Newsletter – December 2023

Our last newsletter of 2023 is here! As we all start to wind down to a well deserved Christmas break, it’s time to reflect on what has been another eventful year filled with economic twists and turns. We are grateful for the opportunity to work with you throughout 2023 and look forward to navigating the ups and down of 2024 with you.

It’s proven to be the year of continued interest rate rises, with 5 rate hikes in 2023 adding to the 8 in 2022, in an effort to combat rising inflation. So far, whilst causing pain for mortgage holders, it appears to have worked as most regions including here in Australia (with the help of high immigration) have avoided a full recession. Whilst inflation has started to ease, global uncertainties and recession risks remain, added to by the new Israel/Gaza conflict.

As we look ahead to 2024, share market volatility is unlikely to ease in the short term as we expect to see the full slow down in economic growth play out over the next 3 to 6 months. If inflation continues to fall, we could see the first interest rate cuts in the second half of next year, but a lot can happen between now and then…

For now, we want to wish you all a wonderful festive period with friends and family, and be sure to find some downtime to recharge for the new year. We will be taking a break from work from the 21st of December until the 3rd of January, but will of course remain available for any urgent matters if needed.

Wishing you all a merry Christmas and a prosperous and healthy 2024.

Best regards,

Neil and Martina

Skip to this month’s articles:
How to give back
Retirement income and tax
Returning to work after retirement
Salary Sacrifice – no sacrifice at all
How to start a conversation about money

 

How to give back

How to give back

Australia is a giving country, but we often give in kind rather than financially.

Whenever there is a disaster here or overseas, Australians rush to donate their time, household goods and cash. However, we still lag other countries when it comes to giving money.

According to Philanthropy Australia, our total financial giving as a percentage of Gross Domestic Product is just 0.81 per cent, compared with 0.96 per cent for the UK, 1 per cent for Canada, 1.84 per cent for New Zealand and 2.1 per cent for the US.i

Currently the number of Australians making tax deductible contributions is at its lowest levels since the 1970s.ii Despite this, the Australian Tax Office reports that deductible donations claimed by individuals rose from $0.74 billion in 1999-2000 to $3.85 billion in 2019-20.iii

Considering an estimated $2.6 trillion will pass between generations over the next 20 years, the opportunities for increasing our financial giving abound. Philanthropy Australia wants to double structured giving from $2.5 billion in 2020 to $5 billion by 2030.iv

Many ways to give

There are many ways of being philanthropic such as small one-off donations, regular small amounts to say, sponsor a child, donating to a crowd funding platform or joining a giving circle.

For those with much larger sums to distribute, a structured giving plan can be one approach.

Structured giving

You can choose a number of ways to establish a structured giving plan including through a public or private ancillary fund (PAF), a private testamentary charitable trust or giving circles.

Whichever way you choose, there are attractive tax incentives to encourage the practice.

The type of vehicle will depend on:

  • the timeframe of your giving

  • the level of engagement you want

  • whether you want to raise donations from the public

  • whether you want to give in your lifetime or as a bequest

  • whether you want to involve your family to create a family legacy.

Private ancillary fund

A private ancillary fund is a standalone charitable trust for business, families and individuals. It requires a corporate trustee and a specific investment strategy. Once you have donated, contributions are irrevocable and cannot be returned. To be tax deductible, the cause you are supporting must be a body identified as a Deductible Gift Recipient by the Australian Tax Office.

The benefits of a PAF are that contributions are fully deductible, and the deductions can be spread over five years. The assets of the fund are exempt from income tax.

The minimum initial contribution to a PAF is at least $20,000. The costs of setting up a PAF are minimal and ongoing costs are usually about 1-2 per cent of the value of the fund.

Each year you must distribute 5 per cent of the net value of the fund to the designated charity.v

Testamentary charitable trust

An alternative to a PAF is a testamentary charitable trust, which usually comes into being after the death of the founder. The governing document is either a trust deed or the Will.

With a testamentary charitable trust, trustees control all the governance, compliance, investment and giving strategies of the trust. The assets of the trust are income tax exempt. The minimum initial contribution for such a fund is usually $500,000 to $2 million.vi

Philanthropy through structured giving still has a long way to go in Australia. The latest figures for total giving in Australia is $13.1 billion, of which $2.4 billion is structured giving. Currently the number of structured giving entities stands at just over 5400.vii

As the baby boomers pass on their wealth to their families, there is a wide opening for some of this money to find their way into charities and causes through structured giving.

