TRADE SECRETS

October 2019 Edition

A focus on Estate Planning

By James Malliaros

As an organisation, we meet with hundreds of clients each year. One constant in our dealings with clients is the surprising nature of how many do not have a Will, Power of Attorney or Estate Plan in place.

If you die without a Will, or your Will is not valid, you are considered to have died ‘intestate’. Here in Victoria, if you die intestate, it is a requirement that an application for a Grant of Letters of Administration needs to be made to the Supreme Court. In most cases, the grant is made to the next of kin of the deceased, with the Court following a specific family tree to determine the next of kin. While this would seem logical, in some cases, who the Court determines as the next of kin may not have been whom the deceased would have wished, and this exposes the ugly side of people dying without a valid Will. The cascading effects of the arguments over control of the deceased estate and the division of assets inevitability leads to a deterioration of relationships.

In this edition of Trade Secrets, we have focussed heavily on estate planning, which we believe is often the most overlooked element of many clients’ financial plans. Estate planning is an incredibly complex area. Therefore, reviewing your estate plan regularly is essential.

In the article below, Nicola Beswick has outlined some of the important considerations that need to be made when establishing an estate plan and Witi Suma has also written an insightful article on succession planning for SMSFs later in the document.

Estate Planning Seminar:

Why you need an estate plan

By Nicola Beswick

On Monday 2nd September 2019, we held our lunch seminar at Leonda by the Yarra, on the very important topic of Estate Planning. Our guest presenters were Jennifer Dixon, Practice Leader and Jessica Latimer, Special Counsel in Elder Financial Abuse, from Moores Legal.

The seminar focused on a range of Estate planning topics including the importance of Wills, what assets are covered by the Will, the significance of asset ownership, the roles and application of Powers of Attorney, superannuation and elder financial abuse.

The feedback from attendees was excellent, with some having since taken action in getting their estate planning affairs in order. Everyone appreciated the opportunity to attend such a valuable and insightful presentation.

Why you need an estate plan

Even if you have a Will in place, it is still essential to consider your overall estate plan. A Will is a useful document, but an estate plan has the scope to cover so much more than a Will encompasses. If you are in a situation where you cannot advocate for yourself while you are still alive, a properly constructed estate plan can protect your interests. You can also structure an estate plan to protect and support vulnerable family members after your death.

Maintain an up-to-date Will

You die intestate if you die without a valid will which can create complications that are best avoided. While the laws around dying intestate are intended to be as fair as possible, they are unlikely to reflect your exact wishes. Also lost is the opportunity to decide who oversees and makes the final decisions about your estate. With a Will in place, this means that you can be confident that your wishes will be recognised and acted upon. If your circumstances change, your Will should be updated.

Appoint an executor that will respect your wishes

The executor of an estate can have a challenging role. If there is conflict about the division of an estate between beneficiaries, there can also be a great deal of emotional pressure.

You need to have the trust that your executor will honour your wishes as set out in your Will.

Remember all your assets

When preparing your Will, include everything of value – property, investments, jewellery, collectibles, and items of sentimental value. Instructions should be specific. The aim should be to make the distribution of your assets as simple as possible. If you forget to include something of value, this could lead to arguments over who has the rights to that particular asset.

Power of Attorney

Arranging an enduring power of attorney is an essential way of planning for the future while you are alive. Although everyone has the right to make their own decisions, anyone can experience an injury or illness that renders them unable to make decisions, either temporarily or permanently. By creating an enduring power of attorney, you can choose who will make significant financial and personal decisions for you, such as where you will live or what happens to your house, if you are unable to do so in the future.

Keep all documentation together and accessible

For the convenience of your executor and peace of mind of your beneficiaries, ensure the following documents are kept together in an accessible, safe place:

• Your last Will
• Your power of attorney
• Investment records
• Life insurance documents
• Details of the location of assets
• Details of all your advisers

We recently updated our comprehensive Estate Planning Workbook which is designed to assist with gathering and documenting essential personal information. The workbook makes the provision for recording information relating to all aspects of your estate plan, including all legal and financial matters making it an excellent reference tool for your executor or estate beneficiaries. While our Estate Planning Workbook does contain critical information, it is not a legal document and should not be considered a substitute for a Will or estate plan. We strongly advise this workbook be used in tandem with a well written Will, prepared by a legal professional.

