Trusts and the new super tax rules

Ensuring you’ve structured your finances tax-effectively is always a concern, but with new tax rules for super on the horizon, many people with large balances are considering alternative vehicles to save for retirement.

Unsurprisingly, this has sparked a renewed interest in an old favourite – trusts.

Trusts have always been popular in Australia, with the government’s Tax Avoidance Taskforce (Trusts) estimating more than one million were in place in 2022.

Separating ownership using a trust

The popularity of trusts for business, investment and estate planning purposes is due to both their flexibility and inherent benefits, particularly when it comes to managing your tax affairs.

At their heart, trusts are simply a formal relationship where a legal entity holds property or assets on behalf of another legal entity.

This separation means the trustee legally owns the assets, but the beneficiaries of the trust (such as family members) receive the income flowing from the assets.

A common example of a trust structure is a self managed super fund (SMSF), where the fund trustee is the legal owner of the fund’s assets, and the members receive investment returns earned on assets held within the SMSF trust.

Which trust is best?

There are many different types of trusts, with the appropriate structure depending on the financial goals you’re trying to achieve.

For small businesses and families, the most common trust is a discretionary (or family) trust. These vehicles are very flexible and can be used with immediate and extended family members, family companies or even charities.

In a discretionary trust, the trustee has absolute discretion on how both the income and capital of the trust are distributed to various beneficiaries.

This gives the trustee a great deal of flexibility when it comes time to allocate income to family members paying different marginal tax rates.

Advantages of a trust structure

Discretionary trusts offer tax, asset protection, estate planning and property holding benefits.

They can also assist with the accumulation of assets for younger generations within your family and provide opportunities for the discounting of capital gains.

For small businesses and farming operations, a discretionary trust can be used to provide valuable asset protection. If your business goes bankrupt or a beneficiary is divorced, creditors will be unable to access assets or property held within the trust as it is the legal owner of the assets.

Building wealth outside super

With new tax rules for super fund balances over $3 million being introduced, trusts also provide a useful tool to consider for continued wealth accumulation.

Unlike super funds, trusts don’t have annual contribution limits, restrictions on where you can invest or borrowing limits. Money can be added and removed from the trust as necessary, providing significant financial flexibility.

Discretionary trusts can also be used with vulnerable beneficiaries who may make unwise spending decisions. The trustee can decide to provide a spendthrift child or a family member with a gambling addiction regular income, but not large capital sums.

Holding ownership of assets within a trust is useful for estate management, as the assets will not be part of a deceased estate, avoiding the possibility of a Will being challenged.

Trusts aren’t always the solution

Although trust structures provide many benefits, there are also tax issues that need to be considered. For example, any trust income not distributed to beneficiaries is taxed at the top marginal rate.

Distributions to minor children are taxed at higher rates and a trust is unable to allocate tax losses to beneficiaries, so they must remain within the trust and be carried forward.

Trusts can be expensive to set up, administer and dissolve when they are no longer needed and the trustee’s actions are restricted by the terms of the trust deed.

If a family dispute arises, running a trust can become difficult and making changes once it is established isn’t easy.

If you would like to find out more about trusts and whether one is appropriate for your business or family, call us today.

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.

© 2022 Vanguard Investments Australia Ltd. 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.

Why is ageing hard to talk about?

In life, many of us are totally at ease and comfortable talking to our family and friends about many topics. However, for whatever reason, there are certain subjects that we’re either reluctant or feel uneasy to discuss openly – typically they are love and relationships, politics, religion and money … call them the “taboo topics”.

Add another taboo topic to the list. That is the topic of ageing. As we age and reach our elderly years, asking for some help to do things to make life easier can be really hard to bring up in conversation.

When families get together, there are things we just notice but we’re reluctant to say anything. We notice that Dad might be starting to forget things or Mum is having difficulty getting out of her chair and seems a bit uneasy on her feet. Any attempt to say something is usually met either in silence or the words “I’m okay, just getting older” are uttered.

And for many families that’s where things are left.

Then there’s a crisis…

Families are then drawn together when there’s been a crisis such as a fall or a hospital admission. Then discussions and decisions are usually being made under high stress and emotion in hospital hallways and carparks. This is not an optimal starting point.

Making decisions and what’s the trade-off…

Like other life decisions, when it comes to ageing decisions, some are relatively simple to make with minimal consequences, whilst others can be very difficult.  When making decisions, there are usually “trade-offs” to be considered.

