Month: June 2022

Can You Use Superannuation To Pay Off An Existing Mortgage?

Posted on by Adam_Admin

A relationship has been established around superannuation and mortgage debt that could impact the stability of your retirement.

As prospective Australian retirees approach their preservation ages and retirement, those who are yet to own their own homes may struggle to maintain a comfortable retirement. Retirement plans often work out a prospective financial situation, and assume that an owned home is an already existing asset.

Housing is quickly becoming a critical aspect of retirement, alongside the pension, super and voluntary savings as the main means of ensuring a comfortable retirement for future retirees.

Mortgage debt and the threat of continued payments to pay it off is something that workers must now take into consideration when looking into their retirement, as Australians struggle to pay off their homes. Can it be paid off without the extra income earned from their work?

As more and more Australians retire with healthy superannuation balances, the allure of using that money to pay down a mortgage is strong.

Factors that may be affecting retiree’s mortgage debts could include:

  • Higher property prices (now ten times the average wage as compared with three or four times two decades ago).
  • A delayed entry into the property market as they save for a deposit, leaving fewer working years to pay off the loan.
  • Relatively low-interest rates – currently, every dollar used to pay down a mortgage is saving less than 3% on interest, while in superannuation that same dollar has the potential to return 7 or 8 per cent.

Paying down a mortgage is a growing problem for retirees who are increasingly leaving the workforce with mortgage debt, which is far from the norm among middle-income Australians as recent as a decade ago. Among retirees, homeowners in the years prior to retirement (ages 55-64) had dropped from 72% in 1995 to 42% in 2015-16.

However, those who began their working careers prior to the 1990s face another challenge as they move closer to their preservation age; the superannuation guarantee was only introduced in 1992, which means that many may have accumulated less superannuation than other generations after.

It is understandable that for those approaching retirement, preferencing super over mortgage could seem like a logical move, as the extra funds generated can be diverted back into property on retirement. Using superannuation to pay a mortgage can make some tax sense – in an assets test for the Age Pension, a primary residence is exempt while superannuation is not.

This may become a more common approach for retirees and those looking to retire within the next few years. However, you should consider what the best approach is for your situation, and whether paying off the mortgage with your super is worth it in the long run. Consulting with a professional before taking any action should be your first step in this process.

Cash In Hand Compliance Concerns For Businesses & Individuals Alike

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If your business earns a part of its income in cold, hard cash, be prepared to have the Australian Taxation Office’s eyes on you this tax time.

To protect honest, compliant Australian businesses, the Australian Taxation Office (ATO) has placed a strong emphasis on targeting the cash and hidden economy (known to be a part of the shadow economy).

For example, they may be keeping a close eye on a sole trader electrician, whose reported earnings over the financial year versus their actual spending isn’t adding up. Or perhaps you have a side hustle (such as freelancing or selling plants at the market), and earn some cash-in-hand alongside your full-time job’s income.

The ATO will be watching these businesses and individual traders that deal predominantly in cash, with a focus on those that:

  • Fail to meet super or employer obligations, and fail to register for GST or lodge activity statements.
  • Operate outside regular small business benchmarks specific to their industry.
  • Show discrepancies between what they have reported and ATO collected data relating to electronic payments.
  • Operate and advertise as cash-only.
  • Income does not correlate with the lifestyle of the business owner, i.e., assets and spending habits exceed what is expected of someone with their reported income.
  • Pay their employees cash-in-hand.
  • Estimate their sales and income.
  • Use the ‘no sale’ and ‘void’ buttons on cash registers when taking cash payments.
  • Do not reconcile at the end of the day and do not keep cash register tapes.
  • Are reported to the ATO by members of the community or any third party regarding potential tax evasion.
  • Are part of an industry that is known for dealing primarily in cash-only.

When out visiting cash-only businesses, the ATO will be working in unison with local authorities and industry associations to ask questions and discuss:

  • Why the business operates primarily or only in cash.
  • The need to lodge tax returns and activity statements.
  • How to be compliant in relation to tax and super obligations.
  • Different claims and tax deductions businesses can make.
  • The general community’s preference for having EFTPOS or electronic payment options available to them.
  • Benefits of electronic payment and record-keeping facilities.
  • Relaying tools and services businesses can use if they are struggling to ensure they are compliant with Australian tax laws.

If the ATO comes across a business that is doing the wrong thing or failing to meet its obligations, they have a duty to take action. This may result in the business facing an audit and possible prosecution.