If you would like a copy of this workbook or were unable to attend the seminar and would like a copy of the presentation, please email mai@gfmwealth.com.au

DAVID & JACQUIE BAILLIE:

CLIENT OF GFM SINCE 2004

By Paul Nicol

David and Jacquie have kindly written the article below on their family, working life and their experience as clients of GFM Wealth Advisory. We much appreciate David and Jacquie’s contribution to Trade Secrets.

We were lucky to meet late last century (it seems a long time ago!) when we were both students at university. David was in his final year of a Law/Commerce double degree and Jacquie second year of Social Science. Our relationship flourished, and things moved quickly. We had big plans for our future and were married in 2000, at which stage David was an articled clerk at a city law firm and Jacquie still finishing off her studies.

We were happily settling into married life while many of our friends were embarking on adventures travelling across the world. At this point, we were focussed on our respective careers and saving for a home but realised that we too were keen to see the world, ideally before we embarked on another of our plans, to start a family.

In 2003 we purchased our first home, a two-bedroom semi- detached in Hawthorn East. At the time, our mortgage seemed insurmountable. The house was in original condition which presented us with further priority plans to renovate the kitchen and bathroom and landscape the garden.

Two important things happened in September 2004. We finally went on a European holiday and had our first meeting with Paul at GFM after being referred to him by a trusted friend. We connected well with Paul and the rest of the GFM team from the outset. We were of a similar age to Paul and seemed to have aligned interests and plans for life. Although we had done quite well ticking off some of our goals to date, at the time we felt the advice and guidance of an expert was an essential step to achieving our financial and life goals. We were impressed that Paul took great interest in understanding our goals and structuring his advice accordingly, rather than rolling out a template financial plan.

2005 proved to be a busy year. Our first child, Charlie, was born in August albeit two months premature. Our home renovation was also completed late that year. In January 2007, we had a second son, Thomas. With only 16 months between our boys, life was hectic but great fun all the same. By this stage David had left working in law and was working as a Commercial Manager with Jacquie’s hands well and truly full with two active boys.

Later in 2007, we purchased another house, in Armadale (which we still live in today). With everything going on, we were quite bold in buying before selling. Despite a few sleepless nights things worked out well. Similar to our previous home, our new place was in original condition, meaning further plans to renovate and create a family home.

By December 2007, we had moved to Sydney, where we stayed for three wonderful years. During that time, we had our third child (daughter Eve in August 2009). Importantly we maintained our relationship with Paul, who continued to prove adept in guiding us as our priorities and plans changed as life evolved. We moved back (into our newly renovated home) in Melbourne at the beginning of 2011 to enable Charlie to start primary school. At this point a significant focus of our discussions with Paul was planning for the education of our three children.

Life continued in a fairly conventional manner for the next few years with the focus being on family and raising our children. We have still managed to keep Paul busy in helping us achieve our plans, such as new cars, swimming pools and Jacquie’s start-up granola business. In 2018 we bought a small farm on the Murray River. With farming on both sides of our families, it seemed like a good thing to do at the time. We have since learnt that the vagaries of farming make investment markets look quite calm; we are lucky we have day jobs! That said, we enjoy our family time up on the farm (when sport, school and other commitments enable it).

We see ourselves as very lucky. We are very proud of what we have achieved, particularly our children. We have just returned from a family holiday in Europe, which will no doubt be an enduring memory for all of us. Again this life milestone was achieved as a result of our planning with Paul’s input and guidance.

We now move onto the next phase of our planning which is focused on accumulating wealth for retirement. Over the journey, we have referred many family and friends to GFM confident that they too will achieve personalised service from skilled financial experts who will take a real interest in helping their clients achieve their financial goals. It is clear to us from writing this piece that life has many twists and turns. One of the constants for us has been our 15-year relationship with GFM.

14/7/19 Family enjoying dinner in Rome

Staff profile:

REBECCA LOWE

By Paul Nicol

Rebecca joined GFM in October 2013 after working for the previous 10.5 years at a large financial planning firm specialising in wealth strategies and retirement planning.

Through her years of experience working in an advisory firm and additional study, Rebecca has developed specialist expertise in the areas of investments, portfolio construction, superannuation and retirement planning strategies and insurance. Rebecca enjoys the evolving nature of the financial planning industry and working with advisers and clients to create personalised financial plans that assist clients in reaching their long term personal and financial goals.

