short break

If you have been a regular reader/follower of my blog you would have noticed that I haven’t written one for a while now.

The reason for it is that I have decided to take a short break – writing new blogs each week is hard work, especially when my topics on “finances” are not that exciting and I found myself repeating the same message in number of them. I mean, in how many different ways can I explain that overspending is bad for you?!??

So, as Christmas is now fast approaching and most people usually stop thinking about finances but more about their holiday season, which will inflict more pain on their finances I have decided to also take a short break.

Merry Christmas to all and a Happy New Year..I can’s wait for the new year to come because our little angel Alfie will turn 1 in January and hopefully he wills start walking and running – I need to get as much exercise as I can by chasing him. 

Keep an eye on my blog in the new year……..

end of my general insurance

This week I made an important change to my business. As most of you would know my business has been providing accounting, financial planning and general insurance services.

Unfortunately, over the years my workload has dramatically increased due to many changes brought about by the Government in the area of “compliance and training”. This has made it harder for me to try and keep up with the extra training required for each of the three (3) separate licenses.

As a consequence of this I have decided to let go of the “general insurnace business”.

From 1^st October 2012 this business will be transferred to the insurance agency Victorian Insurance Solutions, which is run by couple of experienced insurance agents Carmine Miranda and Nick O’Regan, whom I have known for over 20 years. I am confident they will continue to deliver your general insurance needs in a timely and professional manner.

I take this opportunity to thank all of you that have purchased your general insurance policies form my agency.

IMPORTANT! Please note that this does NOT mean I am retiring – it simply means that in a way I was forced to come to this decision so I can have more time to focus on my accounting and financial planning. I do plan to hang around for many years to come.

Feel free to contact me if you have any questions.

positive life

Last night I was watching the news regarding the funeral of the young Port Adelaide footballer that died in Las Vegas. What a tragic loss of a young person’s life and the sadness it has left behind for his family. And to see his mother’s courage to stand up and talk about her son in such a positive light.

It got me thinking how at funerals we always hear of the positive things that people done, their sense of humour and the many good things they have done.

Have you ever thought about what will be said at your own funeral? Have you done enough good things? have you been funny enough and brave enough during your life?

May be its time we all start doing only positive things in life because after all this is what we all want to be remembered for……….

FixMyBudget

In the line of work that I do, everyday I meet people, be it new clients or existing ones, that for some reason just don’t get it……..they don’t seem to understand that:

YOU CAN NOT LIVE ON CREDIT CARDS!

Just for the record: Credit cards were designed to buy things without using cash. That’s all!  There are no other reasons. I will repeat this: Credit cards were designed to buy things without using cash. There are no other reasons. And yet for some “unexplainable” reason it has become a “financial tool” where people use it to:

• purchase more than they can afford
• delay debts
• (think they can) manipulate the system

Wrong! If you are not managing your credit cards properly then all it will do is help you accumulate debts that over time will bring you down. Make no mistake about this - debts do catch up with people. Just look at how many people are declared bankrupt or lose it all – and most of them start with a small credit card debt.

 IF ARE NOT PAYING OFF THE FULL BALANCE OF YOUR CREDIT CARD BY THE DUE DATE then you need help. BUT HOW DO YOU TEACH PEOPLE “THAT DON’T KNOW WHAT THEY DON’T KNOW”?

 Easy…..I have designed a new FixMYBudget training program that will help you get on top of things. It is an easy “step by step” program that will get you back on track.

Do you think you need help? Feel free to ask for help and my advice…….

answers to last week's blog

OK, its time for the answers to be revealed. If you got them all correct – then well done, you! If you got (even) one wrong then you failed.

 QUESTION 1

If you were offered cash – which option would you pick?

1. $500,000 or
2. $1 doubled 20 times (consecutively)
3. Depends on how much tax I will need to pay in each case
4. $1,000,000 on which you will need to pay tax at your marginal tax bracket.

 THE ANSWER: has to be B. I suspect you all should have got this one correct. For those that didn’t and you would like to know how to calculate it – this is what you do. Grab a calculator and press 1 X 2 then press X again and count ONCE. Then you press 2 then X and count TWICE and so on until you have counted TWENTY – the amount you should see on your calculator is 1,048,576.

QUESTION 2

Assume your tax bracket is in the 30% bracket and you have claimed $1,000 as a tax deduction. How much will this benefit you?

