What are the underlying risks of bank hybrids and what are the alternatives
Guest Post : by Elizabeth Moran
Director of Education and Fixed Income Research, FIIG Securities.
ASX listed bank hybrids often look attractive, and some investment groups have “buy” recommendations on all of them but, if you look beneath the surface of a major bank paying an attractive return, you’ll find some big differences in the level of risk you’re being asked to assume. In many cases, you can beat the bank hybrids in terms of risk or return if you consider investing in over-the-counter (OTC) markets.
Low risk bond portfolio for starters
Guest Post : by Elizabeth Moran
Director – Education and Research, FIIG Securities.
Interest in fixed income is gaining momentum as more and more investors are seeking to define their returns and protect their capital. Those of you at or near retirement need the certainty of knowing that your capital base won’t be eroded by volatile share markets or a downturn in property.
For sure, risk a little to improve overall returns but seek to protect what you’ve already worked hard to build. Fixed income offers investors certainty through:
- Capital repayment at maturity (in most cases)
- A defined income stream
- Diversification
The following portfolio is considered conservative and is suitable for investors willing to move slightly down the capital structure to receive returns higher than offered by term deposits.
ATO ID – Concessional contributions – deductions and timing of allocations
The ATO have recently released a new ATO ID (2012/16) which deals with the timing of concessional contributions.
Specifically, it deals with the situation where a concessional contribution is made to a super fund in one year, but is actually allocated to a member’s account in the next financial year, and what this means for the timing of deductions and when is it counted as a contribution for the contribution caps?
Complying Lifetime Pensions – are you struggling to meet the probability test?
I recently came across a situation where a SMSF trustee was having a pretty horrible time with their SMSF pension. In fact, they were downright miserable and I started to wonder how many other people out there are in this position. You see, they had been advised to establish a complying Lifetime income stream with their SMSF assets a number of years ago to have 100% of the assets funding their income stream exempt from the Centrelink assets test so as to access the maximum age pension from Centrelink. *Note this was under previous rules.
Now, the thing about Lifetime pensions is that they need to pay a regular, defined income stream for the rest of the life of the member and this amount is set at the start (with some indexation). The assets of the fund therefore, need to be invested in such a way as to support this outcome. Part of the deal is that these SMSFs need to obtain an actuarial certificate each year, such that the actuary is satisfied that the fund can continue to pay its ‘lifetime’ obligations (called the high probability test). If it fails this test, you’ve got a problem (more on this later).
ATO ID – anti-detriment payments to dependants by estate
The ATO have recently released a new interpretative decision (ATO ID 2012/10) around the issue of anti detriment payments to dependants of a super fund by the estate. (Click Here for a refresher on the anti-detriment strategy)
In particular, it is addressing the situation where a death benefit is paid to the estate to be distributed by the deceased’s Will, however only 50% of the death benefits will go to dependants of the deceased member. The question is, can the trustee of the super fund increase the death benefit paid to the estate by only 50% of the “tax saving amount” and claim a tax deduction on just that amount ?
How to gain exposure to physical gold through your SMSF
Guest Post
By Adam Offermann
ABX
Have you ever been asked “How do I gain exposure to physical gold through my SMSF?”
Even if you knew the answer, you would probably want to save your breath with the long winded explanation and simply say… no! The processes and costs involved have been daunting and for many are more trouble than it’s worth. Recently however, the Australian Bullion Exchange Limited (ABX) launched, providing Australian investors access to a simple, secure and highly accessible marketplace for physical investment grade bullion.
Extension of draw down relief for account based pensions
With the continued volatility and depressed price levels in equities markets, the Government have announced yesterday that the 25% reduction in the minimum payments for account based pensions will be extended to the 2012-13 year.
They believe that around 125,000 self-funded retirees will benefit from this extension, and reduce the need for them to sell assets at a loss in order to meet the minimum payment requirement.
Government announce more super change intentions
The Government announced yesterday some updates to their intentions around changes to super for next year, as part of their mid year economic and fiscal outlook.
1. Low Income Superannuation Contribution
The Government’s low income superannuation contribution (LISC) is aimed at reducing the tax paid on super guarantee contributions (SGC) for low income workers.
Basically, individuals earning up to $37,000 will effectively pay no tax on their SGC from 1 July 2012, as the 15 per cent contributions tax will effectively be refunded into their super fund accounts.
Yesterday the Government announced a few updates:
Click Here To Read More
Super Guarantee Age Limit Abolished
The Government announced yesterday the abolition of the age limit on Super Guarantee contributions, with the passage of legislation through the parliament.
Basically, eligible employees aged 70 and over will for the first time be able to receive the superannuation guarantee from 1st July 2013. The Government state that this will increase the coverage of the superannuation guarantee scheme to an additional 51,000 Australians aged 70 and over who continue working. These changes also mean that employers will be able to claim income tax deductions for superannuation guarantee contributions made these employees, and hence ensures employers will not bear a higher cost in employing workers 70 and over compared with other workers.
The commencement date of 1st july 2013 was chosen to allow time for employers and older Australians to adjust to these new arrangements.
Amendments to the Superannuation Guarantee (Administration) Amendment Bill 2011 and the Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011 were made to give effect to these reforms and these passed the House of Representatives last week.
ATO ID – SMSFs acquiring an asset with a charge over the asset
The ATO have recently released an interpretative decision (ATO ID 2011/81) around the issue of a SMSF trustee giving a “charge over assets” of the fund and specifically the meaning of “give a charge”.
And we have to say, this is a very interesting one.
Why is it important?
There has generally been a view in the past that a SMSF cannot have an asset in the fund that has a “charge over it”. A “charge” is basically like a mortgage or lien over an asset. Specifically, Reg 13.14 of the SISR states that “the trustee of a fund must not give a charge over, or in relation to, an asset of the fund.”
However, the question has been raised – Does the trustee of a SMSF ‘give a charge’ for the purposes of regulation 13.14 if the trustee purchases an asset subject to a charge that was established before the trustee purchased the asset?