In her role as Senior Para-planner, Rebecca is responsible for the preparation of comprehensive Statements of Advice that people can understand. As team leader, she is also responsible for managing team workflow and the ongoing training and development of the team.

Here’s a quick Q & A with Rebecca:

Q. Your family?

A. I grew up in a rather large family by today’s standards – dad, mum and five siblings! I am the eldest, and while we didn’t always get along growing up, we are now all the best of friends and regularly catch up to celebrate birthdays and holidays. With the family now including all of our partners and eight nieces and nephews, the regular catch-ups have become rather large affairs!

Q. Favorite holiday destination?

A. A couple of years ago my partner Anthony and I spent some time in Koh Samui for a friend’s wedding, and it was beautiful. Anywhere by the beach really and I’m a happy camper.

Q. Hobbies?

A. Outside of work, I spend a lot of my time with my family, reading, cooking, bushwalks, thrift shopping and over the last few months I have been learning how to sew.

Q. Favorite food/drink?

A. I’m a massive fan of any restaurant with a sharing menu – I’m usually very indecisive at dinner time and like to have little bits of everything. A couple of weeks ago we had a great dinner at San Telmo in the city, and Magic Mountain Saloon is one of my favourite places for spicy Thai food.

Q. Your proudest moment?

A. Definitely throwing myself out of a helicopter voluntarily! I had just embarked on an 8-week European holiday with a friend and being my first time overseas I was feeling out of sorts and homesick. She encouraged me to go skydiving while we were in Switzerland and it was the most incredible thing I have ever done. Equal parts terrifying and exciting, and the scenery on the way down was incredible.

Q. What sports do you follow?

A. A. My partner is mad for sports, so our TV is regularly tuned into the footy, cricket or horse racing. We enjoy going to Derby Day each year during the Melbourne Cup Carnival and earlier this year we headed to Darwin for the first time for the Darwin Cup which was a lot of fun.

I also enjoy watching the netball and played for many years before rupturing my ACL. That was a hard injury to come back from so I took it as a sign I should retire!

Q. Best part of working at GFM

A. GFM is a great learning environment, and I consider myself lucky to have been provided with many opportunities to expand my knowledge. I also work with a great team of people that I enjoy seeing every day!

Case Study:

Residential Aged Care

By Nicola Beswick

In the last edition of Trade Secrets, we looked at the choices available when aged care is required. In this edition, we are focussing on the financial aspects of being in a Residential Aged Care Facility.

All too often, we procrastinate over financial decisions and panic when the event occurs. This is an all too common scenario for aged care. A move into aged care usually happens in a hurry and with emotional turmoil, but planning can help to improve the situation.

Individuals are often faced with making decisions for a parent or other elderly relative. Good quality financial advice is a crucial element of these decisions. Aged care is a growing issue for many Australians, and the correct advice is of critical importance.

The costs for aged care are increasing, and with an ageing population we all need to think more carefully about how we will be affected and how to access the help we need. Furthermore, aged care reforms that have occurred over time have seen aged care fees rise for many new residents as a result of changes to the way fees are calculated.

A resident in aged care may pay the following:

• Standard resident contribution fee, otherwise known as the basic daily care fee
• Means-tested care fee
• Accommodation contribution or an accommodation payment
• Additional charges/extra services fee

Standard resident contribution fee

The standard resident contribution is an amount equal to 85% of the basic age pension amount (currently $51.63 per day). The standard resident contribution is payable by all residents unless a financial hardship determination is in force.

Means-tested care fee

The means-tested care fee is an additional contribution to the cost of care that some people may be required to pay. The Department of Human Services will work out if you are required to pay this fee based on an assessment of your income and assets. Please note that with members of a couple, half of their combined income and assets are considered in determining the means-tested care fee, regardless of which partner earns the income or owns the asset.

There are annual and lifetime caps that apply to the means-tested care fee. Once these caps are reached, you cannot be asked to pay any more means-tested care fees.

Accommodation Payment or Accommodation Contribution

Whether an aged care resident can be asked to pay an accommodation payment or an accommodation contribution depends on whether they can be asked to pay a means-tested fee.

Residents who can be asked to pay a means-tested fee may be subject to an accommodation payment.

Residents who cannot be asked to pay a means-tested fee may be asked to pay an accommodation contribution.

