End of year strategies and opportunities

Speaker’s name Title/departmentApril 2013

3April 2013

Disclaimer

This information was prepared by Securitor Financial Group Ltd, ABN 48 009 189 495 AFSL & Australian Credit Licence (ACL) 240687 (Securitor) and is current as at January 2013.Material contained in this presentation is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.This presentation contains general information only and does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. All case studies and examples used in this presentation are for illustrative purposes only and nothing in this presentation should be construed as an indication or prediction of future performance or results.Any taxation position described in this presentation should be used as a guide only and is not tax advice. You should consult a registered tax agent for specific tax advice on your circumstances. As the rules associated with the super and pension regimes are complex and subject to change and as the opportunities and effects differ based on your personal circumstances, you should seek personalised advice from a financial adviser before making any financial decision in relation to any matters discussed in this presentation.

4April 2013

Agenda

Super – it’s still super! Transitioning to retirement Other opportunities Next steps

5April 2013

Individual

45%

• Up to 45% - Top marginal rate + 1.5% Medicare levy• Discount of 50% on capital gains

Company30%

• 30% Company tax rate• No CGT discount

Super15%

• 15% on earnings and deductible contributions • 10% on capital gains

Pension0%

• Tax free earnings within super when drawing a pension• Tax free pension payments once you turn age 60• 15% tax offset on taxable pension payments if over 55 and under 60

Choose your tax rate!

6April 2013

Super is a tax structure, not an asset class

No greater investment risk when investing through super

– you can invest in same assets

– cash is an option Bankruptcy protectionLow tax environment

SUPERCash

Insurance

Shares

Property Fixed Interest

7April 2013

Maximise your deductible contributions

More important to start salary sacrificing earlier than ever before!– 9% compulsory super counts towards cap.

Proposed legislation to allow $50,000 cap for over 50s from 1 July 2014 where super balance is less than $500,000

Deductible contribution cap 2012/13 2013/14

Standard cap $25,000 $25,000

8April 2013

Salary Sacrifice

IncomeSuperannuation

GuaranteeMaximum salary

sacrifice

Maximum sacrifice

percentage$100,000 $9,000 $16,000 16.0%

$125,000 $11,250 $13,750 11.0%

$150,000 $13,500 $11,500 7.7%

$175,000 $15,750 $9,250 5.3%

$200,000 $16,470* $8,530 4.3%

* SG is only required on first $45,750 of income per quarter ($183,000 p.a.)

9April 2013

Personal contributions can help plug the gap

050,000

100,000150,000200,000250,000300,000350,000400,000450,000500,000

1 2 3 4 5 6 7 8 9 10Year

Salary Sacrifice $34,225 (50K Cap)Salary Sacrifice $9,225 (25K Cap)Salary Sacrifice $9,225 plus $15,375 after-tax

Case StudyBrad (age 55)Employed on a package of $180,000 plus SGWas sacrificing up to $50,000 cap.From 1 July 12 only have $25,000 cap

Note: Assumes a return of 7% after fees and tax

10April 2013

Maximise your personal contributions

No deduction is claimedPersonal contributions capped at $150,000 p.a.If under 65 you can bring forward 2 years of cap and contribute up to $450,000

11April 2013

Don’t forget super for a low income spouse

Co-contribution– Co-contribution up to $1,000*– Income up to $31,920 for full benefit or up to $61,920 for

partial

Spouse contribution tax offset– Tax offset up to $540 for contribution of $3,000– Spouse income up to $10,800 for full or $13,800 for partial

* The Government has proposed halving the co-contribution to $500 from 1 July 2012, thereby reducing the cut-out income threshold to $46,920

12April 2013

Insure pre-tax with super

Save up to 87% on pre-tax cost of funding Life and TPD premiums

Improve cash flowCan hold through your SMSF

Pre-tax contributions Super Life & TPD

Insurance

Taxable income over

Marginal tax rate

(inc. Medicare levy)Pre-tax cost

outside superPre tax cost

in SuperPercentage

saving$37,000 34.0% $1,515 $1,000 34%

$80,000 38.5% $1,626 $1,000 38%

$180,000 46.5% $1,869 $1,000 46%

13April 2013

Double the deduction on income protection

Income protection deductible personally– Salary sacrifice – “otherwise deductible”– Prepay 12 months in advance

Double up - Deductible contributions to super up to cap plus personal deduction on income protection premiumInside super – cash flow

Incomeprotection

Personally deductible

Pre-tax contributio

nsSuper

Maximise contributio

n cap

Transition to retirement

15April 2013

Transitioning to Retirement

If you’re 55+ you may be able to:– Reduce your working hours – Use super to supplement your income

ORMaintain fulltime workSalary sacrifice to superDraw tax effective income from super

16April 2013

Transitioning: Let’s take Ian, for example

Ian would like to boost his super without affecting his lifestyle Salary $100,000 p.a.Receiving $9,000 superannuation guaranteeAge 60

Ian Super

$16,000 salary

sacrifice$9,840 income

17April 2013

Ian’s super accumulates much quicker

Gross salaryLess tax

$100,000$ 26,447

Net salary $ 73,553

Gross Salary (after SS) $84,000

Net salary $63,713Pension income (age 60 – tax free) $9,840

Net income $73,553

Benefit in Year 1 $3,760

Current Proposed

Plus, benefit of 0% tax on earnings when in pension phase

Includes Medicare levy

Other opportunities

19April 2013

Terry and Vicki

Both age 50 and happily marriedVicki’s an employee earning $200,000 p.a.

– maxed out concessional contribution capTerry no longer works due to poor healthThey have recently sold an investment property

– Proceeds of $400,000– Outstanding loan - $100,000– Initially purchased 3 years ago for $300,000

20April 2013

They seek advice

Repay property loan of $100,000Put $100,000 into a margin loan in Vicki’s name

– Conservative portfolio of investments– 50% LVR – borrow $100,000– Prepay interest – assume rate of 10%

Surplus of $200,000 in term deposit (Terry’s name)Vicki donates $2,000 to Cancer Council Prepay premium of $3,000 on income protection

21April 2013

The result...

Vicki TerryGain ($100,000 split between two) $50,000 $50,000Assessable gain (after applying discount) $25,000 $25,000Prepay interest on margin loan ($10,000) -Prepay income protection premium ($3,000) -Donation ($2,000) -Assessable amount $10,000 $25,000

Tax payable at marginal rate $4,650 $1,222

Vicki’s assessable amount for this capital gain is $10,000 as opposed to $25,000 if the strategy was not in place.

22April 2013

Recycle your debt using home gearing

Borrow against equity in own home to invest in a growth portfolio– Shares– Property– Managed fund

Income from portfolio used to pay non-deductible debt first

23

How debt recycling works...

Income

Property

Managed funds Shares

FamilyHome

Home loan(not deductible)

Investment loan

(deductible)Interest

only

Principal & Interest

April 2013

24April 2013

Prepayments

Prepay interest (simplified tax system)– Margin loans – Investment property loans– Equity access

Prepay other deductible expenses– Income protection insurance– Donations

Variation of tax– Section 15-15 notice

Next steps

26April 2013

Next steps

Choose what tax rate you want to payStart salary sacrificing earlyReassess your insurance needsHave a disciplined approachSeek good quality advice

Questions?