Finding grants to help your business

Many small business owners are feeling the pinch after the tough years of COVID and high inflation, but receiving a business grant could be the helping hand you need.

If you know where to look, some extra dollars from the federal or your state/territory government could make all the difference between merely getting by and a flourishing business.

What grants are available?

Grants for small businesses range from a few hundred dollars to around $10,000. Some also provide support with securing loans, business introductions, or mentoring services.

The best place to start searching for a business grant is GrantConnect, a free database listing all Australian Government grant opportunities currently open to applicants.

Another important resource is the business.gov.au Grants and Programs Finder tool, which can help you find grants, funding and support from Australian Government agencies.

The government’s Australian Small Business Advisory Services program delivers tailored advice on adopting digital tools to save time and money, and to help expand your business. Businesses with fewer than 20 full-time (or equivalent) employees, as well as sole traders are eligible.

Tech companies can check out the government’s Landing Pads program. This helps tech businesses expand into new markets by providing valuable market insights, expansion strategies, network introductions and venture capital contacts.

Each state and territory offers a range of grants to encourage local businesses. Grants vary between states, so check the online database listing the programs for your state/territory to see if any are suitable for your business.

The NSW Government for example, has a searchable Grants and Funding database highlighting financial incentives for businesses, such as payroll tax rebates for employing apprentices and trainees and the $1,000 SafeWork rebate.

In WA, the Grants Assistance and Programs Register includes both national and local grants, including the New Industries Fund: Innovation Booster Grant and regional Local Capability Fund.

For Victorian-based small businesses, check out the government’s Grants and Programs online database.

If you haven’t found a suitable grant or program, another potential source of information is Grants Hub. Although you need to register for access, you can try it out for 14 days for free.

Read the fine print

When ‘free’ money is up for grabs there is always fierce competition, so it’s important to put in a strong application.

The process will be different for each grant, making it essential to read all the information provided before getting started. Also, check that you meet the criteria, as applications will only be considered from businesses meeting the eligibility requirements.

It’s important to tailor your application to meet the grant requirements and check you prepare all the required documentation. This needs to be in the specified format.

Applying for a grant can be time-consuming, so start early and don’t leave it until the last minute to get your documentation together.

Where to start

There are private operators who offer to find business grants for a fee, but details of government grants are freely available on GrantConnect and Business.gov.au, or your state government’s website.

Small business and industry associations sometimes offer grants, so it may also be worth checking the relevant one for your business.

An easy way to find additional funding opportunities can also be to talk to us, as we can help you with government tax programs, such as the small business tax write‑off.

If the grant application process seems too time-consuming, consider hiring someone to help. While a consultant can write your application, grants are awarded on merit and using one will not give you any special access or consideration.

If you need help with finding or applying for a business grant, call our office today.

Navigating FBT and your obligations

Businesses looking to attract and retain staff often provide employee benefits, on top of salary, as a way to sweeten the deal.

Many of these benefits (but not all) can have potential tax consequences – known as fringe benefits tax (FBT) – so it is important to weigh up the effect on your business.

FBT is separate to income tax and is calculated on the value of the benefit provided to the employee. Employers must work out the amount of FBT they owe each year and lodge a return.

It is worth noting that the FBT year is not the same as the financial year. It runs from 1 April to 31 March.

What to report

Most fringe benefits must be reported to the ATO. Some examples of benefits include: the use of a company car outside of work; free parking; gym membership; payment of school fees; tickets or vouchers for concerts, meals or movies; and living accommodation.

Some benefits do not need to be reported and do not incur FBT.i These include a number of benefits provided to employees working in remote areas, such as living assistance.

Other fringe benefits that are exempt from tax include work-related items such as portable electronic devices, computer software, protective clothing and tools of trade.

If the taxable value of an employee’s fringe benefits for the FBT year (1 April to 31 March) is less than $2,000, no reporting is required.

