Like many I have been saddened to hear the Royal Commission have, again, uncovered a number of systemic "cloudy" advice practices where an advisers "best interests duty" requires something a little purer.
This simple truth reminds me of why we chose to engage with clients the way we do 10 years ago, with annual opt in and flat dollar fees invoiced directly to clients.
As I set about writing a blog on a subject that many advisers find difficult, a valued client reminded me of why we do what we do. I think these words are more insightful than anything I can write and, I hope, demonstrates what a pure advice relationship should look like.
"I'm confirming I'd like to continue with your ongoing services. In the current context of the Royal Commission into banking highlighting the dangers of hidden percentage based fees for investments and self-managed super, your open, fixed fee service shines as an example of how it should be done!" Ben - Cardiologist
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And just like taxes, deep down we know that administration is essential for keeping things running properly. Having said that, there are lots of good reasons for driving down admin costs as much as possible. And with the modern boom in apps and add-ons, there are plenty of tools to help you achieve that.
Many accounting software companies are having their annual roadshows at the moment, showing off the features of the new versions of their software, and add-ons that connect to existing programs.These events can be a bit like religious gatherings, and the mantra is that using their product will increase productivity and efficiency, and therefore make everyone's life better.
But despite all the new functionality this software offers, one thing has remained the same: if you input junk information, you'll get back junk insights.One way to improve the accuracy of the information going into your accounting software is to automate as many of the inputs as possible.
Often what we would find is people would only enter the most basic data into the system the date and amount of each transaction for example. This meant when you tried to analyse the data for tax reporting and business decision making, you had no idea who was paid or whether GST was processed correctly or a host of other important facts. Junk in junk out.This all changed with the introduction of bank data feeds into accounting software. Not only would all your bank data magically appear in your accounting ledger, you could program the software to automatically categorise recurring transactions. This new technology was as ground-breaking as the mobile phone (for accountants at least)
In our next blog we'll dive into the detail of just how powerful automating your financial records can be.
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Once upon a time, the rules governing superannuation didn't change all that often. Year after year they would stay more or less the same, with maybe a little tinkering at the edges. It made sense. After all, superannuation is the longest held investment most of us will ever have. It's hard to plan for forty years down the track when you're not sure what the rules will be forty weeks from now.
Sadly successive governments have become addicted to pulling and prodding at the superannuation rules and the 2017/18 financial year is no different.
A flat and lower concessional cap
Under the previous structure people over the age of 50 had a concessional contributions cap of $35,000 and those under 50 had a cap of $30,000. Now the cap for everyone is $25,000 regardless of age.
That doesn't mean that it might not still be a smart financial strategy to put more than $25,000 extra into super, but you need to be aware of the extra tax you'll be exposed to.
Div 293 is a tax applied to the concessional contributions of people on high incomes. In simple terms, it levies an additional 15% on concessional contributions up to the cap (which is now $25,000 for everyone).
This threshold used to be triggered once an individual earned $300,000 in any financial year, but now kicks in at $250,000. Again, this isn't to say that making those extra contributions isn't worthwhile, but the additional tax liability needs to be factored in.
The other thing to consider is that it's not just income that contributes to the threshold - investment losses like a negatively geared rental, and salary packaged fringe benefits and super are also included.
The reason it's so important to know how these changes will affect you, is that any contributions in excess of the cap will attract 46.5% tax - the highest marginal rate.
Of course, if you're earning over $250,000 that's already the tax rate for a fair percentage of your income, but if you've been planning with the expectation of a different tax environment, it could significantly impact on the end result.
The other thing to watch out for is salary packaging. Many Queensland Health employees can salary package up to 2% additional super, with the government matching that contribution. If you're already close to your cap that might push you over the edge.
As with any change in financial circumstances whether they're personal or regulatory it's important to sit down with your advisor and find out how they will specifically affect you.
The good news is that these changes will affect the returns that will be lodged next year, so it's the perfect time to seek advice.
