Gifting for future generations

At this time of year, when giving is particularly on our minds, some might turn their attention to how best share their wealth or an unexpected windfall with their loved ones­.

You might be thinking about handing over a lump sum to help them with a major purchase or business opportunity, or be keen to help reduce or extinguish their student loans. Alternatively, it might be about helping to solve a housing problem.

Whatever the reason there are some rules that it is worth being aware of to ensure both you and they are protected.

Giving a cash gift

You can give anyone, family or not, a gift of cash for any amount and, as long as you don’t materially benefit from the gift or expect anything in return, no tax is paid on the amount by either you or the receiver.i

The same applies if you’re planning to pay out your child’s student loans.

However, be aware that if the beneficiary of your cash gift is receiving a government benefit, such as an unemployment benefit or a student allowance, there is a limit on the size of the gift they can receive without it affecting their payments.

They may receive up to $10,000 in one financial year or $30,000 over five financial years (which can not include more than $10,000 in one financial year).ii

Helping out with housing

Many parents also like to help their children get into the property market, where possible.

It’s been a difficult time for many in the past few years in dealing with the COVID-19 pandemic, the rising cost of living and interest rates, and a housing crisis.

A Productivity Commission report released this year found that while most people born between 1976 and 1982 earn more than their parents did at a similar age, income growth is slower for those born after 1990.iii

With money tight and house prices climbing, three in five renters don’t believe they will ever own a home even though most (78 per cent) want to be homeowners, according data collected by the Australian Housing and Urban Research Institute (AHURI).iv

Just over half of those surveyed (52 per cent) were renting because they didn’t have enough for a home deposit and 42 per cent said they couldn’t afford to buy anything appropriate, the AHURI survey found.

So, in this climate, help from parents to buy a home isn’t just a nice-to-have, it’s becoming a necessity for many.

Moving home

Allowing your adult child, perhaps with a partner and family, to share the family home rent-free is common option, giving them the chance to save up for a deposit.

One Australian survey found that one-in-10 people had moved back in with their parents either to save money or because they could no longer afford to rent.v

If it gets too much living under the same roof, building a granny flat in your backyard may be an option.  Of course there are council regulations to consider, permits to be obtained and the cost of building or buying a kit but on the upside, it may add value to your home.

Becoming a guarantor

Another way to help might be to become a guarantor on your child’s mortgage. This might be the best way into a mortgage for many but before you sign, think it through carefully, understand the loan contract and know the risks.vi

Don’t forget that, as guarantor, you’re responsible for the debt. You will have to step in and repay if the borrower can’t afford to repay, and the loan will be listed as a default on your own credit report.

Any sign that you are being pressured to be a guarantor on a loan may be a sign of financial abuse. There are a number of avenues for advice and support if you’re concerned.

It’s vital that you obtain independent legal advice before signing any loan documents.

If you would like more information about how to provide meaningful financial support to your children, we’d be happy to help.

i Tax on gifts and inheritances | ATO Community

ii How much you can gift – Age Pension – Services Australia

iii Fairly equal? Economic mobility in Australia – Commission Research Paper – Productivity Commission

iv Rising proportion of ‘forever renters’ requires tax and policy re-think | AHURI

v Coming home: 662,000 Australian households reunite with adult children – finder.com.au

vi Going guarantor on a loan – Moneysmart.gov.au

×

Surviving the silly season

Ah, Christmas! – the time of year when your bank account shrinks, your social calendar explodes, and your family dynamics resemble a poorly scripted soap opera. As we navigate this festive minefield of shopping, social gatherings, and feasting, it’s common to feel a little frazzled.

In fact, research has found that the holiday season is one of the six most stressful life events we go through, in the same category as moving house and divorce.i

But it does not have to be – before you let the silly season get the better of you, here are some ways to not just survive, but thrive, to make it through the festive chaos and bring in 2025 feeling energised and on track to reaching your goals. 

Get organised

Let’s face it, the silly season is a whirlwind. Between work parties, family catch-ups, and obligatory gatherings with distant relatives you only see once a year, it’s enough to make anyone want to retreat to a deserted island.