In adding up the fringe benefits, the ATO says you will need to make sure you include the employee’s part of any benefits they share with other employees as well as the value of any benefits provided to the employee’s associates, such as their partner.

Doing the numbers

For each employee, you’ll need to calculate their ‘reportable fringe benefits amount’ (RFBA) by multiplying the total taxable value of the benefits provided by an ATO ‘gross-up rate’.

The Type 1 gross-up rate is used where a GST credit entitlement is applicable to the benefit. The Type 2 gross-up rate is used where there is no GST credit entitlement applicable to the benefit. (For the FBT year ending 31 March 2023, the Type 1 rate is 2.0802 and the Type 2 rate is 1.8868.)

This calculation grosses up the pre-tax income the employee would have had to earn to buy the benefits themselves.

FBT and salary sacrifice

Benefits provided to employees through salary sacrificing may also attract FBT.

Under a salary sacrificing arrangement, an employee agrees to forgo part of their salary in return for benefits of a similar value, such as more super or a car. As a result, the employee pays less income tax and the employer pays FBT on the benefits provided.

Extra super contributions made under a salary sacrificing arrangement are not subject to FBT and are treated differently. They are considered employer contributions and are taxed in the super fund.

Claiming deductions

Employers can claim income tax deductions for the FBT they are required to pay. You can also claim an income tax deduction and GST credits for the cost of providing the fringe benefits.

The ATO provides some suggestions for reducing FBT liability. For example, employers do not incur an FBT liability if you give an employee a benefit they would have been able to claim as an income tax deduction if they had paid for it. Your FBT liability can also be reduced if the employee contributes towards the cost.

Fringe benefits can be a valuable and strategic tool in your recruitment and retention toolbox. We can help you understand and comply with the reporting requirements and be clear about the impact of FBT on your business.

i Fringe benefits tax – a guide for employers | Legal database (ato.gov.au)

Understanding the new $3m super tax

The much-debated tax on superannuation balances over $3 million is inching closer and those who may be affected should ensure they have considered the implications.

Although it is not yet law, the Division 296 tax should be taken into account when it comes to investment strategy and planning, particularly in relation to any end-of-financial-year contributions into super.

Tax for higher account balances

The new tax follows a Federal Government announcement it intended to reduce the tax concessions provided to super fund members with account balances exceeding $3 million.

Once the legislation passes through Parliament and receives Royal Assent, Division 296 will take effect from 1 July 2025. Division 296 legislation imposes an additional 15 per cent tax (on top of the existing 15 per cent) on investment earnings of a super account where your total super balance exceeds $3 million at the end of the financial year.i

The extra 15 per cent is only applied to the amount that exceeds $3 million.

Given the complexity of the new rules, it is important to seek professional advice so you can make informed decisions.

How the new rules work

A crucial part of the new legislation is the Adjusted Total Super Balance (ATSB), which determines whether you sit above or below the $3 million threshold.

When assessing your ATSB, the ATO will consider the market value of assets regardless of whether or not this value has been realised, creating a significant impact if your super fund holds property or speculative assets. The legislation also introduces a new formula for calculating your ATSB for Division 296 purposes.

The legislation outlines how deemed earnings will be apportioned and taxed, based on the amount of your account balance over the $3 million threshold.

Negative earnings in a year where your balance is greater than $3 million may be carried forward to a future financial year to reduce Division 296 liabilities. If you are liable for Division 296 tax, you can choose to pay the liability personally or request payment from your super fund.

Strategic rethink may be needed

For many fund members, superannuation remains an attractive investment strategy due to its favourable tax treatment.ii

But those with higher account balances need to understand the potential effect of the Division 296 tax. For example, given the new rules, you may need to consider whether high-growth assets should automatically be held inside super.

Holding long-term investments that may be more difficult to liquidate, such as property, within super may be less attractive in some cases, because the new rules create the potential to be taxed on a gain that is never realised. This could occur where the value of an asset increases during a financial year but drops in value by the time it is actually sold.