If you want to know more about structured giving and what is the right vehicle for you to help the Australian community at large, then give us a call to discuss.

i, iii https://www.philanthropy.org.au/wp-content/uploads/2022/11/7480-PHA-Giving-Trends-and-Opportunities-2023-1.2.pdf
ii
https://www.socialventures.com.au/sva-quarterly/insights-to-grow-philanthropic-giving-for-not-for-profits/
iv
https://www.philanthropy.org.au/our-impact/a-blueprint-to-grow-structured-giving/
v, vi
https://www.philanthropy.org.au/guidance-and-tools/ways-to-give/choosing-the-right-philanthropic-structure/
vii
A Blueprint to Grow Structured Giving 2021 – Philanthropy Australia


Retirement income and tax

Retirement income and tax

How much tax you pay on retirement income depends on your age and the type of income stream.

For most people, an income stream from superannuation will be tax-free from age 60.

How super income streams are taxed

Types of super income streams

Income from super can be an:

  • account-based pension — a series of regular payments from your super money

  • annuity — a fixed income for the rest of your life or a set period of time

What is taxable and what is tax-free

Part of your super money is taxable, made up of:

  • employer contributions

  • salary sacrificed contributions

  • personal contributions claimed as tax deductions

Part is tax-free, made up of:

  • after-tax contributions

  • government co-contributions

If you’re age 60 or over

Your entire benefit from a taxed super fund (which most funds are) is tax-free.

If you’re age 55 to 59

Your income payment has two parts:

  • taxable — taxed at your marginal tax rate less a 15% tax offset

  • tax-free — you don’t pay anything more

If you’re age 55 or younger

You can usually only access your super if you experience permanent incapacity. If this happens, you’ll be taxed the same as people aged 55 to 59.

If accessing super for a different reason, such as severe financial hardship, your income payment has two parts:

  • taxable — taxed at your marginal rate tax

  • tax-free — you don’t pay anything more

Tax on other types of super funds

Defined benefit super fund

If you’re with a defined benefit super fund, you’ll get a statement from your fund before becoming eligible for your benefit (super money). This will tell you how much of your benefit is taxable and how much is tax-free.

Untaxed super fund

Some government super funds don’t pay regular tax on contributions. These are known as ‘untaxed funds’. If you’re a member of an untaxed fund, you pay tax when you access your money. Check with your fund to find out more.

Self-managed super fund (SMSF)

If you’re part of an SMSF, how you access your money depends on the ‘trust deed’ (rules).

Tax on transition to retirement income streams

With a transition to retirement (TTR) income stream, you can access your super while working. To get one of these pensions, you must have reached your preservation age (between 55 and 60).

You can take out up to 10% of the balance each financial year. You can’t withdraw it as a lump sum.

You pay the same amount of tax as on other super income streams, according to your age. Investment returns on TTR pensions are taxed at up to 15%, the same as a super accumulation fund.

Tax on non-super income streams

With an annuity bought with money from outside super, you get a fixed income for a set period of time. This pension income, less a deductible amount, is taxed at your marginal tax rate.

The deductible amount is the part of your original money (capital) coming back to you with each pension payment.

Get help if you need it

Find out more about tax on super on the Australian Taxation Office (ATO) website.

Services Australia’s Financial Information Service offers free seminars on topics such as retirement income and pension options – or feel free to contact us for more help.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/retirement-income/retirement-income-and-tax
Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.
Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.


Returning to work after retirement

Returning to work after retirement

Employers are desperate for workers and cost of living pressures are making it tough to live on a pension. That’s a perfect mix of conditions to send some retirees back to work. But it’s smart to get good advice before you take the leap.

With unemployment rates at historic lows and employers facing a shortage of skilled workers, an increasing number of retirees are choosing to re-enter the workforce. According to recent data from the Australian Bureau of Statistics (ABS), approximately 45,000 more individuals aged over 65 are actively working compared with a year ago.i

Some retirees may have been forced to return to work to financially support themselves. National Seniors research found 16 per cent of age pensioners re-entered the workforce after initially retiring, while another 20 per cent said they would consider returning to work.ii

Declining superannuation returns combined with rising inflation and cost of living pressures may be some of the reasons why retirees could soon be returning to work.

Things to consider

Returning to work after retirement raises several important financial and logistical considerations for retirees including the effect on the Aged Pension and superannuation.

If you receive an Aged Pension and are planning to return to work, you will need to let Centrelink know you are receiving additional income within 14 days. The extra income may mean that your pension is reduced if it exceeds Centrelink’s income threshold. It’s essential for retirees to be aware of these thresholds and how their earnings may affect their pension to plan their finances effectively.