However, rather than running off to Bora Bora, if you want to survive the silly season relatively unscathed, planning ahead is a must. With the social calendar filling up quicker than you can say cheers, it becomes easy to overcommit and leave yourself feeling a little stretched. Rather than maintaining a constant schedule of parties and social engagements, why not learn the power of saying ‘no’. Choose the events you really want to attend and think about each invitation before you send that RSVP. Remember to allow for some guilt-free ‘down time’ amongst all the festivities.  

Shopping shenanigans

Shopping during the silly season can be akin to a scene from an action movie—chaotic, frenzied, and with a distinct chance of an all-in brawl.

Channel your inner Santa Claus and make a list. And yes, check it twice! A good list keeps you focused and reduces the chances of impulse buys—like that life-sized inflatable Santa that seemed like a good idea at the time. (Spoiler alert: it wasn’t.)

Consider shopping online, too. You can sip your coffee in your pyjamas while avoiding the chaos of the shops. Just remember: the delivery cut-off dates are real! Don’t be the person frantically searching for gifts at 9 PM on Christmas Eve.

The present predicament

Let’s talk presents. It’s lovely to give and receive gifts, but when did we all agree that every adult needs a new mug or another pair of socks?

To combat the gift-giving madness, consider doing a Secret Santa among adults. Set a reasonable budget and unleash your creativity. Who doesn’t want a mysterious gift that could range from a novelty toilet brush to a box of chocolates? 

Navigating the family dynamics

Family gatherings can be a delightful mix of love, laughter, and the occasional argument that would make for great reality TV. You know the drill—everyone has an opinion, and even the Christmas ham can become a hot topic of debate.

Before the big day, set some ground rules. No politics, no discussing that relative’s questionable life choices, and absolutely no karaoke unless everyone is fully prepared to participate. If tensions start to rise, a little humour can go a long way. Embrace the absurdity of it all. If Uncle Bob starts arguing about the best way to cook prawns, counter with a story about how Auntie Sheila once tried to deep-fry a turkey—because that’s a Christmas classic in its own right.

Don’t try to do it all

If you’re hosting this year, congratulations! You’re officially in charge of managing the chaos. But you don’t have to shoulder the entire load.

Encourage those who are coming to bring their ‘special’ dish. Not only does it lighten your load, but it also allows everyone to show off their culinary skills (or lack thereof). Plus, you might discover that Aunt Margaret’s “special” potato salad is actually a hidden gem—just don’t ask what’s in it. 

Survive and thrive

At the end of the day embrace the chaos, lean into the hilarity of when things don’t go to plan, don’t take it all too seriously and be prepared to step back a little when you need a break from all the festivities.

Here’s to a joyful festive season filled with laughter and the wonderful chaos that is Christmas. We’ll catch you on the other side. Cheers!

i Christmas stress | Relationships Australia

×

Market movements and review video – December 2024

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

While headline inflation eased to 2.8% in the September quarter, the RBA appears cautious on interest rates.

The RBA Governor stated that Australia’s core inflation remains too elevated to justify interest rate cuts in the near term.

The sharemarket reacted to the RBA’s comments in the last days of a month that had seen several all-time highs as markets globally reacted to Donalds Trump’s win.

Click the video below to view our update.

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

×

SMSFs: keeping it in the family

Self managed super funds (SMSFs) can offer their members many benefits, but one that’s often overlooked is their potential as a multigenerational wealth creation and transfer vehicle.

Family SMSFs are relatively rare. According to the most recent ATO statistics (2022-23), the majority of SMSFs (93.2 per cent) have only one or two members.i Just 6.6 per cent have three or four members and only 0.3 per cent have five or six members (the maximum allowed).

Advantages of a family SMSF

An SMSF is sometimes established when two or more generations of a family share ownership or work in a family business. The fund can then form part of a personal and business succession plan, potentially making it easier to pass on ownership and management of assets to the next generation.

With more members, SMSFs also gain additional scale, allowing them to invest in larger assets (such as property). You can add business premises to the SMSF and lease it back without violating the related parties rule and 5 per cent limit on in-house assets.ii

Reduced tax and administration costs are also a benefit of multigenerational funds.

Running a family SMSF means the costs of establishing and administering the fund are spread across more members. This can be particularly helpful for adult children just beginning to save for their retirement.

