Borrowers Beware

Posted On: Wednesday, June 28th, 2017  In: Blog

The government is trying to make house prices affordable. Prices are affected by supply and demand. What the government is trying to do is decrease demand. It has instructed its APRA, the Australian Prudential Regulation Authority, to tell the banks to make it hard for people to borrow money from the banks and so there will be less people able to borrow to buy property and thus the price will fall.

Like all intervention in a free market this strategy will fail. What happens is that borrowers will approach non-bank fringe lenders. I came across such a sad case recently.

This couple, in order to prop up their business needed extra finance. They ran up their 4 credit cards to the maximum limit. This costs over 20% interest per year but at least the repayments are at a minimum.

Then they went to another lender. They were very obliging and gave them the money extremely quickly. The problem was that it had to be repaid weekly over the next year. The repayments were thus extremely large. When I calculated the interest it turned out to be over 30% per annum.

They also own a home so they went to another lender to get more money. Again very quick and efficient service and the loan was interest free! The lender valued the home at 1.2 mil and then lent them 500K. Instead of paying interest they took 62% ownership leaving the couple with an ownership of 38%.

The lender immediately stated that the house was worth $1.7 m. This gives the lender an immediate gain of $552K. However the house has now gone up to $2m but the couple only get $760K of this and the lender’s portion goes from $500K to $1.24m in two years

One way of getting out of credit card debt is to restructure your home loan to pay off the cards, make the home loan interest only or make the loan repayable over 30 years. (They’re in their mid-seventies. This did not worry the banks previously) This reduces both the interest rate and the repayments.

So what was suggested? A son was taking over the business so one idea is that he refinances his home. A customer was two months outside their trading terms so some polite but persistent telephone calls are required. Part of their business is cash (credit card and PayPal) rather than credit and with a higher profit margin, so it was suggested that they put maximum effort into growing that part of the business. The alternative is to sell their home and buy a bed sitter.

The lesson of this fable is never entering into a financial transaction without getting proper financial advice.

Tips to help increase the safety and security of your home

Posted On: Thursday, June 1st, 2017  In: Blog

ALARMS – Burglars tend to avoid homes with security systems. Use window stickers and make sure that these are visible from every approach to your home, not just the front entrance and experienced burglars know the difference between a fake alarm and a real one.

DEADLOCKS Fit keyed locks to your windows and double key deadlock to doors. This means thieves have to enter and leave the same way making it hard for them to take big items such as TVs or desktop computers. Sliding doors should have bolts and tough screens to prevent slashing.

CLOSE WINDOWS & DOORS   – The most common way for burglars to enter a home is through an open window or door so make it a habit to lock doors and windows as it can take only seconds for a thief to run in and grab something of value while you are out or in another part of the house.

SECURE GATES & FENCES -Gates and side fences can be easy opportunities for burglars to scale. Make it harder for them by locking gates and building them extra high for added difficulty.  If a side fence or gate is in poor repair replace it with something sturdier so that it can’t be knocked down.

DON’T HIDE KEYS – Don’t hide your keys. We all know about the spare key under the fake rock, under the mat, in the meter box or the key buried in the pot plant right next plant next to the door.  Burglars know about these hiding places so don’t do it, it’s not worth the risk.

TRAVEL & HOLIDAYS   When you are away, your home is a prime unoccupied target for thieves. Therefore, try to make it look like you are home. Use timers on your lighting and get a neighbour or family member to collect your mail and take out your bins and put them away again. Don’t spread the news on social media that you are away and resist the temptation to post photographs until you are back home.

SENSOR LIGHTS Sensor lights are a great and inexpensive preventative
measure. Put them around corners and at the front and back of your home where thieves might think they can slip through.  Also, trim large trees and hedges away from windows or entry points as these can be used as camouflage.

PREVENT & PREPARE – Preventing burglaries is the key to securing your home. However, it is important to prepare for the worst case scenario. Engrave electrical items, keep valuables in a hidden safe, keep your cash in a bank and ensure you have a comprehensive insurance policy in case you can’t stop the thieves.

SAFE HOME HEATING – Last winter we published our view, opinions and tips for effective safe heating. If you would like a copy of that article just email us at enquiries@pvib.com.au

Superannuation: Transfer Balance Cap, Transition to Retirement Income Stream and Year End Planning

Posted On: Thursday, June 1st, 2017  In: Blog

Transfer Balance Cap:

If you receive a pension and the assets supporting that pension exceed $1.6 million then you need to commute the part of the assets that exceed $1.6 million before 1 July 2017.  To make the commutation the trustees need to agree to do so.

