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Archives for Robert Syben

‘Death Duties’ in Australia

There are currently NO ‘death duties’ in Australia, all Australian states having abolished them back in 1979.

However, there are taxes that may be payable as a consequence of death. In other words ‘if it walks like a duck, and sounds like a duck…it’s a duck, isn’t it’?

There are several of these but the one I want to focus on today is the potential tax that’s embedded in your superannuation benefits. It’s embedded in a way that you might not even see unless you know what you’re looking for.

To see ‘this duck’ you need to first understand that your super benefits are categorised as either ‘taxable benefits’ or ‘tax-free benefits.’

The first is ‘taxable benefits.’ These include benefits arising from salary sacrifice contributions, personally deductible contributions or employer contributions (i.e. the 9.5% super guarantee). Essentially, any benefits arising from contributions on which someone’s received a concession (read ‘tax deduction’). Whether there’s any tax actually due on these benefits depends on who receives them. If at the death of the super account holder the taxable benefit is paid to a spouse or dependent child, for example, no tax is payable. The logic being that the benefit is actually helping someone who was directly dependent on the deceased; this being one of the purposes of superannuation. If on the other hand, the taxable benefit is paid to an adult child who is not financially dependent on the deceased, tax of up to 16.5 % (or more) may be applied. The logic being that superannuation was never designed to benefit individuals who were not financially dependent on the decease and, as such, the Government wants to ‘claw back’ some of the concessions (read ‘tax deduction’) that were received by the deceased.

Keep in mind that for someone who is already accessing their super via a pension (e.g. someone over the age of 65), the distinction between ‘taxable’ and ‘tax-free’ benefits is irrelevant. Any and all amounts paid to them, while they are alive, are tax-free in their hands.

However, it’s when this person dies that the ‘taxable’ benefits could turn into a ‘death duty’ (as noted above, depending on who receives it.)

For example, earlier this year I met a lovely gentleman in his early 70’s who was on his death bed. He had no partner and only one adult son who was not financially dependent on him. He possibly only had a few days, perhaps weeks to live and wanted to know if there was anything he should do while he was still alive to reduce tax payable by his son (his sole heir). As it happens, he had about $200,000 in his super account balance consisting entirely of taxable benefits.

My advice to him was to immediately contact his super fund and arrange for the full redemption of his super paid into his personal bank account. As noted above, any and all payments received from super in respect of a person over age 65 are tax-free ‘in their hands’, in other words, while they are alive. This simple action saved his son about $33,000 in ‘death duties.’

Keep in mind that this can be a tricky area, and there’s a bit more to what I’ve described above, so it’s important to seek out the right advice.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Navigating the finances of aged care

As a financial adviser I have yet to come across anyone who actually wants to move into aged care.

The prospect of moving out of the family home and leaving behind the comfort and familiarity of one’s home is truly daunting. It’s always a step closer to ‘the end’ as no one ever moves from aged care back to home. As a result, many people simply do not wish to discuss the subject…until they have to.

Many of the conversations I have had regarding the finances of an elder family member follow an ‘incident’, such as ‘Dad falling over in the bathroom’. It then becomes glaringly obvious that the individual simply cannot remain in the family home.

In such a scenario, planning how to fund the upfront and ongoing costs associated with moving into aged care is often ‘done on the run’, which is unfortunate because it’s a ‘financial labyrinth’.

Typically, people tend to only plan for upfront costs (which usually range anywhere between $300,000 to $1,000,000). However, there is a myriad of ongoing costs that can run into the tens of thousands of dollars per year as well as the ever-increasing costs associated with moving into aged care.

As you may be aware, a Royal Commission into Aged Care was commissioned in October last year and is currently hearing submissions. Some of these are truly heartbreaking. The Commission is due to hand down its recommendations early in 2020 and if the recent Hayne Commission into financial planning is any guide, regulation and compliance in the sector will increase, followed closely by expenses.

I’d encourage people to have the conversations about aged care and if necessary, speak to your Investment Collective adviser. We can help.

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Presenting ‘Financial Planning 101’

I’ve been a financial adviser for about twenty years now. I still get a ‘buzz’ out of making a positive difference in people’s lives by helping them achieve what’s important to them. The foundation blocks of my own understanding of financial planning were taught to me by my parents. They didn’t call it financial planning of course. It was just about how they conducted their own lives and the advice they would give to my siblings and I. Advice that was underscored by their own actions. They worked hard, they never spent more than they earned and they invested for the longer term in ‘real assets’ that they understood. Perhaps not all that ‘sexy’, but it worked for them. I assumed all parents were like mine, teaching their kids the basics of financial planning. Of course, many parents were like that. But not all. And if kids weren’t learning it from their parents, they certainly weren’t learning it at school.

