Same Sex Families Financial Affairs

Friday, October 16, 2015

Modern Families


Almost half a million Australians identify as gay or bisexual, many of whom are in long-term relationships.  Although same-sex marriage hasn't been legislated in Australia , changes to tax and and family laws in 2008 - such as the inclusion of same-sex partners in the definition of 'spouse' - means same-sex couples have almost all the same legal rights as heterosexual couples in a de facto relationships.

The United States might have legalised same-sex marriage, but when it comes to tax and estate planning there are different rules in every US state.  In Australia, these rules are more similar across the states.  So what do same-sex couples need to considering when it comes to tax and estate planning in Australia.



Putting saving strategies in place

The 2011 census found that people in same-sex relationships were generally better educated, had higher incomes, and were less likely to have children living with them than heterosexual couples.  Consequently, they tend to have stronger cash flow, fewer expenses and more savings - and just as much need for good advice when it comes to managing their money.


Making the most of tax and super benefits

Of course, not every same-sex couple will be so well off.  The 2008 laws make a number of benefits available to same-sexed couples, including:

  • the dependent spouse tax offset
  • family tax benefits
  • benefits of Medicare levy calculations if one partner is a low-income earner

If a relationship breaks down, the transfer of assets is also subject to the same tax rules as for de facto heterosexual couples.

Same-sex couples receive the same superannuation entitlements as married or de facto heterosexual couples. including super splitting, after-tax contributions, and tax-fee death benefits.  Whether you're in a same-sex or heterosexual relationship, it's essential to submit binding nomination forms, to guarantee your partner will receive your super when you die.

And be aware - although same-sex couples are entitled to all theses benefits, private and industry super funds are not obligated to offer them.  Check with your fund, and be open to switching to one that recognises your relationship.


Planning for parents

With legal issues around parenthood, estate planning might be the most complex part of financial planning for same-sex couples with children.  Children of same-sex parents can only be the biological child of one parent.  If that parent dies, custody of the child could be given to the deceased partner's family, so it is important that the other parent is legally named as the child's guardian.

Similarly, couples could designate new caretakers and draw up an estate plan for their child in the event that both were to die.  Its even more important to ensure guardianship, wills and powers of attorney are all up to date.

Every family is different, and each couple have their own needs and goals.  And it's just as important for same-sex couples to seek profession advice when you're planning ahead for your future.


Issues surrounding Buy / Sell Agreements

Wednesday, October 07, 2015




Lately we have had a few queries and concerns from some advisers regarding this issue and given there so many SMSF being established out there some may not be compliant as a couple of advisers had picked recently after reviewing clients insurance arrangements.

The last thing anyone would want is for their SMSF to be in breach of the sole purpose test which can have enormous repercussions via the ATO on this fund via penalties plus the adviser / accountant that has provided the advice for the non compliant structure. 
As always, we hope you find this information useful and remember, educating is  key with all your financial decisions.

Can your clients use their SMSF to fund their buy sell agreement?

Buy sell insurance protects business owners and their respective estates. It provides funding for the business owner’s exit from the business as a result of an involuntary event such as: death, terminal illness, TPD or specified traumatic condition.   When coupled with a buy sell agreement, it helps ensure all parties get what is rightfully due and in the best interest for the continued success of the business.

That is, the remaining business owners can purchase or obtain the exiting owners share of  the business (thus retaining control) and the exiting business owner (or their estate in the case of death) receives the proceeds of the insurance policy.

As such, buy sell insurance policies are generally owned and paid for by the owner. This method of ownership has a number of advantages including: simplicity, scalability, portability and is exempt from CGT.   However, some clients have chosen to fund buy sell insurance via their SMSF, possibly to help with cash flow or because they believe it to be more tax effective. Many have debated whether or not this breaches the sole purpose test.  

Summary of circumstances

A member of an SMSF and his brother run a business through a company in which they are the only two shareholders. The SMSF’s only other member is the Member’s spouse and the SMSF has a corporate trustee.

