As a Self Managed Super Fund trustee, you need to be careful about where you invested the Self Managed Super Funds’ money.  No Self Managed Super Fund should be so exposed to any one investment or asset manager that a collapse or complete lack of performance in the Self Managed Super Funds’ assets would cause major financial problems for the trustees such as the loss of the major part of the Self Managed Super Funds’ savings.

As experience shows, for example the Trio Capital collapse, there can sometimes be very little anyone can do to prevent a major collapse of a total asset class.  Therefore a Self Managed Super Fund trustee, or investor, should never have hugely significant amounts invested with one fund manager or with any one investment.

If a Self Managed Super Fund trustee is recommended to invest more than 10 per cent of their total capital with any one asset manager or managed fund, then as the trustee, you should get a second opinion.

A Self Managed Super Fund can have a large amount invested in a particular asset class, such as equities, but it should not be all in one fund or in one stock.

Diversification in Self Managed Super Funds is the best protection against major losses of retirement savings.

For more information please call Paul Baggetta on 9317 7300.
 

It is important that SMSF trustees understand that their SMSF needs cash available to meet pension payment requirements.  Unfortunately it has been my experience, when taking on a new SMSF client, that often the trustee and/or financial advisor have got it wrong.

In particular, I am often surprised by how often self-directed SMSF trustees who come to me for advice tell me that they do not have enough cash to meet their pension requirements.  To meet their 30 June deadline requirements, they are often forced to sell something from their portfolio to make the payment.

This appears to be mainly because retirees have focused on returns and how long their savings will last, and have overlooked the need to have cash available throughout the year in their SMSF to make regular pension payments.

It is very important that SMSF trustees understand that if the payment is not made, the SMSF loses the tax-free status of a pension-paying fund and goes back to being taxed.

The SMSF may incur unnecessary fees and brokerage in liquidating assets, as well as lost opportunity, if the SMSF trustee does not plan ahead.

This does not mean that the asset mix needs to change dramatically in the retirement/pension phase to achieve this, it may just mean needing to move towards more high-yielding assets.

SMSF trustees need to also understand the different levels of liquidity in fixed interest investments and cash deposits, such as term deposits.

It has always been my advice to SMSF trustees, with a SMSF in pension mode, to keep at least two to three years pension in cash.  This includes separating it from term deposits so that it is always available.

For more information please call Paul Baggetta on 9317 7300.

The recently released draft legislation, if legislated as is, will remove capital gains and franked dividends derived by trusts from current taxing arrangements and subject them to a different taxing regime.

Not only is the Governments’ handling of the trust income taxation reform not allowing enough time consultation with the industry, but contemplating complex new legislation that relates to the current financial year is inappropriate.

While releasing the draft legislation, the Governments’ Minister Bill Shorten explained that the early release of the legislation was “to ensure that interested stakeholders have the maximum opportunity to comment on the core changes proposed” in the legislation. 

Whilst it is also true that the draft explanatory memorandum states that the final legislation will clarify matters, this is not good enough.  Taxpayers need certainty for this financial year.

And although in March 2010, the Australian Taxation Office did provide a one year amnesty for all taxpayers utilising Trusts as an effective way of solving this problem, this is not enough time to allow for further consultation with the Government.

The amnesty period should be extended by at least two more years to provide the time needed for further consultation and allow the Government to provide a complete overhaul of the existing trust income tax rules.

If you would like further information please call me, Paul Baggetta, on 9317 7300.
 

It is important to distinguish between a repair and an improvement when undertaking maintenance on a rental property, as the taxation treatment is very different.

A repair involves replacing a part of something or restoring something to its original working order without changing its character in its entirety.  Repairs are deductible for tax purposes and generally include painting, repairing gutters, maintaining plumbing, replacing broken windows.  However, the cost of initial repairs are of a capital nature and are non-deductible on the basis they are incurred too soon in the income producing process.  Initial repairs are included in the cost base of the asset for CGT purposes.

Improvements includes substantial improvements, additions and alterations and are not immediately deductible as they are of a capital nature.  The deduction can still be claimed over more than one year by depreciating the asset over its useful life or a capital works deduction spread over 40 years.

In order to determine what constitutes an improvement, factors that need to be considered include whether there is greater efficiency in the function of the asset, whether there is an increase in the value of the asset and whether the expenditure reduces the likelihood of future repairs.

Please don’t hesitate to contact our office on 9317 7300 should you have any queries.

Fortunately we now deal with this problem on very rare occasions, with our existing business clients, because our clients now know better.  However, this does continue to be a huge industry problem.

The Winner, and the Greatest False Economy of All Time
“Not seeking expert advice to try and save money!”

This is clearly the winner and probably applies to a vast range of subject areas, but the ones we know best are our core areas of business advice, accounting and taxation, finance, self-managed super funds and financial planning.

In these areas there is an abundance of free advice over the back fence, at the pub and on Television.

Occasionally we still hear a conversation that goes something like this:

Unhappy business person or investor:  “I did not come to you for advice because you would have charged me for it.”

