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Early access to your super – coronavirus

A number of measures have been put in place to support Australians in response to the Coronavirus. This includes broadening early access to superannuation savings under compassionate ground – coronavirus.

Am I eligible to access my super under compassionate ground – coronavirus?

To be eligible, you must meet one of the following conditions at the date you apply;

  • you’re unemployed
  • you’re eligible to receive Jobseeker Payment, Youth Allowance (jobseekers), Parenting Payment, Special Benefit or Farm Household Allowance
  • on or after 1 January 2020, you were made redundant, your hours of work reduced by at

least 20%, or if you’re a sole trader, your business was suspended or your turnover reduced by at least 20%.
You’ll also be able to make a withdrawal where you’re an employee of your own company or family trust and your working hours have decreased by at least 20%.

How much can I access under this measure?

If eligible, you’re able to access:

  • up to $10,000 before 30 June 2020, and
  • an additional $10,000 from 1 July to 24 September 2020.

You’re also able to nominate how much you’d like (up to the $10,000 limit) and if you have multiple funds, you can also nominate more than one fund from which to draw this amount (up to a maximum of $10,000 in total).

For each $10,000, only one application must be made in each time period. Once it has been made it also cannot be varied. This means that if the amount nominated is less than $10,000 you cannot:

  • make a subsequent application to top-up that amount within the same period, and
  • request a larger amount in the subsequent period.

For example, if you only apply for release of $8,000 in the 2019/20 financial year, it is not possible to make a second application to top up this amount in the same financial year. You also can’t rollover the additional amount to access next financial year. The only additional amount you could withdraw will be up to $10,000 to be taken between 1 July and 24 September 2020.

How do I apply?

Applications are made directly to the Australian Taxation Office (ATO) from 20 April 2020.

You do not apply to your super fund. The application can be made online through MyGov and this is the preferred approach by the ATO. If you do not have access to MyGov, you are able to apply by calling the ATO and applying over the phone.

Applications for the 2019/20 financial year need to be lodged by 30 June 2020. A second separate application for 2020/21 financial year can be made from 1 July 2020 until 24 September 2020. It is important that applications are received before the cut-off dates even though the actual payment may occur after that time.
Once you have made an application, it cannot be varied. The ATO may allow you to revoke an application due to genuine error or mistake. The ATO would consider individual circumstances to make this assessment.

Application process – things you need to do

Establish a MyGov account with the ATO (unless you already have this)

Instructions for setting up your account is available on my.gov.au. Read the instructions and ensure you have the necessary information that support establishing the account. Once in MyGov, it is then necessary to set up with the ATO.

If you are unable to set up an account, you can apply over the phone.

How much to withdraw?

Decide how much you wish to withdraw in relation to the application up to the maximum amount of $10,000.

Nominate which super fund

The ATO will provide a list of available super funds that you can elect to have the amount released. Nominate which fund or funds and the amount from each. You can nominate more than one fund to make a withdrawal from but the total cannot exceed $10,000.

The account balance shown for this list of funds is as at 30 June 2019 and may be different to the current account balance (particularly due
to recent market movements). However, you cannot nominate a super amount that is held by the ATO (see below).

Bank account details

The ATO will request bank account details that the payment will be directed. This needs to be provided and does not rely on any bank account details that the ATO already holds.

Declaration

The ATO will ask you to make a declaration that you are eligible (see above) to receive the payment. Before you provide this declaration, the ATO provides a warning if a false declaration is made and that penalties may apply.

Receive ATO determination

With all the necessary information, the ATO will make a determination. This includes checking that you have not previously lodged an application for the same period. If successful, the determination will be sent to yourself and directly to the nominated superannuation fund(s).

ATO-held superannuation
The ATO may hold some of your super as amounts have been transferred because:

  • the account is a small (<$6,000) lost member account
  • the account is an inactive low-balance account, or
  • you are considered a lost member account.

ATO-held superannuation cannot be nominated on the application to be paid under the compassionate ground – coronavirus. If you wish to withdraw this amount, you will need to
rollover first to a super fund then submit your application nominating that fund. The rollover request can be done via MyGov or calling the ATO, including nominating the superannuation account for the funds to be transferred.

Payment from your superannuation fund

Your super fund will receive the determination directly from the ATO which includes your nominated bank account. There is no need for you to contact your super fund to request
the payment, as instructions have already been provided by the ATO. Your super fund is required to make the payment to you as soon as possible.

Taxation and social security issues

The payment from your super fund is tax-free. You also do not need to include the amount in your tax return which means your super fund will not provide you with a PAYG summary. For social security purposes, the actual withdrawal will not impact your entitlement. However, if you place the funds in a bank account or other assessable asset, it will be assessed under the income and assets tests which may impact your entitlement. It is important to notify Services Australia or Department of Veterans’ Affairs of any change in your circumstances that could impact your payment within 14 days.

Can I access any more funds from my superannuation?

Early access to superannuation may be granted under:

  • severe financial hardship, and/or
  • compassionate grounds.

These measures are separate to the compassionate ground – coronavirus outlined above. It means that if you’re eligible, you could access additional amounts from your super funds.

However, these measures have their own eligibility criteria. Speak to your financial adviser if you wish to discuss your ability to access your super under these other provisions.

Next steps

For more information, speak to your financial adviser or visit the ATO website (www.ato.gov.au).
Important information

This document has been prepared by GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (GWMAS),
part of the National Australia Bank group of companies. Any advice provided is of a general nature only. It does not take
into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this document is current as at 1 April 2020. While care has been taken in its preparation,
no liability is accepted by GWMAS or its related entities, agents or employees for any loss arising from reliance on this document. Any opinions expressed constitute our views as at 1 April 2020. Case studies are for illustration purposes only. Any tax information provided is a guide only. It is not a substitute for specialised tax advice.
GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (‘GWMAS’). A member of the National Australia
Bank Limited (‘NAB’) group of companies. NAB does not guarantee or otherwise accept any liability in respect of GWMAS
or these services.