Unless we hear otherwise, we will assume that all trustees of self-managed superannuation funds for whom we act as accountants have held such meetings and we will prepare the minutes accordingly when we prepare the annual accounts.
The actual amount commuted, the amount above $1.6 million, will be calculated when the accounts are prepared but this must be done before the date for lodgement of the 2017 income tax return.

If your pension assets exceed $1.6 million and some or all of the assets are in another fund other than a SMSF then you have to notify the trustees of that fund before 1 July 2017. If you have multiple funds then you have to decide which funds will have the $1.6 million in pension assets and thus the rest will go back to accumulation phase.

Transition to Retirement Income Stream TRIS:

John Howard, when he was Prime Minister, just before an election changed the way superannuation was handled in Australia. He introduced the concept that people might wish to partially retire when they reached the age of 55. The only problem with partial retirement is that one’s income goes down in the same proportion but one’s spending does not. He thus allowed those people to supplement their income from their superannuation funds.

Various smarty accountants then worked out that there was a tax advantage to having a TRI if you were over 60 and thus the fund would pay no tax on the income that supported that pension and as the person was over 60 no tax was payable on the pension received. That comes to an end from 1st July 2017 and the income is taxable at 15% as if it was in accumulation phase.

A TRIS ends when another “condition of release” occurs, usually when you turn 65.

As the real purpose for a TRIS was to make the super fund tax free, it is suggested that if you are receiving a TRIS, you should cease the pension and revert (or commute it) to accumulation phase.

When John Howard brought in the TRIS there were two extra conditions above a normal pension:

there is a maximum of 10% of the balance at 1st July that can be paid out and that it was not commutable.

The Taxation Office on its website has confirmed that the “Commissioner will not apply compliance resources to review the commutation of a superannuation income stream a member has in an SMSF that is made before 1 July 2017” (interesting wording!). We then went on a hunt through the SIS legislation to see how we had missed this possibility.

The conditions for a TRIS are contained in Reg 6.01 (b) of SIS Reg 1994. We defy anyone to understand the double and triple negatives and multitude of conditions that refer to numerous subparagraphs.

Anyway, as with the transfer cap, unless we hear otherwise, we will assume that those
clients that are receiving a TRIS from their SMSFs for whom we act as accountants have informed their trustees (themselves) that they wish to terminate their TRIS as at 30 June and we will prepare the relevant instruction and minutes accordingly when we prepare the annual accounts.

This ability to wait until the accounts are prepared to get everything correct is one of the benefits of having a SMSF rather than an industry or retail fund.

Planning for next year:

If you are salary sacrificing some of your income into your superannuation fund then you need to relook at the amounts going into super.

From 1st July 2017, the maximum that can be contributed as a concessional (tax deductible to yourself or employer) is $25,000 which is down from this years $30,000 or $35,000.

 

End of Financial Year is Review Time

Posted On: Wednesday, May 31st, 2017  In: Blog

The end of the financial year is the time to do a final review of your tax affairs for the current year and to do your tax planning for the new financial year.  It is no longer acceptable to do last minute tax manipulation when you prepare your income tax returns after the year-end. Tax and the flow of tax payments need to be planned well in advance so that they do not look like deliberate actions to avoid tax. It is also a good time to review your financial objectives and challenges and to ensure you understand the tax implications of key business decisions under consideration.

Year End Planning
With a month to go, there is still time to implement tax-planning strategies to reduce your tax exposure before 30 June.   It’s time to do your housekeeping. Bad debts must be written off or you can’t claim them as a deduction. Obsolete stock must also be scrapped or disposed of,  as must worthless plant and equipment, before 30th June. Keeping it in the basement or at the back of the yard is not good enough. Investments that are showing a loss and no longer form part of your investment strategy should be disposed of so that you can offset the loss against any realised capital gains. You can also ensure that you make any necessary repairs before the 30th June.

$20,000 immediate asset deductibility for small business.

There is also a nice bonus for small businesses besides having a slightly lower tax rate. If a small business purchases a depreciable asset for less than $20,000 then it can be written off this year instead of being depreciated over its useful life.

We do not recommend spending up to $20,000 on an asset unless it is genuinely required by your business At first glance this sounds like a valuable concession but there’s a list of qualifying conditions. Even “what is a small business” has a complex definition.

The ATO have made it clear that they will be monitoring the use of this concession to ensure that the write off rules are being adhered to. This has now been extended till 30 June 2018 and applies to businesses with turnover up to $10 million.

 

Should you really care about the Budget?

Posted On: Thursday, May 25th, 2017  In: Blog

Peter Vickers Chartered Accountant Lindfield

The Federal politicians have done what they had been elected to do. They prepared a budget that looks pleasing to the electorate. They have increased some taxes; extra 0.5% for Medicare levy and the levy on the evil banks. This is so they do not have to tackle the hard bit of reducing government expenses. They have handed out some goodies. Small business, which is now defined as those with a turnover of less than $10 million, can write off any plant that is purchased before 30 June 2018 and first homeowners will be able to do a shifty with their super but for only $30,000.

