In the next 20 years, potentially over 100,000 more people will retire each year. In the last financial year alone the number of people over 65 years of age had increased by over 100,000. Further, the Intergenerational Report released by the Federal government in 2015, estimates that the number of Australians over 65 will double by 2055.

Despite the fact that very large numbers of people will retire in the not too distant future, many people are underestimating how much money they will need for their retirement years. With a benchmark of almost $60,000 per year required for a couple who own their own home to live a comfortable retirement, only around half of people have started thinking seriously about retirement before reaching 55 years of age.

We believe that starting your retirement planning early can help you make the most of your savings and potentially reduce your reliance on the Age Pension, so you can live the retirement you want. Currently on average people are waiting until just seven years from retirement to begin planning. Planning for longevity is particularly important with life expectancies predicted to increase from 91.1 to 95.1 years for men and 93.6 to 96.6 years for women by 2054/55.

Our ageing population and a reduction in the proportion of working age people 65 means more people are or will be living in retirement with greater demands on fewer taxpayers (currently there are 4.5 working Australians supporting 1 person over 65, with this expected to decrease to 2.7 in 2055, compared to 7.3 in 1975). This demographic trend will place enormous pressure on Australia's aged care and healthcare spending.

Retirement is so much more than just superannuation and there are a number of retirement strategies that can be implemented to make the most of your circumstances and retirement wishes. We can help you and your family to articulate what you would like your retirement lifestyle to look like and whether or not you have the cash flow or assets required to fund your desired lifestyle within your desired timeframe. Starting your planning early is crucial in enabling you to implement strategies now to work towards your overall financial goals.

A retirement plan should consider both your estate plan, especially for small business and farming families handing over the reins to others within the family, as well as your aged care plan. Our role is to act as your central coordinator, taking an overarching view of your entire financial life and providing advice and insights about how the choices you make in the short-term could affect your financial freedom in the long-term.

For more information to help you create a retirement plan that is compatible within your overall financial plan, please contact your Brentnalls SA advisor.


 

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The information provided in this newsletter does not constitute advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances. Brentnalls is not a partnership or a joint venture. Instead, the business of Brentnalls SA is independently owned and operated and it is an independent member of the Brentnalls Affiliation of Accounting Firms. Individual member firms do not accept responsibility or liability for the actions or inactions of any other individual member firm.
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