For some, holding commercial property assets (such as your business premises) within your SMSF may be less attractive.

It will also be important to balance asset protection against tax effectiveness. For some people, the asset protection provided by the super system may outweigh the tax benefits of other investment vehicles, such as a family trust.

Division 296 will require more frequent and detailed asset valuations, so you will need to balance this administrative burden with the tax benefits of super.

Estate planning implications

Your estate planning will also need to be revisited once Division 296 is law.

The tax rules for super death benefits are complex and should be carefully reviewed to ensure you don’t leave an unnecessary tax bill for your beneficiaries.

If you still have many years to go before retirement and hold high-growth assets in your fund, you will need to closely monitor your super balance.

If you want to learn more about how Division 296 tax could affect your super savings, contact our office today.

i https://treasury.gov.au/sites/default/files/2023-09/c2023-443986-em.pdf
ii https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/understanding-concessional-and-non-concessional-contributions

Financial wellbeing is a gift worth giving yourself

The festive season is a time of joy and celebration but, for some, it can also lead to a financial hangover in the New Year.

Overspending on gifts, parties, and decorations can quickly add-up, leaving us with unwanted debt in the New Year.

In 2022, Australians spent more than $66.7 billion during the pre-Christmas sales in preparation for the festive season. The rising cost of goods and services mean that even though many are trying to curb their spending, it is expected that we will spend a little extra this year.

5 ways to rein in Christmas spending

  1. Create a Christmas budget – A budget is an effective way of controlling spending. It may not sound like fun, but it helps you to understand what you would like to spend and how much debt you are prepared to live with. List all of the costs you can think of (gifts, decorations, food, travel and entertainment), then set limits for each category and stick to them diligently. Consider using budgeting apps or spreadsheets to track your expenses and ensure you stay on track.
  2. Embrace the spirit of giving – Instead of buying individual gifts for every family member or friend, organise a Kris Kringle or Secret Santa gift exchange. This not only reduces the financial burden for everyone, but it adds an element of surprise and excitement to the holiday festivities.
  3. Take advantage of sales and discounts – Begin your Christmas shopping early to take advantage of sales and discounts. Stockpiling non-perishable food items and other essentials before prices rise closer to Christmas can deliver big savings.
  4. Online shopping – You can often find better prices by shopping around online and various third-party websites offer cash back or rewards not available in store.
  5. DIY and personalised gifts – Tap into your creativity by making your own gifts. Handmade gifts can be a welcome and thoughtful way of giving. Consider creating homemade cards, photo albums, or baking treats for loved ones.

Tackle any debt now

With many household budgets feeling the pinch due to rising housing, power, petrol and other costs, debts may already be increasing. But if you are feeling burdened with debt, don’t decide to leave it until after Christmas. The time to tackle it is now before it gets out of hand.

One option to consider, is to consolidate your high interest debts into a single more manageable loan. This approach can simplify repayments and potentially reduce interest rates, making it easier to eliminate debt over time. But it is important to do your calculations carefully to make sure it is worthwhile for you and then to be vigilant about watching spending.

Another option is to take a cold, hard look at your expenses. Is there something that can be cut back, and that money diverted to repaying debt? Any reduction of your debt load will help, no matter how small. Some people like to implement the snowball method in tackling their debts: while continuing to make the minimum repayments on all your debts you pay a little extra on the smallest debt to pay it off faster. Getting rid of debts can help to inspire you to continue.

Taking control of Christmas spending and debt is crucial for starting the New Year on a positive financial note. So, start planning early, know what you can afford to spend and prioritise your financial wellbeing for a debt-free and stress-free holiday season.

If you are struggling with post-Christmas debt or need assistance to manage your finances, we are here to help. Contact our team of financial experts today to discuss strategies to regain control of your financial future. Make this Christmas season a time of joy and financial empowerment.

i Pre-Christmas spending forecast to tread water as uncertainty looms for discretionary retailers | Australian Retailers Association

Market movements and review video – December 2023

Stay up to date with what’s happened in markets and the Australian economy over the past month.