The impact of these trade-offs usually increases as the importance of the decision increases. Therefore, to make the best possible decision, it’s important to consider as many options as humanly possible.

So what needs to be thought about…

When it comes to ageing and getting some help there are usually many options to consider and everyone is different. For instance, when getting some help in the home, exactly what help is required and possible now and into the future, who will provide the help and at what cost? If moving into an aged care facility, what care will be required, where will the new home be, what to do with the family home, and how to pay for this are all decisions that need to be made and there are usually many options to consider.

So how do families identify these options and make appropriate decisions?

Where do you start? What questions do you ask and who to?  Are the answers you get back in your best interest … or someone else’s? What needs to be done and when? What happens if there’s a problem?

How Family Aged Care Advocates fit in…

That’s where Family Aged Care Advocates step in. We provide guidance and support to help families identify the relevant options to help you make informed decisions to get the best care outcomes for the people you love and care for most. We’re independent aged care specialists only interested in the right outcomes for your family … that’s all that matters and there’s no trade-off with that.

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.

Transitioning into retirement: What you should know

Deciding on your retirement funding options in retirement comes down to what makes the most sense for you.

If you’re close to retirement, chances are you’ve already spent time thinking about how to tap into your superannuation when you retire.

Broadly speaking, you have a few options when you retire, as long as you’ve reached the minimum ‘preservation age’ when you’re allowed to access your super.

That’s a little bit complicated, because there’s currently a staggered range of preservation ages depending on when you were born. If you were born after 1 July 1964, your super access age is 60.

You can check out your personal preservation age on the Australian Tax Office website.

Deciding on your retirement funding options comes down to what makes the most sense for you.

Leaving your super alone

There’s actually no legislation that says you must start drawing out your super savings when you retire.

In fact, if you don’t need your super to fund your living expenses, you can simply leave it where it is.

You can keep investing your super, and even add money into your account if you pick up some work income, and make concessional contributions up to $27,500 per year (which are taxed at 15 per cent), or personal non-concessional contributions up to $110,000 per year using after-tax money.

You can contribute to your super at any time generally up until the age of 74 (excluding a home downsizer contribution), and by not starting a pension you’re not forced by the government to start withdrawing regular payments.

The government also allows people aged 60 and over to add up to $300,000 into their super account if they sell their principal place of residence, subject to a range of conditions. Legislation to lower the eligibility age to age 55 was passed in the Senate on 28 November.

Keep in mind that if you do leave your money in a super accumulation account, all investment earnings will continue to be taxed at the 15 per cent rate.

But that rate is still likely to be lower than what you would pay if you decided to withdraw your super and invest it into another asset, such as an investment property, where the rental income would be taxed at your full marginal tax rate.

Leaving all your money in super after you’ve retired means you can’t withdraw money as a regular pension income stream. To do that you generally need to roll at least some of it over into an account-based pension.

However most super funds will let you withdraw lumps sums whenever you like if you’ve met all release conditions and have the money transferred into your bank account. A minimum amount of $6,000 generally must be left in your account.

You should also be mindful that if you leave money in your super account or account-based pension and die that there may be tax consequences for non-dependant beneficiaries (see below).

Starting a pension stream

On the other hand, if you want to use all of your super to have a regular income stream once you retire, you’ll need to roll it over into a pension account.

You’ll need to contact your super fund manager to do this or, in the case of a self-managed super fund, ensure the trust deed allows for the payment of a pension income stream.

Your basic options are to either roll your super over into a pension product offered by your current super fund or to transfer it over to another pension product provider.

Most account-based pension products enable monthly, quarterly, half-yearly or annual payments, which will continue until your account balance runs out.

Be aware that once you start up a pension you’re required to withdraw a set percentage of your account balance every financial year, which increases as you age.

The minimum pension account withdrawal amounts have been temporarily reduced by 50 per cent for the 2022-23 income year. You can see them on the ATO’s website.

There are a range of advantages from setting up a pension income stream versus keeping your super money in accumulation mode.

Most importantly, if you’re aged over 60 and retired, your pension payments are tax-free and so are any investment earnings generated inside your pension account.

You can use your own pension income stream to supplement the government Age Pension if you’re eligible to receive it. And you’re also able to withdraw lump sums from your pension account at any time.

Upon your death, non-dependants who receive money left in a pension account will need to pay tax on the taxable component. The amount of tax payable may be reduced by tax offsets.

