Connect May 2015
Financial news for tomorrow’s lifestyle
By John Osborne, Chief Executive Officer
So here we are again, speeding towards the end of another financial year and the need for us to sharpen our pencils as we prepare for our tax returns. We are also probably thinking about what the future year has in store for us. It is obvious that we need to seriously look at our finances and be planning for our retirement. Joe Hockey our Treasurer is warning us that we are not generating enough income as a nation to pay for all the services and welfare we want.
The problem Australia now faces is that there are not enough people in the workforce to support the Baby Boomers coming into retirement. Joe Hockey tells us we will need to work longer to age 70. A person reaching retirement in 1960 would live about seven or eight yearsafter 65.
Today a person reaching 65 years can live anything up to another thirty years. We are living longer. I was in my local shopping centre recently and my friend pointed out two ladies having lunch. He said they are twins aged 93. Both looked very healthy and you would have taken them to be in their 70’s. As a nation we spend more than we earn each year. Debt is fine if you have the income to pay the interest and clear your debt over time.
Our debt is mounting up as a nation and it appears we are not willing to face up to the fact that we need to quickly address the situation. Our interest bill is using up a large piece of our tax income each year, and this will get worse if we do not address the situation seriously.
No matter what your political persuasions are, we need both parties to work together for the good of the nation and get this debt down. I really wonder at times if we are a democratic nation when the senate can block every decision the elected government makes to put our economy in a better position.
While you may not agree to all the measures the government brings in with the Budget to put our economy back on track, we can all agree that we should not run our economy into further deficit and leave our children and grandchildren with the problem.
2015 BUDGET HIGHLIGHTS – What it means for you
By Cameron Stuart, General Manager
AGE PENSION CHANGES
Come 1 January 2017, age pensioners with more than $823,000 in assets, in addition to their own home, will no longer be eligible for the age pension.
Wealthy retirees will have two years to prepare for the changes to the Asset Test Taper rate with the government waiting until the 1st January, 2017 when the Asset Test Taper rate will increase from $1.50 to $3.00 effectively reversing the 2007 decision to halve the taper rate at that time.
The current and proposed thresholds are as follows:
|Assets Test threshold for part pension (20 March 2015)||Assets Test Threshold for part pension (1 January 2017)|
The following table shows the approximate level of assets above which the pension (under the Assets Test) will reduce
|Asset level above which pensions (under the Assets Test) are reduced due to the proposed changes (from 1 January 2017)|
AGED CARE PROPOSALS
Asset Testing for pensioners – Clients who lose eligibility for the age pension (due to assets test changes) may find that their means-tested amount (MTA) reduces due to the lower assessable income and this could result in a lower means-tested fee. However, they may also have less income to help cover their fees putting pressure on cashflow.
Removal of rental income exemption from 1 January 2016 – It is proposed that the rental income exemption will not apply when calculating the MTA for residents who move into aged care from 1 January 2016. This may affect the effectiveness of the strategy of renting the home and ensuring some of the accommodation payment is paid as a daily accommodation payment (DAP).
If you’re thinking about entering aged care accommodation within the next twelve months, call one of our Aged Care specialists Lorena Millett or Tim Cotton on 02 9970 3111 to discuss your options now before the 1 January 2016 deadline.
TAX CUTS FOR SMALL BUSINESS
From the 2015/16 financial year the government will reduce the company tax rate to 28.5% for companies with aggregated annual turnover less than $2 million. Those of $2m or above will continue with the current 30% tax rate. An additional 5% discount for unincorporated small business.
The current maximum franking credit rate for a distribution will remain unchanged at 30% for all companies.
Start-ups will receive an immediate deductibility for professional expenses including cost of lawyers and accountants.
Immediate tax deduction for items valued less than $20,000
Small business with aggregate annual turnover of less than $2 million can immediately deduct assets they start for use or install ready for use, provided the asset costs less than $20,000. This will apply for each asset acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June, 2017.
To discuss any of the above, please call our senior accountant, Irene Ohannessian on 02 9970 3111.
NO CHANGES TO SUPERANNUATION
The government has kept its pledge not to increase taxation on superannuation in the Budget despite calls from Bill Shorten’s crew to raid the superannuation money pot as they see fit.
WILL LOW INTEREST RATES AND THE BUDGET STIMULUS BE A TAILWIND FOR THE SHAREMARKET?
Astute investors need to balance optimism with risk awareness.
The tough economic conditions Joe Hockey is warning us about and the debt situation is very real and all parties need to work together for the benefit of Australia and reduce the debt level. Australia could go through some tough times if this is not addressed and our children and grandchildren will be paying off the debt in decades to come.
IT’S NOT ALL BAD NEWS FOR INVESTORS
The tough economic conditions are not necessarily bad news for sharemarket investors. With the lowest interest rates we have seen in Australia, investors are being forced to look for better returns and turning to the sharemarket. This could stimulate the sharemarket. If the government can get the Budget Stimulus through the Senate, this could also help small business and encourage investment and spending. These factors are all encouraging and could drive the sharemarket higher.
COMBATTING LOW INTEREST RATES FOR RETIREES
Retirees naturally tend to be more risk averse and more conservative in their investing. With low interest rates, they are being forced to look at the sharemarket. The problem a retiree faces requiring an income of $40,000 per annum investing in deposit accounts, is that they used to need about $700,000 before interest rates dropped. Today with the low interest rates we are experiencing, they would need about $1.5 million.
The retiree is now faced with a reduced lifestyle adjustment, or cut deeply into their capital or increase the amount of risk they are prepared to take to generate extra earnings to maintain their lifestyle.
Many retirees are now being forced away from the safety of cash and into the sharemarket. Moving into Australian shares offering good dividends and franking credits such as banks and large retailers can lift your income considerably and if your share portfolio is diversified can help to minimise the risk. Call your OYA Financial Adviser to discuss further on 02 9970 3111.
HOW TO PROTECT YOUR PORTFOLIO
By Brandon Elliott, Investment Analyst
It is important to be aware of your risk profile when investing. If you are heading towards retirement or in retirement it may pay to be a little more defensive with your portfolio, as you do not have the luxury of years to recover if there is a significant correction in the market. This is known as ‘sequencing risk’.
As you will all be aware markets tend to operate in cycles and corrections can occur at times. Aside from the traditional booms and busts of the business cycle, world events such as terrorism, war and natural disasters can occur out of the blue and may have a significant impact on your portfolio.
A diversified portfolio of quality stocks and managed funds should offer some protection against these types of events. This is due to the fact that different asset classes, for example cash, fixed income and shares will often perform and underperform at different times, which has the effect of ‘smoothing out’ the returns of a diversified portfolio over time.
It may be prudent for the second half of this year to be a little more conservative and defensive with your investment portfolio. Shares and fixed income assets have experienced a strong run over the last three years, and with returns on cash lower than ever, maybe it’s a good time to get together with your adviser and review your portfolio.