Consumer prices eased by more than expected in October. The news that inflation may have been tamed means interest rate rises may be behind us, for now.

Even the Organization for Economic Cooperation and Development (OECD) is optimistic about our economic recovery, predicting rate cuts from late 2024.

The ASX200 regained most of its October losses through November. Hopes the US may be ceasing its interest rate hikes impacted investor sentiment, as did the better than expected inflation figures locally.

Click the video below to view our update.

Please get in touch if you’d like assistance with your personal financial situation.

Money saving tips for travel

Travelling cheaply needn’t mean you miss out. Find out the best ways to save big on your overseas holiday plans, and make the most of every dollar.

Why you should budget for your overseas holiday

Most of us love to travel, but not many can afford to travel as often as we’d like. A trip to Europe or the US might seem like it’s out of reach, but there are ways to rein in your travelling expenses and get to the places you love, more often.

Travelling on a budget doesn’t have to mean that you miss out. If you plan ahead, work out a budget (and stick to it), you can have a better, longer – and cheaper – holiday.

You may also want to consider our savings accounts and term deposit account which can earn interest against your deposits to help you get to your holiday savings goal.

Here are ten tips on how you can save money on your travels – and have a cheaper, better, longer holiday.

1. Fly for less

One of the few downsides to living in Australia is that you’re miles from anywhere. Getting much beyond Bali will cost you, but there are ways to reduce flight costs.

2. Avoid peak holiday times

Travelling at the height of the European summer, for example, not only costs more, it’ll mean half your holiday is spent in a queue.

3. Compare flights as well as airlines

Remember, the cost of a flight can vary a lot, depending on when and how you purchase it.

Check out flight comparison websites to get a good deal. If you do book through one of these sites, be sure to read the small print. Their change or cancellation policies might not be as flexible as you need and could cost you more than you save.

4. Find an inexpensive bed

Halve your accommodation costs and you might be able to travel for twice as long.

5. Consider homestays

Go into this with the right attitude—be generous and ready to share—and you could end up with a free roof over your head, a tour guide, and a lifelong friend all wrapped up in one.

6. Check out a house swap website

You’ll be surprised to know how many people from Tuscany are eager for a holiday in Tasmania.

If you’re a bit more adventurous or love the outdoors, try backpacking, (no longer just for the young) or camping.

7. Go somewhere, not so obvious

Paris. New York. London.

Of course, the great world cities will always be magnetic places, but there’s a whole world out there. How about Marseille? Portland? Manchester? Belo Horizonte? Naples?

8. Get off the beaten track

It’s quieter, cheaper, and often more ‘authentic’. So long as you don’t tell too many people.

9. Eat like a local

Your greatest cost after accommodation will be food. Take the opportunity to sample the local cuisine – and cook when you can.

10. Do your research before you leave home 

If you have a smartphone, get a good, cheap mobile data plan. Check out the public transport, perhaps download the transport apps for the cities you’re travelling to. Oh, and a free wi-fi finder app also might be worth getting.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/travel/money-saving-tips

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

How super contributions and withdrawals are taxed

How much tax you pay on your super contributions and withdrawals depends on:

  • your total super amount
  • your age
  • the type of contribution or withdrawal you make

If you inherit someone’s super after they die, the person’s super fund pays you a super death benefit. You may have to pay tax on some of this benefit.

Because everyone’s situation is different, it’s always best to get advice about tax matters. Contact the Australian Taxation Office (ATO) or us.

How super contributions are taxed

Money paid into your super account by your employer is taxed at 15%. So are salary-sacrificed contributions, also known as concessional contributions.

There are some exceptions to this rule:

  • If you earn $37,000 or less, the tax is paid back into your super account through the low-income super tax offset (LISTO).
  • If your income and super contributions combined are more than $250,000, you pay Division 293 tax, an extra 15%.