Doing both

If you’re wanting total financial flexibility in retirement, you could consider leaving part of your money in super, rolling over some of it into an account-based pension, and also withdrawing lump sums whenever you need to.

There are a range of benefits from adopting a combination of your options, although there may also be potential tax consequences for both you and your beneficiaries.

Managing the combination of a super accumulation account, an account-based pension, an Age Pension entitlement (if eligible), potential investment earnings outside of super, and irregular lump sum payments, can be highly complex.

Using the services of a licensed financial adviser is a worthwhile consideration as you weigh up all of your retirement options.

Call us today if you’d like more information about transitioning into retirement.

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.

© 2022 Vanguard Investments Australia Ltd. 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.

Make yourself accountable for your success

When it comes to career or life goals, a crucial element often missing from the discussion is that of personal accountability. Accountability is fundamental to effective government and successful business, but we often neglect it in regards to our own ambitions. Practicing personal accountability isn’t easy, but if you embrace it, the effect can be transformative.

Transparency

A critical first step in any accountability process is transparency. This means being honest about your prior successes and failures. You can then use what you’ve learned from them to frame your strategy going forward.

Often what stops us from being honest with ourselves is an inability to accept responsibility for our own contribution to our successes or failures. This in turn can often result in a blame mentality. In every person’s life there is a mixture of internal and external obstacles that prevent us from getting what we want. The problem with always blaming what’s outside of us, is that we lose sight of what we can control. It reduces our power. The outcome can be inertia. To blame is to tread water. To be accountable is to build a raft.

Skin in the game

Indecision, procrastination and laziness are three common factors that get in the way of us achieving our goals. So how do we show some accountability and mitigate these habits? The answer is to put some skin in the game – to raise the stakes.

Let’s take the gym as an example. Your building has a free one for the tenants, but you never use it. Maybe it’s because it’s not very well equipped, but you’re also not really losing anything if you don’t go. But say the gym charges a fee. That might mean it’s better resourced, sure, but you’re also getting charged every week. Nobody wants to waste money so you go. You’ve got skin in the game.

Let’s extend the metaphor. You might decide to pay a bit more and join a class, or even splash out and get a personal trainer. Now you’ve really invested, because not only are you giving up your hard-earned cash, but you’ve got someone who will be disappointed in you if you don’t make the session. Someone else to hold you accountable.

Engaging an ally

When a task is set for you by someone else, the stakes are naturally higher because you’re accountable to them. It’s much harder to let someone else down, than it is yourself. This is why it is important to engage an ally, when working towards your goals. And to be honest, the more the better.

Allies can sort fact from fiction, give constructive feedback and encourage you when you’re feeling flat. And it is a lot harder to veer off course when you have a crowd cheering you on.

Practicing accountability

Practicing accountability becomes easier when you have in place a good set of processes. That’s why we’ve come up with this four-step process.

1. Make sure your goals are concrete. This means being specific about what they are and what they’re not. You can’t kick a goal if you don’t know where the goal posts are.

2. Record your progress. Ask any business leader, and they’ll tell you accountability requires accurate reporting. This is where transparency and diligence come in. Make sure you keep records of your successes and failures, the tasks you did, the time they took, and what they cost. Then let this frame your strategy going forward, including incremental deadlines.

3. Invest and put some more skin the game. This means giving up something that has currency to you in order to compel you to keep going. There needs to be an outcome, a material loss, that comes from not reaching your deadlines.

4. Finally, engage an ally. This can be a mentor or a friend. Someone who checks in with you and encourages you but can also give constructive criticism.

If you’ve got big dreams and need some help making them financially viable, come talk to us. We can help make a plan, and ensure you stay accountable each step of the way.

How do SMSFs invest?

As Australia’s system of compulsory superannuation celebrated its 30th anniversary in July, this is a good time to take a closer look at one of super’s biggest success stories – the number of people deciding to take control of their retirement savings with a self-managed super fund (SMSF).

There are now almost 607,000 SMSFs worth a combined $894 million, with 1.1 million members.

While one of the benefits of running your own fund is the flexibility to chart your own course, concerns have been raised over the years that SMSFs are too heavily invested in cash and shares and not as well diversified as large public funds. The latest figures show these concerns are largely unfounded.


Comparing SMSFs and large funds

SMSF administrator, SuperConcepts recently surveyed 4,500 funds to find out how SMSF trustees invest and identify any emerging trends.i They also wanted to see how SMSFs compare with large APRA-regulated funds including – industry, retail, public sector and corporate funds – in terms of their investments.