In addition, more fund members means more people to share the administrative burdens of running an SMSF, which may be helpful as you get older.

A family SMSF does not need to be automatically wound up if you die or lose mental capacity and they can simplify the process of paying out a member death benefit as well as potentially allowing it to be paid tax-effectively. Note that death benefits paid to non‑tax dependent beneficiaries incur a tax rate of up to 30 per cent plus the Medicare levy.iii

More fund members also make setting up a limited recourse borrowing arrangement (LRBA) easier because their contributions reduce the fund’s risk of being unable to pay the borrowing costs. (An LRBA allows an SMSF to borrow money to buy assets)

Funding pension payments

Another advantage of an SMSF with up to six members may be when the fund begins making pension payments to older members.

If younger members are still making regular contributions, fund assets don’t need to be sold to make pension payments, which avoids the realisation of capital gains on assets.

Family SMSFs can also provide non-financial benefits, helping to transfer financial knowledge and expertise between the generations. And, while your children gain a solid financial education from participating in the running the SMSF, they can also provide valuable investment insights from a different perspective.

Risks and responsibilities

It is important to note that a multigenerational SMSF may not be right for everyone.

SMSFs of any size come with some risks and responsibilities. You are personally liable for the fund’s decisions, even if you act on advice from a professional, and your investments may not provide the returns you were hoping for.

Before you start adding your children and their spouses to your fund, it’s essential to spend time thinking about the challenges in running a family SMSF. Developing an asset allocation strategy catering to different life stages can be complex. Older members may prefer a strategy designed to deliver a consistent income stream, while younger members are usually more focused on capital growth.

Risk profiles are also likely to vary. Typically, younger fund members have a higher appetite for investment risk than members closer to retirement.

Family conflict can also be an issue when relationships are under pressure from divorce, blended families, and personality clashes.

The death of a parent can also create disputes over the distribution of fund assets or forced asset sales. Decisions about the payment of death benefits by the remaining trustees can derail carefully made estate plans and result in expensive legal battles.

Larger families with multiple adult children and partners may also find the six member limit an obstacle, forcing them to look at other options such as running a number of family SMSFs in parallel.

If you would look more information about establishing a family SMSF, call our office today.

i SMSF quarterly statistical report June 2024 | data.gov.au

ii Related parties and relatives | Australian Taxation Office

iii Paying superannuation death benefits | Australian Taxation Office

×

Super vs property: what works for retirement income?

There is no debate that Australians love investing in property. The value of Australian residential real estate at the end of August 2024 was an estimated $10.95 trillion.i

Some love it so much that they believe property is a better option for providing a retirement income. They see a bricks and mortar investment as a more tangible and solid approach than say, superannuation, preferring to take their super as a lump sum on retirement to buy property. They may also choose to invest a windfall, such as an inheritance, or the proceeds from downsizing the family home, in property instead of their super.  

So, given that a retired couple above age 65 needs an estimated yearly income $73,337 to lead a comfortable lifestyle, could a property investment do the job?ii

While it’s true that a sizeable property portfolio could deliver rental income to equal a super pension, it might mean missing out on some useful benefits.

After all, super is a retirement savings structure with significant tax advantages. It also has the flexibility to provide investments in a range of different asset classes, including property.

Meanwhile, super fund performance has, generally speaking, outstripped house price movements over the past decade. Super funds (invested in an all-growth category) returned an annual average of 9.1 per cent during that time while average house prices in Australian capital cities grew 6.5 per cent per year over the same period.iii, iv

Not that past performance can give you any guarantees about what will happen in the future. Indeed, the average numbers smooth out the years of high returns and the years of negative returns. More important considerations in making an informed decision are your financial goals, your investment timeframe and how much risk you’re comfortable with.

Liquidity

One of the most significant differences between super and property investments is liquidity, or how quickly you can convert your investment to cash.

With super, assuming you’re eligible, funds can be accessed relatively easily and quickly. On the other hand, if your wealth is tied up in property it may take some time to sell or it may sell at a lower price.

Nonetheless, market cycles affect both property and super investments. They can be affected by volatile conditions and deliver negative returns just at the time you need access to a lump sum.

