For some years market commentators have been predicting a global economic downturn. Here we explore what’s influencing markets and provide some information on how to approach this possibility. With so much conflicting commentary and data circulating, we aim to bring some clarity to the key issues to focus on as you choose where to allocate your assets. We also explore what previous market downturns have looked like and how markets responded.

As this ‘doom and gloom’ commentary has become commonplace, many investors reduced their market exposure in favour of holding cash and term deposits and, consequently, have missed out on some stellar performance locally and overseas. The ASX 200 and MSCI World Index have both increased by over 20% since the beginning of 2019. While we are not against some investors staying with a conservative approach, it’s important that they act for the right reasons.

So what impacts investment performance?

There is a wide variety of influences on market and asset class performance. We’ve chosen our top 3 for this article:

Market Sentiment 

The argument for market sentiment being the biggest driver is a strong one. In our current environment, it’s easy to believe that Donald Trump’s Twitter account is having a bigger impact on financial markets than economic data and Fundamentals combined.

Market sentiment refers to investor views on whether to buy an asset (positive view), hold an asset (neutral) or sell an asset (negative).

It’s fair to say that market sentiment in 2019 is negative or neutral and this view is formed largely from press articles and, to a lesser extent, the state of economies across the globe.

Market sentiment doesn’t impact investment values alone. As individual consumers and as business decision-makers, if we take a dim view on the short-term future, we tend to take a more conservative view on expenditure.

A negative market sentiment tends to slow key financial decisions such as buying a house, completing that house extension or buying the new car. This slows economic activity in general which in turn impacts interest rates as policy makers attempt to ‘shock’ the economy into action by lowering them.

Economic Indicators

Economic indicators such as inflation rates, employment rates, and interest rates have a major impact on the performance of all asset classes.

• The GDP or Gross Domestic Product measures the total market value of all domestic goods and services produced by a given country. The GDP is often viewed as a gauge of a country’s health and is used by policy makers to determine whether the country is expanding or contracting.
• Interest rates are also a good indicator of a country’s economic position and have a big impact on global markets. In more recent years, interest rates have been viewed as having an even bigger impact on markets as interest rates correlate to market performance. Some say it’s because rates are so low that we now do not worry about the repayments.

In some European economies, bonds are now paying negative rates. Across the globe, there is more than $11 Trillion invested in bonds with negative interest rates, meaning bond holders have to pay the issuer to hold the asset.

Investors accept this loss as they are seeking a haven for their savings.

Most central banks and governments are lowering interest rates and pulling other levers to activate the economy. The international monetary fund forecasts global growth at 3.2% in 2019 and 3.5% in 2020.

Fundamentals (research)

Fundamentals refers to the research involved with individual assets.

In the share market, analysts and investors will research individual businesses to determine the value of the business and the opportunities or threats to that business or sector.

Individual investors tend to complete lighter research when considering whether to buy/hold or sell shares in a business whereas fund managers, brokers and research houses will dedicate significant time and effort understanding every aspect of a business.

Active fund managers house teams of research analysts who dedicate their time to researching individual businesses. It’s not uncommon for an individual analyst to research a panel of only 5 companies over the course of their full-time employment.

The use of technology in this sector is also growing. The volume of algorithmic-based trading is increasing, with some investment products relying solely on the behaviour of the financial markets (such as volumes, prices or trends) to determine their next move. Many are concerned that this style of investing is eroding the viability of key fundamental analysis because the volume of such trading strategies is growing.

So what’s the approach for investors?

The simple truth is that nobody knows what the short-term future holds for investment returns. This 9 year run of strong performance might continue, or we may experience negative returns in our near future. We believe that making substantial changes to your investments (whether this be your super or personal investments) in anticipation of what you think may happen in the future makes it a little foolhardy. Why? It’s about timing. Getting the timing right is near impossible.

Peter Lynch, one of the most successful fund managers in the US, has a good quote on this: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections than has been lost in corrections themselves.”

Let’s explore an example:

The above chart is provided by Vanguard Investments in the UK and, while it relates to the FTSE All Share Return Index, it illustrates the difference in the two strategies well.

• The chart compares the performance of a buy and hold strategy with a market timing strategy, which assumes an investor sells his or her portfolio after a 10% fall from the peak of the market and buys following a 10% rise from the bottom of the market.
• As can be seen, the buy and hold strategy significantly outperforms, turning the original £1,000 invested in 1985 into £7,000 by September 2018.
• By contrast, the market timing strategy would have turned it into £4,770. This translates into compound annual growth rates of 5.9% and 4.7% respectively.

What strategies should you consider to combat a potential downturn?

