Many Australian retirees find they want a smaller home, or a home more suited to their empty-nest requirements. For some retirees, selling the family home can be a great way to release built-up equity to pay for retirement living expenses or in-home support that will allow them to stay at home longer.

Older Australians are the people targeted by the Government’s new policy to allow homeowners aged 65 years or over to downsize their family home and invest the surplus into their super. The downsizing and super contributions proposal was announced as part of the 2017/2018 Federal Budget (May 2017 Budget). The proposal became law on 13 December 2017.

From 1 July 2018, Australians aged 65 years or older will be able to make a non-concessional (after-tax) contribution into their super account of up to $300,000 from the sale proceeds of their family home if they have owned the property for at least 10 years. The legislated rules indicate that the property sold must be the person’s primary residence.

Couples will be able to contribute up to $300,000 each, giving a total contribution per couple of up to $600,000.

Any super contributions made using the new downsizing rules are in addition to any voluntary contributions made under the existing non-concessional (after-tax) contributions cap.
Although downsizing and contributing to super is an interesting idea, there are definitely some benefits and dangers – together with a few unknowns – to consider before taking the plunge.

Set out below are 10 important issues to consider before downsizing your home and contributing to your super account:

1. Opportunity to boost super balance

Retirees who have not had the opportunity to save sufficient funds for a comfortable retirement will be able to use the new downsizing cap to top up an inadequate super balance.

2. No ‘work test’ or age limit

The existing ‘work test’ for voluntary contributions made by those Australians aged 65-74 does not apply to downsizing contributions. Currently, people in this age group need to prove they worked in gainful employment for 40 hours within a 30-day period during the year to make a super contribution.

3. Retirement phase transfer balance cap remains in place

Australians making a downsizing contribution into their super account will still face a $1.6 million transfer balance cap on the amount of super savings they can move into tax-exempt retirement phase income streams. If a person has reached their $1.6 million transfer balance cap, then any downsizing contribution they make will need to remain in accumulation phase (and be subject to 15% tax on any earnings derived from the investments).

4. Contributions not subject to the $1.6 million Total Superannuation Balance restriction

Since 1 July 2017, an individual cannot make non-concessional (after-tax) contributions to a super account if they have a Total Superannuation Balance of $1.6 million or more. Individuals who have maxed out their opportunity to make non-concessional contributions to a super account will still be able to make a downsizing contribution as these contributions are exempt from the new $1.6 million Total Superannuation Balance limit.

5. No requirement to buy a new home

An individual making a downsizing contribution (from the sale of their principal place of residence) is not required to buy a new home after they sell their home.

6. You must submit a downsizing contribution form

Downsizing contributions will be invested within the super environment, which means such assets will be able to take advantage of the lower tax rate levied on investment returns within the super system. Earnings received on a super balance are only taxed at 15% (or are tax-exempt if rolled into a retirement income stream) rather than taxed at the person’s normal marginal tax rate.
Given the tax advantages, it’s worth noting that the ATO will be responsible for administering the scheme. Before accepting contributions under the downsizing scheme, super funds require verification on behalf of the ATO that downsizing contributions are from the sale of a family home owned for more than 10 years. An individual planning to make a downsizing contribution must provide his or her super fund with the special form before or at the time of making the downsizing contribution.

7. Contributions count toward Age Pension tests

The government has confirmed downsizing contributions will be counted for the assets and income tests used to determine eligibility for the Age Pension and DVA benefits. Downsizers will be moving money out of an exempt asset (their family home) into the non-exempt and assessable environment of their super fund.

8. Transfer and property costs limit surplus capital

The costs involved in selling a family home can be substantial due to high stamp duty and land taxes, therefore, people considering downsizing should carefully calculate this impact.
In addition, selling a large home and downsizing to a smaller property does not always release much excess capital (particularly in a capital city). Hence potential downsizers should check they will have sufficient funds left over for a worthwhile super contribution.

9. Timeframe (90 days) for contributing sale proceeds into super

The new downsizing law specifies that an individual hoping to take advantage of this measure must make the downsizing contribution within 90 days of receiving the sale proceeds (typically settlement day) from their family home before they are prohibited from making a downsizing contribution.

10. 90-day timeframe may give an opportunity to invest sale proceeds before contributing

The downsizing policy starts from 1 July 2018. The new laws don’t appear to preclude investing the sale proceeds or mixing the proceeds with other money in the period between settlement and making a super contribution.