Last year I had the opportunity to revisit my old secondary school, Mazenod College in Mulgrave, Melbourne. It had been decades since I was last there and the facilities the current students body enjoys are far and away better than in my day. Instead of a footy field that turned into a quagmire during winter, the boys make use of a ‘synthetic’ footy field. There’s state of the art cooking facilities to rival the MasterChef set to teach the boys how to cook. However, what doesn’t seem to have changed much is the curriculum. Financial planning 101 still doesn’t get taught.

I think this is a material shortcoming in the education we’re providing to our children. We teach them a trade or a professional, but we provide them with virtually no tools to help them manage their own money and achieve financial independence.

So, in the last few months I started doing my little bit to remedy this situation.  I’ve started seeking out opportunities to present my version of ‘Financial Planning 101’ to secondary school students. To date I’ve presented to students at Huntingtower School and St Michael’s Grammar, both in Melbourne. My version of ‘Financial Planning 101’ includes the financial process as we deliver it here at the Investment Collective; a consideration of what really drives residential property prices; basic investment principles, as well as ‘4 easy steps to becoming a millionaire’. This last topic garnered particular attention.

I reckon that if one or two kids comes away with a heightened curiosity and an interest in their own financial planning, I’ve achieved something!  I get a lot of personal satisfaction out of it, and am keen to continue, so if you’d like me to present to your school, please drop me a line at robert_syben@investmentcollective.com.au.

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Is Financial Planning On The Curriculum?

Recently, I did something I haven’t done in 40 years. I went back to my old high school – Mazenod College in Mulgrave, Melbourne. I’d received an invitation from the ‘Mazenod Old Collegians Association’ to join a tour of the school. For the most part, I had fond memories of my years at Mazenod College and decided it was about time I went back and have a look at how it had changed.

And boy had it changed! I was truly amazed at the range of facilities now in place at the school. An enormous indoor basketball stadium stood on the spot where there once stood a yellow portable classroom which our class occupied for a couple of dreary months during the winter of 1974. Gone was the uneven, muddy footy field, replaced by immaculate looking synthetic grass. Apparently it ‘only cost $1 million’…gulp! There was a state of the art library, including a 300 seat theatre complex. There was even a building dedicated to providing students with cooking classes, which looked like a set from MasterChef.

I asked, Sean, our tour guide (an ‘old boy’ himself) whether the curriculum itself had also changed. Sean proceeded to rattle off a range of subjects. ’Is Financial Planning 101 on the curriculum, Sean?’, I asked. Sean looked at me, paused for a few seconds and replied, ‘well no, not as such, but we do offer Accounting’.

That was my cue. I stepped onto my ‘soapbox’ and shared with him my experience of 20 years in financial planning. That many, many people are essentially ‘illiterate’ when it comes to their own financial planning. They leave school with a trade or a profession, but not the first clue about managing their own money and taking responsibility for achieving their financial goals. And the problem can be sourced back to their education. Many school curriculums include worthwhile and useful subjects (and quite a few useless ones). However, to my mind, we’re providing our children with a disservice if we don’t provide them with the knowledge and tools to manage their own money. Many people, after they’ve left school, recognise the gap and seek to redress it. And some of those find their way to financial planners, like The Investment Collective where the focus if not only on establishing a personalised financial plan and reviewing it on a regular basis but bringing people up ‘the learning curve’ in their understanding of personal finance and investments

Sean was pretty interested in all of this and asked me whether I’d be interested in speaking to some of the students on Financial Planning 101. ‘Absolutely’ I replied.

If you would like to learn more about personal financial planning or any of our other services, please contact us today.

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Why You Need To Know How Much You’re Spending

In any review of a client’s circumstances and strategy, as their adviser, I am invariably going to ask the following question, ‘how much are you spending’? What I’m trying to confirm is whether a client has enough money coming in to pay for what they tell me is important to them, now and into the future.

You may find this strange, but most people don’t really know how much they are spending. Sure, most will have an idea (often the wrong idea), and some (the minority) will have detailed out on a spreadsheet.

However, an accurate and truthful answer to the question is critical. Without it, we have no real way of knowing how successful, or otherwise, the strategies we’ve put in place are likely to be. We also have no real way of identifying additional resources that may be applied to help to achieve outcomes we’re looking for.