We feel the best approach is to ensure that each portion of your wealth is invested with a ‘fit for purpose’ approach. Essentially, have a plan for each parcel of your wealth. Make sure you truly understand your tolerance for risk and how much risk you actually need to take on, then apply the below framework:

• Short-term savings goals: 0 – 3 years (cars, holidays, school fees) should be invested in stable environments such as cash and term deposits.
• Medium-term savings goals: 3-7 years (first home deposits, investment properties) should gain exposure to assets that provide capital growth and income such as shares, fixed interest, and unlisted property.
• Long-term savings goals: 7+ years (Superannuation, building wealth and passive income) should have exposure to all asset classes, while keeping in line with your attitude toward investment risk.

Diversification is important!

Once you have identified your risk profile, risk needs and timing requirements, focus on diversification.

A diversified asset allocation strategy seeks to divide the total investible value across major asset categories. Each category contains assets that have different characteristics and often provide the investor with different outcomes.

The amount attributed to each asset class will depend on the needs and attitude of each portfolio and each investor.

A diversified portfolio can ‘even out’ the performance from a portfolio in a variety of market conditions.

In adopting this approach, you ensure the volatility involved with ‘riskier’ investments is only impacting your longer-term investments. You may experience negative returns for several years, but that’s ok – you have a plan and you know you can weather the storm. During periods of negative returns:

• you can try to make regular additions, purchasing these assets when the price is reduced and
• take advantage of investments yields that are often higher than current cash rates

In closing, don’t be reactive to markets and follow the crowd. Focus on understanding what you require from your investments and when, what your risk profile looks and be clear on what success looks like for you and your unique needs.

Contact CXC Financial Partners on 1300 925 081 or via email at info@cxcfp.com.au for further information on your personal situation.

While every attempt has been made to ensure the accuracy of this information at the time of compilation, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by CXC Financial Partners, its officers, employees, agents or representatives.

All contents presented within this document are not to be construed as personal financial advice, taxation advice, a recommendation or an offer or invitation to buy, sell or hold a financial product. It is for general informational purposes only. These indicative investment fees, comparisons, and performance figures have been prepared without considering any personal objectives, financial situation or needs, and you should consider its appropriateness to your circumstances before acting on any of these representations.

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The ATO is concerned that, “a lack of diversification or concentration risk, can expose the SMSF and its members to unnecessary risk if a significant investment fails.”

This does not mean that you have to have diversity in your fund. A lack of diversity might be a strategic decision by the trustees but you need to be able to prove that the strategy was an active decision. Section 4.09 of the Superannuation Industry (Supervision) Regulations requires that trustees, “formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the entity.” To do that you need to:

• Recognise the risk involved in the investment, its objectives and the cash flow of the fund
• Review the diversity of the investment strategy (or otherwise) and the exposure of a lack of diversity
• Assess the liquidity of the investment and cashflow requirements of the fund
• Assess the ability of the fund to discharge its liabilities, and
• Review and have in place appropriate insurance cover for members and assets

Importantly, you need to be able to justify how you formulated your strategy if the ATO asks.

The 17,700 people being contacted by the ATO hold 90% or more of the fund’s assets in a single asset or single asset class.

Property is one of the problem areas the ATO is looking at. With property prices at a low point, the asset value of many funds has diminished.

In addition, debt taken on by SMSFs has significantly increased. The number of SMSFs using Limited Recourse Borrowing Arrangements (LRBAs) to purchase property has increased significantly from 13,929 (or 2.9% of all SMSFs) in 2013, to 42,102 (or 8.9% of all SMSFs) in 2017. For SMSFs that have purchased property through LRBAs, on average, these LRBAs represent 68% of total assets of the funds.

LRBAs are most common in SMSFs with a net fund size (total assets excluding the value of the amount borrowed) of between $200,000 and $500,000. In 2017, the average borrowing under a LRBA was $380,000 and the average value of assets was $768,600.

The post Are All Your SMSF Eggs in One Basket? appeared first on CXC Financial Partners.

When asked about the impact of recent interest rate cuts on home lending, industry our professionals informed us that had indeed seen an influx of first home buyers (FHBs) utilising their services to access the loan market. Extensive marketing by the major lenders had enticed them to investigate their borrowing capacity and further to see what options were available given the recent property market corrections.

Our brokers went on to say that the consumers most likely to benefit from interest rate cuts are current mortgagors and FHBs. It appears that those clients with the most to gain from the interest rate drops are those who are in a position to consider the benefits of a refinance package, a loan consolidation or those entering the market for the first time.

Our brokers report that they are already seeing a boost in consumer confidence, with both enquiry and application levels lifting across the loan products available.

The interest rate cuts and changes to the servicing calculations used to test borrowing capacity have significantly improved affordability for consumers. The improvements include:

• allowing faster repayments,
• a better opportunity to get ahead on a mortgage
• the added community benefit of improving their capacity to spend, which has flow-on effects to the rest of the economy.

We have seen APRAs changes to stress-testing limits start to filter through and when coupled with the possibility of another RBA rate cut, consumers have been given permission to look for a better deal, and they are getting them!

