Written by Hudson Adviser Ivan Fletcher
No longer is getting a tax deduction for making personal super contributions for the chosen few (historically self employed or unemployed under age 65), it is now for everyone either working or under age 65. So this year when you are looking for ways to legitimately reduce your tax before 30 June consider making a personal Concessional Super Contributions.
To take advantage of this you must be aware of your annual Limit and the necessary process required to ensure you get a tax deduction.
How It Use to Be – Salary Sacrifice
The rule used to be that if you earned more than 10 per cent of your income from employment (ie wages/salary), you were not able to make extra tax deductible contributions for yourself.
The only way you could make extra Concessional contributions was via your employer as salary sacrifice. This of course requires planning ahead and communicating with HR to make sure your calculation is on track.
However there are several circumstances where Salary Sacrifice failed us
- If your employer didn’t offer it, tough luck.
- If you had a big capital gain or Bonus late in a financial year and wanted to get extra money into super, but didn’t have enough income left in the year to do so, also tough luck.
The New and More Flexible Alternative
Under New Legislation as of 1 July 2017 personal contributions (funded from personal accounts) may also be classified as concessional allowing for a tax deduction in your personal tax return.
The ‘substantially self employed’ rule (otherwise known as the ‘10% rule’) effectively no longer applies as of 1 July 2017, which opens up the opportunity to claim a tax deduction for anyone (self employed, a wage earner or retired ) who :
- is under the age of 75, and
- is eligible to contribute to superannuation, and
- has room left in their concessional contributions cap and
- has enough assessable income to be able to use the tax deduction.
Personal contributions can be done as one lump sum towards the end of the financial year (or via several deposits as funds are available). The Contribution(s) must however be received by your super fund by 30 June 2018 (if it arrives on1 July it becomes part of next years figures).
- make a personal contribution to a complying superannuation fund (before 30 June).
- submit a valid Notice of intent to claim a deduction for personal super contributions, in the approved form, to the superannuation fund trustee within required timeframes. Please see the tips and traps below on what makes a notice invalid and the required timeframes.
- Receive Confirmation from the Super Fund trustee that the valid notice of intent has been received.
- Use the above confirmation back from your Super fund as evidence to claim a 'personal' tax deduction in your tax return.
Other ways this strategy can be utilised to your advantage:
- fund insurance within super
- contribute to super where salary sacrifice is not available
- save for a first home deposit
- make in-specie contributions of direct shares into SMSFs.
Salary Sacrifice still lives on
Many people may want to continue their salary sacrifice contributions, adding a consistent amount each week/month. But they will also have the choice to put in large sums towards the start, or end, of the financial year, if it is more suitable to them. You can effectively use both methods of contribution to super (provided the total is within the $25,000 CAP).
A deduction cannot be claimed for a personal contribution that is:
- a downsizer contribution
- a CGT exempt amount contributed to super as required under the small business retirement exemption
- made to a Commonwealth public sector superannuation scheme in which the you have a defined benefit interest
- made to an untaxed fund
- made by a minor unless the minor derives income from employment or carrying on a business.
INVALID - notice of intent
A notice of intent to claim a deduction for personal super contributions will not be valid in any of the scenarios below:
- the notice is not in respect of the actual contribution amount made
- the trustee no longer held the contribution (example since rolled into another fund or split the contribution to a spouse)
- the trustee had begun to pay an income stream (pension) based in whole or part on the contribution
tips and traps
1. TRAP - EXCEEDING $25,000 CAP
The amount of personal deductible contributions must be considered in total with all other concessional contributions for the income year to ensure the contributions do not exceed the CAP.
Remember to consider all concessional contributions made or scheduled to be made in a financial year including the following
- superannuation guarantee,
- salary sacrifice,
- employers paying for insurance premiums
- If you are a member of a Defined Benefit account you will need to consult with that super fund for amounts classified as ‘concessional’
- In some cases insurance polices are framed in super such that the premiums are classified as Super Contributions.
A member who incorrectly classifies a personal contribution as an employer contribution and also claims a tax deduction for the contribution risks receiving an excess concessional contributions tax determination, as the ATO will count the contribution twice.
Super funds need to know what type of contribution you are making so that it can be reported correctly to the ATO and so the fund knows whether to deduct 15% tax. The ATO then uses the information reported from the fund and your income tax return to classify employer and personal contributions into concessional and non-concessional contributions.
3. TRAP– ClLAIMING CO-CONTRIBUTION OR SPOUSE TAX OFFSET
Where you make a personal contribution to superannuation and claims a tax deduction, they will not be able to claim a co-contribution on that contribution.