Learn more about our personal financial planning, mortgage broking or self-managed super fund services. Please note that the above is prepared as general advice, it has not taken into consideration your personal circumstances or financial goals. For more tailored advice, please contact us today, one of our friendly advisers would love to speak with you.

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.

By now, you would have received your credit card statement following the spending spree of Christmas, and the impulse purchases made during the Boxing Day/New Year’s sales. Maybe you overindulged in online shopping over the holiday period.

Credit cards offer a quick and convenient way to purchase goods and services; however, it may be more difficult to keep track of your spending when compared to using cash. If you have substantially increased your credit card balance, or reached your limit, you may be struggling to keep your repayments up to date within the interest-free period.

When paying via credit card we often believe that we will repay the balance within the interest-free days, but that may not always be the case! When you exceed the interest-free period, the purchase interest rate can be around 20% per annum or higher (22%+ p.a.) for a store card.

What are your options to get your credit card debt under control? Here are some alternatives to consider:

BALANCE TRANSFER CREDIT CARD

Most providers offer a balance transfer facility to attract new business. The debt from the existing card can be transferred to a new credit card which offers a reduced interest rate (as low as 0%), for a fixed period. The balance transfer rate can apply for 6 – 24 months depending on the provider; however, any additional spending will incur the standard interest rate of the new card. The key to this strategy is to be disciplined by not clocking up more debt, and to take advantage of the ‘honeymoon’ period to focus on repayments, and ensure that you clear your credit card balance on time. Once the balance transfer period has ended, the rate will default to the provider’s purchase interest rate, which may be higher than the rate on your old card! It is important to check if there are any balance transfer fees, and what other terms/conditions and charges will apply after the introductory period has ended.

LOAN CONSOLIDATION – PERSONAL LOAN

Obtaining a personal loan to consolidate the debt on your credit card(s) may be an option. Many providers offer the ability to consolidate several credit cards, with a lower fixed or variable interest rate, over a loan term of several years. Consolidating your debt should make it easier to manage your repayments, and you may be able to clear the debt earlier by paying more than the minimum amount.

REFINANCE/CONSOLIDATION – HOME LOAN

If you have sufficient equity in your home, you could consider refinancing your mortgage to consolidate your credit card debt. We are currently in a record low-interest rate environment, with some providers offering rates of >4% p.a. With or without credit card debt, if you haven’t reviewed your home loan for a few years, you may be paying too much on your current mortgage!
Consolidating credit card or personal loans into your home loan will allow you to clear these debts sooner if you have the ability to pay above the minimum home loan repayment.

There may be many issues to consider before consolidating debt, or deciding to refinance your home loan. Please contact one of our lending specialists to determine the costs and benefits, and to discuss your options.

Please note that the above has been 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 friendly advisers would love to speak with you.

In this age of disruption, many traditional products and services are facing competition from more innovative and cost-effective providers.  The big four have traditionally dominated the Australian mortgage market through their direct home loan products. However, in recent years, their market share has been slowly eroding due to competition from second tier and online providers.   Due to increasing competition, there are thousands of lending products available, including lesser-known providers who can offer equivalent or superior loan products at a much-reduced rate.

Many lenders (some backed by a big four bank) are now offering online lending platforms with comprehensive features such as redraw facilities, credit cards, offset accounts and the ability to ‘split’ the loan between fixed and variable rates.  The lower costs to manage these products are often passed back to the consumer via reduced interest rates and lower ongoing fees.

The larger banks often take existing clients for granted, and rely on the mentality that customers will remain loyal to the bank they have been with since they started their first savings account.  Unfortunately, banks do not always reward customers for their devotion!  Homebuyers and existing mortgage customers may not consider the benefits of shopping around or switching their existing home loan to an alternative lender.  This misplaced loyalty may cost thousands of dollars in interest payments and fees over the life of a home loan.

If you review your other bills such as phone, electricity and insurance to save money, it makes sense that you review what is most likely your largest expense!  The savings realised over the life of a home loan could amount to thousands of dollars.

As an example, in a recent client comparison to refinance a variable principal and interest home loan of approx. $300,000 from a major bank, a reduction of 0.52% in the interest rate saved $150 per month ($1,800 p.a.), with a potential saving of nearly $60,000 in interest payments and fees over the 30-year term of the loan.

There are many issues to consider before refinancing your home loan.  Please contact one of our lending specialists to determine the costs and benefits, and to discuss your options. One of our friendly mortgage brokers might be able to save you thousands over the life of your home loan/s.