Accommodation Payments

Residents who can be asked to pay a means-tested fee may be asked to pay an accommodation payment. These payments may be made through either:

• Refundable Accommodation Deposit (RAD). A RAD is an amount of accommodation payment paid as a lump sum (refundable deposit).
• Daily Accommodation Payment (DAP). A DAP is an amount of accommodation payment paid as a daily payment.

The resident has up to 28 days after the date of entry to decide how they wish to pay for their accommodation.

Accommodation Contribution

A resident can be asked to pay an accommodation contribution if they have a means-tested amount (at time of entry) less than the maximum accommodation supplement ($57.14 per day as at 20 March 2019).

Fees for extra services or other additional care and services

Additional fees may apply if you choose a higher standard of accommodation or additional services. Extra service fees apply to residents in an extra service place. They are regulated and are intended to cover a higher standard of accommodation or services. Aged care homes with dedicated extra service places are now required to publish their extra service fees on the My Aged Care website, their website, and in other relevant materials they provide to prospective residents.

Other additional care and services and associated fees are not regulated and are agreed between the resident and their aged care provider. These vary from home to home. The aged care provider can give details of these services, such as hairdressing and Foxtel, and the fees that apply.

Case Study

This is a real-life case study of an individual that was referred by her son and daughter that serves as an example of the value of advice in this area.

Margaret is in her 80’s. She is no longer able to live independently in her principal residence after her husband passed away late last year. Thus, she arranged to sell the property and move into an Aged Care facility.

She currently has around $185,000 in the bank and is receiving full Age Pension entitlements. She has just realised net $838,000 from the sale of her principal residence. The Aged Care facility has asked her to pay a lump sum Refundable Accommodation Deposit (RAD) of $550,000, which leaves her with an amount of around $474,000. A RAD is a lump sum paid, or payable, by a resident for entry to residential care. The balance of the RAD (after any agreed deductions have been drawn down) will be refunded to the resident or their estate on termination of the agreement for residential services.

Once in the Aged Care facility, she’ll pay a daily care fee of $51.63 per day. In addition to this, due to his level of assets and income, she’ll also pay a Means Tested Fee. The table below details her level of net income per annum. As can be seen, the cost of the daily care fees and the means-tested fee far exceeds what she’ll receive in Age Pension.

While she has $474,000 in funds to bridge the gap, there’s plenty that can be done to reduce the annual net income shortfall. Through the use of a multitude of clever strategies that can be implemented around Aged Care involving the use of a Family Trust, friendly society bonds, gifting and funeral bonds, Margaret’s net income can be improved as follows:

This is an improvement of $7,147 p.a. for Margaret, with the benefits extracted from a reduction in the Means-Tested Fee and an increased Age Pension entitlement.

In Summary:

Individuals are often faced with making decisions for a parent or other elderly relative. Good quality financial advice is a crucial element of these decisions.

It is also vital that financial advice is sought as costly mistakes can be made.

Not every situation is going to be the same. Every case is different. At GFM, our job is to analyse the circumstances of our clients to find the best combination of outcomes that is right for each one.

Succession Planning in SMSFs:

The Importance Of An Enduring Power Of Attorney

By Witi Suma

Ageing is an inevitable part of life, and as we get older, the more likely we are to lose the mental capacity to manage our own affairs. Losing capacity can occur not only due to age, but also due to accident, stroke, diseases such as Alzheimer’s, or deteriorating health. The latest statistics from Dementia Australia show that 3 in 10 Australians over the age of 85 – and almost 1 in 10 aged over 65 – suffer from dementia. It is the second leading cause of death for older Australians after heart disease.

In previous editions of Trade Secrets, we have written about the importance of putting in place Estate Planning tools such as Binding Death Benefit Nominations which ensure that your superannuation benefits are distributed to your chosen beneficiaries when you pass away. An effective Estate Plan should also consider addressing lifestyle and health changes that take place during retirement years, by implementing safeguards to ensure that decisions are put in the most appropriate hands should you lose capacity. This is particularly relevant given our ageing population, and that our retirement years now typically stretch for more than 20 years.