If you make contributions from your after-tax income — known as non-concessional contributions — you don’t pay any contributions tax.

See tax on contributions on the ATO website for more information about how much tax you’ll pay on super contributions.

To avoid paying extra tax on your super, make sure you give your super fund your Tax File Number.

How super investment earnings are taxed

Earnings on investments within your super fund are taxed at 15%. This includes interest and dividends less any tax deductions or credits.

How super withdrawals are taxed

The amount of tax you pay depends on whether you withdraw your super as:

  • a super income stream, or
  • a lump sum

Everyone’s financial situation is unique, especially when it comes to tax. Make an informed decision. We recommend you speak to us to get financial advice before you decide to withdraw your super.

Super income stream

A super income stream is when you withdraw your money as small regular payments over a long period of time.

If you’re aged 60 or over, this income is usually tax-free.

If you’re under 60, you may pay tax on your super income stream.

Lump sum withdrawals

If you’re aged 60 or over and withdraw a lump sum:

  • You don’t pay any tax when you withdraw from a taxed super fund.
  • You may pay tax if you withdraw from an untaxed super fund, such as a public sector fund.

If you’re under age 60 and withdraw a lump sum:

  • You don’t pay tax if you withdraw up to the ‘low rate threshold’, currently $230,000.
  • If you withdraw an amount above the low rate threshold, you pay 17% tax (including the Medicare levy) or your marginal tax rate, whichever is lower.

If you have not yet reached your preservation age:

  • You pay 22% (including the Medicare levy) or your marginal tax rate, whichever is lower.

See the super lump sum tax table on the ATO website for more detailed information.

When someone dies

When someone dies, their super is usually paid to their beneficiary. This is called a super death benefit.

If you’re a beneficiary, the amount of tax you pay on a death benefit depends on:

  • the tax-free and taxable components of the super
  • whether you’re a dependent for tax purposes
  • whether you take the benefit as an income stream or a lump sum

See super death benefits on the ATO website for detailed information or contact us today.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-super-works/tax-and-super
Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.
Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Should I buy insurance through my super?

While we all hope for good health, the reality is that some of us may struggle at times with sickness or injury. And that may affect your family’s financial wellbeing.

Different types of life insurance or personal insurance can provide an income when you’re unable earn, or a lump sum to protect your loved ones if the worst happens.

Insurance products such as life insurance and total and permanent disability (TPD) cover are available through your superannuation fund or directly through an insurance company. There are also other products not usually offered by super funds such as accidental death and injury insurance, and critical illness or trauma cover.

Almost 10 million Australians have at least one type of insurance (life, TPD or income protection) provided through superannuation.i

Check what your fund offers

Super funds usually provide three types of personal insurance. These include:

  • Life insurance or death cover provides a lump sum payment to your beneficiaries in the event of your death.
  • Total and Permanent Disability (TPD) pays a lump sum if you become totally and permanently disabled because of illness or injury and it prevents you from working.
  • Income Protection pays a regular income for an agreed period if you are unable to work because of illness or injury.

While these insurance products can provide valuable protection, it’s essential to be aware of circumstances where coverage might not apply. For example, super funds will cancel insurance on inactive super accounts that haven’t received contributions for at least 16 months.ii Some funds may also cancel insurance if your balance is too low, usually under $6000. Automatic insurance coverage will not be provided if you’re a new super fund member aged under 25.

Should you insure through super?

Using your super fund to buy personal insurance has advantages and disadvantages so it’s a good idea to review how they might affect you.

On the plus side

  • Cost-effective: Insurance through super can be more cost-effective because the premiums are deducted from your super balance, reducing the impact on your day-to-day cash flow.
  • Automatic inclusion: Many super funds automatically provide insurance cover without requiring medical checks or extensive paperwork.
  • Tax benefits: Some contributions made to your super for insurance purposes may be tax-deductible, providing potential tax benefits.