Investors shouldn’t feel left out. Our brokers have noted that investors with current loans dating more than 2 years should make enquiries about a re-finance also. New and/or first-time investors should not be put off by the focus on FHB and existing mortgagors. Instead, they should speak with a broker, spend a few hours gathering the required information and then put that broker to work saving them money. Our clients have reported some outstanding opportunities and our brokers are driven towards finding a solution for all situations. It just takes a phone call to get started.

To speak with a broker at Launch Money about a loan for your home, investment property or vehicle, call our team on 1300 925 081. Alternatively, you can email your questions to: info@launchmoney.com.au

The post Brokers Predict FHB Growth as RBA Cuts Work Through the Loan Market appeared first on CXC Financial Partners.

What changed?

From 1 July 2018

A low- and middle-income tax offset (LMITO), first introduced in the 2018-19 federal budget, provides a tax benefit to those with taxable incomes below $125,333. Recent changes increase the LMITO from a maximum of $530 to $1,080 and the base amount from $200 to $255 and make it applicable to a greater number of taxpayers by increasing the threshold from $125,333 to $126,000.

The first thing to remember is that this is a tax offset; you need to owe tax to offset the tax. And, if you owe tax, the offset will be first used to reduce the tax you owe. It is not a cash back – a point the ATO is at pains to point out stating on its website that, “It doesn’t mean that you will get an extra $1,080 in your tax return.”

The offset applies for a limited time. In this case, the offset applies to the 2018-19, 2019-20, 2020-21- and 2021-22-income years. So, if you are eligible to receive the offset, it applies to the taxable income you earned last financial year (2018-19) and you will receive any offset owing once you have lodged your tax return.

* Your taxable income is the income you earn less any deductions you claim – not your salary.
** offset entitlement is $255, plus 7.5% of the excess to a maximum of $1,080.
*** offset entitlement is $1,080, less 3% of the excess on taxable income above $90,000.

If you earned taxable income in 2018-19 of:

• Less than $21,885, while you have an entitlement to LMITO of $255, you do not pay personal income tax and therefore cannot utilise the offset.
• $45,000, you will receive a tax reduction of $855 ($255 plus 7.5% on every dollar between $37,000 and $45,000, in this case $8,000). You may also be eligible for the low income tax offset (LITO), see below.
• $85,000, you will receive a tax reduction of $1,080.

The LMITO is in addition to the existing low-income tax offset (LITO). The LITO is available to those with taxable income of less than $66,667. The maximum offset is $445 for those with taxable incomes of $37,000 or less. Any amount you earn above $37,000 up to the threshold of $66,667 reduces the offset by 1.5%. Once again, the LITO is a tax offset to reduce the amount of tax you pay. If you do not pay personal income tax, you do not receive the offset as a cash refund.

From 1 July 2022

Two things occur from 1 July 2022:

• Income tax rate thresholds change – the top threshold of the 19% personal income tax bracket increases to $45,000 (currently $37,000), effectively providing a tax cut to all taxpayers earning over $18,200. The tax rate change applies to resident taxpayers and working holiday makers.
• The low-income tax offset (LITO) increases – for those with taxable income of less than $66,667, the LITO base amount will increase from $445 to $700. However, the LITO will reduce quicker than it currently applies with amounts above $37,500 reducing by 5% for amounts up to $45,000, then 1.5% to $66,667.

These changes assume that the Government does not pare back the income tax changes in a future budget.

From 1 July 2024

From 1 July 2024, the 32.5% marginal tax rate will reduce to 30% and the number of taxpayers it applies to will increase with the maximum threshold moving from $120,000 to $200,000. The tax rate change applies to resident taxpayers and working holiday makers. Once again, this assumes that this tax rate and threshold change is not amended in a future Federal Budget.

At CXC Financial Partners, we understand that paying the right amount of tax and not a cent more means more disposable income in your pocket. Our accountants will ensure you’re doing just that AND help structure your accounts and/or business to maximise your income. Additionally, when you use CXC myVAULT to automatically collate your expenses,  your time in managing your tax records is minimised, freeing you up to focus on what what’s really important to you.

Give the team a call and re-discover your freedom. The Accounting team are on 1300 925 081 or taxservices@cxcfp.com.au

The post Personal Income Tax Changes – What are You Really Entitled To? appeared first on CXC Financial Partners.

Money and gold have had a synonymous relationship for thousands of years. According to the World Gold Council, “Gold coins were first struck on the order of King Croesus of Lydia (an area that is now part of Turkey) around 550 BC”.

Since that time, it was used across the globe as currency, before the introduction of paper money. Time will tell on whether we follow a similar path with the myriad of cryptocurrencies emerging worldwide – but that’s a different article altogether.

Let’s take a look at the pros and cons of a gold investment and some of the ways you might invest.

Why invest in gold?