What have they missed in their thinking and what do you as ordinary people need to know about this?

It is called the MARKET. Even Stalin who was able to kill millions to get his way stumbled. The Soviet Union subsidised bread for the poor. The consumption of bread went up dramatically. The pig farmers found it was cheaper to feed their pigs bread rather than more expensive grain.

Thus if the first home owner can get their hands on an extra $30,000 they can then afford to pay that extra $30,000 for a new home and the prices thus go up by that extra $30,000.

So what about the levy on the big banks? There are four groups involved in a bank: employees, depositors, borrowers and shareholders. The employees will not take a salary cut. The other three will go elsewhere if they can get a better deal so the levy will be spread around all three. There is nowhere else that the money can come from. Remember that most of us are shareholders of the banks via our superannuation fund or the Future Fund. What the bank levy really is, is an indirect tax on the population like the GST. Hidden from direct view but still paid by ordinary Australians.

Speaking of markets, remember markets go up and then they go down. This applies to current interest rates and house prices. The first is likely to go up and the second to come down or at least stop going up for another ten years.

 

Did you pay your tax on time?

Posted On: Monday, March 20th, 2017  In: Blog

There’s currently $19.2 billion owing to the Taxation Office!

The ATO still has not worked out how to get taxpayers to pay but it is trying various methods. In the end,  it will just bankrupt individuals or liquidate companies. This will harm small businesses the most as they tend to use the ATO as a “lender of last resort.”

Only 65.2% of small businesses pay their tax on time.

Do not think that this is a clever idea. The interest rate being charged is well above bank rates. If you want to borrow money, the lender now requires a copy of your integrated statement from the ATO. The coming step is what the bureaucrats are calling Single Touch Payroll. You calculate your pay to employees and at the same time as you pay them then you also pay the PAYG that you have withheld and also the superannuation contribution. They are making this sound like a boost to your efficiency but it is really just to ensure that the super and tax get paid on time.

The administration cost of tracking and avoiding paying creditors will not increase your profits. If you are having problems paying your tax on time then you need to talk to us about solving your cash flow problems.

Solutions may include:

  • speeding up how you generate and collect your income;
  • increasing the capital in your business;
  • different ways of borrowing money.

 

Real life stories: lessons learned

Posted On: Friday, March 17th, 2017  In: Blog

Novelists write the best books from real life stories. The same applies to financial decision making. We will never identify clients and we change the details to maintain confidentiality. However, we have a books-storage-shelvesfurther problem in a post like this where we do not want to upset a reader that may recognise some of the situations as theirs.

 

Here are some of the lessons that we can learn from these stories:

 

  • What happens if you get dementia? Has someone got you enduring power of attorney?
  • You need a will and you need to give your super fund a death benefit nomination if you have a complex or blended family. Accidents can happen and you could lose all or part of your family’s income.
  • Will there be a life insurance benefit to be received?
  • Your estate needs to be prepared for your unexpected death.
  • Got a complex trust structure or lots of contractors?
  • Will the Office of State Revenue have an opportunity to challenge these arrangements in a payroll tax audit?
  • Are you paying your tax and employee’s super on time?
  • Do you thus risk being declared bankrupt?
  • Have you got well-written contracts with your customers?
  • Do you risk not being able to sue for payment of outstanding debts?
  • Are you monitoring the size of your customers’ accounts with you?
  • Will your account grow so big that the customer does not have the resources to pay you.

And the worst mistake of all? Being too miserly to get professional  accounting advice and thus making all the above very costly mistakes. 

Superannuation: changes effective 1st July.

Posted On: Friday, March 17th, 2017  In: Blog

Parliament in record time passed the changes to superannuation that were announced in May and September. They all start from 1 July 2017.

At present the size of a member’s benefit when in pension phase has no relevance. However, from 1 July 2017, there is an initial limit of $1.6 million.

Any amount above this will be required to go back to the accumulation phase where the tax on the income generated becomes 15% as opposed to zero%. Currently it makes no difference in whose name the funds were for a couple. Now there is a limit of $1.6m per person so it does matter. Of course if you have less than this amount then you have no worries.

The limit on concessional (ttax-deductible contributions has been lowered to $25,000 for any age.  The limit on non concessional contributions has been lowered to $100,000 per year. The bring forward rule still applies but will have a maximum of $300,000.

However there is also a limit on non-concessional contributions of $500,000 if your balance exceeds the $1.6 million.

The rule about personal deductible contributions being available only to those whose salary income is less than 10% of total income has been removed. Employees will now be able to get extra tax deductions.

