Deeming, deductibles and aged care fees for SMSF clients · Retirement Planning –common mistakes...

Deeming, deductibles

and aged care fees for

SMSF clients

Louise Biti, Director,

Strategy Steps

2015 SMSF Association National Conference www.smsfassociation.com

Challenge your thinking

When it comes to SMSFs and ABPs we

normally think:

• Tax-free income

• Centrelink effective

• Pass onto spouse

The assumption is that ABPs are more

effective than other options.

But does that stand up with aged care

clients ….. ?


The client scenario

Errol has moved into aged care:

- Cash / shares of $300,000

- Account-based pension of $300,000 (all taxable component) drawing the minimum of

$27,000pa

- Plans to rent $750,000 home at 3% pa net

- Asked to pay $310,000 RAD or convert to DAP at 6.75%

Which investment would you recommend he cashes (if any) to pay the RAD?


Errol’s outcomes

Sell

cash/shares

Sell ABP

Age pension $18,292 $18,390

Assessable income $12,000 $9,780

Aged care fees $29,671 $28,607

Total income (cashflow) $71,542 $55,640

Tax payable $862 $2,062

Net assets (end year 1) $1,401,564 $1,400,007

Other considerations:

• Relative returns

• Capital gains tax /income tax

• Anti-detriment options

• Flexibility and access

• Future direction of interest rates

• Life expectancy

• But what about the tax on death?

• Potentially up to $51,000 in ABP


Self-funded retirees

• In aged care no grandfathering for self-funded retirees. Deeming applied to all ABPs

• Plan ahead before couples become singles if this may cause them to lose age

pension, even for a day

Mick (in

care) &

Suzie at

home

Suzie dies

& Mick

inherits all

Reduce

assets by

$10k

before

death

Change

will so

kids

inherit

Suzie’s

half

Age pension $25,177 $nil $1,253 $15,172

Daily care

fees

$19,694 $31,285 $30,440 $22,668


Disclaimer

© Louise Biti, Aged Care Steps 2015

This presentation is for general information only. Every effort has been made to ensure

that it is accurate, however it is not intended to be a complete description of the matters

described. The presentation has been prepared without taking into account any personal

objectives, financial situation or needs. It does not contain and is not to be taken as

containing any securities advice or securities recommendation.

Furthermore, it is not intended that it be relied on by recipients for the purpose of making

investment decisions and is not a replacement of the requirement for individual research or

professional tax advice. This presentation was accompanied by an oral presentation, and

is not a complete record of the discussion held. No part of this presentation should be used

elsewhere without prior consent from the author.

De-cumulisation,

What De-cumulisation

Tony Negline, Principal,

Financial & Technical Solutions Pty Ltd


Retirement Planning

• Needs a fundamental re-think

• Big business and government solve big complex problems

• Keep It Simple Stupid – the famous KISS principle

• What is retirement?


Retirement Planning – common mistakes

• How much does retirement cost?

• How will the cost of retirement be met?

• A significant misunderstanding about investing money

• Cash flow management

• Short, medium and long-term impact of inflation and solutions to the problems

• Loss of mental capacity


Retirement Planning – capital values

Brief real life case study

• Use of managed funds with unified market pricing = “reverse” dollar cost averaging

• $100,000 to invest

• Unit price = $1 ≥ 100,000 units

• Want $10,000 income annually each year

• First income payment when unit price is $2 - use 5,000 units; 95,000 units left

• Second income payment when unit price is $0.75 - use 13,333.33 units; 83,333 units left


Retirement Planning – inflation

• Average over last ten years - 2.75% p.a.

• Average between 1973 and 1993 ≥ approx. 10% p.a.

• Want retirement income of $50,000 each year

• Need $1.5 million income over 30 years with 0% inflation; $2.3m with 2.75% inflation;

$8.2m with 10% inflation


Retirement Planning – longevity risk

• Is a problem for big business and government

• Would not be a problem if we didn’t have to use our assets as income in retirement


Retirement Planning – international investments

• “Australia is a small fish in a big pond” … blah blah

• AUD volatility - April 1980 to January 2015 at start of each month

• Try predicting what your income in $AUD will be!

• Hedging essential?


Retirement Planning – inflation


Retirement Planning – deferred annuities and pensions

• The problem – longevity risk

• The solution – bet that an organisation will outlive the rest of your life!


Retirement Planning – common objections to income focus

• Insufficient income remains after fees extracted

• I don’t know how much income I need in retirement

• Assets won’t generate the income I need

• Cashflow problems

• What if income from investments fall?

• Not exciting enough

• Significant assets remain when I die?

• Pension minimum income requirements greater than income generated from investments and my needs


Disclaimer

© Tony Negline, Financial & Technical Solutions Pty Ltd 2015

This presentation is for general information only. Every effort has been made to

ensure that it is accurate, however it is not intended to be a complete description of

the matters described. The presentation has been prepared without taking into

account any personal objectives, financial situation or needs. It does not contain and

is not to be taken as containing any securities advice or securities recommendation.

Furthermore, it is not intended that it be relied on by recipients for the purpose of

making investment decisions and is not a replacement of the requirement for

individual research or professional tax advice. This presentation was accompanied

by an oral presentation, and is not a complete record of the discussion held. No part

of this presentation should be used elsewhere without prior consent from the author.

Deeming, deductibles and aged care fees for SMSF clients · Retirement Planning –common mistakes...

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