The table below shows the overall asset breakdown as at 31 March 2022.

Asset typeSMSF %APRA fund %
Cash and short-term deposits12.29.1
Australian fixed interest8.410.0
International fixed interest2.17.9
Australian shares40.028.5
International shares16.427.0
Property16.08.5
Other (incl. infrastructure, cryptocurrency, commodities and collectables)4.99.0
Total100100

Source: SuperConcepts

Several differences stand out:

  • SMSFs have a higher level of cash and short-term deposits, although not massively so.
  • SMSFs hold more Australian shares and property
  • APRA funds hold more international shares and fixed interest, and more alternative assets.

At first glance, these differences conform to the stereotype of SMSFs being too dependent on cash, Australian shares and property.

However, the preference for cash may come down to a higher proportion of SMSF members in pension phase (45 per cent of SMSFs are partly or fully in pension phase according to the ATO). The more members a fund has in pension phase, the more cash and liquid investments it needs to cover benefit payments.

Also, the differences are not so stark when you group assets. For instance, cash and fixed interest combined amount to 22.7 per cent for SMSFs and 27.0 per cent for APRA funds. Similarly, local and international shares (56.4 per cent for SMSFs, 55.5 per cent for APRA funds) and property and other (20.9 per cent vs 17.5 per cent ).

It’s likely that the differences within these broad asset groupings are driven by access to different markets, and SMSF trustees being more comfortable picking investments they know such as local shares and property.

What’s more, while big funds can invest directly in large infrastructure projects with steady capital appreciation and reliable income streams, SMSF investors may be pursuing a similar strategy but with real property instead.


Top 10 SMSF investments

Whether it’s the familiarity factor or ease of access, the top 10 investments by value held by SMSFs in the SuperConcepts survey were all Australian shares. As you might expect, the major banks dominate the top 10, along with market heavyweights BHP, CSL and Telstra.

Another thing the top 10 have in common, apart from being household names and easy to access, is dividends. Just as SMSFs in retirement phase hold higher levels of cash to fund their daily income needs, high dividend paying shares are prized for their regular income stream.


Use of ETFs and managed funds

While SMSFs hold large sums in direct Australian shares, diversification improves markedly when you add investments in Australian and international shares held via ETFs and managed funds.

The SuperConcepts survey found almost one third of SMSF investments by value are held in pooled investments. The highest usage is for international shares and fixed interest, where 75 per cent of exposure is via ETFs and managed funds.

As it’s still relatively difficult to access direct investments in international shares, it’s not surprising that global share funds account for eight of the top 10 ETFs and managed funds.

This latest research shows that the diversification of SMSF investment portfolios is broadly comparable to the big super funds. After 30 years of growth and a new generation taking control of their investments, the SMSF sector has well and truly come of age.

If you would like to discuss your SMSF’s investment strategy or you are thinking of setting up your own fund, give us a call.


i https://www.superconcepts.com.au/insights-and-support/news-and-media/detail/2022/06/19/superconcepts-relaunches-quarterly-smsf-investment-patterns-survey

 

Sharing super a win-win for couples

Australia’s superannuation system is based on individual accounts, with men and women treated equally. But that’s where equality ends. It’s a simple fact that women generally retire with much less super than men.

The latest figures show women aged 60-64 have an average super balance of $289,179, almost 25 per cent less than men the same age (average balance $359,870).i

The reasons for this are well-known. Women earn less than men on average and are more likely to take time out of the workforce to raise children or care for sick or elderly family members. When they return to the workforce, it’s often part-time at least until the children are older.

So, it makes sense for couples to join forces to bridge the super gap as they build their retirement savings. Fortunately, Australia’s super system provides incentives to do just that, including tax and estate planning benefits.

Restoring the balance

There are several ways you can top up your partner’s super account to build a bigger retirement nest egg you can share and enjoy together. Where superannuation law is concerned, partner or spouse includes de facto and same sex couples.

One of the simplest ways to spread the super love is to make a non-concessional (after tax) contribution into your partner’s super account. Other strategies include contribution splitting and a recontribution strategy.

Spouse contribution

If your partner earns less than $40,000 you may be able contribute up to $3,000 directly into their super each year and potentially receive a tax offset of up to $540.