Long-term investing

Superannuation is designed for long-term growth, often spanning decades as you accumulate wealth over your working life. The magic of compounding interest can lead to substantial growth over time, depending on your investment options and the state of the market.

Property investments, on the other hand, can be invested for short, medium, and long-term growth depending on the suburb, the street, and the type of house you invest in. Of course, there are additional costs in buying a property (such as stamp duty) plus costs in selling (including capital gains tax). If there’s a mortgage over the property, you’ll need to factor in the additional costs of repayments and interest (bearing in mind that interest on investment properties is tax deductible).

Risk appetite

Investors’ attitudes towards risk also play a role in choosing between super and property.

Superannuation funds can be diversified across various asset classes, which helps to reduce risk. But property investments expose investors to a single market meaning that while there might be a big benefit from an upswing, any downturn may be a blow to a portfolio.

Making an informed choice

Ultimately, any decision between superannuation and property should align with individual financial goals, risk tolerance, and investment strategies. And, of course, it doesn’t need to be one or the other – many choose to rely on their super while also holding investment property so it’s best to understand how super and property can complement each other in a well-rounded retirement plan.

We’d be happy to help you analyse your retirement income strategy to develop a plan that works for you.

i Monthly Housing Chart Pack – September 2024 | CoreLogic Australia

ii ASFA Retirement Standard – June quarter 2024 | The Association of Superannuation Funds of Australia Limited (ASFA)

iii Super funds deliver strong result in FY24 | Chant West

iv SQM Research Weekly Asking Property Prices , 1 October 2024 | SQM Research

×

Market movements and review video – November 2024

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

Welcome news on the inflation front in October pointed to the Reserve Bank of Australia (RBA) holding steady on rates this month.

The latest quarterly inflation figures show inflation has slowed to its lowest level since the height of the pandemic and now sits within the RBA’s target range at 2.8%.

Global share markets softened in the final two weeks of October, reflecting economic and geopolitical uncertainly.

The S&P/ASX 200 closed slightly down over the month of October, after again reaching record highs mid-month.

With the US election on the horizon there is much speculation about what that will mean for markets and the economy, both in the US and Australia.

Click the video below to view our update.

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

×

The Age Pension and your retirement plans

Most people intend to retire between ages 65 and 66, according to the latest data and, surprisingly, despite growing superannuation balances, the Age Pension is the main source of income for many retirees.i

The intended retirement age has increased significantly in the last two decades, from just over 62 years on average in 2004.

Australian Bureau of Statistics (ABS) figures show that, in 2022-23, a government pension or allowance was still the main source of personal retirement income. This was followed by super, an annuity or private pension.

More than 60 per cent of those aged over 65 years were receiving the Pension in 2021ii

Am I eligible?

It is important to remember that, while you may not meet the eligibility requirements today, you may qualify later in life.

In 2021, only 44 per cent of people aged 65-69 received either full or part Age Pensions but this increased to 81 per cent for those aged 80 to 84 years.iii

Veterans who have served in the Australian Defence Force may be eligible for pensions or benefits from the Department of Veterans Affairs.iv

You are generally eligible for the Age Pension if you:

  • are over 67 years (depending on when you were born)
  • are an Australian resident and have lived in Australia for at least 10 years
  • can meet an income and assets test

What are the income and assets tests?

The Age Pension means tests considers your income and the value of any assets you own. If the value of your income and assets exceed certain limits, your payment will be reduced.

Income includes money from a job (including salary packaging), other pensions or annuities, earnings from investments and any earnings outside of Australia.v

Assets are items of value you or your partner own or have an interest in such as investment properties and artworks; caravans, cars, and boats; shares; and business assets. While your family home isn’t included in the assets test, your pension may be affected if you sell it.vi

Can I still work?

Singles can earn up to $212 per fortnight without their pension being affected. For every dollar over that amount, their pension will be reduced by 50 cents. Couples can earn up to $372 per fortnight and for every dollar over that amount, 25 cents in the dollar will be deducted from their pension payment.vii

If your income in a fortnight goes over a certain amount, you will not receive a pension payment. This cut-off amount is $2500.80 for a single person and a combined $3,833.40 for a couple. There are other higher cut-off allowances for those affected by ill-health.