Support for businesses in times of need

You, or someone you know, may have had a change in circumstances and may need support. We have put together some information to help you navigate these uncertain times and to answer some frequently asked questions.

Business investment

Small business loans – relief package

Australian banks will provide support to eligible small businesses by deferring loan payments for up to six months, where assistance is required as a result of Coronavirus. The intention is for banks to implement this as soon as possible. If you haven’t yet been contacted by your bank you should phone them to discuss your options.

Coronavirus Guarantee Scheme

Estimated from early April 2020
The Coronavirus Guarantee Scheme will provide a Government guarantee of 50% of the value of new unsecured loans issued by eligible lenders to small and medium sized businesses with a turnover of up to $50 million.

The intention of this measure is to increase access to loans by businesses impacted by the Coronavirus. The guarantee is available for loans of up to $250,000 per borrower, with loan terms of up to 3 years. There will be an initial 6-month repayment holiday.

Lenders will need to complete a credit assessment process but should consider circumstances beyond the current economic climate when deciding whether or not the loan will be granted. The guarantee will be available for eligible new loans provided between 23 March – 30 September 2020 and applications will be made directly to the lender.
For more information, contact your lender, and see business.gov.au

Providing cash flow support

These measures include:

  1. Additional lump sum payments to employers
  2. JobKeeper payments
  3. Payments for apprentices and trainees
  4. Instant asset write-off
  5. Accelerated depreciation

Additional lump sum payments to employers

Small and medium sized businesses and not-for-profit organisations (with turnover of less than $50m) that employ people will receive payments of between $20,000 and $100,000 to assist with operating expenses.

The amount will be made available in two instalments. The amount of payment depends on whether your business is required to withhold tax on salary
and wages for employees. If you don’t have employees, you won’t be eligible for these payments.

How much will I receive?

Where you’re required to withhold tax on salary and wages for employees, you’ll be entitled
to an initial amount equal to 100% of the amount of tax withheld (up to a maximum of $50,000). Where you don’t actually withhold any tax, because for example, your employees earn amounts below the tax-free threshold, you will still qualify for the minimum payment of $10,000.
The second payment will be the same amount as the first payment, without any recalculation.

When will I receive the payments?

The payments will be tax free and received as a credit on the business’ activity statements by the ATO from 28 April 2020. The timing of the credit will vary depending on the required frequency of lodgement of activity statements (eg monthly or quarterly). All eligible businesses will receive a first payment of at least $10,000. Where this puts your business in a refund position, these amounts will be paid to you by the ATO within 14 days.

JobKeeper payments

From May 2020, backdated to 30 March 2020

The JobKeeper payment is a $1,500 (gross) fortnightly payment per eligible employee of a business. The amount will be paid to the employer and is designed to assist employers to continue paying their employees. Eligible employers will receive payments from the beginning of May and payments will be backdated to 30 March 2020. The payments will be available for a maximum of six months.

You can register your interest today to keep updated about the application process. Formal application will be via ato.gov.au
For more information about JobKeeper, see KnowHow: Q&A JobKeeper payment.

Instant asset write-off

Available now
From 12 March 2020, the instant write-off threshold will increase from $30,000 to $150,000.
It has also been broadened and will be available to businesses with an annual turnover of up
to $500 million for the current financial year (an increase from $50 million). This applies to new
or second-hand assets used or installed ready for use by 30 June 2020. The increased write-off threshold will apply on a per asset basis until 30 June 2020.

Accelerated depreciation

Available now
Accelerated depreciation of 50% will apply to eligible assets until 30 June 2021. Eligible assets are those acquired after the announcement and are used or installed ready for use by 30 June 2021. However, it does not apply to second-hand assets, building or other capital works deductible under separate tax provisions. This concession will be available to business with aggregated turnover of less than $500 million.

Employers with apprentices and trainees

Available now
If you’re an eligible employer who employs apprentices or trainees, you can apply for a subsidy of 50% of the employee’s wage. This applies for the period of 1 January – 30 September 2020.

The maximum payment is $21,000 per apprentice or trainee. If you’re unable to retain an apprentice, the subsidy will be available to the new employer.
To be classified as an eligible employer, you must have less than 20 full-time employees.

The apprentice or trainee must be in employment with a small business as at 1 March 2020. Other employers, regardless of size, and Group Training Organisations that re-engage eligible out-of-trade apprentices or trainees are also eligible for the subsidy.

Eligible employers can register for the subsidy from early April 2020 and final claims for payments lodged by 31 December 2020.

Next Steps

To find out more about these are any other issues or concerns you may have, we recommend you contact your financial adviser.
Important information.

This document has been prepared by GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (GWMAS), part
of the National Australia Bank group of companies. Any advice provided is of a general nature only. It does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this document is current as at 2 April 2020. While care has been taken in its preparation, no liability is accepted by GWMAS or its related entities, agents or employees for any loss arising from reliance on this document. Any opinions expressed constitute our views as at 2 April 2020. Case studies are for illustration purposes only. Any tax information provided is a guide only. It is not a substitute for specialised tax advice. GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (‘GWMAS’). A member of the National Australia Bank Limited (‘NAB’) group of companies. NAB does not guarantee or otherwise accept any liability in respect of GWMAS or these services.

Q&A: Social security support in times of need

You, or someone you know, may have had a change in circumstances and may need support. We have put together some information to help you navigate these uncertain times and to answer some frequently asked questions.

Q: I am already a social security recipient already. Will my payment increase?

You may receive additional payments, depending on what benefit or concession you’re entitled to.