The receiving partner must be under age 75, have a total super balance of less than $1.7 million on June 30 in the year before the contribution was made, and not have exceeded their annual non-concessional contributions cap of $110,000.

Also be aware that you can’t receive a tax offset for super contributions you make into your own super account and then split with your spouse.ii

Contributions splitting

This allows one member of a couple to transfer up to 85 per cent of their concessional (before tax) super contributions into their partner’s account.

Any contributions you split with your partner will still count towards your annual concessional contributions cap of $27,500. However, in some years you may be able to contribute more if your super balance is less than $500,000 and you have unused contributions caps from previous years under the ‘carry-forward’ rule.

If your partner is younger than you, splitting your contributions with them may help you qualify for a higher Age Pension. This is because their super won’t be assessed for social security purposes if they haven’t reached Age Pension age, currently 66 and six months.iii

Recontribution strategy

Another handy way to equalise super for older couples is for the partner with the higher balance to withdraw funds from their super and re-contribute it to their partner’s super account.

This strategy is generally used for couples who are both over age 60. That’s because you can only withdraw super once you reach your preservation age (currently age 57) or meet another condition of release such as turning 60 and retiring.

Any super transferred this way will count towards the receiving partner’s annual non-concessional contributions cap of $110,000. If they are under 67, they may be able to receive up to $330,000 using the ‘bring-forward’ rule.

As well as boosting your partner’s super, a re-contribution strategy can potentially reduce the tax on death benefits paid to non-dependents when they die. And if they are younger than you, it may also help you qualify for a higher Age Pension. These are complex arrangements so please get in touch before you act.

A joint effort

Sharing super can also help wealthier couples increase the amount they have in the tax-free retirement phase of super.

That’s because there’s a $1.7 million cap on how much an individual can transfer from accumulation phase into a tax-free super pension account. Any excess must be left in an accumulation account or removed from super, where it will be taxed. But here’s the good news – couples can potentially transfer up to $3.4 million into retirement phase, or $1.7 million each.iv

By working as a team and closing the super gap, couples can potentially enjoy a better standard of living in retirement. If you would like to check your eligibility or find out which strategies may suit your personal circumstance, get in touch with Prue Cox via email:  p.cox@rgmgroup.com.au or via 03 5120 1400.

i https://www.superannuation.asn.au/ArticleDocuments/402/2202_Super_stats.pdf.aspx?Embed=Y

ii https://www.ato.gov.au/individuals/income-and-deductions/offsets-and-rebates/super-related-tax-offsets/#Taxoffsetforsupercontributionsonbehalfof

iii https://www.ato.gov.au/Forms/Contributions-splitting/

iv https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/transfer-balance-cap/

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.












Federal Budget 2022-23 Analysis

A balancing act

Billed as a Budget for families with a focus on relieving short-term cost of living pressures, Treasurer Josh Frydenberg’s fourth Budget also has one eye firmly on the federal election in May.

At the same time, the government is relying on rising commodity prices and a forecast lift in wages as unemployment heads towards a 50-year low to underpin Australia’s post-pandemic recovery.

While budget deficits and government debt will remain high for the foreseeable future, the Treasurer is confident that economic growth will more than cover the cost of servicing our debt.

The big picture

The Australian economy continues to grow faster and stronger than anticipated, but the fog of war in Ukraine is adding uncertainty to the global economic outlook. After growing by 4.2 per cent in the year to December, Australia’s economic growth is expected to slow to 3.4 per cent in 2022-23.i

Unemployment, currently at 4 per cent, is expected to fall to 3.75 per cent in the September quarter. The government is banking on a tighter labour market pushing up wages which are forecast to grow at a rate of 3.25 per cent in 2023 and 2024. Wage growth has improved over the past year but at 2.3 per cent, it still lags well behind inflation of 3.5 per cent.ii

The Treasurer forecast a budget deficit of $78 billion in 2022-23 (3.4 per cent of GDP), lower than the $88.9 billion estimate as recently as last December, before falling to $43 billion (1.6 per cent of GDP) by the end of the forward estimates in 2025-26.

Net debt is tipped to hit an eye-watering $715 billion (31 per cent of GDP) in 2022-23 before peaking at 33 per cent of GDP in June 2026. This is lower than forecast but unthinkable before the pandemic sent a wrecking ball through the global economy.

Rising commodity prices

The big improvement in the deficit has been underpinned by the stronger than expected economic recovery and soaring commodity prices for some of our major exports.