It is particularly critical if you are an SMSF trustee. Under superannuation law, a person under a “legal disability” (which includes mental incapacity) cannot be a trustee or a director of a corporate trustee of an SMSF. Steps must be taken within six months for the fund to retain its complying status. Losing this status can result in extremely harsh tax consequences; further, the fund’s assets could be prevented from being liquidated, resulting in losses from being unable to buy or sell investments at a convenient time.

What options are available?

Superannuation law allows for a member of a fund to appoint an Enduring Power of Attorney (EPOA) to an individual, who can then step in as trustee in their place when that member has lost mental capacity.

It is important to note that this appointment is not automatic – the member must formally resign as a trustee, and the attorney must be appointed. Before doing this, however, it is essential to check that the SMSF’s Trust Deed allows for an appointment of an EPOA – if it doesn’t, the Deed must firstly be updated to allow this.

Additionally, if your fund has a corporate trustee, it is critical to check the company’s constitution to ensure that an EPOA can be appointed to replace the director who has lost capacity. The Constitution will also outline the steps involved for this process to occur.

Further, the Legal Personal Representative (LPR) must not be a “disqualified person” (e.g. has not been convicted of dishonest conduct, is not bankrupt, or had been previously disqualified by a regulator such as the ATO).

An individual can be granted EPOA status for more than one member at a time. Furthermore, a member may appoint another member as their attorney – a typical example being a husband appointing his wife and vice versa; in this case, the existing trustee wears “two hats” going forward – one as a member, and the other as an attorney for the other member.

What happens if a member has lost capacity and has no EPOA in place?

If you lose mental capacity and do not have an EPOA in place, you can no longer be a trustee or a member of an SMSF, resulting in a situation where your benefits need to be withdrawn, or rolled over to a retail superannuation fund, within six months. This requires selling investments within the fund, which can be less than ideal, particularly where substantial assets are involved such as direct property, creating liquidity issues for the SMSF and any remaining fund members. There may be capital gains tax and stamp duty implications, and you may be forced to sell at a time that is less than ideal.

Another alternative is for the SMSF to be converted to a small APRA fund, whereby a registered trustee is appointed; however, this is an expensive option.

Without an EPOA in place for each member of the fund, the remaining trustee(s) may have to make an application to the State Administrative Tribunal or the Courts which can be a lengthy process (often more than the six months allowed under superannuation law), and is also expensive, for the purpose of appointing a legal representative on behalf of the member who has lost capacity. Particularly where a blended family is concerned, the process can end up being stressful and emotional.

If you don’t have an EPOA, you should consider making one sooner rather than later, and ideally while you’re at your cognitive peak.

Who should you appoint?

Given the onerous responsibilities faced by SMSF trustees, it is essential to nominate someone you not only trust but who also has the time and capacity to take on this role.

Start by having a conversation with the most trusted people in your circle, such as your partner, your children, accountant, and financial adviser. It is also advisable to appoint substitute attorneys if your primary attorney is no longer able, or willing, to act. Choosing the right person to appoint as your EPOA is critical, and should be someone whom you trust implicitly to handle your affairs and who would manage your finances responsibly.

Other things to consider

As mentioned earlier, ensure you have a valid Binding Death Benefit Nomination in place, preferably non-lapsing, to ensure that your member benefit is paid to the beneficiary (or beneficiaries) of your choice. If you lose capacity and your BDBN lapses, it is unfortunately too late to renew it or to put a new one in place.

Remember also to ensure that your Will is up to date – once you lose capacity, you cannot make a Will or change an existing Will.

Conclusion

Losing mental capacity can have detrimental consequences for an SMSF if steps are not put in place early on. Unfortunately, many people leave it too late to take action, the main reason being that nobody wants to think about it. It’s essential to change this mindset and look at frailty as a part of getting older, and acknowledge that the time will come when it will grow harder to make decisions and manage your own affairs.

Thinking ahead, and planning for all possibilities, keeps you in control and brings peace of mind. If you haven’t already done so, now is the time to put the right paperwork in place while you are still of sound mind.

The Future Fund Results18/19:

Makes For Interesting Reading

By James Malliaros

Established in 2006, the Future Fund was set up to strengthen the Commonwealth’s long-term financial position. It invests the contributions from prior Budget surpluses and Government Telstra shares and generates earnings, which increase its value. A total of $60.5 billion of capital has been contributed into the fund. Given the position of Federal Budgets over the last ten years, not surprisingly, no contributions have been made into the Fund since 2008.

