Super scams: What to look out for

The market for super funds is extremely competitive.Scammers take advantage of this by promising unrealistic benefits to acquire personal or account details. They are able to use this information to steal your identity or transfer your super to an account they can access.

Scammers can approach you in various ways. You could receive a phone call, email or be contacted online.

This is what you should be weary of:

• Advertisements promoting early access to super
• Offers to ‘take control’ of your super
• Offers to invest your super in property
• Offers of quick and easy ways to access or ‘unlock’ super

The best way to spot a scam is to know what the rules about your super fund are. Knowing when you can legally access your super will protect you from false promises. Additionally, the ASIC website lets you check if someone is licensed, if they are not licensed, more likely than not, they should not be trusted.

If you believe that you’re being targeted by a scam, then rather than simply ignoring approaches and not engaging, you should report the scam. You can do this by calling the ATO or completing the online complaint form on the ASIC website.

How are investments taxed?

Investment income needs to be included when conducting tax returns. This includes any income acquired through interest, dividends, rent, managed funds distributions and capital gains. The income yielded from investments is taxed at a marginal tax rate.

Individuals are able to claim deductions for the cost of buying, managing and selling an investment. However, the Australian Tax Office (ATO) provides rules about what an or cannot be claimed as a tax deduction.

The MoneySmart website has a simple and easy-to-use tax calculator that may give an indication as to what the annual tax will be. However, it is recommended that if an individual has a diverse portfolio that yields income from multiple sources, then should consult an accountant or advisor that can lead them through the process as it can become quite complex.

In order to minimise taxation on investment income, individuals should consider tax-effective investments which provide concessional taxation. These include superannuation and insurance bonds.

PAYG instalments for business and investment income

Pay as you go (PAYG) instalments are payments you can make throughout the year to avoid accumulating a large tax bill to pay at the end of the year. Making these payments is a great way to budget for income tax and keep a healthy cash flow.

To qualify for PAYG instalments, you must earn over a threshold amount from your business or investment income (also known as instalment income).

The amount that you pay in PAYG instalments throughout the year will be offset against any owed tax for the entire year. But it is important to lodge your activity statements and pay all PAYG instalments before lodgment of tax returns if you want these to be included in your tax assessment.

There are two options for calculating and paying PAYG instalments:

• Instalment Amount: Simplest option which involves paying instalment amounts the ATO calculates based on relevant information.
• Instalment Rate: You calculate the instalment amount using instalment rate provided by the ATO and your instalment income. Therefore, dependent on income as you earn it and not predetermined.

First home super saver scheme

The first home super saver (FHSS) allows individuals to save up for their first home in their super fund. The money saved in the super fund is taxed concessionally and therefore, individuals are able to save faster.

Individuals can make voluntary concessional (before-tax) or voluntary non-concessional (after-tax) contributions into their super fund. They can then apply for those contributions to be released. This also releases any earnings associated with those contributions.

This scheme can only be used by a first home buyer if both of the following apply:

• They are living in the premises they are buying/intend to buy (when practicable)
• Intend to live in the property for at least 6 months within the first 12 months (when practicable to move in)

The eligibility criteria to participate in FHSS is as follows:

• Make super contributions from any age BUT only request a determination or release of amounts after 18 years of age
• Never have owned a property in Australia (includes investment property, vacant land, commercial property, lease of land in Australia, company title interest in land in Australia) other than if there has been financial hardship as deemed by the Commissioner of Taxation.
• No previous request to the Commissioner to issue an FHSS release authority in relation to the scheme.

Eligibility is assessed on an individual basis; couples, siblings, or friends can access their FHSS contributions to purchase the same property.

There are many other considerations for FHSS which individuals should take into account if they plan to use the scheme.

Consolidating your super

Consolidating your super can save you time and money. Consolidating your super means that rather than having multiple different accounts, all your super is in one account.

Why you should consolidate your super:

• Choosing to consolidate your super means that you will no longer be paying fees to multiple super funds.
• There is also less paperwork to complete each time
• You will be able to track your super more easily

Before you consolidate your super:

• Consider how changing super funds affects employer contributions: Certain employers may contribute more to one fund than another. In which case, you should consider switching to the fund that your employer is most compatible with.
• Consider how changing super funds impacts insurance you have through the fund: Changing funds might mean you no longer receive benefits of the insurance. Double checking the details of this is particularly important if you have a pre-existing medical condition or you are aged 60 or over.
• Inform your employer of any change in details they may need, to pay to your chosen super account.

Don’t simply choose the account with the highest balance. Rather, take into consideration the performance of that super fund, the fees you are required to pay, whether it is linked to any insurance and any other factors. Upon reviewing this, you may find that rather than choosing between your current super funds, starting with a completely new fund might be the best way to go.

How to consolidate to one of your current super funds:

• Create an account on the myGov website
• Link your myGov account to the ATO
• Go to ‘Super’ and then ‘Manage’
• Select ‘Transfer Super’

Transferring to a new fund

In the case you decide that transferring to a new fund is the best option, you can consolidate either by contacting the new fund directly, or using an ATO rollover form.

Tax relief for individuals

The Federal Budget for 2020 announced personal and business tax relief through various tax cuts. The legislation was approved by parliament meaning that individuals and businesses will be paying less tax, and have more money to invest and spend into the economy.

For individuals, the government has brought forward tax cuts which were initially planned for 2022, now they will be backdated to July 2020. These cuts are set to amount to $17.8 billion and will assist low to middle income earners.

What are the specifications?