Iron ore prices have jumped about 75 per cent since last November on strong demand from China, while wheat prices have soared 68 per cent over the year and almost 5 per cent in March alone after the war in Ukraine cut global supply.iii,iv

Offsetting those exports, Australia is a net importer of oil. The price of Brent Crude oil prices have surged 73 per cent over the year, with supply shortages exacerbated by the war in Ukraine.v Australian households are paying over $2 a litre to fill their car with petrol, adding to cost of living pressures and pressure on the government to act.

With the rising cost of fuel and other essentials, this is one of the areas targeted by the Budget. The following rundown summarises the measures most likely to impact Australian households.

Cost of living relief

As expected, the Treasurer announced a temporary halving of the fuel excise for the next six months which will save motorists 22c a litre on petrol. The Treasurer estimates a family with two cars who fill up once a week could save about $30 a week, or $700 in total over six months.

Less expected was the temporary $420 one-off increase in the low-to-middle-income tax offset (LMITO). It had been speculated that LMITO would be extended for another year, but it is now set to end on June 30 as planned.

The extra $420 will boost the offset for people earning less than $126,000 from up to $1,080 previously to $1,500 this year. Couples will receive up to $3,000. The additional offset, which the government says will ease inflationary pressures for 10 million Australians, will be available when people lodge their tax returns from 1 July.

The government will also make one-off cash payments of $250 in April to six million people receiving JobSeeker, age and disability support pensions, parenting payment, youth allowance and those with a seniors’ health card.

Temporarily extending the minimum pension drawdown relief

Self-funded retirees haven’t been forgotten. The temporary halving of the minimum income drawdown requirement for superannuation pensions will be further extended, until 30 June 2023.

This will allow retirees to minimise the need to sell down assets given ongoing market volatility. It applies to account-based, transition to retirement and term allocated superannuation pensions.

More support for home buyers

A further 50,000 places a year will be made available under various government schemes to help more Australians buy a home.

This includes an additional 35,000 places for the First Home Guarantee where the government underwrites loans to first-home buyers with a deposit as low as 5 per cent. And a further 5,000 places for the Family Home Guarantee which helps single parents buy a home with as little as 2 per cent deposit.

There is also a new Regional Home Guarantee, which will provide 10,000 guarantees to allow people who have not owned a home for five years to buy a new property outside a major city with a deposit of as little as 5 per cent.

Support for parents

The government is expanding the paid parental leave scheme to give couples more flexibility to choose how they balance work and childcare.

Dad and partner pay will be rolled into Paid Parental Leave Pay to create a single scheme that gives the 180,000 new parents who access it each year, increased flexibility to choose how they will share it.

In addition, single parents will be able to take up to 20 weeks of leave, the same as couples.

Health and aged care

One of the Budget surprises in the wake of the Aged Care Royal Commission findings, was the absence of spending on additional aged care workers and wages.

Instead, $468 million will be spent on the sector with most of that ($340 million) earmarked to provide on-site pharmacy services.

The Pharmaceutical Benefits Scheme (PBS) is also set for a $2.4 billion shot in the arm over five years, adding new medicines to the list. PBS safety net thresholds will also be reduced, so patients with high demand for prescription medicines won’t have to get as many scripts.

A $547 million mental health and suicide prevention support package includes a $52 million funding boost for Lifeline.

And as winter approaches, the government will spend a further $6 billion on its COVID health response.

Jobs, skills development and small business support

As the economy and demand for skilled workers grow, the government is providing more funding for skills development with a focus on small business. It will provide a funding boost of $3.7 billion to states and territories with the potential to provide 800,000 training places.

In addition, eligible apprentices and trainees in “priority industries” will be able to access $5,000 in retention payments over two years, while their employers will also receive wage subsidies.

Small businesses with annual turnover of less than $50 million will be able to deduct 20 per cent of the cost of training their employees, so for every $100 they spend, they receive a $120 tax deduction.

Similarly, for every $100 these businesses spend to digitalise their businesses, up to an outlay of $100,000, they will receive a $120 tax deduction. This includes things such as portable payment devices, cyber security systems and subscriptions to cloud-based services.

Looking ahead

With an election less than two months away, the government will be hoping it has done enough to quell voter concerns about the rising cost of living, while safeguarding Australia’s ongoing economic recovery.

The local economy faces strong headwinds from the war in Ukraine, the cost of widespread flooding along much of the east coast and the ongoing pandemic.