• As financial planners, we like diversification. Diversification provides investors with a more stable experience, as assets within a given portfolio perform differently in varying market conditions. Adding a gold investment to your portfolio adds an additional element of diversification that can offset losses or poor performance from other assets held.
• For those who like to keep their wealth close (think brown paper envelope with cash under the mattress), gold allows you to store a portion of your wealth at home while gaining the potential for an increase in value. This differs from having cash, where you’re effectively losing money due to inflation.
• Investment returns. Investment performance features on both the pro and con list. Gold doesn’t increase in value like shares can, but it doesn’t decrease either, at least not substantially. If you’d bought an ounce of gold on the 1st of July 2018, you’d have paid $1,695. It would be valued at $2,079 (31 July 2019). That’s a return of slightly over 18%. If you held the same amount in a high interest savings account paying 2% over the same period, you’d now have a little over $1,730.

Why not?

• Investment returns. Storing gold bars in your home doesn’t produce income. This puts pressure on gold as an investment to appreciate in value.
• Unlike other assets it can be difficult to value (when you buy and hold physical gold). The spot price is readily available but until you actually sell your gold bar you won’t know the exact value.
• Traditionally, investors buy gold in times when markets aren’t performing. If markets do perform the investment you have in gold could have been invested in shares, property or fixed interest.
• As much as 78% of gold unearthed today is used for making jewellery. It’s never happened before, but if gold goes out of fashion how does this impact value and how long does it last?

How can I invest in gold?

• You can purchase gold from a bullion dealer in person or online. Some dealers will also arrange storage at a secure site. It goes without saying that if you’re considering this option you should only purchase gold from a reputable business.
• You can purchase an exchange traded fund that seeks to track the price of physical gold.
• You can purchase shares in gold mining business via the ASX or overseas markets.

Are you ready to take control of your financial future? If you answered yes, then we’re ready to assist.

With access to in-house experts in property, mortgages, tax and accounting, our holistic approach has your financial well-being covered. We’ll help you define your goals and prioritise what’s most important for your future and keep you on track.

If you would like to take control and activate your prosperity, contact our team on 1300 925 081 or info@cxcfp.com.au for a no obligation and confidential discussion.

The post Investing in Gold – Should You Consider It? appeared first on CXC Financial Partners.

According to the Australian Bureau of Statistics (ABS), the average mortgage size in Australia is $384,700 (November 2018). Depending on where you live, this may sound like a lot – or very little – and that’s because the state or capital city you live in has a major influence on the size of your mortgage.

Unfortunately for Sydney house hunters, the average mortgage size in NSW is $462,100. Compare that to Victoria’s average mortgage size of $400,400 and you will see that Sydneysiders indeed pay a premium for their predictable weather patterns and sunny beaches. In fact, Sydney has the biggest average mortgage size in Australia.

Take a trip across the Bass Strait and – all jokes aside – when comparing mortgage sizes, it’s as if you are in another country. Yes, in the land of the Tassie Devil, and in stark comparison to their Victorian neighbours, Tasmanians have the lowest average mortgage sizes in Australia. Tasmania has an average mortgage size of $275,900, almost $200,000 below NSW’s average.

OPTION 1:  Pay the savings into the mortgage account or offset account

To determine how much you can save with a lower interest rate there is an online calculator here which is provided by ASIC moneysmart. Using Sydney as an example and a 2year old loan.

Avg interest rate in Aug 2017 was 5.23% representing a $573/mth reduction for the average Sydney loan

The graph below shows that keeping your payments the same whilst reducing your interest rate from 5.23% to 3.5% will shave 6 years and save almost $200,000 in interest. Imagine the difference if your mortgage is greater than $462,000

Now that’s worth re-financing for!

OPTION 1 alternative:  Pay the difference into an offset account

Not all loan products come with an offset facility, but many do, and they are worthwhile having.

Placing the $573 into an offset account means that the balance is deducted from your mortgage balance prior to the calculation of interest.  Essentially lowering the interest you pay without affecting the balance.  Offset accounts keep you in control of these excess funds and allow you to put them to use elsewhere if needed.  Emergency funds, holidays, upgrading household goods, paying lump sums off credit cards or home renovations.  The uses are endless, however the key is control. Remember, if you spend what is in the offset, your interest on your mortgage will increase.

OPTION 2:  Upgrade whilst the market is low

Traditionally, many Australians have used the market correction to jump a housing bracket.

This is particularly evident with the population who currently live in apartments.  They can take advantage of the fact that  town homes and free-standing dwellings have fallen back further than apartments in many areas.

Many lenders have followed the notice from APRA with The Australian Prudential Regulation Authority (APRA) proposal suggesting that banks ease lending rules and combined with the rate cuts by the Reserve Bank of Australia, will boost the borrowing capacity of property buyers.

The relaxing of the lending rules and the lowering of this servicing rate from 7% down to 5.5%, provides the borrower with approx. 20% more borrowing power.

Eg; A couple earning a combined $160,000 with 2 dependants can now borrow $841,000 compared to the $719,000 before the changes and interest rate cuts.

That additional amount could be the difference between upgrading or staying put. Additional benefits will be found if the RBA offer a further cut in interest rates in Nov as many are predicting.