1. Full $1,000 because it 100% tax deductible
2. $300 because it is your tax margin
3. $315 you need to add the Medicare Levy
4. None really because I’ve already spent the $1,000 so how would I benefit anything?

THE ANSWER: option B, although option D is just as good in my books. I am surprised how many people would spend the money for that elusive tax deduction not realizing that tax deductions do not benefit you 100%.

QUESTION 3

Which one of the following is a greater benefit to you?

1. tax deduction of $1,000 or
2. tax rebate of $1,000

THE ANSWER: option B. This is because a tax deduction reduces your tax payable whereas a tax rebate directly reduces the amount of tax you pay.

Feel free to send me a feedback on whether you are enjoying my blog.

hot seat

This week’s blog will be based on the TV show “Hot Seat”. I will be Robert McGuire and you will be the contestant. Now remember! – it is the “Hot Seat” not “Who Wants to be a Millionaire” because you will not be able to call a friend – you will only have 20 seconds to pick the answer. Read the questions, think about the answers and pick the one that you think is correct. So, are you ready? Close the door, settle down, concentrate and let’s go:

QUESTION 1

If you were offered cash – which option would you pick?

1. $500,000 or
2. $1 doubled 20 times (consecutively)
3. Depends on how much tax I will need to pay in each case
4. $1,000,000 on which you will need to pay tax at your marginal tax bracket.

 THE ANSWER: next week

QUESTION 2

Assume your tax bracket is in the 30% bracket and you have claimed $1,000 as a tax deduction. How much will this benefit you?

1. Full $1,000 because it 100% tax deductible
2. $300 because it is your tax margin
3. $315 you need to add the Medicare Levy
4. None really because I’ve already spent the $1,000 so how would I benefit anything?

 THE ANSWER: next week

QUESTION 3

Which one of the following is a greater benefit to you?

1. tax deduction of $1,000 or
2. tax rebate of $1,000

 THE ANSWER: next week

Just tell me to “LOCK IT IN ROBERT”

children accounts

As a parent (and a financial planner) I always encourage parents of young children to think about setting up investments for them because I know (from experience) how important it is to have funds put aside for their education or even giving them a little start in life when they turn say 21. All three of my children benefited from the savings plans that I had set up when they were young. If I could turn the clock back I probably would have put aside even more but hindsight is a beautiful thing. 

If you have set up an account or you are planning to set up a fund for the kids it is important that you are aware of the tax implications because special “higher” rates apply to incomes for minors, known as “children’s tax”. If the income earned by minors is caught under the “children’s tax” that it can be a very expensive exercise – here are the rates:

Up to $416                         nil tax

$415 - $1,307                      66%

$1,307 onwards                45% of the total amount of income

The ides behind the “children’s tax” is to discourage parents from transferring funds into children’s accounts to simply reduce their own tax bill. Technically, setting up children’s bank account should not be done to avoid tax.

Children bank accounts generally are opened in the parents name with the child’s name added to the bank account or the parent may open the bank account in trust for the child. In either case the funds are seen to be owned by the parent and the interest must be declared in that parent’s tax return.

The rule therefore is: because the parent owns the money – the parent must include the interest in their income tax return.

If you have already set up “children’s accounts” and you are not sure or concerned with how it will affect your tax position – feel free to call me or email me.

favourite joke

Do you have a favourite joke? You know the one – you are with new people, someone tells a joke and you just jump in with your joke and you just know you will get a laugh? I too had a favourite joke but last time I told it was back in 1984. Let me share what happened.

I was a 30 year old, our first son was 3 years of age and my wife was pregnant with our daughter. I had just changed my job from an assistant accountant in a small engineering firm to become the Regional Accounting Manager for a large company with a large increase in my salary, plus a car plus expenses. And from a job with no staff to a job overseeing over 30 employees. Those 30 people were represented by 6 heads of dept of which 4 were women and 2 blokes. So I am into my 3rd or 4th week into my new job and at our weekly meeting I decided to tell MY JOKE:

“Now I am not saying my wife is ugly, but last time she went to a beauty parlour she was there for 3 hours – and that's only to get a quote!” Funny yes? Of course it was funny because every time I told it I always got a laugh even when I told it in front of my wife.

