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Tax consequences of trust vesting

The Australian Taxation Office (ATO) has issued a long-awaited ruling on trust vesting, including changing a trust’s vesting date and the CGT and income tax consequences of vesting

         

 

A trust’s “vesting date” is the day when the beneficiaries’ interests in the trust property become fixed. The trust deed will specify the vesting date and the consequences of that date being reached. Vesting does not, of itself, ordinarily cause the trust to come to an end or cause a new trust to arise. In particular, the underlying trust relationship continues after vesting while the trustee still holds property for the takers.

The key points in the draft ruling are that:

  • before vesting, it may be possible to extend the vesting date (by applying to a court or by the trustee exercising a power to nominate a new vesting date);
  • it is too late to change the vesting date once it has passed (and the ATO says it is unlikely that a court would agree to do so); and
  • continuing to administer a trust in a way that is inconsistent with the vesting terms can have significant CGT and income tax consequences.

Does your tax have a vesting date within 5 years?  Failure to start planning now could have dire consequences.

 

 

Source:  AcctWeb

 

Information needed to be the BBQ expert.

Comprehensive statistics on how Australia is performing.

         

 

An up-to-date snapshot of Australia's vital statistics.

Please click on the following link to see all this interesting information. The areas covered are:

  • Overview
  • Markets
  • GDP
  • Labour
  • Prices
  • Money
  • Trade
  • Government
  • Business
  • Consumer
  • Housing
  • Taxes
  • Climate

 

Access all this data here.

 

tradingeconomics.com

Behavioural Coaching and your financial plans

Behavioural coaching is a major component in how a financial planner adds value to your portfolio.

 

       

 

Last month’s topic was “How a Financial Planner adds value to a Portfolio?”, a major component being Behavioural coaching. The month before the topic was “The Value a Planner Adds to a Portfolio”.

This month the focus is on “What is Behavioural Coaching?”.

There are many long-term investment charts that show how portfolio values increase over time but even with this proof many investors react to short term market volatility which can often undermine attainment of long-term objectives.

Managing this reactionary behaviour is the definition of behavioural coaching.

Behavioural coaching is how a financial planner manages investor 'emotion' and 'reaction’ to market ‘noise' to ensure long term goals are achieved. A good example of this was the GFC. Planners often talked of the stress of having to explain the correct path under such extreme circumstances. In the end, though, those who played the long game have recovered well.

This form of control is hard to achieve when acting alone, it often requires teamwork and professional help.

Behavioural coaching centres on four issues:

  1. A financial plan is the anchor to all actions.
  2. Set clear expectations at the beginning.
  3. Managing the emotions that accompany periods of market volatility.
  4. Work together to ensure an effective planner / client relationship rather than simply reacting to markets.

Behavioural coaching may also involve assisting in areas such as budgeting to save money now to help attain goals later.

A planner, though, will struggle to help you achieve your goals if they aren't continually kept up to date with any changes in your life.

There are four components that you and your planner need to work on together. These are:

Goals

Without goals there can be no planning. However, goals must be realistic and for many investors this is itself difficult because of their starting age. The earlier a person has a financial plan then in most cases the better the outcomes.

Discipline

Market noise and emotion means decision making is difficult. It may even mean cuts now to help win in the end. Discipline is very hard to do on your own so help in this area is a major contributor to attaining long term goals.

Balance

This simply means not to put all your eggs in the one basket. Spreading the risk may mean the full extent of up swings aren't gained but it means that the full extent of down swings aren’t either. Balance means 'slow and steady' and we all know how that works out.

Cost

A planner needs to be able to show that they manage the costs in your portfolio, so they can be as low as possible. History shows that on average, lower costs means better performance.

This series of articles is based on a 16-year study by Vanguard Investments Pty Ltd.

 

Peter Graham
BEc, MBA
AcctWeb / PlannerWeb

 

‘Please do not panic’: ATO boss addresses STP concerns

ATO Commissioner Chris Jordan has urged small businesses not to panic over the transition to single touch payroll as he commits to ensuring businesses will not be forced to purchase payroll software.

         

 

Speaking on the ATO’s webcast on STP, Commissioner Chris Jordan reiterated that micro employers – those with four or less employees – will not be forced to purchase payroll software, with alternative solutions including using their registered tax or BAS agent, among the options for such businesses.

At present, legislation to extend STP to employers with 19 or less employees from 1 July 2019 is still before the Senate.

“We’re not going to force people to put in a business, accounting system and payroll software. A lot of people will have basic accounting software but not the component that does the payroll. Some of the software providers might be looking at that as an opportunity to get people in to maybe a more upgraded sort of accounting system,” said Mr Jordan.

“With some of these low cost payroll solutions added on, they have to realise everyone is going digital – with e-invoicing, the way people order and dispatch.

“It is the way it happens. We’re not forcing people to go digital to get the accounting software and payroll,” he added.

Further, Mr Jordan said tax and BAS agents will be able to help micro employers transition to payday reporting by first helping them report on a quarterly basis.