So, there you have it, two valuable options available to you today, by capitalising on the current environment of relaxed lending criteria and lower interest rates. It’s never been easier to re-finance to a better loan product, Industry regulators have made it easier to change lenders, removed excessive fees from early payouts and the banks are behaving very competitively.

Whether a re-finance saves you $200,000 or $50,000 we believe it is well worth the time to do so. There is simply no reason not to arrange a mortgage review with a broker.

What do you think?

At Launch Money we believe we offer an indispensable service and hold strongly to the belief that a mortgage broker is the only party to the process who is best positioned to act as an advocate for the borrower.

Our service is more than just securing the lowest mortgage rates, we give you tailored advice to help fast-track your application with the RIGHT LENDER based on your financial goals.

Whether you are buying a new home, personal investment property, commercial property, SMSF investment property, motor vehicle or thinking about refinancing, Launch Money can help secure a better loan and deliver a hassle-free mortgage experience for you.

To speak with a broker at Launch Money call the team on 1300 925 081. Alternatively, you can email your questions to: info@launchmoney.com.au

The post Low Interest Environment – An Opportunity to Get Ahead appeared first on CXC Financial Partners.

It can be difficult for accountants and financial planners to collaborate when they’re not under one roof.  It may simply be professional pride that creates a rift, or it might be privacy of your personal information. Often the biggest issue is a collective understanding of your overall financial strategy.

We do know that great things can happen when your team of  professionals work together.

Professionals can provide advice that has a significant impact on your financial life. When it comes to that advice, there can be some crossover. Taxation strategies that are seen as beneficial by the accountant may not be in keeping with the financial planners long-term strategy. As an example, your accountant may recommend you consider making additional Super contributions to minimise tax but your financial planner may have discounted this option as a key goal is building wealth outside of Super.

Equally, if your Mortgage broker understands the future plans for your home or investment property this can impact the type of loan you apply for.

If you are receiving financial advice it’s important that your accountant is aware of the relationship you have and the advice you’ve received. This may involve making an informal email introduction to ensure the two collaborate, even just at tax time. This can be beneficial to the accountant, as the financial planner often has access to many of the documents required to complete your return.

As a minimum, your accountant should be claiming a tax deduction for the financial advice fees you’ve paid throughout the year.

Most importantly, collaboration between your financial planner and accountant ensures you take advantage of each professional’s specialist knowledge.  A well-qualified accountant will have knowledge beyond a well-qualified financial planner, and vice versa. When the two professions work together to ensure you achieve your goals, we believe it’s the best opportunity to maximise your prosperity and take advantage of their knowledge.

Ensuring the different parts of your financial world work together in harmony is essential when it comes to optimising your prosperity. From financial planners and taxation specialists to mortgage brokers and property investment consultants, we work together to ensure your financial well-being is supported across all areas. By entrusting us with knowledge across your financial spectrum, our plan is more informed, tailored and empowered to reach your unique financial goals.

To book complementary financial discovery and diagnosis session follow this link or contact the team via email at info@cxcfp.com.au. There is no obligation, we’d simply love to have a chat with you to bring clarity to your financial world and ensure you take advantage of all available opportunities.

At CXC Financial Partners we understand that paying the right amount of tax and not a cent more means more disposable income in your pocket. Our accountants will ensure you’re doing just that AND help structure your accounts and/or business to maximise your income. Additionally, when you use CXC myVAULT to automatically collate your expenses, your time in managing your tax records is minimised, freeing you up to focus on what what’s really important to you.

Give the team a call and re-discover your freedom. The Accounting team are on 1300 925 081 or taxservices@cxcfinancialpartners.com.au

The post Are Your Professionals Working Together? appeared first on CXC Financial Partners.

So is an industry fund right for you?

Fees: Industry funds are known for relatively low fees, which is a great start. When investing, we’re big believers in controlling the aspects of the investment that can be controlled – often this means keeping an eye on costs.

Insurance: Industry funds provide easy access to economical insurance solutions. With so many Australians relying on insurances within Super to protect their financial lives it’s an important consideration. Most industry funds provide a level of cover automatically upon joining the fund. Default cover is easily obtained and inexpensive.

It’s important to ensure the amount you’re covered for is adequate. Having $200,000 in life cover may be suitable for some but if you have a significant mortgage and would like to leave your family debt free it’s likely you’ll need significantly more.

Default insurances can also have wording and definitions that make it more difficult to claim (in comparison to retail insurance). The most common example is having a pre-existing condition. Often this type of insurance has an exclusion for any pre-existing medical conditions. If you’ve received treatment, have been diagnosed with or are aware of a medical condition before obtaining the cover, any claim involving that condition will likely be denied.