This could include:

  • either one or two $750 stimulus payments, or
  • the $550 per fortnight Coronavirus supplement on top of your regular payment.

Stimulus payments of $750

To be eligible for the first payment, you must be residing in Australia and have been eligible for one of the income support payments, or a holder of one of the concession cards listed in the table below on a day between 12 March and 13 April 2020. If you had applied for an eligible payment and are subsequently granted the payment, you will also be eligible for the one-off payment. You’ll also be entitled to a second payment of $750 unless eligible for the Coronavirus supplement (see below) if eligible to receive that payment on 10 July 2020.

If you are eligible the payments will be automatically made on:

  • 31 March 2020 for the first payment, and
  • 13 July 2020 for the second payment.

Coronavirus supplement

The Coronavirus supplement of $550 per fortnight will be paid to new and existing recipients of:

  • JobSeeker Payment
  • Youth Allowance (JobSeeker)
  • Parenting Payment
  • ABSTUDY and Austudy
  • Farm Household Allowance, and
  • Special Benefit.

The supplement will be paid over the next six months and will be paid automatically with your ordinary fortnightly entitlement. It will be paid from 27 April.

Q: I have been temporarily stood down. What are my options?

You may be entitled to a payment from Centrelink. We explain these options in the next question.
However before applying for a social security benefit, you should ask your employer whether they will be applying for the ‘JobKeeper’ payment on your behalf. This payment of $1,500 per fortnight would be paid from your employer to you, and would be assessed under the income test when calculating your entitlement to any social security entitlements. This will mean that you wouldn’t be eligible to an income support payment from Centrelink.

For more information on the JobKeeper payment, please see our KnowHow: JobKeeper Payment.

If you’ve been stood down but you’re receiving payments from your employer, such as annual leave or other paid leave, you’ll need to disclose this to Centrelink. Depending on the amount of the payment, it may reduce your entitlement to a Centrelink benefit.

Low income health card

If you are ineligible for an income support payment, you may still be eligible for the Low Income Health Card from Centrelink. To be eligible, your weekly income needs to be below certain thresholds, depending on your family circumstances. If your income for the last eight weeks has exceeded the allowable threshold, it is worth reconsidering your circumstances and eligibility in future weeks, particularly if your circumstances have changed. Income uses the social security rules which does not always reflect the actual income you receive.

It is important to remember that the below income thresholds will include any income received by you and your partner (if applicable) and includes any amount of JobKeeper received by you or your partner.

Q: I have been made redundant, lost my job, or have been stood down. Can I apply to receive a social security benefit?

You may be entitled to a social security benefit or concession card. The benefit or concession you’re entitled to will depend on your circumstances but could include:

  • JobSeeker payment
  • Youth Allowance (jobSeeker), or
  • Parenting Payment.

If you’ve reached your Age Pension age but have been continuing to work, you should instead apply for the Age Pension.

JobSeeker payment requirements

Age requirements

People aged at least 22 but less than Age Pension age.

Maximum entitlement per fortnight

This varies depending on whether you have children, how many children you have, and whether you have a partner.

Maximum entitlements (current)

If you’re single with no children: $565.70
Single with children: $612.00
Couples (each) $510.80
(current as at 20 March 2020 and may be indexed on 20 September 2020)

How much will I actually get?

The amount that you’re entitled to receive also varies depending on your income. The assets test has been a waived for six months.

Do I need to serve a waiting period?

Normally waiting periods apply before you can receive these payments. However, some waiting periods have been waived for a limited period. However, one waiting period you may need to undertake an income maintenance waiting period (calculated by considering any redundancy or other termination payments received, which may include lump sum payments for unused leave entitlements). Services Australia will be able to provide details of any specific waiting periods that apply to you.

What evidence do I need?

Centrelink has temporarily waived the need to provide Employment Separation Certificates, or letters from employers to confirm a change in hours.

Do I need to demonstrate that I am looking for work?

Ordinarily entitled to the payment requires a mutual obligation agreement. This includes activities such as actively seeking employment. However, the mutual obligation requirements have been suspended until 27th April 2020 (unless extended further). This means you’re exempt activities during that time.
It also means if you’re continuing to earn some employment income, you don’t need to report this each fortnight until this date.

Youth Allowance (jobSeeker)

Age requirements

People aged 16-21 and:

  • Looking for full time work
  • Doing approved activities
  • Studying part time and looking for work
  • Temporarily unable to work

Maximum entitlement

This depends on your circumstances, including:

  • whether you live with your parents or away from home
  • your age
  • whether you have children, and
  • your relationship status.

See servicesaustralia.gov.au for payment rates.

How much will I get?

The amount that you’re entitled to receive also varies depending on your income. The assets test has been a waived for six months.

Do I need to serve a waiting period?

Normally waiting periods apply before you can receive these payments. Some waiting periods have been waived. However, you may also need to satisfy an income maintenance waiting period (calculated by considering any redundancy or other termination payments received, which may include lump sum payments for unused leave entitlements).

What evidence do I need?

Centrelink has temporarily waived the need to provide Employment Separation Certificates, or letters from employers to confirm a change in hours.

Do I need to demonstrate that I am looking for work?

Ordinarily entitled to the payment requires a mutual obligation agreement. This includes activities such as actively seeking employment. However, the mutual obligation requirements have been suspended until 27th April 2020 (unless extended further). This means you’re exempt activities during that time.
It also means if you’re continuing to earn some employment income, you don’t need to report this each fortnight until this date.

My study load has been impacted because of COVID-19. Will this impact my payment?

If you’re self-isolated or your study load changes because your education provider has closed or reduced your study load, you may remain eligible if you stay enrolled and plan on returning to study.

Parenting payment

Who is eligible?