Think about possible downsides

  • Limited flexibility: Super funds can only offer a standard set of insurance options, which may not fully align with your needs.
  • Reduced retirement savings: Paying insurance premiums from your super balance means less money invested for your retirement, potentially impacting your final payout.
  • Coverage gaps: Depending solely on your super fund’s insurance might leave you with coverage gaps, as the default options may not cover all your unique circumstances.
  • Possible tax issues: Be aware that some lump sum payments may be taxed at the highest marginal rate if the beneficiary isn’t your dependent.

Don’t forget the life admin

Whether you decide to buy insurance through your super fund or not, it is important to regularly review your insurance coverage to make sure they reflect your current life stage and to make sure you are not paying unnecessary premiums if you have more than one super fund.

Insurance within super can be a valuable safety net, providing crucial financial support to you and your loved ones. Understanding the types of coverage offered, the pros and cons of insuring inside super and the need for regular reviews are essential steps to make the most of this benefit. If you would like to discuss your insurance options, give us a call.

i The future of insurance through superannuation, Deloitte and ASFA, 2022 1051554 Insurance through superannuation.indd
ii Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, No. 16, 2019 Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (legislation.gov.au)

Managing the costs of raising children

It is a special feeling to welcome a new child or grandchild into the world and watch them grow. Sharing their joy as they reach new milestones is priceless.

Of course, there is a real cost – raising a child is expensive, particularly now as the cost-of-living spirals higher. Estimates vary widely from the few studies completed but it is fair to say that over a child’s lifetime families can spend hundreds of thousands of dollars on living, medical and schooling expenses for their children.

So, having a financial strategy in place to cover the costs and taking advantage of government support where available can make a big difference.

Taking care of the basics

The first step is to update your Will to nominate guardians for your children in case the worst happens. You may also consider life insurance and income protection to ensure your family is protected.

Next, a savings and investment plan will help you navigate the years ahead with more certainty. Adding small amounts of money regularly to an account for education and other expenses can help to ease financial stress. The MoneySmart savings goals calculator shows what can be achieved. You could consider fee-free high interest savings accounts or your mortgage offset account as a way to save cash for short-term needs.

Meanwhile, some longer-term investments such as shares, exchange traded funds or listed investment companies may provide financial support for later expenses. They can offer the possibility of capital growth and diversification for a relatively low cost.

Super splitting

Keeping an eye on the future also means thinking about your superannuation. If one partner is staying at home to care for the children, the other partner can split their super contributions with them. You will need to check if your fund allows it, whether they charge a fee and complete some paperwork.

There are also some tax considerations, so it is important to make sure you understand the implications for you.

Government support

Take the time to discover the government payments and supports available for families. For example, the Paid Parental Leave Scheme provides support for mothers for up to three months before the birth.

A recent change to Parental Leave Pay and Dad and Partner Pay sees these two payments combine into one payment that is available to both parents for up to two years after the child’s birth.

You will need to meet income and work tests and claim within certain timelines.

Even if you are not eligible for parental leave pay, you may still be able to apply for both the Newborn Upfront Payment and the Newborn Supplement.

Then there is the Family Tax Benefit, a two-part payment to help with the cost of raising children. To receive the benefit, you must have a dependent child or a full-time secondary student aged 16 to 19 who is not receiving any other payment or benefit such as a youth allowance, care for the child at least 35 per cent of the time and meet an income test.

Grandparent gifting

Grandparents who are keen to help out their families financially can gift money to their children or grandchildren. Be aware that Centrelink has gifting rules for those receiving an age pension. You can give $10,000 in one year or up to $30,000 over five years without your pension being affected. If you give more, the amount will be treated as though you had retained it in your own accounts.

However, gifts and inheritances are generally not considered as income for tax purposes. The ATO says neither the donor nor the receiver will pay tax on a gift if:

  • it is a transfer of money or property.
  • the transfer is made voluntarily.
  • the donor does not expect anything in return.
  • the donor does not materially benefit.

