If your child is working, even part time they can gain an extra $1,000 in to their superannuation.  It can be done every year that they are eligible.

It is an outstanding opportunity that has the potential to affect the retirement benefit of your child.  By simply investing $1,000 in your working child's superannuation fund, he or she can be eligible to receive a Government Co-contribution (the maximum co-contributions is $1,000).  An investment of $2,000 at this time in your child's life will make an enormous difference to their end balance.

Consider this example:

Your 18 year old son or daughter works part-time.  You gift them $1,000 (or part) to contribute to a superannuation fund in their name and as a result, the Government contributes an additional $1,000 after they lodge their tax return.  Your child has $2,000 to invest.  By the time they are 60, based on growth of 8% after fees and taxes, these funds alone would be valued at $50,680.  If you did this over 3 years and invested a total of $3,000 for your child, the approximate balance at age 60 would be $139,380.

This example illustrates the power of compound interest.  We all know that the earlier we save, the more we have.  The co-contribution scheme enables you to show your child the benefits of beginning a saving strategy early.

How do you arrange the contribution?

If your child's employer is already contributing to superannuation, your child could make a personal contribution to this fund or if they do not have their own fund, we could assist in setting one up.  This fund would be free of entry fees and entry commissions.

The basic criteria

Your child has employment income, their annual income is ideally below $31,920, but you are still eligible for a partial benefit at $61,920 and a tax return is lodged.  The super will notify the tax office, and then the tax office will check that you meet the criteria and send the contribution to the super fund.

Even if you aren't inclined or unable to contribute the full $1,000, part is still worthwhile.  Act well before June 30^th to ensure that your child starts benefiting this year!

The ExxonMobil Super Fund has reached a compromise agreement in relation to the dispute over the benefits payable by the fund.

The Facts:

• A problem was created with the calculation of Benefits when the Super Fund Trust Deed (Rules of the Fund) was changed in 1990
• A settlement has been agreed upon and requires court approval to be implemented.
• The Compromise Agreement will result in a benefit being payable to your Superannuation Fund account.
• The payment from the Compromise Agreement will increase your notional employer contribution and may result in you exceeding your super contribution limits.
• This could lead to Excess Contributions Tax being charged by the Australian Tax Office (ATO).
• This could relate to prior years and the current year.
• Exxon have agreed to reimburse excess tax that may be payable provided you follow the process that they require.

What you need to think about:

• Exxon Mobil will cease your salary sacrifice contributions as at 1 July 2010. How will this impact your tax position and can it be improved?
• Where will you direct/invest any surplus cashflow as a result of the reduced salary sacrifice?
• Once the compromise calculation has been made and you are able to begin salary sacrificing again, how much will you have to salary sacrifice from 1 January 2011 to ensure a favourable tax outcome for the full 2011 year?
• If I have an Excess Contribution Assessment what is the process to potentially have it waived?
• Your salary sacrifice will then have to be adjusted again in July 2011 to get the amount correct for the 2012 year.

Who can help:

• Our Financial Planners Ben Lancaster and Gary Lucas are available to discuss how the agreement will affect you.
• The Accountants at MG Financial Group can also help you with any individual dealings with the Australian Taxation Office regarding potential excess contribution assessments.

If you would like to discuss your situation specifically, please contact us today.

As we near the end of the financial year, some organisations crank up their marketing and prey on the need to reduce our tax bills before June 30^th.

Typically these are Agricultural (Forestry) Schemes and Protected Equity investments.  The strategy is to invest lots of money quickly and preferably borrow some and invest even more so you will get a large tax deduction.

The problem is that the focus is taken off the investment.  This is what the marketing spin is aimed at achieving.  The focus is all wrong.  Most attention needs to be on the investment and any tax breaks need to be seen as a bonus.  Tax cannot drive the decision.  It does need to be considered and can make investing more effective or it can impact on how it is structured, but it is a mistake to undertake an investment based purely on the tax benefits without properly considering the benefits and risks of the investment.

As we have seen recently a number of the Agricultural Schemes have simply collapsed and investors have lost the majority if not all of their funds.  Why invest in one this year with that recent history that adds to the risk?  One reason these schemes are promoted is that they are loaded with fees and commissions.  Sometimes Accountants, Solicitors and Financial Planners are paid 10% of the amount invested as a commission.  It is hard for an investor to make money when you are so far behind on the day you start investing.

Protected Equity investments are cleverly named.  The word protected is aimed at giving us comfort.  These investments can be very complicated and are rarely as simple as investing with some protection.  There are many conditions and criteria that apply for you to gain full benefits.  Again the potential returns needs to be analysed in view of the risks and costs.  Commissions, fees, a higher interest rate and complexity are the warning signs that should make you think long and hard before investing.

The lessons are simple;

• Don't let your investment decision be driven by tax savings.
• Understand the fees and commissions
• Don't be rushed into an investment just because the end of the tax year is coming
• Have a long term plan. If you have a sound long term plan you will have your house in order and won't need to be pressured each year.
• Understand that there is no silver bullet for investing and a well diversified and constructed plan will serve you well.
• If uncertain, get a second opinion

Tax Office email scam warning

The Tax Office is again warning people to be wary of a fraudulent email being circulated that claims to offer a refund from the Tax Office.

The email fraudulently uses the Tax Office logo, has the words ‘Australian Taxation Office - Notification' or ‘Australian Taxation Office - Please ReadThis' in the subject line and is similar to another email scam that circulated in March.

The Tax Office is advising people who receive the email to delete it immediately.

