Deeming, deductibles and aged care fees for SMSF clients. Louise Biti, Director, Strategy Steps

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1 Deeming, deductibles and aged care fees for SMSF clients Louise Biti, Director, Strategy Steps

2 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..?

3 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?

4 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 But what about the tax on death? Potentially up to $51,000 in ABP Other considerations: Relative returns Capital gains tax /income tax Anti-detriment options Flexibility and access Future direction of interest rates Life expectancy

5 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

6 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.

7 De-cumulisation, What De-cumulisation Tony Negline, Principal, Financial & Technical Solutions Pty Ltd

8 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?

9 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

10 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 $ use 13, units; 83,333 units left

11 Retirement Planning inflation Average over last ten years % 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

12 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

13 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?

14 Retirement Planning inflation

15 Retirement Planning deferred annuities and pensions The problem longevity risk The solution bet that an organisation will outlive the rest of your life!

16 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

17 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.