Tax may apply in some cases where property or shares are gifted.

The joys of raising a little one are many, and having a plan to manage the financial implications can let you enjoy the journey. Get in touch with us to create a plan to secure your family’s future.

Why superannuation fund fees matter

The fees you pay on your super could have a material impact on how you retire, which is why it’s important to understand how they work.

A quick internet search of the term “super fees” turned up other questions people ask, including “what fees are charged on superannuation?”, “do all super (funds) have fees?” and “how do you calculate super fees?”.

While highly unscientific, this little experiment illustrates an issue that many Australians grapple with when it comes to trying to understand what fees they are charged on their superannuation investments.

But before we break down the various aspects of fees that you should be aware of, perhaps the more vital point to understand here is why fees matter in the first place.

The short answer is that the fees you pay on your super could have a material impact on how you retire. Analysis by the Productivity Commission found that an increase in fees of just 0.5 per cent can cost a typical full-time worker around 12 per cent of their super balance – or $100,000 – by the time they reach retirement. It is not an insignificant amount and given that it is one of the largest assets you will have in your lifetime, it is really important to understand exactly what you are paying for.

Types of fees

There are different types of fees that make up the overall fee you pay but generally, your total fees comprise of an administration fee, an investment fee and a transaction fee. Another fee that you should be aware of are the costs you incur when you make a contribution to your account, switch between investment options and make a withdrawal. These are costs typically associated with buy/sell spreads incurred for the buying or selling of underlying investments and depending on the fund, are usually deducted from your returns. And while this is not a fee, do note that there are tax implications to consider when making an additional contribution, particularly if you’ve exceeded your concessional limit.

One way of checking what you currently pay is by taking a look at the Product Disclosure Statement (PDS) of your super fund, or by checking your annual statement. You can also use the ATO’s YourSuper comparison tool to compare the fees you’re currently paying against other funds, or you can call us on |PHONE|.

Another ‘fee’ or cost to consider is that of insurance premiums, which are typically deducted from your super balance. Most funds automatically provide you with life cover (also known as death cover) and total permanent disability (TPD) while it is an opt-in for others. Some funds also automatically provide income protection insurance while others don’t. Always consider what you need before deciding to keep or cancel your insurance.

Last but not least, another fee you could be charged relates to advice. Your super fund could provide specific types of financial advice if you ask for it, and charge a fee if certain criteria for the provision of advice are met. This fee is non-ongoing (ie charged only when you require the service) and your consent is required before it is deducted.

Comparing like for like

When comparing fees between super funds, it is also important to understand if you are comparing products in the same category. For instance, just like comparing the cost of a bicycle and the cost of a motorcycle would not make sense even though both are vehicles that can get you from point A to point B, comparing fees of products from different categories would not be meaningful.

If you are currently invested in an Australian equities fund, comparing the fees you’re paying with another fund’s cash investment option is unlikely to be useful. Rather, assessing fees between funds that have similar investment styles and asset allocation mixes would be closer to a like for like comparison.

Is it right for you?

While knowing how much you’re paying for a fund is important, knowing what you’re paying for and whether it is right for you is even more so. While the fees of a fund mostly invested in equities (typically labelled a High Growth fund) might be low, the risks of investing in said fund might be inappropriate for a member looking to balance income and capital growth because they are transitioning into or already in retirement. Therefore, the discussion around low fees for such a product would likely be moot for this member.

Similarly, looking at the fees of a single sector fund may be a good starting point but if your investment goals and strategy involves investing in a mix of asset classes, then don’t overlook the multiple sets of fees that are incurred when investing in multiple single sector options.

Every dollar contributed to your super is money you’ve worked hard for – that, and the fact that it will likely constitute a large component of your overall wealth and a critical component in funding your retirement, is reason enough to pay more attention to the what, how and whys of super fund fees.

Talk to us to find out more about your superannuation.

Source: Vanguard

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

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