One of the most exciting business activities we undertake here at The Investment Collective is to help small businesses, restructure, grow or divest.  The use of the word “exciting” is deliberate.  More often than not the task is an emotional roller-coaster, where best intentions are often undermined by client fear, once “supportive” banks, angry creditors and warring business owners.  Through our involvement with small business, one thing has become clear – many, many small business owners have no idea of how to run a business.

Now, before you bridle at my perceived arrogance, consider that we are nearly always called when things are obviously bad. We nearly always find that everything is in the owner’s head, the financial records are terrible, and there are no budgets, business plan or financial model in place.  Frequently, we find that the situation has been brewing for months or years and that the ATO is owed money.   Overwhelmingly, we are called in with the expectation we will “fix everything”, using the simple tools of charm and magic.

The basic fact is that shit happens in business.

You cannot accurately predict when you will lose a client, a crop, or a valuable staff member, but you can very much take ownership of your business, formally understanding it, and putting in place disciplines such as those mentioned above.  Compared to growing your favourite crop, or selling interesting products, or fabricating machinery this mightn’t sound too exciting, but without these disciplines, you won’t be getting much joy from anything when the shit does hit the fan.

Sound dramatic?  Consider that it can take several months to build a formal set of accounts from the data normally found in the back offices of small businesses, and to build bankable forecasts from that.  Believe me, you won’t have that time if you really are facing a downturn.  Consider also, that recognising and quantifying a downturn before it really sets in gives someone like me much more opportunity to address the situation early – something that the banks will appreciate and that will give you the best chance of coming through the other side.

So, business consultants like us can be a very big help in structuring and ensure your business is well run and able to manage through downturns, but in every case, the effectiveness of that help starts with you.

Get yourself a good accountant.

Many businesses choose their accountant because they are a “good bloke/gal”, but like financial planners, accountants come in all shapes, sizes and levels of professionalism and competence.  Too many are simply collectors for the ATO with a high opinion of themselves, and charges to match. But they don’t really deliver anything useful and too many clients view the role of the accountant as one of tax reduction.

What a really good accountant will do is not only help you fulfil your statutory obligations but make sure your accounts actually mean something to the business.  From the way your accounting software is set up to the production of financial reports, the accounting data is at the heart this.  It is your window into how things are really going and it needs to be collected and tabled regularly and rigorously, to clear and generally accepted standards, and in any event suitable for handing to the bank as-is.

At the end of the financial year, your internal accounts need to be reconciled to the formal statutory accounts, so that management accounts for the new year start from the right base.  If you don’t do this, you’ll be completely lost – it’ll only take a few months.

In summary, few accountants are good business consultants or strategists, and most business consultants and strategists focus on just that.  To get the best result you really need to consider engaging both, preferably in a form where they agree to happily work hand in hand.  If you do this, your financial records will become a tool through which business management becomes easier and easier, you will have fewer worries because you will be more in control, and you will have an informed support base armed with detailed and up-to-date data, for which there is no substitute when a storm approaches.

Please note that this article is prepared as general advice. It does not take your personal or professional circumstances or goals into consideration. To learn more about our business consulting services, contact us today.

Are you managing your cash flow effectively?

A well-constructed budget is the key to good financial management.

Do you find it difficult to manage your money so that you have enough to pay your big bills when they are due?  Having a proper budget that you update regularly will make all the difference.

I hear you say ‘but I don’t know where to start’!

The first step is to find a tool to help, one you like using and find easy to use.  There are lots of free budgeting options available on the internet and the Money Smart website is a good place to begin.  Another really useful option are apps on your smartphone, there are many different options including; Pocketbook, YNAB (You Need A Budget), Mvelopes and Mint.

Find your last pay slip and record in your budget tracker the amount of each payment and the frequency that it comes in.  Record any other income and then begin on your expenses.  Start by identifying what are your needs and what are your wants.  Needs are things that just have to be paid e.g. rent, groceries, etc. and wants are the discretionary expenses like dining out, a morning coffee on the way to work.

Populate your spreadsheet with all of the needs for the current week and for the months ahead so that you know when the car registration bill is due and you can leave enough money to pay that bill when it arrives.  How much is left over each pay period after you have paid your necessary expenses?

That amount is all that you have left for the wants.

Do you want to plan for a holiday or a new car?