Much depends on the hopes for the rise in employment and wages to offset rising inflation, and the timing and extent of interest rate rises by the Reserve Bank.

If you have any questions about any of the Budget measures, don’t hesitate to call us on 03 5120 1400.

Information in this article has been sourced from the Budget Speech 2022-23 and Federal Budget support documents.

It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.

i https://tradingeconomics.com/australia/gdp-growth-annual

ii https://www.abs.gov.au/media-centre/media-releases/annual-wage-growth-increases-23

iii https://tradingeconomics.com/commodity/iron-ore

iv, v https://tradingeconomics.com/commodities

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.

Retirement income on the house

Asset rich and income poor is the dilemma faced by many retirees. But there may be opportunities to boost your income in retirement by tapping into your biggest asset – your home.

With property prices booming, many retirees are finding that the home they have lived in for decades is worth a small fortune, but for various reasons they don’t wish to sell or downsize.

What many may not realise is that you can have your cake and eat it too. Or, in this case, convert part of the value of your home into an income stream while you remain living there.

The ability to borrow against the equity in your home without having to repay until you move out or sell comes in various guises, but the result is largely the same – an enhanced lifestyle in retirement. The extra income may allow you to enjoy some little luxuries, travel more, or pay for home improvements.


There are four key types of product on offer:

  • Reverse mortgage
  • Home reversion
  • Equity release agreement
  • The government’s Pension Loans Scheme (PLS).i

None of these strategies should be adopted without careful consideration as they may have an impact on your family, your beneficiaries and – with the exception of the PLS – your Age Pension if you receive one.

As a result, we recommend you speak to us first to discuss whether accessing some of your home equity would be appropriate for you.

This is how these products work:

1. Reverse mortgage

A reverse mortgage lets you borrow money against the value of your home and take it as an income stream, a line of credit, a lump sum or a combination.

The amount you borrow is often determined by age. At 60 you can generally borrow 15-20 per cent of the value of your home. This percentage increases by 1 per cent a year.ii

The interest accrues and is paid when you sell, either on entering an aged care facility or from your estate when you die. The interest rate is usually higher than the standard mortgage rate, but you don’t have to make repayments along the way. Since 2012, reverse mortgages must come with a negative equity guarantee. This ensures you can never end up owing more than your home is worth.

2. Home reversion

Here you sell a percentage of the future value of your property at a reduced rate. It is not a loan, so there is no interest payable. However, there are immediate costs such as a property valuation and an upfront fee. And there is also the cost of losing the full benefit of your home’s increase in value over time. The more your home’s value increases, the more the provider will receive.

3. Equity release scheme

This third option lets you sell a percentage of the value of your home in return for a lump sum or an income stream. You pay fees which are periodically deducted from the remaining equity in your home, so your share diminishes over time.ii

4. Pension Loans Scheme

The Federal Government’s loan scheme is offered through Services Australia and the Department of Veterans Affairs.

You can access a voluntary non-taxable fortnightly loan up to 150 per cent of the maximum Age Pension rate to bolster your retirement income with the loan secured against your home. You don’t need to be on the Age Pension to qualify but even if you are, this government loan does not impact your pension entitlements.iv

Your mortgage increases by the payment amount plus interest which currently stands at 4.5 per cent a year. As with the other schemes, you don’t need to repay the loan until you move out or sell. And if your circumstances change, you can adjust the loan accordingly such as pausing payments.

All four options are variations on a theme of providing a better lifestyle in retirement.

If you want to find out if any of these options might play a role in your retirement income strategy, don’t hesitate to call us on 03 5120 1400 to discuss with our Financial Planning Team or via our website contact page.

Case study

Self-funded retirees Frank (75) and Mary (73) were struggling to maintain their lifestyle after no longer qualifying for the Age Pension. By borrowing $400 a fortnight against their $390,000 home from the government’s Pension Loans Scheme, they would still own 72 per cent of their property after 10 years and 41 per cent after 20 years. In the meantime, they can enjoy a few extra luxuries in life while remaining in their home. v

i https://moneysmart.gov.au/retirement-income/reverse-mortgage-and-home-equity-release

ii https://www.ratecity.com.au/home-loans/articles/maximum-amount-borrow-reverse-mortgage

iii https://moneysmart.gov.au/retirement-income/reverse-mortgage-and-home-equity-release

iv https://www.pensionboost.com.au/faqs

v https://www.pensionboost.com.au/pension-loan-scheme

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.