The next Friday at about 4.15pm my boss’s secretary came into the office and tells me that Mr. Lee would like to see me in his office.  Something was wrong! I knew it. As I said I had only been with the company for 3 to 4 weeks and every time Mr. Lee wanted to talk to me he would come to my office. So with my guts feeling uneasy I strolled into his office and he tells me to close the door behind me. Now I really feel there is something wrong.

As I sat down he tells me: “We have a problem with you young man! None of the staff out there want to work with you. Apparently you have been telling sexist jokes demeaning women. All the women don’t want to work with you and the blokes say you are arrogant”. Wow! What the hell happened here? All of sudden I didn’t feel well at all. I sat there looking at him not knowing what to say. I felt so lonely and all I could think of was my pregnant wife, our mortgage and what will I do next. It felt like I was there for hours. Didn’t know what to say or what to do. He looked at me and before I could say anything he asked me “What are you going to do?” Well, what can I do? – I stuffed up and the only thing I could do was to offer my resignation. I was just about to do it when he followed up with: “I will tell you what you are going to do! I got you here because you are one of the best “numbers man” I have worked with and I need you on board. You have 3 months to get rid of all of them and get your own people on board. We have a job to do here and we are going to do it with the right people”.

The story goes on and becomes more interesting as to what happened in the next 12 months but that’s for another blog (may be).

Has YOUR favourite joke ever caused you any problems in the past?

south morang

Back in 1974 I was doing my second year of my Diploma of Accounting and one of my lecturers was a man called Ken Hopper. At the time, to me he was an “old guy” but looking back he was probably in his late 40’s or early 50’s.  Many times he would give us advice and he would say: “Boys! If you want to be smart you should be thinking of buying land in South Morang because of you look at the demographics shifts in Melbourne you will see that this will be a great area to invest in for the future!”

At the time, I was a 19-20 year old with no real sense of investing or even thinking about investing. All I wanted to do is either get out of the lecture and go out or even just hoping to finish my Diploma so I can get a job and but myself a car. I thought what a crazy thing to say because who would want to buy in South Morang? Are you crazy? It was “the bush” so far away from everything.

I have told this story many a times to clients that come into my Bundoora office because it is not far from where I did my accounting but also to prove that (the old guy) Ken Hopper was right in what he was saying because the traffic streaming past my office window was the proof. But now I have more proof.

Statistics have been released to show that the suburb is growing at it’s fastest pace. In 2001 South Morang had 6,667 people and in 2011 that number grew to 38,895. It seems that in one decade it grew by the entire population of Carlton, Fitzroy and Collingwood.

Mr. Hopper! Why didn’t I pay more attention to you?

Does anyone reading this know of Mr. Hopper? I would love to meet with him and tell him what I remember about him most.

Do you have a story of “missed opportunity”? If yes, please let me know it may be a good yarn for my next blog.

advice to children

If you are a parent you will probably understand how hard we try to teach our children about many things in life. So this week I will pass on to you 10 advices that I have built up over the years

1. Tattoos are not cool – in time to come they will agree you.
2. That mate that borrows money from you – will not give it back. He may the initial one but sooner or later you will be left with a debt and a mate that you no longer speak to.
3. Listen to old people - it is so much easier to learn from someone’s mistakes than keep making your own.
4. Bad credit will come back and bite you. Pay your accounts on time – if you cant afford it – don’t ignore it. Young people usually have problems with their mobile phone bills and older people usually get themselves into trouble with debts and bang! Bankruptcy. Don’t think that going bankrupt is the easy solution – it is not.
5. The Joneses next door are possible broke.
6. In your 20s you learn and in your 30s you earn. How many times have I told our oldest not to let the good times continue in your 30s.
7. Buy the cheapest car your ego can afford – if you are concerned about impressing girls you will be better off using the money for a nice home then a nice car. Girls like cars – women like homes.
8. Be a good person inside - more important than a nice looking car or nice fitting clothes.
9. And finally – be good to your parents. You don’t want to give them a reason to bequest their whole estate to the “lost dogs home”
10. Move out of Home – I am only joking about this one – but not a bad thought. Eh?

I am happy to hear any other advices that YOU may have given your children that it is not on this list.

one good share

About 10 minutes before I started to write this blog I looked up an update on the number of shares that I monitor regularly and it reminded me about a client that I advised to invest in one of the shares on the list because at the time he had some spare cash. The date was 20.06.11 (13 months ago) when this particular share was valued at $49.52 and his $260,000 at the time would have purchased him 5,250 shares.