The email asks people to click on a link which redirects them to a website that looks similar to the Tax Office website and asks for credit card and personal details in order to receive a refund.

This website is not affiliated with the Tax Office in any way.

Second Commissioner Greg Farr said the Tax Office has notified relevant authorities who are investigating this matter.

"People should always be wary of any unsolicited emails claiming to be from the Tax Office.

"The Tax Office will never send emails to people asking them to provide personal information including credit card details.

"As an extra precaution we recommend you type internet addresses directly into your internet browser rather than clicking on hyperlinks embedded in emails," Mr Farr said.

If people have entered their credit card information on the website, they should contact their credit card provider as soon as possible and report a possible compromise.

As you can see you will not be contacted by the Tax Office by email so if someone sends an email claiming to be from the ATO you can safely ignore it. 

 As always if in doubt you should contact us for help.

Based on 2008 statistics, 18 Australian families lose a working age parent every day. Every year, 235,790 working age parents suffer a serious illness or injury and over 17,000 of them are forced to stop working, either permanently or for an extended period of time. Over one million working-age parents with dependants will be impacted by death, serious accident or illness.

These figures mean that more than one in five families will be impacted by an insurable event in their working lives. Most of these people will have some level of insurance, usually death cover, within their superannuation. Often the level of cover is inadequate. Income protection is also only offered as an option by the minority of funds and again, these levels are not sufficient for most families to maintain their lifestyle.

While a concerted effort by the superannuation industry means this situation is improving, the fact is most Australian working families will not have adequate levels of cover to protect themselves from financial hardship and secure their way of life. The Industry Fund spin is that their default option will solve this problem.  This is simply not true.  Insurance cannot be properly covered with a one size fits all approach.  It needs proper analysis to determine the appropriate type and level of cover for each person based on their needs and lifestyle.

Lifestyle is determined by income, where people live, whether a dwelling is owned or rented, where children go to school, where and how often people eat out and if holidays are taken. Beyond the basic need for food, clothing and shelter, lifestyle defines who you are and the opportunities created for family members. It is usually the first casualty when the worst happens, and it can often lead to devastating consequences for affected families.

The final comment in the summary is:
"This ground breaking research shows more than one in five families will be impacted by the death of a parent or a serious accident or illness that renders a parent unable to work during their working lives. Most of these families will experience some amount of avoidable financial hardship due to under-insurance at an already difficult time in their lives. In fact, the typical Australian family will lose half or more of their income following the serious illness, injury or loss of one parent - a financially devastating result." 

Personal insurance is like any insurance - we would much rather not have to pay the bill.  However it can offer an enormous level of comfort to know that your family will be financially sound.  The ability to be debt free without being forced to sell a major asset is a great relief at a difficult stage of life. We insure our cars, household furniture without a second thought, yet we hesitate or even baulk at insuring our annual income for our working life. There is an easier solution and it can be structured in an affordable way.

It wasn't too many years ago that we had WestPoint, Fincorp, Australian Capital Reserve, SESI, Elderslie Finance offering secure returns at high interest rates.  These companies had clever marketing and appealed to the impossible dream of investing - low risk and high returns.  The spin was along the lines of we can offer high fixed rates of return. The words secure, backed by property and even guaranteed were used to provide comfort.  Often the guarantee was worthless, provided by an organisation that simply went broke.  The property in some cases was development property and in other cases it was overvalued.  This means that another myth also contributed to the problem - that of ‘property never goes down in value'.  It does fall in value and causes serious problems in the process as it is usually relied upon heavily as security. 

WestPoint is one of the most extreme cases.  According to the Australian Financial Review, one adviser was stating that WestPoint was ‘triple guaranteed'. I don't even know what a triple guarantee is, but I do know is that ultimately very few investments are guaranteed to the extent that they can be relied upon. 

A further problem with the WestPoint collapse was the level of commission paid to advisers.  Incredibly, it was up to 12% of the amount invested.  This means that if a client invested $100,000, the adviser was paid up to $12,000.  For what you may ask? This is a disgrace and it is impossible to see how this figure is justifiable. 

By law, Advisers are required to disclose all commissions, so it is staggering to believe that an investor would proceed with such an investment if they understood that amount of initial commission.  We are pleased to say that we did not have any dealings with WestPoint and did not recommend any client invest with them.  In fact we regularly advise clients not to be enticed by the higher returns and alleged security. 

A good question to ask a Financial Planner, whether new or existing, is did you recommend any client invest in any of those mentioned above and did you receive any commissions from them? That should help provide a good indication of the type of Advisor you are dealing with. 

Risk and return are inseparable.  They move together.  If you want lower the risk then you must accept lower returns and if you want higher returns, then you must be prepared to take more risk on board. If anyone if tells you otherwise, it would be a good time to leave. 

Now despite the past problems, massive losses and legal cases it appears that history is repeating itself.  Recently there was a firm promoting debenture notes with a 9.5% return.  I could go into plenty of detail about the risks of the offer, however a simple way to look at it is this.  If the promoter is paying investors 9.5%, this would be after they have deducted their fees of say 1.5%.  This means that they have lent the money to borrowers at a rate of 11%.  The question that needs to be asked is what type of person or organisation needs to pay 11% to borrow money in this environment.  It is cheaper at the Banks, but obviously the Banks will not lend them the money. 

Again this offer has a very high rate of return, so the risk is also very high.  

The message - be very careful, ask questions, recognise that risk and return are inseparable and obtain advice.