You must be the principal carer of a child who is aged:

  • less than 8 if you’re single, or
  • less than 6 if you have a partner.

You must also be an Australian resident and in Australia at the time you claim.

Maximum entitlement per fortnight

Single: $790.10
Couple: $510.80
Couple (illness separated): $612.00
(current as at 20 March 2020 and may be indexed on 20 September 2020)

How much will I get?

The amount that you’re entitled to receive also varies depending on your income. The assets test has been a waived for 6 months.

Do I need to serve a waiting period?

Normally waiting periods apply before you can receive these payments. However, some waiting periods have been waived for a limited period. However, one waiting period you may need to undertake an income maintenance waiting period (calculated by considering any redundancy or other termination payments received, which may include lump sum payments for unused leave entitlements). Services Australia will be able to provide details of any specific waiting periods that apply to you.

Do I need to demonstrate that I am looking for work, studying and meeting other ordinary participation requirement?

Ordinarily entitled to the payment requires a mutual obligation agreement. This includes activities such as actively seeking employment. However, the mutual obligation requirements have been suspended until 27th April 2020 (unless extended further). This means you’re exempt activities during that time.
It also means if you’re continuing to earn some employment income, you don’t need to report this each fortnight until this date.

Q: Will my partner’s income be assessed when determining my entitlement to JobSeeker?

Yes, a partner income test will still apply, which means your partner’s income may impact your entitlement. This will depend on the income earned by your partner. It is only the assets test that is being waived for 6 months until 24 September 2020.

A temporary change to the partner income test will be made to increase the amount that your partner can earn before the JobSeeker entitement reduces to zero. Currently, a partner can earn approximately $47,900 pa before a part JobSeeker payment would cease (assuming that the applicant has no income of their own from any other sources). This will increase to $79,762pa.

Any ongoing income that you earn yourself (such as any employment income, or income from investments) will also reduce your fortnightly payment as follows:

Q: How do I apply for a benefit?

To determine what benefits or concessions you’re entitled to, you should speak to your financial
adviser, or a Centrelink or DVA representative.

Applications may be able to be made online, through MyGov, or in your nearest Centrelink office.

Q: I’m overseas and can’t return home due to travel restrictions/quarantine/illness. Can my payment be extended?

It may be possible to extend your benefits. You will need to call Centrelink International Services on +613 6222 3455 between 8am-5pm AEST to discuss your circumstances.

Next Steps

To find out more about these are any other issues or concerns you may have, we recommend you contact your financial adviser.

Important information
This document has been prepared by GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (GWMAS), part
of the National Australia Bank group of companies. Any advice provided is of a general nature only. It does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this document is current as at 2 April 2020. While care has been taken in its preparation, no liability is accepted by GWMAS or its related entities, agents or employees for any loss arising from reliance on this document. Any opinions expressed constitute our views as at 2 April 2020. Case studies are for illustration purposes only. Any tax information provided is a guide only. It is not a substitute for specialised tax advice. GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (‘GWMAS’). A member of the National Australia Bank Limited (‘NAB’) group of companies. NAB does not guarantee or otherwise accept any liability in respect of GWMAS or these services.

Coronavirus guidance for SMSF trustees

COVID-19 is affecting many self-managed super fund (SMSF) trustees.
The following information has been collated to help you navigate these uncertain times.

Access to super – compassionate ground – coronavirus

Temporary early release (access) is available to members who are adversely (economically) affected and satisfy the eligibility criteria (refer to ATO website).
The maximum amount a member can access is up to $10,000 in 2019/20 and an additional $10,000 in 2020/21 (applied for no later than 24 September 2020).

Applications are via MyGov and can be made from 20 April 2020. If eligible for early release of super, the ATO will issue a determination to the person
and the trustee of the SMSF including the amount to be paid. Only then is the trustee authorised to make a payment.

Before making the payment, care should be taken to ensure:

  • you are eligible to apply for the payment
  • the trust deed of the SMSF allows for withdrawals (as some trust deeds may prescribe conditions of release and need updating to allow payment under this new provision)
  • the fund has sufficient liquidity to allow for the withdrawal and continued normal operation of the SMSF (as the legislation requires trustees to pay the amount to the member as soon as practicable), and
  • the fund’s investments continue to be consistent with the documented investment strategy which, in some cases, may need updating .

Pension payments

Every year trustees must ensure the minimum pension payment is met. Minimum pension payments for the current (2019/20) and next (2020/21) financial years
have been halved to address concerns with the current market volatility.

As the minimum has been halved for 2019/20, it is possible to reduce pension payments for the remainder of the financial year. If a member has already met the reduced minimum, no further payments are necessary for the remainder of this financial year. However, it is important to follow the rules of the fund to ensure a request is received by the member in the correct format.

The new minimum pension payments for next financial year will be calculated on the member’s 1 July 2020 account balance.

Care should be taken to ensure the:

  • trust deed allows for a reduced minimum pension to be applied (noting that deeds which have prescribed pension minimums will need to be amended to apply this measure)
  • pension commencement documentation allows reduced minimum payments, and
  • reduced minimum payments continue to meet the member’s ongoing
    cashflow requirements.

Investment strategy

The investment strategy of the fund must be reviewed regularly. Where the fund’s investments do not align with the investment strategy (for example, due to market downturn), action should be taken to either rebalance the asset allocation, or to amend the investment strategy where appropriate. Similar action may need to be taken in the event of market recovery. Consideration should be given to any impact
to the investment strategy from withdrawals made by members.

Rental income from SMSF properties

The ATO have confirmed that SMSFs can provide temporary relief to rental arrangements with tenants including those who are:

  • a related party or related trust, or
  • where a member, a relative of a member or related party/trust has an underlying economic interest in the tenant.