The Work Bonus may help you earn more from working without reducing your pension. You don’t need to apply for it, the Bonus will be automatically applied to your eligible income – you just need to declare your income.viii

What does the Age Pension pay?

There are different rates of pension for singles and couples.

The current maximum basic rate for a single person is $1047.10 per fortnight. A couple would receive 1,578.60 per fortnight. With extra supplements, those on a full Pension could receive a fortnightly total of $1,144.40 for singles and $1,725.20 for couples.ix

Get in touch if you’d some help to work out your eligibility for the Age Pension and other government entitlements.

i Retirement and Retirement Intentions, Australia, 2022-23 financial year | Australian Bureau of Statistics (abs.gov.au)

ii, iii Age Pension guide | SuperGuide

iv Eligibility for benefits and payments | Department of Veterans’ Affairs (dva.gov.au)

v Income – Age Pension | Services Australia

vi Asset types – Age Pension | Services Australia

vii Income test for Age Pension – Age Pension | Services Australia

viii Who can get the Work Bonus – Work Bonus | Services Australia

ix How much Age Pension you can get – Age Pension | Services Australia

×

Selling your investment property? Watch out for tax

If you are considering disposing of a property, it’s important to understand the implications so that there are no surprises when your tax bill arrives.

As with most investment assets, when you dispose of an investment property generally you are liable for capital gains tax. Capital gains tax (CGT) is levied when you make a profit on selling and is part of your income tax, rather than a separate tax.i

When you dispose of an investment asset, your capital gains and losses must be reported in your tax return. The capital gain or loss is the difference between what it cost you to obtain and improve the property (the cost base) and the amount you receive when you dispose of it.ii

The CGT event is triggered when you enter into the sales contract, not when you settle on the property.

Capital gains must be included in your tax return for the income year the property is sold, while capital losses can be carried forward and used in future years.iii

Under the 6-year rule, you may be entitled to a part or full main residence exemption if you lived in the investment property before renting it out. This rule allows you to continue treating a property as your main residence for up to six years if you use it to produce income.iv

Other taxes to check before selling

In most situations, you are not required to add goods and services tax (GST) to the sale price when selling an investment property.

GST does, however, need to be applied to the sale of newly built and redeveloped properties. This may apply even if you are not a business.v

In some states (such as NSW), land tax is levied on investment properties over a certain value, so it’s important to ensure you pay any land tax bills prior to selling.

How CGT works

When it comes to CGT, you pay tax on your net capital gains, which is your total capital gains less any capital losses less any discount you are entitled to on your gains.vi

An important factor in the CGT calculation is when you purchased the investment property and how long you have held it.

If you sell within the first year of ownership, 100 per cent of your capital gain will be subject to CGT. If you sell after 12 months only 50 per cent is subject to CGT. For example, if you sell your property two months after purchase and make a capital gain of $10,000, the entire $10,000 is subject to CGT, but if it’s sold after the first year, only $5,000 is subject to CGT.

Property acquired before 20 September 1985 is exempt from CGT as this was the introduction date for CGT.

Calculating your capital gain or loss

Correctly calculating your capital gain or loss requires you to identify all the legitimate expenses contributing to your property’s cost base.

This usually includes items such as the price paid for the property, costs of transfer, stamp duty and selling costs (such as advertising, accounting and agent’s fees).

You can also include the cost of owning the CGT asset (such as rates, land taxes and insurance premiums), but you are not permitted to include amounts already claimed as a deduction (such as depreciation and capital works).

If you acquired your property before 21 September 1999, you can index its cost base for inflation to reduce your capital gain.vii

For more information about the tax implications of selling your investment property, call our office today.

i What is capital gains tax? | Australian Taxation Office (ato.gov.au)

ii Cost base of assets | Australian Taxation Office (ato.gov.au)

iii CGT when selling your rental property | Australian Taxation Office (ato.gov.au)

iv Treating former home as main residence | Australian Taxation Office (ato.gov.au)

v GST and property | Australian Taxation Office (ato.gov.au)

vi Calculating your CGT | Australian Taxation Office (ato.gov.au)

vii Indexing the cost base | Australian Taxation Office (ato.gov.au)

×

Run2Cure by Gabriel Guppy

On Friday the 18th of November I set out to run 100km around the local Yarragon Football oval to help raise awareness and funds for Neuroblastoma, a cancer affecting young children of which on average are just 2 years of age,

Our family has been affected by this terrible cancer with my nephew being diagnosed with stage 4 Neuroblastoma at 8 weeks old, thankfully he has been in remission for two years.