To ensure they have a succession plan in place for the company, the Member and his brother enter into a buy-sell agreement which requires:

• The SMSF to purchase a life insurance policy over the life of the Member with the insured amount based on an agreed market value of the Member’s interest in the company.

• The company to make additional employer contributions to the SMSF to be used to pay the premiums on the policy.

• On the death of the Member, the following will happen: 
    -    Insurance proceeds are to be paid to the SMSF’s Trustee     

    -    Trustee will add the proceeds to the Member’s account     

    -    Trustee will then pay all of the benefits of the deceased Member (including the insurance proceeds) to the Member’s spouse

    -    Member’s shareholding in the company will be transferred to the Member’s brother and the Member’s spouse will relinquish all claims on the

    -    Member’s shareholding in the company

Consequently, under the buy-sell agreement, the SMSF is required to purchase a life insurance policy that wouldn’t otherwise have been acquired and the brother would obtain full ownership and control of the company on the Member’s death without paying any consideration.

Reasons for decision

Sole Purpose Test

The SMSF’s purchase of the life insurance policy in accordance with the term of the buy-sell agreement does not meet the sole purpose requirements of section 62 of the SISA.  The sole purpose test generally prohibits trustees from providing any benefits that do not align with a core purpose (ie providing retirement or death benefits) or certain ancillary benefits such as invalidity benefits.

The ATO also specified that the sole purpose test requires exclusivity of purpose. However, the test may still be satisfied where an SMSF provides benefits that are considered incidental, remote or insignificant.

In this particular case, although the SMSF is allowed to be maintained for the provision of death benefits, the sole purpose test was breached as the insurance policy was only acquired because of the buy/sell agreement and the brother (a non-member of the SMSF) would receive significant benefits in the form of not having to pay for the insurance premiums and, in the event of the Member’s death, receiving 100% ownership of the company without paying any consideration. These benefits could not be considered incidental, remote or insignificant.

Provision of financial assistance to the Member’s brother

Paragraph 65(1)(b) of the SISA prohibits a SMSF trustee or investment manager from assisting a member or relative of a member using SMSF resources and therefore providing financial assistance.   The ATO found that the arrangement in this case breached the prohibition on providing financial assistance to a member or relative due to the significant nature of the benefits provided to the brother (ie the payment of premiums and total ownership of the company without paying any consideration as mentioned previously).


The ATO has provided a clear warning to advisers and their clients when considering the use of SMSFs to purchase buy sell insurance. Itconfirms that the sole purpose test may be breached in these circumstances and legal advice should be sought before proceeding.

We strongly advise discussing with your financial advisor before entering such agreements. 




Key Findings - Insurance Literary Report

Thursday, October 01, 2015


Following on from our post 9 September, where we looked at some statistics around Aussies trusting their insurance needs to their superfunds.

We felt it necessary to highlight a number of other issues to have come out of the Insurance Literary Report.

 Key findings include:

• Many Australians (17 per cent) do not know if they have trauma cover.

Almost 40 per cent did not know that being diagnosed with a terminal illness is a trigger for a life insurance payout.

• Less than 10 per cent said they ‘went with their gut feeling’ when choosing how much cover to purchase.

• Over 40 per cent said they weren’t sure if they could buy travel insurance through their superannuation, with 8 per cent believing they could buy this type of insurance through their super.

• Nearly 57 per cent didn’t know if term life insurance purchased via their superannuation fund was tax deductible, or if term life insurance bought outside of superannuation is tax deductible.


Point 2 was very interesting.  Please contact us should you wish to discuss any of the findings highlighted.




Why The Dollar Is Behind Foreign Money Pulling Out

Tuesday, September 22, 2015


The tanking dollar may be good news for the economy, but you might forgive Aussie shareholders for not breaking out the bubbly.

For months foreigners have been aggressively selling down their exposure to our stockmarket – and to the big banks in particular. It's a trend that has accelerated over the past few weeks and the continued downward momentum in our currency is much to blame.