Eligible age pensioners should also consider the Work Bonus incentive. This incentive encourages age pensioners to return to work with no or less impact on their age pension. Under the Work Bonus, the first $300 of fortnightly income from work is not assessed as income under the pension income test. Any unused amount of the Work Bonus will accumulate in a Work Bonus income bank, up to a maximum amount. The amount accumulated in the income bank can be used to offset future income from work that would otherwise be assessable under the pension income test.

Effect on superannuation

Returning to work after retirement can have implications for your superannuation, particularly if you’re receiving a pension from your super fund. You can continue taking your pension from super, but you will still have to meet the minimum pension requirements.

So, even though you may not need that pension income, you have to withdraw at least the minimum, which depends on your age and your super balance. This minimum pension rate is set by the government. Failing to meet these requirements can have tax implications and may affect your pension’s tax-free status.

You can convert your super pension phase back into the accumulation phase if you wish to stop taking the minimum pension. However, be aware of the tax differences. In the accumulation phase, any income and gains are taxed at 15 per cent whereas they are tax-free in the pension phase.

Don’t forget that if you retain your pension account, then you will have to open a new super accumulation account to receive employer contributions because you cannot make contributions into a super pension account.

Other investments

If you have personal investments outside super and have been receiving a pension, your lower income may mean that you are not paying tax on any gains from them. But extra income from a job may mean you move up a tax bracket and any investment income and capital gains will then be assessed at the higher rate.

Returning to work after retirement can have far-reaching implications on your finances, particularly with regard to your Aged Pension and superannuation. It’s vital to carefully seek appropriate advice to ensure a smooth transition back into the workforce, allowing you to make informed decisions that align with your financial goals and overall well-being.

If you would like to discuss your options, give us a call.

i Retirees in demand as employers continue to face tight labour market – ABC News
ii A working retirement – choosing to return to work – National Seniors Australia


Salary sacrifice - no sacrifice at all

Salary sacrifice – no sacrifice at all

What is a salary sacrifice arrangement?

Salary sacrifice is an agreement with your employer to contribute a certain amount of your pre-tax salary or potential bonus into your super. The aim is to potentially reduce your tax and boost your super balance at the same time.

The word sacrifice doesn’t really make this strategy sound appealing, but it has some great potential benefits.

How salary sacrifice works – bringing your taxable income down 

Instead of being taxed at your marginal tax rate of up to 47 per cent including Medicare Levy, these payments are generally taxed at the concessional rate of up to 15 per cent. 

If you’re a high income earner, with combined income and concessional super contributions of more than $250,000, your concessional contributions above the $250,000 will be taxed at an additional rate of 15 per cent (30 per cent in total). However, this is still lower than the top marginal tax rate of 47 per cent (including Medicare Levy).

Salary-sacrificed super contributions are part of your concessional (or before-tax) contributions for the financial year. The concessional contributions cap includes mandatory contributions made by your employer and is $27,500 per year, regardless of your age.

The Government’s MoneySmart website has a great super contributions optimiser calculator. It can give you an idea of how salary sacrificing can affect your super and take home pay.

If you like the idea of salary sacrifice, discuss it with your employer and see if you can make an arrangement with them. You should also seek advice from a tax agent or speak to your financial adviser to determine if this strategy suits your financial situation.

Personal deductible contributions

Similar to salary sacrifice arrangement, you can make personal contributions to super and claim a tax deduction for these contributions. By making a personal super contribution and claiming it as a tax deduction, you’ll reduce your taxable income and invest more in super.

The contribution will generally be taxed in the fund at the concessional rate of up to 15 per cent. This is instead of your marginal tax rate which could be up to 47 per cent including Medicare Levy.

An additional 15 per cent tax applies to concessional super contributions if your combined income and concessional contributions exceed $250,000. Depending on your circumstances, this strategy could result in a tax saving of up to 32 per cent and enable you to increase your super.

We recommend you contact us to discuss whether salary sacrifice or personal contributions would work for you.

Contributing some of your pre-tax salary into super could help you to reduce your tax and invest more for your retirement.

Let’s say you have an income of $60,000 and you chose to salary sacrifice $10,000 over the course of the year. Your taxable income would drop to $50,000. This means you’d pay less in tax. 

Salary sacrifice isn’t for everyone though. It is more effective if you earn over $37,000 and it’s important to remember not to go over the $27,500 before-tax contributions limits otherwise you could be paying extra tax.

You’ll need to remember the new cap for super contributions which from July 1 2023, for before-tax contributions, is $27,500 for everyone, regardless of your age. There are tax penalties if you go over this cap. Remember, compulsory employer contributions are included in your concessional contributions cap.

Get set for the future 

Setting up salary sacrifice is normally a straightforward process. If your employer agrees, you’ll need to arrange with them to have some of your pre-tax income paid straight into your super fund. You can access these funds when you reach your preservation age.