This type of arrangement would ordinarily trigger a range of compliance breaches, however, the ATO has indicated it will not take compliance action for the 2019/20
or the 2020/21 financial years.

Care should be taken to ensure:

  • concessions provided are documented along with supporting evidence
  • concessions are conducted on an ‘arms-length’ basis and are in the best interest of the fund and its members, and
  • the fund has the ongoing ability to meet its obligations, including liabilities.

In-house assets

In-house assets cannot exceed 5% of the fund’s total assets. Where in-house assets exceed this threshold at the end of a financial year, the trustees of the fund must write and execute a plan to correct the position by the end of the following financial year.

Where the in-house asset limit is breached on 30 June 2020 and the written plan to correct the position has not been successfully executed by 30 June 2021, the
ATO will not take compliance action if the plan has not been executed because:

  • markets had not recovered, or
  • action was unnecessary due to market recovery rectifying the position.

Estate planning / succession planning

In times of uncertainty and heightened risk of illness, it is more important than ever to develop or review the fund’s succession plan and the members’ estate planning wishes. This includes making sure enduring Powers of Attorney are in place and understanding the rules of the fund in the event of a trustee’s death.

Broadly speaking, succession planning aims to ensure the right people:

  • gain control of the SMSF so that superannuation benefits are paid as intended, and
  • receive those benefits.

Due to the complexity of these matters, trustees/members should seek legal advice to ensure their wishes can be accomplished via succession planning and supporting documentation. This includes superannuation death benefit nominations (if appropriate) as well as a Will.

Regulatory reporting & SMSF annual returns

The ATO has allowed accountants and auditors some leniency on lodgements of the SMSF annual return should COVID-19 affect their ability to lodge before the due date.
An extension (for up to six weeks) should be requested prior to the due date. Where an extension is granted, this will also extend to Transfer Balance Account Reporting obligations where the fund reports transfer balance account events annually. Further information regarding this extension can be found on the ATO website.

Residency Requirements

If the individual trustees or its directors of a corporate trustee are stranded overseas due to COVID-19, the ATO will not apply compliance resources to determine whether the SMSF meets the relevant residency conditions that would ordinarily apply. Further information regarding this issue can be found on the ATO website.

Additional information

The ATO has provided a series of questions and answers for SMSF trustees.

Next Steps

To find out more about these are any other issues or concerns you may have, we recommend you contact your financial adviser.

Important Information:
This document has been prepared by GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (GWMAS), part
of the National Australia Bank group of companies. Any advice provided is of a general nature only. It does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this document is current as at 8 April 2020. While care has been taken in its preparation, no liability is accepted by GWMAS or its related entities, agents or employees for any loss arising from reliance on this document. Any opinions expressed constitute our views as at 8 April 2020. Case studies are for illustration purposes only. Any tax information provided is a guide only. It is not a substitute for specialised tax advice. GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (‘GWMAS’). A member of the National Australia Bank Limited (‘NAB’) group of companies. NAB does not guarantee or otherwise accept any liability in respect of GWMAS or these services.

The Coronavirus and the Oil dispute that occurred over the weekend – the effect on our markets and global markets

Two articles worth reading;

Of late we have been saturated with negative fear and end of the world type information through the media and to a lesser extent, politicians who are trying to demonstrate caution and control but not much, or enough, action. However, the catalyst that tipped the markets over was the Oil Meeting over the weekend, which created the Perfect Storm Scenario for greater panic and fear.

As a result of this, I have attached a newsletter that Peter Switzer produced over the weekend, which is also available through the NAB banking website, which I found to be a very good article which puts everything into perspective as the article provides a well-balanced view of the effects of the Coronavirus, and comparing it with another virus’. The Vanguard historical performance chart shows you all the different incidences that have occurred since 1980 and how quickly markets have recovered.

It’s important to note that history is not necessarily a true indication of what will happen tomorrow, although, I am a firm believer that human nature does not really change that much, therefore, there is a reasonably good chance that history does repeat itself because it’s driven a lot by human nature of fear & greed and self-survival in the world.

This in itself can be either an opportunity or a concern for individuals. In a lot of ways, if we are to believe history and the ability to recover, it is an opportunity that comes every now and then and it should be then taken advantage of.

However, the unknown is the timing. It is always very difficult to pick the bottom of a fear cycle in a market and also the top of the cycle. We have been constantly advised by analysts that have come out and said, “I told you so”, we were at the top of the market, and in one sense that is correct.

However, in another sense that’s not quite correct, because if the market continues, this top today or a month ago will be tomorrow’s, whether it’s a month or 5 years away, bottom potentially if history is to repeat itself. If you look at these charts, you will find that this is the case. Therefore, my message to you, whilst I do not profess to have a crystal ball, is to say don’t panic, look at the potential positive of this market as you are investing in the long term.

If you wish to discuss or have any concerns, please do not hesitate to call or email me to arrange an appointment to see me.

Changes to Income Protection (IP) cover through the life insurance industry initiated by APRA

Last year APRA announced that it would be reviewing the nature of income protection policies available in Australia.

The concern was that Australian insurers are finding it increasingly difficult to profit from these policies as the levels of claims are increasing and they are not making a profit or breaking even. If anything, IP policies have the larger share of claims compared to other insurances such as Life, total disability and/or Critical Illness which have a lesser claim range.

As a result of this one of the things APRA announced, in the second half of 2019, that they would look at changing the current contracts that are available, including possibly the benefit periods. The change that has been thrust upon us now and seems to be a definite change which has two timelines are mentioned below. Please note: these changes are only applicable to new policies that come into play effectively from the dates below.

The first change will be effective from 1 April

Agreed Value contracts will no longer be offered to new applications.