Its imperative that you are fulfilling your obligations and know where you stand, particularly with;

  • Bookkeeping and record-keeping requirements
  • Reconciliations between till takings (z-totals) and banking
  • Consequences of failure to report all income (penalties, fines, interest, additional tax, additional GST)
  • Consistency of business income between prior and current years, and with reference to lifestyle

If you do make a mistake upon completing your tax return but make a voluntary disclosure detailing your errors, the ATO will work with you to rectify this and create a solution.

Why Having A Motivation For Your Business Is Important In Business Planning

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What is the origin story of your business? Why did it begin?

Many people might say publicly that they went into business to make a better future. Others might say that they began the business to pursue a passion. You may have simply wanted to earn money on your own terms, and create a better world for yourself.

More money, more free time, and more control or flexibility around your own work are often the reasons that people go into business. In a perfect world, you would have that control over your own work, be working fewer hours and have more money while pursuing your dream job and career goal. This may sound perfect, but it is rarely the outcome that people get from their own business.

In most instances, people may find that their hours increase, their income drops and though they now possess control, may also find that their business now also has control over them. The amount of work that may need to be done as a business owner can be overwhelming, but it must be completed. Instead of having one boss to answer to, all your customers are now your boss.

Owning a business can grant you more control, but it also comes with these heavier responsibilities and obligations. Being prepared is why consulting with a trusted business adviser can allow you to take the fear out of ‘impossible situations’ for the business, and give you choices.

There are many tasks that now require your focus to keep your business in operation – but to everyone else, it probably seems like you are living the high life as a business owner, answering to no one (if only they knew).

Your business probably started with a dream – a dream that probably did not include becoming a slave to your business or earning less than what you did in your previous job. What was that dream? What was your motivation?

Take stock of the situation you have found yourself in with the business. Relax, reflect, and consider what direction you want it to move in. Where do you want to go? Once you have a general idea, you need to put a little bit of time into planning how you are going to get there. Determine where you want your business to be in five years, or even ten years’ time.

Benjamin Franklin is believed to have once said, “if you fail to plan, you are planning to fail.”

It does not matter what stage of the business you are at, revisiting the business planning stage, even midway through the business, can be a useful strategic tool. Every business needs regular planning. This cannot be stressed enough. The chances of achieving your business goals are improved dramatically if there is a formally noted business plan.

A good business plan outlines your strategy for the next couple of years. It may be used to help support an application for business finance or business grants. Or it could be just for your own use as a roadmap for the growth of your business.

The components of a business plan explain your objectives and the actions required to get your small business from where it is now, to where you want it to be.

The process of creating your business plan will help you focus, crystallise your ideas and identify priorities, saving both time and effort. Your business plan will give you a clear sense of direction and a benchmark enabling you to measure progress.

In the approach to the end of the financial year, the best time to prepare a plan to use for your business over the next twelve months is now. Developing your five- and ten-year plans is also highly recommended. For assistance in preparing or developing your business plans, you can come and speak with us as trusted business advisers.

Who Has The Power To Make Your Financial Decisions?

Posted on by Adam_Admin

As you grow older, your aim may be to live a long, happy and healthy life. This is hopefully with the mental capacity to make your own financial and lifestyle decisions, and the appropriate superannuation to fund it.

But not everyone is always able to do this as they grow older. In the worst-case scenario, you may find yourself unable to make those choices yourself due to a diminished mental capacity (such as from mental deterioration, illness etc). If you can’t make your financial decisions, this could be bad.

There is often a misconception that people who lose their capacity to make, for example, financial decisions will simply be able to have their partner or spouse step in to make those decisions on their behalf. This is not the case.

Even if you are in a relationship with someone or own property jointly with them, they do not automatically have the power to make those financial decisions for you. This is where estate planning comes into play.

An estate plan records what you want to be done with your assets after your death. It can include documents such as:

  • your will
  • a testamentary trust (as part of your will)
  • superannuation binding nominations

It also covers how you want to be cared for — medically and financially — if you can no longer make your own decisions. This part of your estate plan may be in documents such as:

  • any powers of attorney
  • a power of guardianship (giving someone the right to choose where you live and to make decisions about your medical care)
  • an advance healthcare directive (your needs, values and preferences for your future care)

You may also choose to create an Enduring Power Of Attorney, which is a substitute decision-maker on your behalf. An EPOA is essential for clients who have their own Self-Managed Super Fund (SMSF).

The SMSF regulations require that members of the SMSF are either a trustee of the fund or directors of a company acting as the trustee. If a fund member is incapacitated, the member cannot be a trustee or a Director of a company. If that occurs, the SMSF becomes ‘non-complying’ which means it loses the tax concessions given by the super regulations.

Depending on your state of residence, powers of attorney may have different rights and obligations, particularly with respect to financial matters. Doing research and consulting with us about what your course of action could be if you were to lose your mental capacity for financial decisions could be a great start.