Identify what you want to do, how much it costs and when it is to be – say you have decided that you want to take a holiday that will cost you $2,000 and you want to go in 6 months’ time.  Look at your budget – you have allowed for the needs, and you know what is left after they have been paid.  Factor in an amount to save each pay as you are entering up your discretionary expenses, or wants. This will tell you if your savings expectation is achievable.  If it is not, then you have to adjust your budget – where can I trim something off the discretionary expenses so I can save what is needed, or do I have to wait longer for the holiday?

Once you are in the habit of watching and tracking what you spend, you will find a budget easy to work with and that you can achieve your goals because you have planned for them.

Please note the information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs.

Happy New Year from all the team at The Investment Collective.

What is your New Year’s resolution? Is 2018 the year you achieve it? I’d like to say that the odds are on your side, however, statistics from 2016 show that only about 8% of people achieve their New Year’s resolutions.

Setting goals is always tricky. Many New Year resolutions are either financial or fitness related. Financial and fitness goals are challenging at the best of times, especially if sacrifices or a change in regular behaviour need to be made. Is there another approach?

Setting only one goal will allow you to focus all your energy on achieving a positive outcome. Your financial New Year’s resolution may, for example, involve paying off a credit card. Setting up a regular cash transfer from your spending account after each payday will gradually reduce the amount you owe. These small steps will help in the long run to pay off the credit card by the end of 2018.

Paying off your mortgage is a big hairy audacious goal (BHAG) and an unlikely achievement in one year. However, you can make some simple steps to reduce years of repayments and thousands in interest. Firstly, get your mortgage reviewed from one of our mortgage specialists. Our team will compare a range of lenders to find you the best offer. Secondly, set a monthly repayment amount that is above the minimum required mortgage payment.

Have you set a fitness goal? The same way you consult a financial adviser to help you reach your financial goals, I suggest talking to an expert who can assist you step by step to help you achieve your fitness goals.

Personally, I have only set one goal that is not a BHAG – I’m getting married next year! My goal is to save an additional $10,000 before the wedding. I have also stepped out how I’m going to achieve this goal. The wedding is in one year, so I have a definitive timeframe. My goal is $10,000 and I intend on saving an additional $200 per week. To help me reach this goal, I have taken on an additional job that is flexible and manageable.

As you can see, each step is measurable, time-based and realistic. 2018 is the year I will achieve my goal. Will you achieve your goals, whatever they may be?

Please note this article is prepared as general advice only. It has not taken into account your personal circumstances or financial goals. If you would like financial advice tailored to help you achieve your goals, please contact us and talk to one of our friendly advisers today.

As we head into the festive season, we must pause for thought for all of those who have tragically lost their lives or become seriously injured due to a horrific car accident. Did you know that on average, four people die and 90 are seriously injured on Australian roads every day! Those are some shocking statistics, and sadly the numbers aren’t decreasing. The three biggest contributors to these accidents are speeding, driver fatigue and alcohol and drugs.

Here are some tips to help reduce the likelihood of becoming another victim:

Speeding

We all know what we need to do here, slow down! By lowering your speed by 5km/h on urban roads or 10km/h on highways you will reduce your risk of an accident by half.

Driver fatigue

Ensure you stop every 2 hours for a rest. If you’re not in a location where you can stop for long, pull over to the side of the road and run a few laps around your car. This will get your blood pumping and your alertness up!

Try to avoid heavy meals while driving. Light snacks will keep your body satisfied while a large meal may have adverse effects on your driving ability.

Alcohol and drugs

Again, this one is very simple, don’t drink and drive. Don’t take drugs and drive. This has been pounded into us all since a very young age and yet, we are still having tragic losses because of people under the influence.

Unfortunately, all we can do is control our own actions and decisions, and not those of the other drivers on the road.

However, I do know for certain that every individual who passed away or became seriously injured, didn’t plan for their lives to change. These tragic events could happen to anyone, and it’s more than likely we know someone who has been affected by a road accident, I know I do.

Do yourself and your family a favour and contact us to make an appointment with one of our friendly Risk Advisers today. They will help to assess your need for life insurance and ensure your family is covered should something unexpected occurs.

In recent times, the debate regarding the merits of active versus passive investing has escalated on the back of phenomenal inflows into ETFs (exchange-traded funds) and other low cost passive funds. But is the growing preference for passive investing justified?

Passive investing simply aims to replicate the return of the market. The prime example of the passive approach is through the use of index funds that follows one of the major indices, e.g. the S&P/ASX 200. Whereas active investing adopts a hands-on approach to outperform the market and take full advantage of price fluctuations.