Yes, I know it's not an especially deep insight to say that falling prices are due to selling. But understanding who has been selling and why is useful information, particularly when you're trying to figure out whether you should be buying into the dips, holding off for deeper falls or simply getting the hell out.

Global investors own around 45 per cent of our equity market, on ABS data, and the impact of offshore institutions pulling away from Australia is an underappreciated and underreported aspect of the ASX's recent correction. In the deluge of information it's hard for investors to know what to focus on. But cutting through the noise, the selldown by international investors is the big thing to watch.

As head of equity sales in Sydney at Citi, Scott Harris has a rare overview into the movement of institutional money in and out of the local sharemarket. Harris agrees that large offshore investors are playing a significant role in the poor performance of stocks in recent weeks and months.

"In the last two weeks our offshore flows data is the heaviest it's been all year," he says. "And most specifically, the bank flow is the weakest we've seen all year, in as much as it's been the most heavily skewed to selling from offshore."

First, some context: an overseas investor reporting in US dollars has seen the market value of their exposure to the ASX 200 drop by a third over the past year – that's triple the loss incurred by locals like me and you. The difference, of course, is the Aussie dollar, which over that period has dropped from over US90¢ to US70¢.

"Historically foreign investors have looked for stability in the Australian dollar," Scott says. "They are far more comfortable with the level of the dollar now but they'll look for more stability in it."

The selling in the local market was just part of a global story.

Over the week to August 26, which included China's "Black Monday" and the worst day on the local exchange since the GFC, investors globally pulled close to $US30 billion ($43 billion) from equity funds: the largest single weekly outflow on record, according to Citi research.

It's no wonder that Australia, as the developed world's most leveraged economy to China's economic slowdown, has been hard hit.

So what is a local investor to make of all this? Well, so far, it looks like we've been buying.

Arnie Selvarajah is the boss of online broker Bell Direct. He reckons the recent market volatility has "woken up" his retail investor customer base.

Bell Direct had three "record days" from Friday, August 21, with each day bigger than the day before, Selvarajah says, with the ratio of buying to selling "two and a half to one". Normally that ratio is "fairly balanced".

So as foreign institutions have been selling, Aussies have been happy to buy. That may help explain why our market has see-sawed between losses and gains, as buying from locals – including, presumably, the professionals, based on a slew of articles describing them as shrewdly "snapping up bargains" – is offset by what may have been the even greater weight of offshore selling.

So where to from here?

If offshore heavy hitters are a material driver of the ASX's weakness, then recent talk of the currency trading into the 50s is a poor sign indeed. Predicting how low the dollar will go is a fraught business, but be prepared for lower. And if that sparks more flight of capital overseas, then don't do all your dough now; we could see more price falls.

That said, global funds were underweight in Australia coming into the year, and are even more so now. But there may be a lower bound for how far portfolio managers are prepared to move away from their benchmarks. Citi's Harris estimates offshore investors' funds having around 16 per cent of their money in Australia at the start of 2015, against a 23 per cent weighting for the benchmark MSCI Asia ex-Japan index.

The other reason for hope is that Australia remains, and is likely to remain for the foreseeable future, a high-yield market in a low-yield world. At some stage global investors will have to recognise that what at first looks an Asian regional problem is, in fact, a global one, and that the sharp slowdown in China's economy has had knock-ons to the rest of the world.

We've already seen the US Fed wondering whether it should delay raising rates, despite the American economy firmly on a recovery path. This week a member of the Bank of Japan said the country looks increasingly unlikely to hit the bank's two-year inflation target, which means its quantitative easing program looks set to roll on indefinitely. ECB boss Mario Draghi on Thursday night unveiled a revamp of quantitative easing and signalled officials might expand stimulus. The IMF warned this weekend's meeting of the G20 finance ministers in Turkey that China's problems had a high risk of dragging on global GDP growth.

Against that background, our sharemarket's 5 per cent net dividend yield – by far the highest in the developed world, and from a AAA-rated economy to boot – may start looking better and better to international investors.