Our response:  “Yes, and today you might still have your money.”

Seeking good advice may cost a small sum, but could save you thousands.

Employing us to do your book-keeping may be a little more expensive, but it will be accurate and will reduce your accounting fees.  Most importantly, it will give you peace of mind ensuring that your financial affairs are correct, and if you are audited by the Australian Taxation Office you will not be likely to incur a problem.

For further information on how we can help you and your business, and give you peace of mind, call Paul Baggetta on 9317 7300.
 

Here is an overview of the different life stages we may find ourselves in and the financial considerations appropriate to each stage.

Early working years
These are the years when it is important to invest in the most valuable asset – you.  Developing skills and employability at this age will pay dividends throughout life.  Saving regularly into at least a higher interest paying cash management or Internet type account is a good habit to get into at this stage.

Good Income, Few Commitments
These years are characterised by a reasonably free lifestyle.  This presents opportunities to lay solid financial foundations for the future.  Take advantage of compounding returns.  An investment growing at 7% per annum for example, will almost double in value every ten years.

Investing in growth-type assets is another good option.  This could be quality shares and property that steadily appreciate in value over the long term.  Buying these investments with borrowed money, sometimes called ‘gearing’ or ‘leveraging’ can be a rewarding strategy.  The borrowed money can build wealth faster whilst possibly delivering other benefits such as the opportunity to reduce personal income tax.

Settling Down
When in a relationship and preparing to start a family – financial goals become clearer, and making a dent in the mortgage is likely to be a main concern.

Although adding to your superannuation may not hold such high priority at this time making additional contributions to top up employer-sponsored super is a good idea.  It can be done tax effectively using salary sacrifice (making contributions out of your before-tax salary).

Family Times
These years can be enormously busy.  Despite the increased outgoings, good planning can still kick some financial goals.  People with a very young family may need to tread water financially for a few years – possibly until the children are at school.  But this is a time when again salary sacrifice can make a big difference in the amount of super accumulated.

Keep focused on building an investment portfolio.  Even a small amount invested each month in say, a growth focused managed fund, will accumulate to a decent nest egg by age 60.

Independence
Single, without children and able to afford to live an independent lifestyle.  An easy time to spend money on yourself but still important to provide for the future.  With plenty of income-earning years ahead, assets like shares, property or managed funds, should show good growth over time rather than more conservative investments, paying a regular, but lower return.

Mid Life
A lot of the financial pressure has generally eased by this stage of life.  The larger expenses, including the mortgage, are nearing an end, and the children are largely independent.

If back to being a two-income household, earning ability is often at its peak.  Income from investments usually does not have to be relied on yet.  Investing in growth assets via a gearing strategy and/or superannuation may boost returns over the medium to long term and ensure investments last the distance through retirement.

Golden Years
Throughout this period, focus is usually on income generating investments.  But with life expectancy at retirement currently around twenty years, some exposure to growth assets is still a vital if a nest egg is to keep pace with lifestyle requirements.

Franked dividends from quality shares can be an effective source of income and getting the right advice on rolling over super to an allocated annuity or pension can make a real difference to someone’s retirement lifestyle.

Not all our lives will follow this sequence.  But whatever our aspirations, to reach those goals we need to take steps to achieve them.  All it takes is a good understanding of what those goals really are, together with a plan of how to get there.

For more information, call Paul Baggetta on 9317 7300.
 

If the answer is NO, you need to review your current situation to ensure you and your family are adequately protected from an insurance perspective.

Did you know that more than 81% of the Australian population has inadequate levels of life insurance cover?

It is crazy that we go out and acquire assets, generally using bank finance, without considering the consequences of not being able to service these liabilities in the event of an unforeseen traumatic event taking place.

So what type of insurance should you have?  Life and/or Total Permanent Disability Insurance can provide a lump sum to you or your beneficiaries if you are seriously disabled or die.  This can be vital if you have a family or a mortgage to look after.

Then there’s Income Protection Insurance which typically covers up to 75% of your income if you can’t work temporarily because of illness or injury.

If you’re self employed or run a business you can also cover your fixed business expenses in case you’re unable to work temporarily because of sickness or injury.

There are many ways insurance can be structured to suit all budgets.

Don’t leave it to chance!  If you feel you don’t have adequate insurance cover in place and want to review your situation, please contact Paul Baggetta on 9317 7300 for an obligation free meeting to discuss your personal situation.
 

Insurance is one of the biggest precautions you should take to protect your business. regardless of the size of your business.  It takes a lot of courage to go into business on your own.  You must be prepared to take chances, but that does not mean you have to take unnecessary risks.  Taking out the right insurance is a smart move to secure the ongoing operation of your business.

Having the right business insurance does more than give you peace of mind; it’s an integral part of your overall management strategy to help you stay competitive and protect your business in the event of an accident or disaster.  While many small business owners seek to get away with minimal coverage, others overpay on insurance they don’t need.  You can avoid both of these extremes by ensuring you have the right coverage for your situation.