US based news service Bloomberg recently reported that in the first half of 2017, flows out of active and into passive funds reached nearly $500 billion. Looking at the current landscape it’s not hard to see why, passive funds are historically known to perform well when a market is raging forward and poor in a market downturn. Passive ETFs offer low fees, simplicity and transparency while active funds are more complicated and charge higher fees for the additional analysis completed. So when passive outperforms active, it’s not hard to see why passive is currently favoured.

Secondly, when a sector begins to rally forward to the point it becomes overvalued, active funds begin trimming positions to maintain asset allocation. Passive funds, however, continue to buy pushing stock prices up higher which, on the surface, exasperates the underperformance of active funds.

The US index, as measured by the S&P500, is performing superbly since the crisis of 08’. What is concerning, however, is that much of its gains can be attributed to the funds flowing into five particular companies: Amazon, Google, Microsoft, Apple and Facebook. The majority of those funds can be traced back to “in fashion” technology-based ETFs.

This situation really supports the idea that the immense growth of passive index funds is resulting in a far more volatile and less rational market where certain stocks and sectors are being stretched to dangerous levels. This begs to ask what happens when the stock market falls and investors look to exit their position when their capital is invested in  ETFs that are over-weight in overvalued stocks that are the most susceptible to fall.

Even our own stock index, the ASX200,  shows that our market is weighted toward large, mature companies offering high payout ratios (higher dividends and less money put aside for new growth projects). A high payout ratio leaves little room for reinvesting back into the company to provide for future growth. Buying into an overvalued company that lacks the ability to grow is concerning but a passive index fund will continue to buy, as the company is part of the index.

Warren Buffet has promoted index funds and their suitability for the uninformed investor – the investor who has no interest in understanding or valuing a business. What this outlines is the appeal of ETFs as they are seen as “safe” and “easy”; in comparison to active investing which is viewed as complex and expensive. What investors fail to realise are the limitations and risks associated with index funds.

The debate of passive versus active will likely go on forever, as markets rally investors will reap the benefits of following the index as a result of lower fees and strong performance. Whereas active investors will outperform in times of uncertainty as they use discretion and analysis to avoid “losers” and pick “winners”. It is our view that active will always win out over passive in the long term as investing is a marathon, not a sprint.

At CIP Licensing Limited, our active investment philosophy allows us to position clients’ portfolios in stocks/securities that we believe have the most promise and brightest future prospects. When the market is roaring, this can sometimes result in underperformance versus the passive investing, but when the market is slow and uncertain this is when we excel. With our focus on the future, we’ve adopted this philosophy to ensure efficient growth and protection of our client’s wealth in good times and bad.

This article has been produced as general advice only, and has not taken into account your personal circumstances or financial situation. If you would like to talk about the suitability of your investments, passive or active, please contact one of our offices and set up an appointment today.

Small business forms a significant part of the Australian economy. You may recall that one of the focuses of the 2016-17 Federal Budget included a raft of initiatives to simplify tax and compliance, encourage investment and increase the level of economic activity in our economy.

Australian small businesses employ over 3 million workers and added over $340 billion in 2013-14 to the Australian economy[1] it is therefore crucial for all levels of government to support small businesses, however, ultimately the buck stops with you.

So what can you do to make your business more successful?

1. Review your business.

Taking the time to stop and analyse your current business and areas of improvement, could lead to new ideas, new revenue streams and a reduction in costs.

Reviewing market trends and other factors affecting your business will help you to innovate and be a step ahead of your competitors.

2. Overstocked?

Business owners are enticed to buy in bulk and save, failing to recognise that excess stock will have additional costs, including the requirement for additional storage space, the increased likelihood of perishables, and in many cases, increases in the funding costs required to pay suppliers.

Implementing a policy of buying stock when needed will keep stock refreshed, reduce the need for storage space and improve cash flow.

3. Keep a close eye on your debtors.

It’s great making sales or providing a service on credit, but not chasing up money owed will lead to greater losses. Have a look at your outstanding debtors right now, did you realise that there was so much money outstanding? You should be looking at this weekly; if your customers think they can get away with not paying you, they will!

The information provided is general advice only. It has not taken into account your objectives, financial situation or need. If you would like to learn more or receive more tailored advice, uur business consulting team are experts in the small to medium enterprises (SMEs). If you would like to have a free consultation regarding your business needs, contact The Investment Collective today.