Of course there are risks – China being the biggest. And there will be volatility, particularly as the "will they? won't they?" debate around the Fed staggers on.

But if a foreign investor, worried about the currency, wants to sell us shares in a big bank or Telstra with an attached gross dividend yield of 8 per cent or above, well … it's hard to say no. 
- Patrick Cummins - AFR


Is your family lifestyle at risk?

Wednesday, September 16, 2015




Protect your most valuable asset

With escalating property prices continuing to make headline news, it’s no surprise that many people consider the family home as their most valuable asset. It’s certainly one they fully insure. But, in most cases, your home is not your most valuable asset. It’s your ability to earn an income.

Over your lifetime, your earning capacity could amount to millions of dollars, putting the value of your family home well and truly in the shade.


The math on annual income

For instance, let’s imagine you’re currently aged 40 and are married with two kids, earning $150,000 a year as a logistics manager. Now, let’s say that you plan to work until you’re at least 65 years of age, and you can expect annual increases of a modest two per cent each year.

Over the next 25 years, your accumulated earnings will amount to more than $4.8 million to cover you and your family’s lifestyle and living expenses – everything from the mortgage, to family holidays, your car, school fees, and more. 

Yet only one in three Australians has income protection insurance, putting many families at risk.


Peace of mind

While injury or illness may stop your income, it certainly won’t stop the bills. Indeed, Australian cities are among the most expensive in the world. This high cost of living, coupled with the fact that Australians have a one in three chance of being disabled for three months or more before the age of 65 provide compelling reasons to insure your income.



These days, you can tailor income protection insurance to suit your circumstances and budget. If cash flow is a struggle and finances are tight, you might prefer to get income protection insurance through your super fund.  Being insured through super is generally an easy and more cost-effective option although the amount of cover available is limited compared to holding income protection separately.

So if you’re an established professional with a high income, or if you want to maximise your retirement savings rather than dip into them for insurance  premiums, holding income protection insurance outside your super will probably be more beneficial.  It’s also good to know that, unlike other types of personal insurance, income protection premiums are tax deductible.


Two other factors influence the cost of income protection:

Waiting period
Policies typically come with a waiting period – and the shorter this is, the more expensive the premiums will be. So if you have enough savings to manage expenses for three or six months, it’s worth extending this waiting period.

Length of benefit period
You can cover your lost salary for a specific length. The greater your benefit period the more expensive your premiums will be.

To find the most appropriate way to protect your most valuable asset, it’s a good idea to talk with your financial advisor.


Aussies Trusting Insurance Needs To Super Funds

Wednesday, September 09, 2015

One in five Australians with life insurance inside super say they have stuck with their default cover option because they trust their super fund or employer to know the correct level of cover for them.

The Life Insurance Literacy Gap report found that the majority of Australians who hold life insurance (52.2%) purchased the cover through their super fund with no assistance from a financial adviser. 

When asked why they chose to stick with the default level of insurance coverage, 24.2% of respondents said it “looked sufficient without needing to do any calculations”, 21.1% said they hadn’t gotten around to reviewing their cover, and 12.9% said they trusted that their super fund had chosen the correct level of insurance cover for them.

Other key findings from the survey include:

  • 42.2% of respondents believe that buying life insurance through super is the cheapest way to purchase cover, with or without assistance from an adviser
  • 23.3% of Australians said that if they were to purchase a new life insurance policy or update their existing cover, they would seek advice from a financial planner
  • 27.6% of Australians were unsure about the accessibility of life insurance through super

Too many Australians still believe that financial planners are only for the wealthy, yet nothing could be further from the truth.

We know from the Investment Trends research that regardless of how much money people have, they feel happier and more in control of their financial future if they take the simple step of consulting a financial planner. 

Please contact us should you have any issues or queries.







Market Volitilaty 2015

Wednesday, September 02, 2015

Whilst there has been market volatility which is clearly outlined below, the fundamentals in Australia are still very strong in that we are experiencing minimal inflation, unemployment is low, interest rates are low. The market is now below the 15 times value which it has traditionally traded at, and company profits generally have been strong.