Another feature to keep an eye on is the Total and Permanent Disablement (TPD) definition. Most super funds only offer an “Any Occupation” definition for TPD cover. In order to satisfy an Any Occupation TPD claim you would need to be unable to work in not just your own occupation, but any occupation to which you are suited to by education, experience and training. This differs from an “Own Occupation” definition, whereby you only need to satisfy the insurer that you are unable to work in your own occupation. There is some complexity involved in this definition, as Any Occupation can be funded from Super and Own Occupation can’t. Most retail insurers do offer a way around this, whereby the Any Occupation is funded inside super and the Own Occupation is funded outside.

It’s also important to review your income protection (sometimes called salary continuance) insurance. Make sure you’re aware of the benefit period as some only provide 2 or 5 years of cover. The benefit period is the length of time that the insurer replaces your salary. Most people would like to be covered ‘to age 65’. As an example, a 35 year old who suffers an illness or injury that prevents them from working ever again will be paid 75% of their salary for 2 years, 5 years or to age 65 – regardless of their ability to return to the workforce.

Investments and performance: Industry funds provide members with access to competitive investment returns and have a good history of delivering positive performance.

When assessing the performance, it’s important to understand the periods that are being reported. As an example, CBUS, Care Super and HESTA advertise their funds performance returns on their website but the most recent period is the 12 months leading up to 30 June 2018. This makes it difficult to compare alternatives when most Super funds report their 12 month return on a monthly basis.

It’s also important to understand that performance isn’t linked to the Super Fund, it’s linked to the investment option you’ve selected within your Super Fund. The Australian Super Balanced Fund returned 8.67% for the 2019 Financial Year, but if you’re invested in the Diversified Fixed Interest Fund your return is 4.90% for the period.

Many industry funds are more aggressive than meets the eye. You should consider the ratio of growth assets to defensive assets. Growth assets include Australian and international shares, property, infrastructure and private equity – assets that you can expect to be more volatile. Defensive assets include fixed interest (government and corporate bonds) and cash.

The Australian Super Balanced Fund, for example, has a 79% allocation to growth assets and a 21% allocation to defensive assets. You need to be comfortable with the risk within the investments you’ve chosen. When comparing performance you also need to be aware of the asset allocation of the fund you’re comparing.

The below performance and asset allocation figures were obtained from the website of the relevant fund provider. The figures relating to the CXC Financial Partners portfolio were obtained from an actual client portfolio who was fully invested in the model portfolio over the full financial year. All performance fees are net of investment fees.

In Summary

Industry funds can be a good solution for your retirement savings however it’s important that you consider the fees you are paying, the insurances you have, the investments you hold and investment performance. In doing your research make sure you understand the product and how that impacts you and your needs.

If you’d like personalised financial advice tailored to your circumstances, contact the team today.

Disclaimer:

While every attempt has been made to ensure the accuracy of this information at the time of compilation, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by CXC Financial Partners, its officers, employees, agents or representatives.

All contents presented within this document are not to be construed as personal financial advice, taxation advice, a recommendation or an offer or invitation to buy, sell or hold a financial product. It is for general informational purposes only.

Past performance is not a reliable indicator of future performance. Investing in financial products comes with risk. Talk to a CXC Financial Adviser to see how we can help you.

Are you ready to take control of your financial future? If you answered yes, then we’re ready to assist.

With access to in-house experts in property, mortgages, tax and accounting, our holistic approach has your financial well-being covered. We’ll help you define your goals and prioritise what’s most important for your future and keep you on track.

If you would like to take control and activate your prosperity, contact our team on 1300 925 081 or info@cxcfp.com.au for a no obligation and confidential discussion.

The post Industry Super Funds – Are They Right For You? appeared first on CXC Financial Partners.

What’s new for you?

Work related deductions

Last financial year, over 8.8 million taxpayers claimed $21.98 billion in deductions for work related expenses. It’s an area under intense review by the ATO. If you claim work-related deductions, it’s important to ensure that you are able to substantiate any claim you make.

To claim a deduction, you need to have incurred the expense yourself and not been reimbursed by your employer or business, in most cases you need a record proving you incurred the expense, and the expense has to be directly related to how you earn your income – that is, the expense is directly (not sort of) related to your work. This also means ensuring that you only claim the work-related portion of items you use personally, such as mobile phones or internet services.

When you don’t have to keep records

If your claim for work related deductions is below $300 you do not have to keep a record of the expense, such as a receipt. Work related clothing has a $150 record keeping limit. However, the ATO is concerned that taxpayers are ‘automatically’ claiming these deductions without incurring any expenses because of a belief that you don’t have to support the claim. If you have claimed an amount up to the record keeping threshold, you may find that the ATO will ask you to explain how you came to that amount. If you don’t have diary entries or a good explanation, your claim might be denied.

Working from home

If you don’t have a dedicated work area but you do some work on the couch or at the dining room table, you can claim some of your expenses like the work-related portion of your phone and internet expenses and the decline in value of your computer. If you have a dedicated work area, there are a few more expenses you can claim including some of the running costs of your home such as a portion of your electricity expenses and the decline in value of office equipment.