So, what’s the best way of working it out? Well, as noted above, some people maintain detailed and meticulously spreadsheets. This is fine, but generally more than required. A simple review of monthly credit card and bank account statements (over say a 6 month period), will give most people a sense of where the money is going. Personally, I use Quicken software in which I record all credit cards and banking transactions to help me monitor the cash flows of my little household (my wife hates this!).

Knowing where the money’s going, may not sound particularly exciting; however, it’s absolutely a fundamental part of planning for your financial future.

If you would like to learn more about our personal financial planning services, please contact us today. One of our advisers would be delighted to speak with you.

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Scams: A Very Helpful Gentleman

“What’s the matter Joe, you look upset?” I asked. Joe is a longstanding client of The Investment Collective. He’s a sharp minded, sprightly nonagenarian who still lives in his own home and is fiercely independent.

“Well,” Joe said forlornly, “I recently received a letter telling me that the NBN was coming down my street. I was trying to work out what I needed to do, when a very helpful gentleman from ‘Telstra Platinum’ service called me. He told me that he could have me connected to the NBN in about 30 minutes. All he needed was remote access to my computer, and I gave it to him.”

Within 30 minutes $9,000 had been withdrawn from Joe’s bank account. He’d fallen foul of a telephone scammer. Joe managed to get down to his bank on the same day. They closed his bank account and assured him he would receive his $9,000 back.

Joe isn’t out of pocket, however, his confidence has been severely shaken. He’d asked himself, how could he, of all people, have been so gullible as to unquestionably pass over control of his computer to a ‘voice’ on the other end of the telephone line?

That ‘voice’ was friendly, courteous, helpful, and beguiling. It was able to disarm Joe’s otherwise critical faculties. Also, it belonged to a person that had no qualms whatsoever in stealing from Joe. If it can happen to Joe, it can happen to me, it can happen to you.

Be careful!

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Changes to Centrelink’s Age Pension

Centrelink’s Age Pension rates are currently as follows:
Per fortnight Single Couple each Couple combined
Maximum basic rate $826.20 $622.80 $1,245.60
Maximum Pension Supplement $67.30 $50.70 $101.40
Energy Supplement $14.10 $10.60 $21.20
Total $907.60 $684.10 $1,368.20
From 20 March 2018, Centrelink’s Age Pension starts reducing when your assessable assets are more than the amounts below:
If you’re: Homeowner Non-homeowner
Single $253,750 $456,750
Member of a couple, combined $380,500 $583,500
And the Pension ceases altogether when your assessable assets are more than the following amounts
If you’re: Homeowner Non-homeowner
Single $556,500 $759,500
Member of a couple, combined $837,000 $1,040,000

What’s the message that the Government’s sending people here?

Well, let’s take an example to illustrate. Say we have one retiree couple, Albert and Betty. They have assessable assets of $380,500, just on the lower asset test threshold. As a result, they receive the full Centrelink age pension and supplements. They receive the following annual income:

  • $19,025 – Investment income of 5.0% (assumed) per year on their $380,500 diversified investment portfolio
  • $35,573 – Combined Centrelink age pension and supplements
  • $54,598 – Total combined annual income

Now let’s take a second retiree couple, Charlie and Deb. They have assessable assets of $837,000, just on the upper asset test threshold. As a result, they receive no Centrelink age pension and supplements. They receive the following annual income:

  • $41,850 – Investment income of 5.0% (assumed) per year on their $837,000 diversified investment portfolio
  • $0 – Combined Centrelink age pension and supplements
  • $41,850 – Total combined annual income

Charlie and Deb are entirely self-funded retirees. They receive no taxpayer-funded benefits from Centrelink, and assume the full investment risk associated with generating $41,850 in annual investment income. However, their combined income is $12,748 per year lower than Albert and Betty who have less than half their assets!

What message is the Government sending to Charlie and Deb? I’d suggest that the message they’re hearing from the Government is ‘Spend your money. Go on that overseas holiday. Buy that new car. We’ll look after you’. And seeing that they are worse off than Albert and Betty even though they have a lot more investments, Charlie and Deb might think that spending their money is the logical and rational thing to do.

But of course, discouraging people from self-reliance is entirely the wrong message. However, as more and more people like Charlie and Deb hear that message, and as the population ages, the current social security structure will come under increasing pressure, and painful consequences will follow. It’s only a matter of time.