Until 30 June 2017 the Investment Mandate for the Future Fund was to achieve an average annual return of at least the Consumer Price Index (CPI) + 4.5% – 5.5% per annum over the long term, with an acceptable but not excessive level of risk.

From 1 July 2017, the long-term benchmark return target was reduced to CPI + 4% – 5% per annum and reflected the Government’s view at the time of a lower return investment environment operating into the future. Importantly, the return objective must continue to be pursued with acceptable but not excessive levels of risk.

While legislation permits drawdowns from the Future Fund from 1 July 2020, the Government announced in the 2017-18 budget that it would defer withdrawals from the Future Fund until at least 2026-27. The longer timeframe will give the Future Fund the opportunity to continue to grow through accumulated earnings, significantly enhance its size and take advantage of attractive investment opportunities, particularly those offered by private markets.

As of 30 June 2019, the balance of the Future Fund stood at $162.5 billion, and despite volatile financial market conditions, it delivered a strong return of 11.5% for the financial year. The solid return has helped the Future Fund earn more than $100 billion in investment returns since its inception in May 2006. Further, the annualised ten year return of 10.4% has exceeded the Fund’s target return of 6.5%.

As outlined in the recent June 2019 update, the Fund held 35.5% of its assets in listed equities (both domestic and international), 6.7% in property, 9% in debt securities and 11.9% in cash.

Interestingly, it is also well-diversified across other non- traditional asset classes, holding 15.8% in private equity and 7.5% in infrastructure and timberland. These are all asset classes growing in popularity amongst savvy investors and currently experiencing large capital inflows due to their low correlation to traditional investments.

A full list of the asset classes is outlined in the table below.

On the release of the latest June update, Future Fund chair, Peter Costello, said US-China trade tensions and geopolitical tensions weighed on the global economy even as central banks eased monetary policy settings.

Further, he went on to say, “The board continues to see long-term returns as unlikely to replicate the strong returns of recent years and is cautious of the risks for investors. In this uncertain environment, the board is maintaining its long-term patient approach to investment.”

Despite the challenging investment environment, diversification and flexibility are the keys to managing portfolios during this period of shifting global conditions.

Centrelink Work Bonus

By Rebecca Lowe

Anyone of age pension age who continues to earn income from employment would be aware of the work bonus. It was first introduced in September 2009 and is intended to incentivise retirees to continue working past Age Pension age, reducing their reliance on social security to meet their retirement income needs.

Before 1 July 2019, the first $250 per fortnight of income from employment was not counted as assessable income under the Income Test (up to $6,500 per annum). From 1 July 2019, this amount has increased to $300 per fortnight (up to $7,800 p.a.).

Any bonus amount unused in the fortnight can be accrued up to $7,800 and used to reduce income in future fortnights and any income from employment above this amount is counted as assessable income under the Income Test, and the usual rules apply to determine the amount of pension payable.

The work bonus is applied to employment income you receive from paid leave while still employed, director’s fees and self-employment that meets active participation criteria. It does not include income from managing an investment portfolio or rental properties.

The work bonus applies to all pensioners over age pension age if they receive income from work, in receipt of an Age Pension, Carer Payment or Disability Support Pension. Department of Veterans’ Affairs Service Pensioners and Income Support Supplement recipients over qualifying age are also eligible.

If you are eligible for the work bonus, you do not need to apply, as it is automatically calculated by Centrelink or Veterans’ Affairs. However you do need to keep Centrelink informed of your employment income and any changes to the amount you earn while you continue to work.

Using Carry-Forward Concessional Contributions This Financial Year

By Patrick Malcolm

As we have previously outlined, carry forward concessional contributions were introduced by the government in the 2016 Federal Budget as part of their superannuation reform package. The carry-forward concessional contribution legislation took effect from 1 July 2018, making this Financial Year the first year that individuals can use their carry forward contributions.

The carry-forward rules allow eligible individuals the opportunity to make additional concessional contributions by utilising their unused concessional contribution cap from previous years. Only individuals who have a total superannuation balance of less than $500,000 before the start of the financial year are eligible to utilise carry forward contributions.

Let’s look at an example of an individual with a total super balance of $275,000 as of 30 June 2018. Last Financial Year she received employer SG contributions of $8,500 into her account, and made additional salary sacrifice contributions of $6,000, using $14,500 of her concessional contribution cap of $25,000.