If your home is your principal place of business, you might be able to claim a range of expenses related to the portion of your home set aside for your business. What the ATO is looking for is an identifiable area of the home used for business.

Ensure any claims are in proportion to the work-related use. You can’t, for example, claim all of your internet expenses because you do a bit of work from home in the evenings and need the internet.

Work related clothing

In general, you cannot claim the cost of your work clothes or dry-cleaning expenses unless the clothes are occupation specific, such as chefs’ whites or a uniform with a logo, or protective gear because your workplace has hazards (jeans don’t count as protective wear).

Just because you have to wear a suit to work does not make it deductible.

Cryptocurrency

The ATO has a special taskforce dealing specifically with cryptocurrency. Cryptocurrency is considered an asset for tax purposes, rather than a form of currency. This means that gains or losses made on disposal or exchange of cryptocurrency will often be captured under the tax system – regardless of whether you’re switching between currencies or ‘cashing out’ your asset into AUD.

You will need to keep records of all of your trades in order to work out whether you’ve made a taxable gain or loss each time you dispose of an asset.

Capital gains tax can be complex, and this is an area that the ATO is looking very closely at, particularly where taxpayers are claiming large losses. Also, some disposals can be taxed as ordinary income which means the CGT discount cannot apply and capital losses cannot be applied against the gains that have been made.

Rental property deductions

In the 2017-18 financial year, more than 2.2 million Australians claimed over $47 billon in deductions and the ATO believes that is too much – one in ten is estimated to contain errors.

What you can claim for your rental property has been significantly curbed. For example, you can no longer claim deductions for the cost of travelling to inspect the property. And, you can no longer claim depreciation deductions for second hand plant and equipment. Previously, you could for example, buy a rental property from someone else and then claim depreciation on the assets already in the property such as the kitchen appliances and carpet. From 1 July 2017, you can only claim deductions for new assets you purchase and install in the property.

4,500 audits of rental property deductions will be undertaken this year with the focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing. Deliberate cases of over-claiming are treated harshly with penalties of up to 75% of the claim.

Earning money from the sharing economy

Income earned from the sharing economy, Airbnb, Uber, Airtasker etc., must be declared in your tax return. But you may also be able to claim proportional expenses associated to providing the service. Ensure that any deductions you claim are related to providing the service itself (not just switching on the app or making yourself available).

If you are a driver with Uber or another platform, you will need to be registered for GST regardless of how often you drive.

Your trust

Timing of resolutions

Trustees (or directors of a trustee company) need to consider and decide on the distributions they plan to make by 30 June 2019 at the latest (the trust deed may actually require this to be done earlier). Decisions made by the trustees should be documented in writing, preferably by 30 June 2019.

If valid resolutions are not in place by 30 June 2019, the risk is that the taxable income of the trust will be assessed in the hands of a default beneficiary (if the trust deed provides for this) or the trustee (in which case the highest marginal rate of tax would normally apply).

TFN reporting

Has your trust lodged TFN reports for all beneficiaries?

Trustees of closely held trusts have some additional reporting obligations outside the lodgement of the trust tax return each year. The ATO is currently reviewing trustees to ensure their compliance with these obligations, particularly the requirement to lodge TFN reports for beneficiaries.

Where beneficiaries have quoted their TFN to the trustee, trustees are required to lodge a TFN report for each beneficiary. The TFN report must be lodged by the end of the month following the end of the quarter in which a beneficiary quoted their TFN. For example, if the trustee receives a beneficiary’s TFN in April, they must lodge a TFN report by the end of July.

Where a TFN has not been provided by a beneficiary, the trustee is required to withhold tax at a rate of 47% and pay this to the ATO. The trustee must also lodge an annual report of all amounts withheld.

Failure to comply with the TFN reporting and withholding requirements may incur penalties.

Your superannuation

Not making your full superannuation contribution? Now you can catch up

This year is the first year of new measures that enable people who have been out of the work force, like new Mums, to top up their superannuation.

If you have:

• A total superannuation balance below $500,000 as at 30 June; and
• Not utilised your entire concessional contributions cap ($25,000) for the year

then you can ‘carry forward’ the unused amount on a rolling 5-year basis.

For example, if your total concessional contributions in the 2018-19 financial year were $10,000 and you meet the eligibility criteria, then you can carry forward the unused $15,000 over the next 5 years. You may then be able to make a higher deductible personal contribution in a later financial year. If you are selling an asset and likely to make a taxable capital gain, a higher deductible personal contribution may assist in reducing your tax liability in the year of sale.

Remember:

• Your total superannuation balance must be below $500,000 as at 30 June of the prior year before you utilise any carried forward amount (within the 5-year term); and
• In some cases, an additional 15% tax can apply (30% total) to concessional contributions made to super where income and concessional contributions exceeds certain thresholds ($250,000 in 2018-19). Your income could be higher than usual in the year when you sell an asset for a capital gain.