Please note that the above is provided as general advice. It has not taken into account your personal or financial circumstances. If you would like more tailored advice, please contact us today. One of our advisers would be delighted to speak with you.

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Our Business Growth

Last month The Investment Collective participated in a course organised by the Australian Centre for Business Growth (ACBG), which is part of the University of South Australia. The course is designed to help businesses develop soundly structured business plans designed to achieve outstanding growth results. The first module of the course was in February. There are a further two modules in May and October of this year. Attendance at the course is by invitation only and followed a one day course that David attended late last year. Based on that, the ACBG must have thought it was worth spending their time on us!

Over the last few years, our business has been performing well. However, we’ve arrived at a point where further meaningful growth requires some changes in how we go about things. We do want to significantly grow our business, and our attendance at this particular course is not a ‘trial run’. It’s the real thing.

The course was also attended by five other businesses, all as keen as us to learn of and adopt effective means to significantly grow their businesses. Also, attending the course were a number of management consultants. Individuals who’ve been ‘around the block’ in building businesses and who, as a result, had a wealth of experience and insights to share.

On day three of the February module, each of the six participating businesses had to present their broad 3-year growth plan, together with a 90-day action plan.

There was one prize: ‘Most Ambitious Goals at Module 1’, which was, by unanimous vote, awarded to The Investment Collective. That was the easy part. Now we have to deliver!

  

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Is Bitcoin Really An Investment?

I’ve known ‘Joe’ for about a year. He’s a barista at one of my favourite local coffee shops. Most mornings our conversation doesn’t progress past the weather. However, last week, as he’s handing me my extra-shot cappuccino, Joe suddenly asks me, ‘Robert, I want to invest in Bitcoin. My mate bought some last year and quadrupled his money. What do you think, good idea?’
‘Joe’ I said, ‘Buy it if you want mate, but don’t call it an investment. Call it what it is, a punt.’

Bitcoin is like the money in your wallet, except it’s digital. It’s ‘digital money’. Encryption techniques are used to regulate the generation of new units as well as verify transactions. Nobody controls it and nobody’s responsible for it.

Now, although I don’t really understand how Bitcoin works, I’m pretty sure that at some point in the future, we’ll all be using some form of ‘digital money’ to buy things. However, I don’t know whether that digital money will be Bitcoin or something else.

But here’s what I do know. When my barista starts asking me about buying Bitcoin as an investment, red flags start going off in the back of my head.

The price of this ‘investment’ has just exploded over the last few months, as Joe’s mate and thousands of others like him, started buying Bitcoin aided by the numerous means by which they can now do so. And of course, the mainstream and social media are now awash with reports of how individuals have struck it rich trading Bitcoin. Meanwhile, all this excitement is being fanned by ‘market analysts’ predicting that having just breached the $20,000 valuation, Bitcoin is on its way to $1 million by 2020.

I also know that the associated volatility in price of these ‘digital currencies’ is simply stomach churning. For Joe and his mates, that’s perhaps exactly what they’re seeking; an ‘investment’ that will pay off big time within a short time. They don’t know how it works, and probably care less. They’re not interested in a steady, reliable income stream over the longer term. Everyone else seems to making big money, and they just want in on that action.

So, what do I know? It sounds like a punt, and if that’s your thing, good luck! Just don’t call it an investment.

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Spring Into A New Financial Year!

Happy New Financial Year! To celebrate the new financial year, here’s a tip: Tax planning doesn’t start in June. If you want to increase the likelihood of a ‘good tax year’ this year, tax planning starts, well…now.

Here’s a few things to keep in mind:
1. Contribute as much as you can to your retirement nest-egg. In addition to the 9.5% your employer puts into superannuation, think about adding to this (up to a total of $25,000). Starting now, you probably won’t miss the money, and you could save tax.
2. Have a place to store your tax deductible receipts. There’s nothing that wastes your time more than hunting down all your receipts for the financial year in June!
3. Buy tax deductible assets earlier in the financial year. This is because the amount you can claim for these assets depends on how long you’ve held the assets. Buying a new computer on 29 June doesn’t give you much of a tax deduction.
4. Don’t buy or invest in anything just for the tax deduction. It’s the wrong reason.
5. Get a good accountant, and, of course, a good financial advisor (you know where to find a good one!)

Good luck!

Please note this advice is prepared as general advice only. It has not taken into account your personal financial objectives, current situation or future financial needs. If you would like more tips or specialised advice, or to hear about how the above advice could apply to you, please contact one of our skilled and friendly financial advisers today.

 

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