• Tax bracket thresholds were increased. The top threshold of the 19% bracket increased from $37,000 to $45,000 and the top threshold of the 32.5% bracket increased from $90,000 to $120,000.
• The low income tax offset increased from $445 to $700

Therefore, depending on which bracket an individual falls under, they will receive tax cuts as well as a one-off payment. These payments can vary from $510 to $2745 depending on which bracket the individual falls into. However, if their income is higher than $126,000, then they will not receive the one-off benefit.

What property investors need to look out for

All investments have an aspect of risk and property investment is no different. How comfortable you are with the risk is generally an indication of your financial situation, age and expertise. There are a few common areas that pose risks to properties that investors should be aware of before entering into the market.

Market risk

Like other forms of investing, there is the danger of the market crashing or seeing a significant turn. By investing solely in property, you run the risk of lack of diversification, meaning if the market were to shift, so would your investments. You can slightly combat this by purchasing properties in different states all over Australia, but if the wider property market crashes this is unlikely to relieve risk.

Lack of liquidity

Liquidity is how accessible your money within the investment is. Real estate investment lacks liquidity, meaning an investor needs to be thinking for the long term. From this is the possibility that an investor may be unable to buy or sell an investment quickly when they wish due to limited opportunities. Liquidity risk in Australian property can be lessened through investing in capital city suburbs with high demand and limited supply.

Tenants and damage

Tenants are apart of the deal when investing property. Particularly bad tenants can affect your cash flow if they don’t pay their rent on time and may leave your property damaged. A tangible asset, such as property, can face risks like natural disasters, fire, damage by tenants, robbery or vandalism. Finding a good insurance policy is a means of managing the physical risks associated with real estate investment.

Maintenance

Property investment isn’t one that you can set and forget, it requires attention and upkeep. Landlords and property owners have a responsibility to keep their buildings safe and livable for tenants. Good time management and a solid knowledge of the property will better equip you to handle these hidden problems.

Choosing a super funds

Choosing a super fund requires taking multiple things into consideration. Such as its performance, the fees you will be required to pay, details of the insurance, and different investment options that are available.

Performance

Performance is one of the most important things to consider when choosing a super fund. Take a look at how the super has been performing over the years. Compare how one super compared to others, but remember to compare within categories.

Low fees

All funds will charge a fee – this could be amount or percentage or even both. Checking to make sure that you aren’t paying excessively high fees when there are lower cost options is integral. Fees will usually be charged at the end of every month, or actions such as switching investments.

Insurance

Super funds will have three different types of insurance for members: Life (or death cover), total and permanent disability (TPD), income protection. When selecting a super, you should check the premium rates, the amount of cover and any exclusions or definitions that might affect you in the future.

Investment options

Funds will provide you with a range of options as to how you would like to conduct investment. Such as: growth, balanced, conservative, ethical, etc. Some funds may also allow you to choose the weighting of different asset types or direct investments.

Taking all of these factors into account is difficult. Comparison websites for superfunds make this process a bit easier. These websites may have vested interests, so you should take this account before making a decision based purely on one website.

The 2020 Budget also announced provision of ‘YourSuper’ which will be a tool the government creates to compare super products. This might further help in comparing and deciding which super fund you choose or change to.

Basics of fringe benefits tax

What are fringe benefits?

Employees may opt to make an agreement with their employers that provides them with fringe benefit ‘payments’ in a form other than salary or wages.

There are various types of fringe benefits:

• Employees being able to use work car for private use
• Discounted loans
• Paying an employee’s gym membership
• Providing entertainment (e.g. tickets to concerts)
• Reimbursing expenses (e.g. school fees)
• Giving benefits under a salary sacrifice scheme

What is fringe benefits tax?

Employers pay FBT on certain benefits they provide to their employees or employees’ families. FBT will apply even if the benefits are provided by a third party through an arrangement with the employer.

Employers are required to self-assess their FBT liability for the FBT year – which spans from 1 April to 31 March. It is calculated separately to income tax based on the taxable value of the benefit provided.

Usually, employers are able to claim tax deduction for the cost of providing fringe benefits and for the FBT paid. Employers will generally also be able to claim GST credits for the items they provided as fringe benefits.

Employers are able to reduce their FBT liability by providing benefits that are income tax deductible. They may also consider an agreement in which the employee contributes to the cost of the fringe benefit. Finally, providing a cash bonus can also help reduce FBT liability.

Changes to the super system

The Budget seeks to address various shortcomings in the superannuation system

Unintended multiple accounts

One of the consequences of changing employers is the creation of multiple accounts. These result in unnecessary fees, and reduce retirement savings. Under the Budget, the proposal is that individual’s super is ‘stapled’ to them. Stapling means that the individual keeps their super fund when they change jobs. The employer will pay super to the attached fund, and only change if the individual selects to.

Paying too much

Super fees are being paid on unused accounts, causing an erosion of retirement savings. ‘YourSuper’ allows comparison between fees and payments across different super funds so that individuals are able to make informed decisions about their super.

Underperforming products

Not all super funds perform equally. This can lead to an inequitable retirement result for individuals.MySuper products will now undergo an annual performance test to level the playing field. Funds will be required to notify their members if they are deemed to be underperforming and if they fail the test twice consecutively, they will not be able to accept new members until their performance improves. This will give members more information and the opportunity to choose what they can do if their fund is underperforming.

Lack of accountability and transparency

Currently, members are not informed about how their money is being invested, and whether it is being invested appropriately. Through this initiative, super trustees will be required to provide members with key information regarding how they manage and spend their money ahead of Annual Members’ Meetings. They are also required to comply with a new duty to act and must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests. This increase in transparency and accountability will allow members to make decisions regarding their super before it’s too late.