Currently, an Agreed Value contract for income protection i.e. a cover where an agreed value means that the insurers have agreed on a cover amount at the time of application based on the income details, provided at the time of application, which the insurer must honour. This is an agreed value payment at the time of claim irrespective of whether the life insured earns less income at the time of claim.

Moving forward, the only type of income protection cover that will be available will be an indemnity contract which is cheaper and has always been available.

The primary difference is that while someone ensures themselves today for example for $10,000 a month gross income, at the time of claim if that occurred say 3 years later and that life insured’s income for that financial year reflected only $8,000 gross per month, the insurer would only pay a benefit of $8,000 per month even though the life insurance been paying for a premium of $10,000 month.

This issue will have a greater effect on people who are self-employed and who may have a volatile income history or individuals who change jobs and move from a high-paid income to a low-paid income. It would mean that the life insured would have to adjust their benefit cover amount.

Second change 1 July 2021

This change could mean that the current IP benefit period, offered at the moment, which is available to age 65, may be changed. We are still waiting for further clarity from APRA.

At the moment, we understand the proposals by APRA, is to mean, for new policies from 01 July 2021, that whilst you may still have a benefit period to age 65, the insurer will reserve the right to review this every five years and may have the ability to decline your insurance cover if there’s been a change in occupation but not for any medical issues.

At the same time, the insurer will have the right to change the policy definitions i.e. remove certain benefits that were available in the previous five years, such as an allowance to be paid to family members if the life insured has had an injury or accident and is stuck interstate and needs assistance, as the extreme example.

We don’t know what the ultimate outcome will be. The devil will be in the detail. However, at this stage that is a reasonable timeline of 15/16 months’ time.

It does mean that anyone with existing income protection policies with an agreed value that has been put in place or applied for up before 1st April will remain as an Agreed Value contract. The changes are only applicable for any new policies or applications that are applied for on or after 1 April i.e. electronically and paper-based will have until the end of April with some insurers.

This also means that these policies will not be affected by any of the changes that will be potentially put in place on the benefit periods and contract renewal periods that will come into effect from 1 July 2021.

An alternative to consider is that whilst a new policy may not be able to be an agreed value contract, up until 1 July 2021 they can still have a guaranteed benefit period of up to age 65 without this proposed five-year renewal option that the insurer has.

Note: If you believe that your income has increased and you currently have an Agreed Value contract or you have an Indemnity Contract and you would like to have an Agreed Value contract, I encourage you to contact us immediately so that we can discuss your options and, if you want to proceed with a new contract, we can initiate an application ASAP.

If you have any queries or concerns about this, please do not hesitate to call or email.

Legislative changes to life insurance funded through super which will come into effect on 1 July 2019.

If the above change to legislation affects you, you may have received a letter, in the mail or by email, from your current insurance provider, or you may receive a letter from an inactive super fund provider. ( i.e. an older super account that was initially kept open because you wanted to keep the life insurance that was linked to it, or, it could be a super account that you have forgotten about and it has life insurance cover linked to it)

This letter will inform you that if your super fund is inactive i.e. it has not received any form of a contribution to the account in the last16 months, that any life insurances that are attached may be canceled.

This applies to insurances that are directly funded through your super, either as part of a Group Life insurance cover (i.e. Industry fund or large employer super fund that has direct life insurance) or, if the super fund is funding an external insurance provider i.e. your super fund may be MLC Wrap or Fundamentals, but your insurance is with AIA.

This change will mean that your super fund will not be able to pay future life insurance premiums when they are due whether it’s an internal debt request or a direct debit (via a super rollover) request occurs.

If you wish to retain your current life insurance, the simplest way to avert any issues is as soon as you receive such a letter an “opt-in” form will be included, please act on this immediately.

I strongly recommend that you complete this form, sign and submit back (note there may not be any information to complete as the information may have been pre-populated on your behalf.

Therefore, all you will need to do is sign and email back to the sender before the 1/7/2019. Otherwise, your life insurance covers will be canceled from the 1/7/2019 and you will be out of cover.

If you are uncertain about this, please do not hesitate to call or email me.

 

Kind regards,
John Blangiardo CFP Dip FP
Authorised Representative Apogee Financial Planning

2019, Election Result

Now that the election is over, we don’t have to concern ourselves with the proposed changes of an incoming Labor government i.e. franking credits, negative gearing, reduction in the tax-free component of Capital Gains Tax (CGT) and Family Trust tax.

Therefore, it’s business as usual!

As a result of the election result, and subject to what transpires over the next 2 to 4 weeks, I believe that Equity Markets continue the buoyancy of today’s market opening. This, of course, is subject to anything happening outside of Australia.

Similarly, the property market will most likely have a renewed confidence in future demand, simply because negative gearing will still be available and the current CGT concession of 50%, if the asset is held for 12 months or longer. Therefore, we may see a slight movement upwards in property values.

The pull backs that will affect this potential upward movement in property values, will be, any relaxation in lending, how well the economy is growing and, with that, the jobs market, which reflects public confidence in spending.

I believe that we are going to have a positive period for some time, unless something unexpected happens outside of Australia.

If you have any queries or wish to reassess your situation, please do not hesitate to call.

Current confusion surrounding proposed changes to Franking Credits if Labor wins Government

When you listen to both sides of politics, there seems to be a lot of confusion surrounding the franking credits issue.

The bottom line is this; self-funded retirees will be directly affected, especially those who have Self-Managed Super Funds (SMSF).

The reason for this is that they are predominantly investing in Direct Equities (I include ETFs in this) where pre-tax dividends are paid. These funds (and low income in general, inside and outside of super) have the ability to claim back the tax already paid on their behalf by the Company they have invested in as a refund as they are on the top marginal rate of zero, 15% Super accumulation funds and 19% for every dollar earned above the $18,200 tax free threshold and up to $37,000pa and then the tax rate increases. This type of tax refund is called a franking credit as the investor has received a credit for the tax already paid.