“For micro employers… they can actually for the first couple of years do the STP requirements quarterly. There will be a whole array of opportunities that either aren’t yet in the market or have already flagged like that quarterly BAS-type approach,” said Mr Jordan.

“Please, people do not panic, do not be concerned. We will take a very reasonable approach to this. We expect people to take a while to come on.

“I’m firmly of the view that solutions will come into the market, low-cost solutions. We are a capable bunch of people in Australia, and we will certainly take a reasonable approach.”

Last month, the ATO began seeking expressions of interest from digital services providers to develop Single Touch Payroll software for the micro employer market, looking at a low or no-cost solution, software that has a simple user experience and a solution that will enable STP reporting within no more than 5 minutes.

The Tax Office has now received over 20 expressions of interest, with a plan to publish a public register of ‘tailored micro solutions’ over the next week.

“At this stage it will be [the] name of those providers, and over time as we work with those providers, we will actually be publishing more details around the actual products – who you should be contacting if you want to talk to those providers, and start that process,” said ATO STP assistant design director Angela Lehmann.

 

Jotham Lian
29 November 2018
accountantsdaily.com.au

 

Our Advent calendar for 2018

On behalf of all our staff we wish our clients a Merry Christmas, Happy New Year and a great holiday period.

Come back each day for an inspirational quote or poem about Christmas, summer and life in general from some of the great writers and poets.

(Please click on the image to open the Advent Calendar and then click on a date)

 

 

 

Tax Office sounds alarm on popular property strategy

Both the Tax Office and the corporate regulator see property investment in superannuation as a “live issue”.

         

 

Speaking in a panel hosted by the SMSF Association and the ATO this week, Kate Metz, ASIC technical adviser to the deputy chair, said that based on some of the recent work ASIC has done speaking to consumers about their experience and why they choose to set up an SMSF, it is clear that property continues to be an ongoing issue for SMSFs.

“Many [SMSF trustees] chose to set up a fund to invest in property. They [tended] to solely invest in property, have fairly low balances, borrow money and often bought an off-the-plan property from a property developer,” said Ms Metz.

“For us, that rings a number of alarm bells, and we think the number of those people will not be well placed to self-fund their retirement.”

Ms Metz noted that ASIC has already publicly announced that it would be looking at one-stop shops.

“These are organisations that will set you up an SMSF, find you a property, work out your borrowing arrangements and also do your legal advice as well. We are very concerned about those sorts of arrangements,” she said.

“There are a number of policy debates going on at the moment around limited recourse borrowing arrangements and whether they should still be allowed to continue on and allowed personal guarantees as well. At the moment, it is very much a live issue that people are turning their minds to.”

Ms Metz said there is also very little discussion with SMSF advice relating to property around issues such as liquidity and falling property prices.

“People are set up with a property, but there is no discussion of what happens when you retire – does the property need to be sold? Will you be able to live off the rental yield? What happens if prices drop?” she warned.

“I think that is a real issue, and as people age or are older when they go into that sort of arrangement, the implications become even more significant for them.”

Speaking in the same panel, ATO deputy commissioner James O’Halloran said the ATO has likewise seen inpiduals who have not properly considered the risks with setting up an SMSF and investing in property.

“On the ground, we see people who may not have made an informed decision or one that appears to be a very binary decision of, ‘I want a house to invest in’, and maybe that is not an informed decision, or one that does not consider risks,” said Mr O’Halloran.

As part of the ATO’s vetting process for SMSFs, Mr O’Halloran said some of the reasons from inpiduals for setting up a fund have included a family member telling them to do so or to buy a house or holiday.

“To some of you, you might think this is laughable. The naivety of those elements reinforces the point. The seriousness of this decision for your future is not a reason not to do it, but go in informed,” he said.

“It is an obligation as a trustee. It is not a free ticket. As much as we recognize the appropriateness of people setting up an SMSF, there is an obligation.”

SuperConcepts executive manager of SMSF technical and private wealth Graeme Colley said that whether limited recourse borrowing arrangements get banned may be determined by the market with the big banks pulling out and trustees looking to mezzanine lenders instead.

“People are taking risks on mezzanine companies, which is adding more recourse to limited recourse borrowing.”

Mr Colley said he expects a decrease in borrowing by SMSFs as it becomes increasingly complex and property prices in capital cities continue to fall.

 

 

Miranda Brownlee
21 November 2018
accountantsdaily.com.au

Unlocking equity crowdfunding in Australia

Equity crowdfunding has been a popular method to raise capital in many countries for the last few years.

           

 

Equity crowdfunding enables a large group of individuals (‘the crowd’) to invest in private businesses.  The legislation authorising this is Crowd-sourced Funding Act of 29 September 2017.

The legislation means retail investors can now crowd fund companies by investing $50 to $10,000 each year per business.  Previously, only angel investors or venture capital firms had access to these sorts of investment opportunities.

Equity crowdfunding legislation allows un-listed public companies to raise as much as $5 million over a 12-month period.

