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FAQ

Financial Planning Questions

Life Insurance

Underwriting is a term used by the Insurance industry to describe the process of assessing risk. It ensures that the cost of the cover taken out is proportionate to the risks faced by the individual being insured.
 
Underwriting takes place at the time you submit your application. Assessors gather information from a variety of sources and you will be required to complete an application form and a medical questionnaire. Over 90% of applicants will have no issues and will most likely pay the standard premium rates.
 
Those who are more likely to develop a chronic disease or who work in a high risk environment may need to complete additional forms and, depending on the assessed risk, may be required to pay an additional premium. If the risk is assessed as being too high, insurance may not be offered, although this applies to only a small percentage of applicants.

Group cover is often available from a super fund or through an employee based scheme. It differs from Underwritten Insurance insofar as the insurance company may decide not to assess the risks for all those covered by the policy.
 
Instead, they can choose to spread the risk across everyone covered by the policy.

This depends on what is available to you and what best suits your particular situation.

Taxation & Salary Sacrifice

Yes, if you earn more than $37,000 per annum.

This varies on your age. Most people are able to contribute up to $27,500 including their Company’s super guarantee contribution. This is called the concessional contributions cap.

There are higher concessional caps for people closer to retirement.

It is normal to enter into a formal agreement with your employer which should include your terms of employment to ensure calculations are based on your original salary.

Your contributions are taxed at the special rate of 15% and are known as concessional contributions.

Yes. After tax contributions are known as non-concessional contributions because you don’t receive a tax deduction for them. They are a good way to grow your Super but should only be used once concessional opportunities have been exhausted.

SMSF Questions

General

Trustees can access direct shares, high yielding cash accounts, term deposits, income investments, direct property, unlisted assets, international markets, collectibles and more.

SMSFs, like all other superannuation funds offer concessional tax rates. Whilst accumulating your fund, tax on any investment income is capped at 15%. Once into your retirement phase, no tax is payable – not even capital gains tax.

A SMSF has certain reporting requirements (annual tax return, audit, ATO fees etc) but these are capped and not based on a percentage of your super balance.  The more funds you have in your SMSF, the more cost effective it becomes.

The return you receive is based on your investment strategy and this varies for every individual.

Technical

Your preservation age is the minimum age at which you can access your preserved super benefits without meeting another condition of release. It is based on your year of birth.

An SMSF is prohibited from purchasing shares from a related party. There are limited exceptions, including market listed shares, business real property or in house assets (where the value of all in-house assets does not exceed 5% of the total fund assets)
 
If the private company is a related party of the SMSF, the purchase would be a prohibited acquisition and a breach of section 66 of the Superannuation Industry (Supervision) Act 1993 (SISA) would occur.

The ATO uses three different status types to describe SMSFs:

  • Registered – status not determined
  • Complying
  • Non Complying

A “Registered – Status not determined” SMSF:

  • Is eligible to receive roll overs and transfers
  • Is regulated by the ATO
  • Has not been issued with a Notice of Compliance or Notice of Non-compliance

The ATO will issue a notice about the fund’s complying status after the fund has lodged its first SMSF annual return and the fund has been determined to be “complying” or “non-complying”.
 
SMSFs with the status “Registered – status not determined” are able to accept transfers, rollovers, directed termination payments and contributions.
 
Funds displayed with this status that meet Superannuation Industry (Supervision) Act 1993 (SISA) standards qualify for concessional tax rates.
 
Employers may need to obtain a written statement from the SMSF that is a resident regulated SMSF to ensure a contribution to this fund qualifies as a superannuation guarantee payment.

Financial Questions

Fixed vs. Variable

Once you “fix” your loan you know exactly what you will be paying – no surprises. With a variable loan, your payments can vary up or down as rates change. If the rates rise you can be comfortable in the fact that you are paying less than the variable rate. This also allows you to maintain the same level of payment and further reduce your loan balance. 

If the rates drop, you will be locked in to the higher rate and this can be frustrating. Fixed terms often do not allow for extra payments to be made although sometimes they can with the payment of a fee. Fixed loans may also have a “break fee” if you change or pay off your loan within the set period – ie – if you sell your home. 

It is possible to split a loan between fixed and variable. This allows you to ensure that a part of your loan is protected at the fixed rate for a set period of time – no surprises. In the event that interest rates rise, you will benefit by having locked in a lower rate.
 
The variable portion of the loan allows you to make additional payments without penalty whilst enjoying lower payments than the fixed rate (at the time of establishment). This may change over time if interest rates change. 

APRA Changes

The Australian Prudential Regulation Authority (APRA) have advised the big 4 banks and Macquarie Bank must hold more capital against their mortgage books (money they have loaned to mortgages). This has the effect of providing extra protection in the event of defaults.

It may insofar as banks will tighten up their lending criteria to protect themselves against defaults in housing loans, particularly loans for investment properties. Reducing loan to valuation ratios on investor loans, tightening up on ability to service a loan and no longer offering interest only loans are some of the steps likely to be taken by banks as a result.

It depends on the type of property and the terms of the loan.