And if you happen to find yourself sitting next to the Federal Treasurer at dinner, you might want to politely ask if he can please leave super alone in next year's budget.
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I had a friend at university who always left assignments to the night before they were due. He would literally never start anything until the very last minute. Somehow he would always pass, but I never understood why he would put himself through such a ridiculous amount of stress.
These days I see the same approach from a lot of people to their tax planning. They spend 11 and a half months ignoring their taxes and then two weeks with their hair on fire trying to pull it all together. Like my old uni mate, they usually make it, but it's far from a pleasant experience.
Look, I get it. Tax Accounts are a weird bunch. We actually enjoy poring over people's books and get excited when we zero in on a clever deduction.
Most people (that is, "normal" people) don't get quite as much joy from the process. The thing is, whether we like it or not there's no getting away from our taxes. But there are ways to make the experience a little less painful.
When you're tackling a big assignment it always pays to map out a good structure before you start writing. Same goes for your taxes.
If you set up a good structure for keep track of transactions and reporting you're already halfway there. Organised filing, clear processes and accurate records will save you a heap of angst come tax time.
As my uni mate proved over and over, it is possible to write a whole assignment in one night - it just takes a lot of Red Bull and sleep deprivation, and what you produce at the end is generally rubbish (even if it ends up being passable rubbish).
A better way to go is create a plan to keep on top of things throughout the process. For your taxes, that might mean setting aside a couple of hours each month to accurately reconcile expenses and make notes about questions you need to ask your accountant.
If you're organised and disciplined, by the time June rolls around you'll already be mostly done.
Okay, I know that's not really a thing - but it should be. In a few days it will be 30 June, so if you're not already organised it's far too late to avoid the big tax cram this financial year.
But the day after that is 1 July. Just like on New Year's Day, the new financial year brings new possibilities. And the best time to make a resolution about the year ahead is when you're still suffering from a hangover from the year before!
So if you've spent the last couple of weeks frantically going through faded receipts and wracking your brain to interpret strange scribbles on scraps of paper, make yourself a promise: next financial year I'll get organised. Then make sure you don't break it!
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Far from the bitter pill of previous years, the 2017 budget has more in common with children's cough syrup - pleasant enough (if a little sickly sweet), but with an unmistakeable strangeness that's hard to identify.
So what does it all mean for medical professionals? It's a mixed bag, but on balance the news is mostly good. In fact, Chartered Accountants have even described it as a budget that positions the government for a possible early election.
So let's start with the bad news.
Funding certainty for the NDIS is certainly admirable, but using a 0.5 percent increase to the Medicare Levy is fairly blunt way to do it. For higher incomes earners the removal of the Temporary Budget Repair Levy from 1 July will offer some tax relief.
Groundhog Day is over! After a four year freeze the government is finally increasing Medicare rebates. That means more money back to patients and more money flowing through to doctors. Win win.
In an unexpected bonus the government has extended the $20,000 capital assets write off for small businesses for another year. That means if you didn't get around to upgrading your computer system or replacing surgery equipment, there's still time. There's no guarantee Mr Morrison will be quite so generous next year so it's a good time to assess your practice's needs.
The ability to salary sacrifice to save for a first home deposit is a real boon for many early career medical professionals. The housing market might still be hotter than a Colourbond roof in January, but this measure at least makes scraping together a down payment a little easier.
Under pressure from many to reform negative gearing, the government has chosen to the give the system a slight trim, rather than a haircut. The deductions that will no longer be available to property investors aren't anything to get too worried about (as far as expenses go, nothing comes close to rivalling bank interest) however, it is still prudent to make sure you're not counting on a now-banned deduction.
If you're looking for more detail on the winners and losers from this year's budget the ABC have produced an outstanding infographic you can view online here.But of course, if you're looking for specific advice about your personal circumstances, please don't hesitate to get in touch with us.
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