A personal contribution to superannuation cannot be used as an eligible spouse contribution to claim a spouse contribution tax offset.
4. TIP - PLAN ALL TYPES OF CONTRIBUTIONS BEFORE MAKING THEM
To avoid missing out on co-contributions or a spouse contribution tax offset, carry out more general contribution planning first. If you plan to claim a co-contribution, ensure a notice of intent is not submitted for that contribution.
If a spouse tax offset will be sought, ensure the contribution is made by the spouse and not as a personal super contribution.
5. TRAP – SUBMITTING A NOTICE OF INTENT TOO LATE
A Notice of intent to claim a deduction for personal super contributions will not be valid unless it is submitted in writing to the fund trustee by the earlier of:
- the end of the day the taxpayer lodges their income tax return for the income year in which the contribution was made or
- the end of the next income year following the year of contribution.
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Written by Hudson Adviser Michal Park
I get inundated with emails at work from various financial institutions and the like, but over the last few months, I would say that up to 30% of my emails have focused on cryptocurrency – more specifically, Bitcoin (the most well known digital currency). I consider myself a fairly intelligent person, but I have to say, I have read article after article about cryptocurrencies and I still find the whole thing hard to comprehend! For anyone in the same boat as me (but are too afraid to admit it!), this article is for you.
There are about 1,000 different forms of digital currency around* – I mean, as soon as something becomes the next big thing every man and his dog will crawl out of the woodwork to replicate it and ride the wave – but Bitcoin would be the most well known largely due to the fact that it was the first decentralised ledger currency and also because it is has the highest market cap of all cryptocurrencies. Ethereum and Ripple are the next largest cryptocurrencies by market cap. I’d speculate that Bitcoin will forever be know for jumping from $US11,000 to $US19,000 in just two weeks in December last year. It currently sits around $US8,600 (at time of writing 20 March 2018).
Bitcoin’s meteoric rise in price has cemented its place in modern financial markets as the biggest of its kind – beating “Tulip Mania”, a 17th century financial crash that became known as the first financial bubble.
Invented in 2008, Bitcoin is a digital currency that uses a decentralised ledger system called “blockchain” designed to facilitate digital transactions on a peer to peer basis between any two individuals across the internet. Blockchain is resistant to being hacked quite simply because the records it keeps are truly public and easily verifiable. The number of bitcoins in circulation gradually increases over time and at a rate that decreases over time such that eventually the total number of bitcoins in circulation will only ever be 21 million (and only a fraction of a bitcoin need ever be purchased, eg one millionth).
The mechanics of “mining” bitcoin (by a person, group or company) is as follows:
- When a bitcoin is transferred from one person to another, the network records this unique transaction, along with all others made within a certain time period, in a “block”.
- The network of computers called “nodes” then verify the transactions and the “miners” inscribe these blocks in a digital ledger – a “blockchain”.
- Thousands of miners then compete simultaneously to convert these blocks into sequences of code called a “hash” – essentially solving computational puzzles.
- When the new hash is generated, it is placed at the end of the blockchain, publicly updated and then the randomly drawn winning ‘miner’ gets paid in bitcoins.
The appeal and possibilities of blockchain is wide reaching. Our very own stock exchange announced in December last year that it would be replacing its current settlement system (CHESS) with a “blockchain-inspired technology” to improve the efficiency of the trade and settlement process. They are the first exchange in the world to consider this and in doing so they place Australia at the forefront of this technology.
As a currency, bitcoin is yet to be accepted by any real major merchants, hence the only options for most investors are to trade it on a digital currency exchange or hold. Bitcoin is, however, widely used as the currency of choice on the sinister sounding “Dark Web”. The Dark Web is essentially a collection of websites that are not allowed to publish over the common internet (as most of the sellers and items on the Dark Web are illegal – think buying drugs, hiring hitmen, forging passports and laundering money etc) so Bitcoins provide the anonymity required. There is a fairly strong stigma surrounding bitcoin in terms of its connection to the underworld.
A recent report from Australia’s blockchain industry network (the Australian Digital Commerce Association and Accenture) indicated the following stats at the end of 2017:
- 312,633 customers registered across seven Australian exchanges
- 2.7 million transactions processed in 12 months worth $AUD3.9billion
- 40% of traders were between 18 and 29 years of age (the most represented group)
Another interesting Bitcoin fact – the first publicly declared Bitcoin Billionaires were the Winklevoss twin brothers who famously sued Mark Zuckerberg for $65million over the origins of Facebook. They invested $11million of their settlement in Bitcoin four years ago when the digital currency was worth $120. At the height of their fortune, their bitcoin value was estimated at $1.4billion and put them in Bloomberg’s Billionaire Index. Bitcoin’s recent plunge has essentially wiped millions off their net wealth and booted them out of the Billionaire box.