At CXC Financial Partners we understand that paying the right amount of tax and not a cent more means more disposable income in your pocket.  Our accountants will ensure you’re doing just that AND help structure your accounts and/or business to maximise your income. Additionally, when you use CXC myVAULT to automatically collate your expenses,  your time in managing your tax records is minimised, freeing you up to focus on what what’s really important to you.

Give the team a call and re-discover your freedom. The Accounting team are on 1300 925 081 or taxservices@cxcfinancialpartners.com.au

The post TAX Time: Are You in the ATO’s Sights? appeared first on CXC Financial Partners.

Despite many Australians knowing they could get a better deal on their Interest rate, many will avoid the tasks, claiming it’s just too hard.  Here are some of the key myths perpetuating procrastination.

Myth 1: Refinancing takes a lot of time and effort

Technology improvements within the loan processing sector have reduced the time and effort it takes to refinance your home loan.

Step 1: Reach out to a Mortgage Broker

To get the best outcome from the discussion – make sure you have the necessary details of your current loan. This includes your current loan balance, interest rate and rate type (fixed or variable), along with your remaining payment term and payment frequency.

Your banking specialist will also need a few details on your financial circumstances – to determine early on whether your loan is likely to be successfully refinanced. They’ll want to know your income, employment details, monthly expenses and any debt you hold (including credit card balances, limits and monthly repayments). If you’re unsure of your monthly expenses, our myVAULT application will keep you informed anywhere at any time.

Avoid being solely focused on the interest rate. Consider other loan features that might be useful to you both now and in the future. Some loans support offset accounts, redraw facilities and extra repayments. Our brokers can help you understand how these features can help you reduce the amount of interest you pay over the term of your loan.

Step 2: Submit your home loan application and supporting documents

If you are ready to realise the savings, your Launch Money Broker will work with you to package and submit your home loan application. The new lender will need to verify your figures – so they’ll ask you to submit some easily located documents that may include:

• Your last two payslips
• PAYG summaries for the last year
• Home loan statements for the last six months of the loan you are refinancing
• If self-employed, you’ll need the last two years of tax returns and full financials for companies or trusts including your individual tax returns and notice of assessments for those corresponding years
• If it’s an investment property: most recent rental statement or your most recent year’s tax return

During the application phase, lenders will also arrange to have your property valued. In many circumstances, a desk top valuation can take place avoiding access arrangements or disturbing tenants.

Step 3: Loan approval and settlement

If your loan application is approved the good news is that you’re almost there. Discharging your current home loan is made simple with a pre-filled discharge authority. Simply sign it and the incoming lender will contact your current lender to complete the process.Given you are the only party to the loan and depending on your current lender’s discharge process, you could be enjoying the savings within 4 weeks.

Myth 2: Refinancing isn’t worth the trouble or expense

Some mortgage-holders might incorrectly believe that refinancing their loan won’t generate savings significant enough to offset the time, effort and expense they’ll go to – but a few simple calculations disprove this.

Sample: A $450,000 principal and interest mortgage with monthly repayments, charging 5% interest, would amount to $419,651 in interest paid over a 30-year term. If we cut the interest rate by just 0.25%, to 4.75%, while keeping all other loan variables the same, interest over a 30-year term falls to $395,069 – a saving of $24,582 over the life of your loan.

Myth 3: I don’t have enough equity in my home to refinance

Typically, you’ll need at least 20% equity in your home to refinance your loan. The more equity you have, the more your loan to value ratio (LVR) may have improved. The better your LVR, the better rate you can secure.

In a market where house prices have been correcting, it’s true that you may not have as much equity in your property as you once did.This could provide you with an even greater incentive to make sure you’re not over-paying on your home loan.It’s also a reason to look at refinancing every two years in a rising market.

After assessing the details of your current loan and conducting a desk valuation of your property, your Launch Moneybroker can often provide you with a clearer picture of whether you’re a candidate for refinancing – before you go to any trouble submitting your supporting documents

Myth 4: It’s too difficult to change banks

If you’ve been with your current bank for some time and have a long list of payees and billers stacked up in your online or mobile banking profile, it can seem like a lot of effort to make the switch to a new bank.

However, you are not required to close all account with your current lender immediately. Most lenders offer mobile app and internet banking to help make the process as seamless as possible.

We believe that the savings achieved by refinancing provide an excellent return for the effort.

At Launch Money we believe we offer an indispensable service and hold strongly to the belief that a mortgage broker is the only party to the process who is best positioned to act as an advocate for the borrower. Our service is more than just securing the lowest mortgage rates, we give you tailored advice to help fast-track your application with the RIGHT LENDER based on your financial goals.

Whether you are buying a new home, personal investment property, Commercial property, SMSF investment property, motor vehicle or thinking about refinancing, Launch Money can help secure a better loan and deliver a hassle-free mortgage experience for you.

To speak with a broker at Launch Money call the team on 1300 925 081. Alternatively, you can email your questions to: info@launchmoney.com.au

The post Four Refinancing Myths Exposed appeared first on CXC Financial Partners.