The tax exemption on income from  assets supporting a pension has been removed for Transition to Retirement pensions.

This only applies if you do not have another condition of release like turning 65. In the past these were not usually set up until you turned 60 as the proceeds of the pension were exempt from tax. The exemption of pensions from income tax will continue for those over 60.

The thresh hold for paying an extra 15% tax on contributions has been lowered from $300,000 to $250,000

Individuals can also make catch-up concessional contributions by utilising unused amounts of the concessional contribution cap from the previous 5 financial years if their balance is less than $500,000 .                                                                         Canberra

All this has taken 126 pages of legislation to pass parliament.  

If you believe that any of these items will affect you then please arrange a consultation with any one of our team. This should be done before the 1st July 2017.

 

What’s on in March! The Kuringgai Chase Fun Run and Barry Easy Walk

Posted On: Wednesday, March 8th, 2017  In: Blog

Sunday 19th March: Wahroonga                                    www.kuringgaichase.com.au

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                 Team Vickers in 2016

We’re very happy to be sponsoring and participating in the Kuring-Gai Chase Fun Run and Barry Easy Walk for the 3rd consecutive year and to be supporting the local programme for Special Olympics.

Sport has so many benefits for us all and is such an integral part of life in this country. It’s not just the health benefits that are important, it’s also the sense of belonging that one feels from participating in a group activity,  a sense of being a part of  something.

Participating in the Fun Run, we can all help raise funds to make sure people with intellectual disabilities can take part in a sport of their choice. So let’s all encourage our families and friends to get out there and join the walk.

It’s been great for our business to be involved.  This year we have a team of over 30 taking part, either walking 5km or running 10k! Staff bring their families along and it’s turned into one of our annual get togethers.  It’s such a good day and wonderful to see so many people out there having a go and encouraging each other.

It’s a charity we feel strongly about supporting as a result of
our work with families with members with a Picture1disability. Through our work advising clients on the setting up and financial management of Special Disability Trusts, we appreciate the great responsibility and complexities that are added to life when caring for a family member with special needs.

70-80% of Aussie businesses are underinsured (CGU)

Posted On: Wednesday, March 8th, 2017  In: Blog

One of the most common risks for Australian businesses is underinsurance.

And about 25% of SMEs have no business insurance!

For many small business owners, your business is your entire livelihood.  Make sure it is protected sufficiently beyond just compulsory basics.  Ask yourself if you are not insuring some aspects of your business because you want to save money, thinking ‘it won’t happen to me’.

When the unthinkable happens like a burglary, car accident, machinery breakdown or even a tax investigation, it could cost many thousands of dollars for the sake of saving a few hundred.

Some brokers estimate between 70-80% of businesses are underinsured, which could result in huge losses for them when trying to rebuild and repair after damage to their business.

The Insurance Council of Australia examined small to medium-sized businesses and found that 26% have no form of general insurance. Sole traders are among the most uninsured, with 40% operating with no coverage.

Tips to consider to avoid underinsurance recommended by CGU:

Ensure cover reflects the true replacement value of stock, equipment or buildings

This is one of the most common ways businesses get into trouble after an event such as a fire or storm. Initially, to cut premium costs, you might choose to insure only a percentage of the replacement value. However, with that, you are also electing to take on a percentage of the risk.

A fire caused by an electrical fault, for example, can cause the total loss for a business leading to significant costs and months of rebuilding.

Another pitfall is neglecting to review the sum insured both at renewal time or when changes happen to the business. For example, growing businesses may expand premises, buy new equipment or diversify products.

When the time comes to make a claim, the sum insured no longer reflects the true replacement value of your business assets. A business’ insurance policy needs to grow with the business.

You may be only insuring for the value of assets in a balance sheet – often this value does not represent replacement value, which is the cost to replace stock, equipment or the cost to rebuild. This can also leave you underinsured.

Take out business interruption cover: Some 81% of small and medium-sized businesses admitted that an unforeseen business disruption would have a severe impact on their business, yet only 27% have Business Interruption insurance.  Ensure when you take out this cover, the period it would cover you for would be sufficient to support your business if you couldn’t trade for a substantive period
.

The true cost of underinsurance for your business: Underinsured businesses face a huge financial risk of high unplanned costs which can’t be covered by the savings made in paying a smaller premium. That’s why it is worth discussing with your Insurance Broker the value of your assets and needs and develop an insurance policy that fully meets your requirements.

 

Our tip 3 tips!

  1. Review your insurance policy every year.  Things change and it’s important that your policy changes to reflect this.  We can provide you with a complimentary review and quote at any time.
  2. Seek advice from one of our brokers who can review your policy to ensure you have adequate cover.
  3. Business insurance may be tax deductible and our accountants will be able to advise you.

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