In a nutshell, whilst it’s a very intriguing instrument and one of limited supply, bitcoin has no intrinsic value (like the way a stock is valued) and no real history so it is very difficult to support our Hudson members investing in it. The value of bitcoin really is anyone’s guess – hence the speculation and hype surrounding it. As the great Warren Buffett recently said about why he will never invest in cryptocurrencies “I get into trouble with the things I think I know something about. Why in the world should I take a long or short position in something I don’t know about?”
Like with any speculative investment, if you must invest, our advice is to only invest as much as you are willing to lose.
*Two cryptocurrencies of note:
Coinye – established in 2014 but abandoned after a lawsuit from its inspiration, Kanye West.
Potcoin – developed to service the legalised cannabis industry
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Written by Hudson Adviser Kris Wrenn
In my experience when speaking with members about their Superannuation, consideration is rarely given to the fact that their beneficiaries may pay a significant amount of tax when inheriting their Super. This may be down to the fact that most expect to “run down” their Super over time. “The Super is mine, the kids can have the house” is a common response I receive. That’s all well and good, but the reality is that in an effort to last out their Super, thousands of us depart this world each year with something left in there, in many cases significant amounts.
The rules. If you pre-decease your spouse or de-facto partner, and they are named as your beneficiary, then never fear, they will not pay any tax when receiving your Super balance. If your partner has pre-deceased you however, and if your children are over 18 and not financially dependent on you, and they are named as beneficiaries, then they likely WILL pay tax. The tax is levied at 15% + medicare for most of us (with taxable balances), and at 30% + medicare for those with untaxed funds (often Government workers).
Imagine a scenario where someone dies with $200,000 in their Super (taxable component), and leaves their Super to their adult children, the kids would effectively be looking at a $34,000 tax bill. That is a lot of money to be giving to the ATO, potentially unnecessarily.
Two potential ways to avoid this. Firstly, if you become aware that your time may be running out, then you can opt to draw out your Super balance into your bank before you die. This is perfectly legitimate and your children will pay no tax. The risk is that you live longer than you think and as such start to pay tax on your earnings. A second method could be a “re-contribution strategy”. You could draw out a lump sum (if eligible) and re-contribute it back to Super as a non-concessional contribution. These contributions form part of the tax-free component of your Super and are not taxed upon your death.
Limitations to this strategy for those under age 65 are that there is an annual contribution limit of $100,000, with the possibility of using the “bring forward rule” and contributing $300,000. If you are over age 65 and working you can contribute $100,000 a year (but not use the bring forward rule). And if you are over age 65 and no longer working you cannot contribute to Super.
Final comment. If you fall in to the last category and are over 65 and no longer work, from July 1st you may be eligible to contribute to Super, IF you sell your Principle Place of Residence, and have lived in it for at least 10 years. As such, this could be a great time to potentially action the “re-contribution” strategy and pull money out of Super only to put it back in. It won’t help you but if the worst happens it may save your kids tens of thousands of dollars.
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Written by Hudson Adviser Phillip McGann
There are three simple and yet vital questions that your Hudson adviser will need to know from you to get a good handle on your overall financial affairs. And if you know the answer to these questions you will be a long way down the road to financial success.
So what are they and why do so many Hudson Members I deal with daily struggle with answering them:
1) How much to you earn? Seems an easy question that most of us should be able to answer but it can confuse many people. This figure will include your earned income from work. It should also include any government pensions or allowances (think Family Tax benefit). It will also include investment income such as rents or dividends and interest on Cash and Fixed Interest investments. For many it may include account based pension or annuity income.
2) How much do you spend? This can be harder to work out as you can spend money in so many different ways. It can be spent as Cash – probably the hardest to keep a track of. It can be spent via Credit Card or via Direct Debit or via internet transfer. We can spend it with out knowing – via interest expense on a credit card or a loan that is capitalising. Also we spend income by salary sacrificing to Super – effectively we are deferring today’s consumption to future consumption but we are still spending today’s income to do it.
3) What is your surplus income?. Basically this is the difference between the two items above. Again should be simply but for many is not easily arrived at. This surplus figure can be particularly “lumpy” or seasonal as income and expenditures for most of us fluctuate widely throughout the year. As an added complication any tax return should be included here as in effect it is a credit for tax already paid that is being returned due to tax deductions on your income. This tax return may well turn this third figure into a surplus for many
So how did you go with this simply exercise? If you cannot easily answer these basic questions than you are missing out on the fundamental ingredient of financial success: Budgeting.
