financial year end roundup 2008 queensland bar association chris wyeth ba llb mtax dfp ftia senior...
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Financial Year End Roundup 2008Queensland Bar Association
Chris Wyeth BA LLB MTax DFP FTIA
Senior Financial Consultant
important notice
The information provided in this presentation includes, by its very nature, general information about complex areas such as taxation, superannuation and investing in securities. The information is current as at 3 June 2008.
In compiling the information, Tynan Mackenzie has not taken into consideration the investment objectives, financial situation or specific needs of any particular person. We caution you that before making any decisions based on this information, you will need to consider, with or without the assistance of an appropriately qualified adviser, whether the information is appropriate with regards to your particular needs, investment objectives and financial situation.
We would be delighted to offer you this assistance.
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Overview
• Budget Changes
• Salary Sacrifice vs Home Loan
• Borrowing for Super Investments
Tax Cuts
FY2009 thresholds
tax rate
FY2010 thresholds tax rate
$0 - $6,000 0% $0 - $6,000 0%
to $34,000 15% to $35,000 15%
to $80,000 30% to $80,000 30%
to $180,000 40% to $180,000 38%
$180,000 + 45% $180,000 + 45%
Tax Cuts
FY2011 thresholds
tax rate
$0 - $6,000 0%
to $37,000 15%
to $80,000 30%
to $180,000 37%
$180,000 + 45%
• salary sacrifice• effect on gearing
+ higher interest• benefits of
imputation credits• defer income• bring forward
expenses
Year End Planning
• deductions worth more this year - prepay expenses
• change loans from variable to fixed and prepay (not applicable to a line of credit)
• pay deductible expenses & tax (IT2582 / ATOID 2006/269) from investment debt – not on home loan
• employed spouse – wage plus super• borrowings to pay spouse salary & super are
deductible – use business debt
Medicare Levy Surcharge Increases
• Singles threshold $100,000 pa
• Couples threshold $150,000 pa
• Private Health insurance rebate continues
Co-contribution – reduced access
2009 - 2010
2007 - 2008
Salary
Salary Sacrifice to
Super
“Income”
$75,000
($45,000)
$30,000
$75,000
($45,000)
$75,000
No entitlement to co-contribution
Tax Reform
• Tax review
• Entire system except: GST rate
GST items
Tax free superannuation benefits
Salary Sacrifice vs Home Loan
• funds committed once invested in super• balance preservation and liquidity• helped by NCP• immediate tax saving and tax free income on
withdrawal
Salary Sacrifice vs Home Loan
• ongoing after tax interest cost• opportunity cost if need equity in home for other
investments• consider duration risk, age and risk profile• value reduced if necessary to withdraw pre-60
and pay lump sum tax• legislative risk
Case Study
• Bob (50) earns $130,000 pa indexed
• assume no super & $300,000 loan
• living costs $50,000 indexed
• contractual debt repayments $2,510/mth
• either pay off debt asap or
• salary sacrifice as much as possible and pay out debt tax free at 60
• interest at 7% or 9% over 10 years
Salary Sacrifice vs Home LoanInvestment Capital
-$400,000
-$300,000
-$200,000
-$100,000
$0
$100,000
$200,000
$300,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year
Cap
ital
Pay P&I debt 9% Salary sacrif ice interest only 9%
Salary sacrif ice interest only 7% Pay P&I debt 7%
Borrowing for SF Investments
• Instalment lending arrangements
Bank
Security Trust
SMSF
Property
Borrowing for SF Investments
• Still considerable amount of questions to be answered
• ATO has focused on super law – not tax• TA 2008/5 - lender may be a related party but
non-arms length rates of interest – high or low
capitalised interest
guarantees from related parties/members
Borrowing for SF Investments
• “Instalment Warrants and Super Funds – Questions and Answers”
• CGT or stamp duty on transfer to fund?• GST credits?• Depreciation?• Deductions?• Cost of establishment and cost of funds
Borrowing for SF Investments
• Is there any easier way?• Geared managed funds• Geared unit trust – with home as security• Geared unit trust – property as security with
multiple parties• Simple off the shelf structure • Simple banking arrangements• Tax implications well understood
Borrowing for SF InvestmentsSingle Family
Unit TrustAcquires property
SFIndividual borrows funds
Use other asset as security
Borrowing for SF Investments2 Families
Unit TrustAcquires propertyBorrowings to UT
Property as security
Bill’s SF Ben’s SF