This means that for the current Financial Year, she can make additional concessional contributions of $10,500 under the carry forward rules, in addition to her usual concessional contribution cap of $25,000.

While this is the First Financial Year in which the contributions can be utilised, the carry-forward amounts will accrue on a five-year basis with the oldest unused cap amounts applied first. The table below shows the last Financial Year in which unused caps from earlier years can be used.

This Financial Year it will be relatively straight forward to calculate your carry forward cap amount as it is the first year the cap can be utilised. However, as the unused cap accrues on a five-year basis, it will become more difficult to monitor over time as unused amounts from previous years roll out of the cap.

This is compounded by the fact that an individual’s eligibility to utilise the cap may change in future years if their total superannuation balance at the end of the previous year exceeds $500,000. While you may carry forward amounts from years one and two, you may not be able to utilise these amounts in year three if your total superannuation balance exceeds $500,000, as shown in the table below.

Accordingly, special care should be taken before making any additional concessional contributions with the view of utilising your carry forward cap. We encourage you to contact your adviser before making any further contributions to ensure your concessional contribution caps are not exceeded.

Interest Rates Continue To FALL:

Fixed Versus Variable Rates

By Paul Nicol

On 1st October, the Reserve Bank of Australia made its third reduction in the cash rate in five months, reducing the benchmark borrowing rate in Australia to yet another record low of 0.75%. The expected move follows months of signals from Governor Philip Lowe that the Reserve Bank was prepared to push rates lower to increase employment and lift stubbornly low inflation back into the 2-3% target band.

While the RBA reduced its benchmark borrowing rate by 0.25%, the major lenders, with the exception of ANZ, did not pass on all of the rate reduction, with the typical reduction in the variable lending rate being between 0.15% – 0.20%. This muted response by the lenders is likely to continue if there are any further cuts.

Incredibly, the variable interest rate on principal and interest variable loans is now as low as 2.70% per annum, and with some recent aggressive competition in the market, it is possible to get up to a 5 year fixed rate of a principal and interest loan below 3%. A few yeas ago, it would have been almost unimaginable that rates below 3% would ever occur.

The big questions are now; where to for interest rates from this point, and should I consider fixing my home loan?

Domestically, Australia’s economy grew by 1.4% in the year to June – the lowest recorded annual rate since 2009, and much weaker than expected. However, with the reduction in interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in the established housing markets and a brighter outlook for the resource sector, it is not inconceivable to present an argument that Australian economic growth should start to pick up again.

That said, with the unemployment rate rising from 5.0% at the start of the year to 5.3% in August and an inflation rate of 1.6%, it is highly likely interest rates will fall further and that an extended period of low-interest rates will be required for the RBA to achieve its inflation target and stimulate growth.

Through this dropping interest rate cycle, it has been our general propensity to recommend those with home loans to have a variable interest rate loan.

With the recent aggressive competition from the lenders with fixed-rate interest loans, combined with the likelihood of a muted response by the lenders to any possible further cuts in the RBA cash rate, with fixed-rate principal and interest loans over 5 years now below 3%, strong consideration to rate fixing should be given. Naturally, every individual situation differs, so advice should be sought before making any change.

Upcoming Seminar:

MARKET UDPATE & OUTLOOK FOR 2020 – WEDNESDAY 13TH NOVEMBER AT 7.15 PM

By Mai Davies

The last seminar for the year will be held on Wednesday 13th November at 7.15 pm at Riversdale Golf Club. Our special guest presenter will be James Holt, who is the Senior Investment Specialist for Equities at Perpetual Investments.

James is responsible for providing technical investment support to financial advisers and investors of Perpetual Investments’ equity funds. James has worked in the financial services industry for over nineteen years. James has presented to numerous audiences of advisers and investors and has appeared in various media including CNBC, Sky News and the ABC. His articles have appeared in multiple publications, including the Journal of Investment Strategy.

In his presentation, James will discuss the key themes for 2020. As the year comes to a close, a lot has happened. James will give an overview of the global economic backdrop, and how this is likely to affect investment markets over the next few years, exploring the following topics:

• Political shocks turning into economic shocks
• Start of a Tech bust?
• US growth stretch now longest ever
• Where Perpetual are investing as we head into 2020

Invitations were sent at the beginning of October. We hope you can join us.

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