These sudden market downturns should be a strong reminder about investment fundamentals such as, you will you will only crystallise a loss if you are too reactive and move from your existing structure by selling. The Australian share market has averaged over 11.5% since 1901 and we wont expect that to change in the short term.  

Market Overview

The last few weeks - and especially the last few days - have seen an extraordinary level of instability and volatility in global financial markets – especially in equities and some emerging market (EM) currencies.

Key factors behind the market volatility

Much of what has taken place in global financial markets in recent days/weeks has been driven by fresh concerns over the pace of growth in China and further volatility on Chinese equity markets. Chinese policy makers appear to be prioritising the slowing economy and stabilising the currency over protecting the equity market – as a result of the apparent lack of immediate policy action on the latter, the Chinese equity market continues to fall sharply and this has led to falls in global equity markets. There have been no other signs of a broader global economic slowdown.




Ways to Weigh a Stock Tip

Wednesday, August 19, 2015

Share tips are a great Australian tradition, whether they're passed on by your brother-in-law at a dinner party or by a stranger in an online chat room. The obvious problem for investors is; do you just take the bait.

Always remember, when you buy a stock, someone else has to believe just as passionately that it's a sell," says Elio DÁmato, chief executive officer at financial research firm Lincoln Indicators, which operates the Stock Doctor fundamental analysis subscription website.

Investment require a lot of work and following tips from a workmate is just not going to work. You might get the odd one right through sheer luck, but its not going to make you money in the long run.

DÁmato says investors have to understand the business behind the stock, what it's worth and what its risk level is. But even before that, he says they have to understand what kind of investor they are - a trader or a long-term investor.

For a start, investors have to understand the share price "means nothing", he says, other than what entering the stock will cost you. Nor does the usual method of expressing a stock's risk, its standard deviation measure (volatility of the share price around a mean). "When it comes to risk, the actual risk of an investment is the financial risk of the business.

Best tip is get professional advice. otherwise it is comparable to backing a horse tip at the races.


Industry Funds - Generation X

Friday, August 07, 2015


Through education especially over the last decade most people understand the importance of superannuation and trying to reach that nest egg for retirement. This financial literacy has seen the Gen X's pay more attention to super at a younger age than previous generations.

In saying that our business is seeing a massive hole in client's knowledge and understanding of what insurance cover held within their Industry Super Fund's. Our goal is for every one of our clients to implement a comprehensive Wealth Protection Plan, this designed to protect your pool of future earnings if a major health event were to take you out of the workplace.

Over the last 2 years we have seen a rapid increase in the cost of cover within industry funds, in some cases a 100-150% increase.

If you have one of the below funds we urge you to contact our office for an obligation free review:


Industry Fund Case Study

This was a recent case within our practice, the client has a young family and works in a manual trade. As you can see there is a significant difference in levels of cover against premium.

CBUS Super

Life $416,000
Total & Permanent Disablement $208,000
Yearly Premium $1,489

Our Recommendation

Life $1,220,000
Total & Permanent Disablement $1,220,000
Yearly Premium $1,313

Understanding of our superannuation has increased dramatically over the last decade. We hear the radio ad's telling us we can find your lost super, you should consolidate your super.

When I ask clients what insurance cover they have within their super - they struggle to tell me.


How to move your SMSF into Pension Phase

Saturday, August 01, 2015



Moving accumulated superannuation benefits to pension phase is a common way to fund retirement income. If you have a self managed superannuation fund (SMSF), there are a few things you should think about when starting a pension.

What is an account-based pension?

An account-based pension is like a personal retirement income account operating in a superannuation fund. You receive regular income payments, while at the same time your account may earn investment income. Any investment income earned in pension phase is generally tax free.
Note that before you can start to receive a pension with your super benefits, you must have met a condition of release.
The most common conditions of release are:
 Reaching your preservation age
 Permanently retiring after reaching preservation age
 Reaching age 65, or
 Permanent incapacity

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