Throughout the day 20-30 people took part running lap after lap in the rain and many PB’s were achieved which made the km’s tick over much quicker,

My nephew and his brother were able to come along for the final few laps to run them with me,

Almost $3,000 was raised to add to Paddy’s tally by the end of the run.

QR code for donations

Paddy (Left) and his big brother Harry (Right)

×

Caught in the middle: help for the sandwich generation

If you are feeling a bit like the meat in the sandwich you are not alone. The ‘sandwich generation’ is a growing social phenomenon that impacts people from all walks of life, describing those at a stage of their lives where they are caring for their offspring as well as their elderly parents.

The phenomenon is gathering momentum as we are tending to live longer and have kids later. It even encompasses royalty – Prince William has been dealing with a sick father while juggling school aged kids (as well as a partner dealing with serious health issues).

A growing phenomenon

The number of people forming part of the sandwich generation has grown since the term was first coined in the 1980’s, as we tend to live longer and have kids later. It is estimated that as many as 5% of Australians are currently juggling caring responsibilities which has implications for family dynamics, incomes, retirement and even the economy.i

Like many other countries, the number of older Australians is growing both in number and as a percentage of the population. By 2026, more than 22 percent of Australians will be aged over 65 – up from 16 percent in 2020.ii It is also becoming more common for aging parents to rely on their adult children for assistance when living independently becomes challenging.

The other piece of bread in the sandwich is that as a society we are caring for kids later in life. The median age of all women giving birth increased by three years over two decades.iii

And with young people staying in the family home well into their twenties, we are certainly supporting our children for longer. Even after the kids leave the nest, it’s also common for parents to become involved in looking after grandchildren.

Taking its toll on carers

While we want to support our loved ones, when that support is required constantly and intensively for both parts of the family, it can mean that something has to give and that ‘something’ is often the carer’s well-being.

Even if you are not part of the sandwich generation but being squeezed at either end – caring for kids or parents, acting as a primary care-giver often requires you to provide physical, emotional, and financial support. It’s common to feel it take a toll on your own emotional and physical health, and sometimes your finances as you sacrifice some of your savings or paid work to help your loved ones.

Support for caregivers

It can be difficult to acknowledge you need assistance but there are a number of ways you can access help.

Deciding what to get help with

It can feel like there is not enough hours in the day and that’s overwhelming. Try to think about what you really need to do and where your time is best spent and consider if you can get assistance with tasks or duties you don’t have to do. This may mean outsourcing things like buying a healthy meal instead of cooking or getting a hand with gardening or lawn mowing.

Think about what others could assist with to lighten and share your load.

Accessing support

There are also support networks out there that exist to take off some of the pressure. Reach out to local support networks via Carers Australia for help identifying mainstream and community supports.

You or your loved ones may also be entitled to government support, under the National Disability Insurance Scheme (NDIS) or My Aged Care. These programs provide funding and resources to help pay for essential care; from domestic assistance with cleaning and cooking, to home modifications, to 24-hour care for those who require more support.

The importance of self-care

It’s vital to take some time out for yourself and make your own wellbeing a priority. Don’t feel that it’s selfish to take care of your own needs as that’s an essential part of being a carer. Resources like respite care and getting support when needed is an important gateway to self-care.

Managing your finances

Caregiving can put financial pressure on the whole household and has the potential to impact retirement savings. The assistance of a trusted professional can help, and we are here if you need a hand.

Raising kids as well as supporting parents to live their best lives as they age is becoming more common and can be a challenging time of life. While the act of caring is the ultimate act of kindness – the most important thing to remember is to be kind to yourself.

i https://info.careforfamily.com.au/blog/sandwich-generation
ii https://www.sydney.edu.au/news-opinion/news/2023/10/09/confronting-ageing-the-talk-australia-has-to-have.html
iii https://www.abs.gov.au/

×