To many “budgeting” is a dirty word and one that conjures up images of hours spent writing down what they spent at Woolworths over the past 12 months or how much that car service cost last Ocotober. Not much fun
But it is important and if you can come up with a system that is easy to use and not a chore the habit is a good one to get into. I firmly believe that the secret to financial success is to spend less than your earn and invest the surplus wisely over an extended period of time.
We often concentrate a lot of effort in the investments we choose – and this is vital for long term investing success – but equally as important is living with in your means and producing a consistent surplus to provide the basis for the investing.
With out budgeting success there can be no investing success. Like the old saying:
“Do not save what is left after spending
But spend what is left after saving”
Hudson has made it very easy for members to get into that Budgeting habit. We have produced a easy to use Spread Sheet base Budget template that is modelled on the tried and true Hudson Budget system many of you will be familiar with.
You can go here Hudson Budget Spreadsheet and download the budget spreadsheet and the accompanying articles explaining how it all works.
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Written by guest author and Hudson member J.D. Chadwick
Everything in life is a compromise and more so when it comes to caravanning.
Most newbies to the RV market fall into the trap of comparing caravans with their homes, thinking everything you have in your house you will need in your prospective home on wheels. But if you ask experienced travellers this is far from the truth especially if you look at those on the road for long periods at a time. Invariably they have the smallest vans and the least amount of gear.
Why? Because they have learnt the hard way that the more you take the more weight and weight equals money, unnecessary costs and hassles. So, if you are a hoarder or think you need to take parts, tools and clothes to cover every possible contingency then perhaps a motorhome would suit you better. We for example have spent the last 10 years in an 18’6” van and love it.
Things to consider before rushing out to buy a new or used van. This could save you thousands of dollars (that Hudson’s will gladly invest wisely for you…) and increase your enjoyment.
The biggest change in caravan design over the past decade has been the introduction of the full ensuite, bathroom, dunny call it what you will. Consumer demand has doubled the size of bathrooms whilst reducing the living space (bringing us back to that word ‘compromise’) Which put into prospective, means that the majority of travellers are towing around 8’ x 3’ of space that they only use for 20 minutes a day!
Now ladies; you are the biggest culprits. As a mere male I cannot fathom how the female mind can justify a larger bathroom in lieu of kitchen space when you spend far more time preparing meals than getting rid of them. Check out how small, if any, preparation space is allocated to the modern caravan kitchen. And, please don’t kid yourself that this is a holiday and you won’t be doing any cooking, so you have no need for a functional kitchen.
My point being – there is only so much space inside a caravan so compromises will have to be made when it comes to layout – the bigger the bathroom the smaller the living area. The crazy part to all this – a longer van usually means an even bigger ensuite not more seating or kitchen area. And be aware that café style seating is also a con trick. Because it is usually located over the wheel arch this means that only two persons can sit at the table, unlike the L shaped table/seating option which can sit 4 or more. It all comes down to what is important to you.
Smaller vans are easier to tow, reverse and get into tight spots (you will encounter these numerous times in your travels) so make sure the rig suits what you want it to do. E.g. Are you likely to stay in parks more than freedom camping. Are you happy to use the excellent bathroom facilities in caravan parks or is your own a must have (which means more cleaning!). Off road bathing is limited by the amount of water you can carry, a luxury shower head eats into that supply very quickly.
An annex will overcome living space but is only realistic if staying in one place for a fortnight or more (it takes time and effort to erect) the extra weight (up to 40kg) and where to store it are factors to consider before adding it to your list of purchases.
Consider renting a van before buying, or pop down to your local caravan park and interview caravan owners, they’re a friendly lot, to find out the pros and cons of their model, ask if there are any things they wished they knew about beforehand – all valuable information that could save you a lot of grief and make your dollars go further.
One last point: Never buy a van without a toilet! The older you get the more you will thank me for that tip!
So, ladies, bigger is not necessarily better when it comes to Caravanning.
Chad and his partner are veteran caravaners. (10 years into a 2-year trip around Australia!). Chad has spent years researching vans and equipment, knows most of the ins and outs of living on the road and how to earn a living from their van. 'Author of 'Deckers, Punters and Dead Ants!' - (Around the world in a Double Decker bus!). - Now Available on Amazon. A great read for anyone, especially those over 55. Amazon: Deckers, Punters and Dead Ants
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