They are not a gift that the government has been giving to retirees and low income earners in the past, they are legitimate taxes paid, and anyone who is on a zero tax rate, and has paid tax at 30% via the dividend distributing investment company, is entitled to claim a refund for the difference between their marginal tax rate and the tax rate that has already been paid,  i.e. a company rate of $0.30 in the dollar.

Therefore, this is not a gift, it is a genuine tax that has been paid by individual investors, whether in super or outside of super, it is still a tax. An example of this is that, when an individual goes to their tax agent or accountant to complete their tax return, when the Accountant asks “what dividends have you received, and are they fully franked? For example, where you receive a dividend of $2 fully franked, it means that you have already paid tax at $0.30 in the dollar. In this simple example, you would have paid another 60c tax.

The accountant would state on the tax return that your assessable income is $2.60 then when he/she calculates the tax, they calculate the taxes that has to be paid, based on the marginal rate of tax of the individual or entity i.e. SMSF.

Therefore, or 0c in a pension account, they calculate that, less the tax that has already been paid i.e. 30% tax paid.

If the tax paid, is greater than the tax that should have paid, the refund is paid, by the ATO, to the individual, or the SMSF, who has received these dividends, simply because they have paid more tax than they should have.

Hence, the misunderstanding that retirees don’t pay tax is incorrect, as, indirectly, they have.

What we don’t know is the following:

  1. If Labor does get in, (subject to the number of seats they win in both Houses, especially the Senate), the cross benches in the Senate may block this particular legislative change or there may be some form of “horse-trading” and therefore, we don’t know what could happen.

 

  1. The companies listed on the ASX that do pay fully franked dividends may change their policy on dividend payments, (if they can legally), or, perhaps restructure themselves, if they feel this is not to their, or the shareholders, detriment (share price may drop). If possible, they may change their dividend policy to either a combination, or, one of the following;

 

  1. Pay unfranked dividends which would mean that the tax must be paid at the recipient’s level i.e. a retiree, a SMSF or, someone on a low income when submitting their tax return, if they are on a zero-tax rate it would be a nil   Note: a SMSF would still need to submit a tax return. If this policy changed by companies distributing dividends was to occur.

 

Companies may reduce the level of dividends that are paid as fully franked and reinvest the difference back into the company. This, over time, could, and would create a potential increase in the gross value of the stocks. Therefore, the individual investor would receive that benefit, indirectly, in the form of a capital growth value of that individual stock.

Obviously, this would mean that if a retiree needs to fund their retirement there may be a need to sell down portions of these shares (subject to how this is managed) to provide their lifestyle income.

This is something that happened in the US when this type of change was introduced, more than 20 to 30 years ago. When this type of change occurred, in the USA, the dividends for a good number of companies were reduced by the companies, and the difference was reinvested back into the companies.

This created capital growth in the value of the shares and capital growth was more the norm from then on.  Note: this is not to say that all US companies reduced their dividends completely, as some didn’t.

 

  1. There are a reasonable number of companies already listed on the ASX that do not pay fully franked dividends i.e. they pay unfranked dividends; however, the rate may not be as high, but they will be there, and I dare say there a lot more that may possibly move into this sphere.

 

In conclusion, initially there may certainly be some concern and fear and there may be some sell down of major stocks that pay high fully franked dividends i.e. the major banks. Ultimately, I believe that one way or another, these things rebalance themselves, and if Labor is successful in changing the rules. There may also be changes that could counter such a change.

A further misunderstanding is the promotion that if self-funded retirees who have SMSF’s move their money to an Industry Fund or Retail Group fund (which operates the same way as industry fund) that they would benefit from the franking credits. The reality is that the “jury is still out” on this because we don’t know the nitty-gritty of how this change will be taxed. However, this assumption is based on the fact that, at the moment, with such group super schemes, that pay group tax on the earnings of the fund, less the franking credits.

Statistically, a lot of group funded schemes are still wealth accumulators and not retirees. At present, the individual accounts are not completely identified separately for tax purposes. This allows the group pool fund, the ability to reduce the tax liability of earnings from contributions, by offsetting the tax cost against the franking credits.

This means that potentially, with those particular funds (and this occurs now) is that the tax liability that the super fund pays is, and continues to be, less. The argument is that the tax saving is also reflected in the unit price and therefore, a retiree may benefit, at the detriment of the accumulation accounts, with regards to the unit price of their particular Managed Fund investments.

There is talk from technical research people, that retirees franking credits may be able to be sold to wealth accumulation accounts and in exchange, the unit price of the Managed Fund (belong to the retiree) may be increased by the value of the franking credit sold that is paid for by the accumulator’s accounts.

If this were to occur, could it mean that accumulation account holders are being disadvantaged? We really don’t know! As they say, “the devil is on the detail” and the above could all be speculation.

The ultimate outcome, I believe, may be that there will still be a greyness as group super fund account holders, especially retirees, may not know exactly what they will receive in any form of franking credit benefit (if any), it will all be lumped into one overall value and they may never really see the actual identified tax refund benefit at all in these group schemes, it may be just too difficult to process.

However, I believe the technology is probably available now, but it may be too cumbersome and not advantageous. Hence, there is no transparency and no one really knows whether they would be countering the loss of the franking credits by having a SMSF compared to moving their funds to a group super fund, such as an Industry fund, which is union based, or, a Retail group scheme fund which is non-union based fund that operates exactly the same way.

If you have any queries or concerns regarding this issue, please do not hesitate to call.

Will the Federal election results in May, have an effect on the stock market, property values and the economy in general?

The short answer to this is, yes, there will be an effect, either way. However, the extent will depend on how many seats Labor wins and whether they will have control of both Houses of Parliament.