The benefits of contributing extra to your super from your pre-tax pay include easier budgeting. The money is not paid into your bank account, so you’re less likely to miss it. Also, you can receive a capped tax rate of 15 per cent or 30 per cent on the ‘sacrificed’ income.

An additional 15 per cent tax applies to concessional super contributions if your combined income and concessional contributions exceed $250,000.

If you’re serious about getting your super up to speed, then salary sacrifice could be helpful. It’s an effective strategy to maximise your super contributions and lower your taxable income at the same time. Your take-home pay could cover today, your sacrificed salary could help fund tomorrow.

To size-up your savings and set up salary sacrifice, contact your employer. You should also seek advice from us first or tax professional.

Source: NAB
Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/work/plan-retirement/salary-sacrifice
National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.
© 2023 National Australia Bank Limited (“NAB”). All rights reserved.
Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.


How to start a conversation about money

How to start a conversation about money

Why it’s so important to talk about your finances

According to this research1, one in two Australians don’t sit down regularly to look at their finances and one in three say that money is a source of conflict in their relationship.  

To put conversations about money back on the table, Australians should sit down for at least 45 minutes one Monday each month, either individually, with their partner or other family members, to get familiar with their financial situation.

Having regular discussions about money can help you manage your finances, reduce financial stress and improve your financial wellbeing.

To help, leading Australian psychotherapist Lissy Abrahams created a conversation guide to get people started. 

Tips for starting a conversation about money

Follow these simple steps to help you start a conversation about money.

Make a date to discuss financial matters

Talking about finances doesn’t have to be boring. Find one Monday a month and pop it in your diary. When the day arrives cook a nice meal then turn off your devices for 45 minutes. Make sure you jot things down so you can go back to them later.

Set some boundaries around the conversation about money

At the start of the conversation set some boundaries. These include being:

  • open and honest

  • curious about each other’s views on money

  • respectful – by being non-judgemental, not interrupting, and remembering no-one is right or wrong – just different.

Take a trip down memory lane to your childhood

Often our financial beliefs and behaviours are shaped from a very young age. From witnessing how our parents talked and/or fought about money and their spending habits, we’ve absorbed many messages about money.

Typically, we either adopt their behaviours or go the opposite way. Understanding this about yourself, your partner, or other family members, helps you understand your similarities and differences around money matters so you can create healthy financial plans together.

To understand how your attitudes are shaped by your childhood, ask questions like:

  • How did your parents talk about money?

  • What, if anything, did you see them fight or stress about with money?

  • What did you save or spend your money on growing up?

  • Were you more of a saver or a spender? Why do you think you were?

  • Are you similar or different to anyone in your family when it comes to money?

  • What’s the one thing you wish your parents told you or didn’t tell you about money when you were a kid?

Talk about your current attitudes towards money

Financial knowledge and skills are learned and continually need to evolve depending on your life stage. It’s important to find ways to navigate this.

To understand more about how you feel about money matters, ask questions like:

  • What money concerns do you have? Saving? Spending? Debt? The future?

  • How do you feel when you make a big purchase?

  • What’s your initial reaction when thinking about having a loan or going into debt?

  • What are three non-essential things you’d buy if money was no issue?

  • How important are financial goals and do you have any you’re working towards?

Assess your current situation

Even though it may feel awkward or initially confronting, it’s important to know your numbers. Remember, there’s no right or wrong. If you are doing this with a partner or family member, expect to have different financial ideas and spending habits. Be curious about these differences as it’s about finding your way forward.

To understand more about your current situation, ask questions like:

  • How much do you earn?

  • What are your incoming and outgoing expenses?

  • What debts or loans do you have, if any?

  • How do you feel about joint finances? Should some bills or expenses be shared, and others separate?

  • What’s your approach to managing money? Do you have a budget? Set savings goals? Bucket money? Are you secretive about any bank accounts?

  • What opportunities are there to reduce spending?

Plan for the future

Whether it’s a holiday, saving for a home deposit, buying a new car, or paying off debt, create exciting goals to work towards. This’ll keep you motivated and in alignment with your goals.

Get started

If you need help getting this conversation started, give us a call. 

1 Our research was conducted by NAB Economics and based on responses from 2,050 Australians weighted to the population, conducted from August to September 2022.

Source: NAB
Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/manage-money/money-basics/start-a-conversation-about-money
National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.
© 2023 National Australia Bank Limited (“NAB”). All rights reserved.
Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page

Streamline Wealth Pty Ltd (AR 1299307), Neil Sonneveld (AR 1251279), and Martina Sonneveld (AR 297377) are authorised representatives of Nextplan Financial Pty Ltd (AFSL 452996).
This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.