A company approaches an equity crowdfunding platform to raise funds.  The platform performs due diligence on the company and ensures it complies with a range of obligations put forward by Australian Securities & Investments Commission.

If a company does not raise the minimum target, then the offer is cancelled, and the funds are returned to investors.

While investing in early-stage businesses is high risk, there can be high rewards.  

 

 

AcctWeb

How financial advice helps create wealth.

An article based on a 16 year study by Vanguard Investments Pty Ltd.

Rear view of couple seated on bench reading English text on wall

         

 

Last month I reported on a 16-year study by Vanguard Investments that found a financial adviser effectively adds around 3% to the value of a client’s portfolio over time.

The real significance of this is that you can have a finance professional take care of one of the most important jobs in your life (funding your retirement) for very little, if any, real cost.  This can even be the case for those with smaller portfolios.

However, for many people the main problem is getting started and the cost is often seen as too high or the adviser focus can seem a bit too much on their needs rather than the client.

A major reason for this, unfortunately, is that increased regulation and monitoring has meant advisers have moved to a fee-based model and away from the commissions of yesteryear.  This is a good outcome but it has meant advisers have had to increase entry costs which, in turn, has led many potential clients to see these costs as too high.  A proverbial Catch 22.

It is because of this sort of conundrum that firms like Vanguard Investments have undertaken long term studies.  The outcome from their work is that a WIN/WIN opportunity exists for all.

However, this benefit isn’t just from better investing, though that will often be the case.  It’s the more holistic approach that wins the day.  Vanguard Investments identify the following areas as those that will generate this positive outcome:

  • Suitable asset allocation
  • Cost-effective implementation (expense ratios)
  • Rebalancing
  • Behavioural coaching (Vanguard Investments found this to be the most significant contributor because there are some tasks people struggle with such as budgeting and expense management.  Behavioural coaching addresses this issue).
  • Tax efficiency (An example here is where an investor with a modest portfolio lost more than $250,000 in value over a 10-12 year period because they thought the three stock brokers they used were looking after tax related issues.  They weren’t!  If the planner had been involved sooner the outcomes would have been significantly different.)
  • Total returns versus income investing.

Finally, the concerns many potential clients have over the cost of financial planning means they delay getting help early enough which, in turn, threatens the retirement outcomes they want to achieve.

 

Peter Graham
AcctWeb / PlannerWeb

Identification numbers for directors

The Government has announced a package of reforms to combat phoenix activities, including the introduction of a Director Identification Number (DIN).

             

 

Phoenixing involves deliberately transferring assets from a failed or insolvent company to a new company, with the intention to avoid paying the original company’s creditors, tax and employee entitlements (that is, the new company illegally “rises from the ashes” of the indebted company).

The DIN would identify each director with a unique number, allowing regulators to map the relationships directors have with entities and other people.

Expect a lot more about this as the legislation and deadlines unfold.

 

 

AcctWeb

Superannuation gender gap narrowing, research shows

Over the past decade, there has been improvement in the number of women holding superannuation accounts and the size of their superannuation balances compared with that of men, according to a research house.

       

 

Research from Roy Morgan indicates that the proportion of women with superannuation has improved with 64.7 per cent of women now holding assets in super, compared to 57.4 per cent of women in 2008.

The proportion of men holding super has also improved but not as significantly, rising from 66.5 per cent in 2008 up to 69 per cent for this year.

The results were based on the Roy Morgan Single Source survey, which has conducted personal interviews with over 500,000 Australians over the past decade.

The survey also indicates that the average balance for women has also grown by 87 per cent, jumping from $68,000 in 2008 up to $127,000 this year.

The average balance for men grew 53 per cent from $115,000 up to $176,000.

According to Roy Morgan, the gap in superannuation balances between women and men has been closing across all age groups in the past decade.

The research shows that the biggest gain was made by the 50 to 59 female group, which improved by 15.2 percentage points, jumping from only 54.5 per cent of the male average in 2008 up to 69.7 per cent  in 2018.

The other groups to show big improvements were those aged 35 to 49 with a 14.2 percentage point increase to 75.4 per cent, and the 60+ segment, up 9.8 percentage points to 72.1 per cent.

The female age that is closest to the male average is the 14 to 34 segment at 85.6 per cent, which has increased marginally from 83.9 per cent back in 2008.

Roy Morgan industry communications director Roy Morgan said that with the current gap indicating that the average superannuation balance for women represents just 72.2 per cent of the average male balance, there is still a long way to go, but is still a significant improvement on the 59.1 per cent recorded in 2008.

“In addition to problems associated with lower average incomes, females are more likely to have interrupted employment. However, despite these negative factors operating against them, women have made gains in closing the superannuation gap to men,” said Mr Morgan.

“Generally, both sexes are still unlikely to fund an adequate retirement entirely from superannuation unless contribution levels are increased and continue higher for several decades.”

 

 

Miranda Brownlee
15 October 2018
smsfadviser.com

 

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