Although at first paying business insurance premiums might seem like a burden, the real question is can you afford not to have adequate coverage?  You never know when a natural disaster will strike, or if an employee will have an accident on the job.  It’s better to be prepared than to be hit with a large bill after some disastrous event takes place.  Just look at the aftermath when the water pipes burst in South Perth and the sewerage pipes burst in Victoria Park, or the cyclones in Bunbury recently which affected many small businesses in that town.  Would you have liked to be one of the uninsured  or under-insured businesses to have suffered these disasters?  The inconvenience alone would have affected the income of your business, let alone having to replace/repair fittings and equipment.

When considering your business insurance needs, you need to ask yourself these questions:

• Do I have adequate business continuation coverage? 
If a disaster were to strike your business and render it unoperable, will you be able to set up and continue operations in another location?

• How often will I be updating my liability coverage? 
Don’t fall into the trap that many small business owners find themselves in.  They purchase a policy, file it away, and never look at it again.  Review your insurance policy at least once a year to make sure it still meets your needs, and that you are not under- insured and not over-insured.

If you are just launching your business, make sure you have adequate coverage before you open your doors.

Remember, we all don’t want to consider worst case scenarios when we are planning to establish a business, or are in business.  However, that is the purpose of insurance – to protect you against worst case scenarios so you can place your efforts into building your business.

If you have not reviewed your business insurance for over a year, or do not have business insurance for your business, take the time to call me and let’s evaluate your various business needs today. 

Call me today for a free, no obligation, quote on your current business insurance needs.  We are here to help.

Regards

Paul Baggetta

“Running a small business gets harder every year.  Not only do owners have to try and grow their business, they also have to cope with an increasing amount of tax laws and other regulations.  In addition to income tax, they must deal with GST, superannuation guarantee, FBT, and WorkCover issues on a regular basis.

The primary sources of assistance for business owners trying to navigate their way through the various regulations and laws should be their accountant.  An accountants’ training and experience make them well suited to helping business owners with compliance matters, and a potential coach and mentor to help them grow the business.  The fact is they are often used only to lodge tax returns and little else.

One reason accountants are not consulted more is because they are regarded as a necessary evil to help keep the tax man at bay.  Business owners with this mind set tend to concentrate more on the cost of things, instead of weighing up business decisions in terms of their cost and benefit.  When it comes to the cost of accounting services, it is important to understand how accountants calculate fees.

Most accountants charge for their services on a time basis.  This means the size of the fee depends on the time taken to do the job and the hourly rate of the person doing the work.  The hourly rate charged will differ within an accounting practice, depending on who is doing the work, and will differ between accounting practices.

Within accounting firms, the hourly rate charged depends on the level of qualification and the years of experience of the person doing the work.  For example, an accountant with over 20 years experience might charge at least twice as much as an accountant with 5 years experience.

Fee levels between accounting firms will also differ depending on the location of the practice.  For example, an accounting firm with beautiful offices in the city will in most cases charge their staff out at higher rates than a firm operating from a modest office in the outer suburbs.  If the accountant has the right experience, the level of service is often the same.  The only difference is the fee charged.

Small business owners who recognise the longer an accounting job takes the more it costs will provide all of the information required to do the job.  Not only do they supply all the financial information, but they include copies of supporting documentation such as bank statements, loan statements and completed BAS’s.  The more an accountant has to chase a client for information, the more the final fee will be.

Small business owners who focus on the cost of their accountant, and not on the benefits of advice, tend to make decisions by themselves rather than phoning for advice.  This can be a false economy, as the benefit gained from the advice will often outweigh the cost.

An example of this is a business owner who didn’t telephone the accountant when buying a new vehicle, because the call would cost between $50 and $100.

The business used the cash method of accounting for GST reporting.  They financed the car with a hire-purchase contract, so their GST claim was $500 a quarter over a three-year term.  If they had asked for advice, they would have been told to use a chattel mortgage, resulting in a GST claim of $3000 in the quarter the car was purchased.”

Editor Note 2:  I have often been amazed at the $000’s of dollars clients have been prepared to lose so as not to call me first.  Often this has been because clients believe that my cost will far out way their potential savings.  The example of the hire-purchase versus chattel mortgage is a common example which many clients have needed to consider in the past.  Unfortunately, for each client who has gone to the trouble to phone me and seek the advice before proceeding, there have been many more clients who have gone down the path of not phoning me first, only to find when they come in for their annual tax return that they could have done it better.

As the above article surmises, many small businesses only use an accountant at tax time, which is a waste of their primary source of financial guidance.

Often the spouse expects to receive an insurance payout and retain their partner’s share in the business."

Everyone is better off in the long run where an agreement is reached, even if it’s just to make sure appropriate insurance policies can be put in place to cater for the owners’ estates should anything happen to them and ensure the survival of the business.

It is a wise precaution to have spouses consent to the agreement, so there are no surprises for them.