At the moment, the polls indicate a big Labor win with a substantial majority.

Therefore, if we do end up with a Labor government, based on what we know about their tax policies at the moment, there are potentially 4 major changes that they intend to implement, which I believe, will certainly have an immediate short-term effect on our economy in general.

Labor has stated that they will change the following, and to date, have not backed down from these proposed changes. (this has been very well publicised in the media). The flow-on effects could be:

  1. Property values may drop a little more, as there could be more properties on the market from existing investors, plus, there may generally be less demand due to the uncertainty created.
  2. The number of property developments could reduce, this could then have an effect on jobs. (not necessarily immediately, but you may see the effects in 12 months’ time)
  3. If equity markets drop, it could result in less confidence in the broader economy by investors. This then could create less expenditure in the economy.

Franking Credits

Labor aims to change the current franking credit benefits received by all Australians directly, or indirectly, through their respective supers and/or outside of super. This change means that, in future, when an investor, or super fund invests in a dividend-paying stock listed on the ASX, and the investment company pays a fully, or partially franked dividend, to the investor or super fund, it means that the company has already paid tax to the ATO, at the company rate $0.30 in the dollar. What normally happens is that when the individual, or the Entity (where the investments are held), submits their tax return, there may be a tax refund payable to the owner of the investment if their top marginal tax rate is lower than the company tax rate.

The biggest potential effect will be for super accounts where someone is in retirement/pension mode, or has retired, and they are on a zero-tax rate. It seems that it will definitely affect those with SMSF’s. I am not sure if it will affect traditional super funds?

Therefore, under this situation, it would mean that a full tax refund should be paid by the ATO for these dividends to their super funds.

Please Note: The franking credit refunds are more transparent within SMSF’s. If it’s an accumulation account, in other words, a pre-retirement super fund account, the maximum tax rate is 15%. Therefore, if the company rate is 30% there would be a refund, or alternatively, it would help reduce the total tax liability of the super fund. This means that either the individual super fund will receive a tax refund, or, it will reduce their overall super tax liability to a lesser figure, or even to zero.

What Labor proposes is that, yes, you can still off-set the tax that has been paid, however, the off-set stops when the super fund, or the individual, reaches a stage where they no longer need to pay any tax. Consequently, any excess tax paid from a fully franked dividend paid to super/pension accounts on a zero-tax rate, or very low tax rate, would mean that they would not receive the excess as a refund.

Recently the Opposition Treasurer advised that there will be some sort of Means Test, with one example being if they qualify for the Centrelink Age Pension, they will get the full franking credit refund.

What effect does this have and who does it affect the most?

The greatest effect will be on self-funded retirees who rely on such a tax refund every year to help fund their lifestyle needs. As a result of such a potential change, I believe initially that there may be some concern and panic selling by retirees, of stocks that pay fully franked dividends.  A classic example of this could be bank stocks that pay very attractive fully franked dividends.

Others might reduce their Super/Pension balance, by putting money into their residential home to try to qualify for the Centrelink Age Pension, if it allows them to receive the full refund of the franking. This action would mean that you are still receiving less income.

Personally, my view is that, yes, there would be an effect, however, once everyone realises that these new rules are here to stay, they will still need to earn an income, higher than a Term Deposit rate, and they will eventually go back to the stock market! How long it will take to come back, no one really knows, or, whether a better alternative product or strategy can be put in place that will allow super funds to redeem some of the lost income.

Negative Gearing

Based on the proposed changes, and this is not yet 100% clear, it could mean that a Labor government  will either abolish the ability to claim a tax deduction on borrowed monies for investment properties completely, or provide an incentive for specific types of investment properties being bought in areas where the objective would be to provide  housing for lower income families, or individuals, which they hope will create a greater housing affordability environment.

However, as the Labor government has tried to do this in the past, the opposite has occurred, as less people bought investment properties and the number of property developments dropped considerably. If the public reaction to this proposed change is the same, it will have a domino effect as it could create a smaller rental market, therefore, rents may go up, and secondly it could create less work activity as less homes would be built and then this will affect jobs and the domino effect then expands to the broader economy.

Until we know the exact nitty-gritties of this rule change, we really cannot tell the full effects. A positive for long term investors is that they could, in a small window of time, buy an investment property at a lower price (or shares for that matter) and benefit from the increased rental return with a view that they will see asset growth over the long term, be it more slowly.

Potential reduction of capital gains free component

When an investor with either direct equities, investment properties or any sort of investment asset is sold for a profit, and the asset has been held for 12 months or longer, currently, you only pay tax on half of the profit and that tax would be added to the individual’s assessable income of who had made the profit.  The other 50% is not taxed but only on the basis that such an asset is owned, either by an individual, or through a Family or Unit Trust where the distribution, is made to an individual, and not a company or a super fund.

What the proposed change will be, is that, instead of the tax-free component being half, it will be halved again, in other words 25% of the profit will be tax-free and the rest would be added to the individual’s assessable income.

Please note: if it’s an entity, such as an investment company, this tax-free benefit does not apply, as tax is paid at the company rate and in a super accumulation account, it is only a reduction from 15% to 10% tax.

30% tax on Trust Distribution Income

Currently, if you have a Family Trust, any distribution is taxed at the individual beneficiaries’ marginal tax rate. This change would mean that, no matter what the beneficiaries tax rate is, it would be taxed at 30%.

In conclusion, this newsletter is to be treated as “food for thought” with the potential changing environment and whether there is any need to act now or not.
I suggest that if you like to discuss in greater detail, please not hesitate to call or to make an appointment to see me to assess how it will affect your portfolio.
I also strongly recommend that you consult your Tax Accountant to assess the tax effects of any potential changes.