Yesterday’s share price was $55.90, which would have made his investment valued at $293,475 a growth of $33,475 and this does not take into account the fact that the client along the 13 months would have picked up couple of dividends valued approx. $18,000. The overall result would have been 19.8%.

What an excellent result that would have been for him. But of course like most people investing $260,000 in the sharemarket is not an easy decision and I can understand why he would be reluctant because the sharemarket can be a cruel friend.

What is interesting to me about case me is that I can use it as a learning tool for future to educate clients to understand and follow some simple rules of investing:

1. Investing is not a SECRET. It is a by-product of knowledge and experience.

2. Buy low and sell high.

3. Don’t get caught up with people telling you the good result stories. This is why people get “sucked in” with investments because they follow good news. Just imagine if this story is told by a work mate in the lunch room. I have no doubt someone listening to it would simply find out which share and buy into it, without thinking.

4. Investors need to be patient with investments. There is no such thing as quick money.

If you have specific tax and/or investment questions, feel free to contact me.

rich taxpayers

Every “tax time” brings the same old questions and arguments about how much tax we all pay and how the tax system favours the “rich” who should be made to pay more – because the perception is “the rich people don’t pay as much tax”. This brings me to my favourite story that may explain why the rich or richer taxpayers should be left alone:

“Once a month 10 men go out to dinner together and the bill for all 10 comes to $300.00. If they paid the bill the way we pay our taxes - it would be paid as follows:

• the first 4 men (the poorest) would pay nothing
• the 5^th would pay $3 
• the 6^th would pay $9
• the 7^th would pay $21
• the 8^th would pay $36 
• the 9^th would pay $54 and
• the 10^th (being the richest) would pay $177

The 10 men ate dinner in the restaurant every month and seemed quite happy with the payment arrangement until one day the restaurant owner gave them an unexpected benefit. He said to them "Since you are all such good customers I am going to reduce the combined cost of your meal by $60.

So now the dinner for the 10 men only cost $240.00 and the group still wanted to pay the bill the way we pay our taxes. So the first 4 men continued to eat free - but what about the other six?

The six remaining men realised that the $60.00 discount divided by six was $10 but if they subtracted that from everyone's share then the 5^th and 6^th men would end up being paid to eat their meal.  The restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount and the result was:

• the 5^th man now paid nothing
• the 6^th man now paid $6
• the 7^th man now paid $15
• the 8^th man now paid $27
• the 9^th man now paid $36 and
• the 10^th man now pays $156 instead of $177.

Each of the six men that contributed to the bill were better off BUT once outside the restaurant however they began to compare the savings:

 "I only got $3 out of the $60" declared the 6^th man pointing to the 10^th man who he got $21.”

“That's right," said the 5^th man” I only got $3 too. It’s unfair that he got seven times more than us."

“That's true said the 7^th man "Why should he get back $21 when I only got back $6?" The wealthy get all the benefits" - he declared.

"Wait a minute," yelled the first four men "we didn't get anything at all. The system exploits the poor".

So the nine men surrounded the 10^th man and beat him up. 

No surprise to find that he did show up at the next month's dinner. So the nine men sat down for dinner and ate without him. When it came time to pay the bill, they discovered too late what was very important - they were $156 short of paying the bill.

So here is the moral of the story: We all hate those rich people BUT the fact is they do contribute the most to the Tax System. And this is what worries me about the new “carbon tax” – it is designed to make the richer pay more but the end result will be higher prices leaving the poorer to pay more. Funny how the tax system works, eh!!!

If you have specific tax questions, feel free to contact me.

tax - july 12

This is it – TAX TIME…. Have you started thinking about getting all your things ready for the tax return? The chances are you are not - because from experience not too many people are that well organized. My advice is – if you are expecting a tax refund then I suggest you get your tax return done as soon as possible – money in your bank account is better than sitting with the tax office.

 Due dates for tax returns:

If you are lodging your own tax return direct with the tax office – you have until 31^st August. If you are using a tax agent to lodge it on your behalf then we (tax agents) have an automatic extension until end of October and possibly even longer, depending what our own lodgement programs is. But you must be added on the tax agents’ client data base.

Personally, I believe that all individual tax returns should be done as soon as possible. There is no need to delay the inevitable. Once you have done it – you will know it’s done and over for the next 12 months. Some people think of the tax return like going to a dental appointment – not true – the dentist charges more.

What information do you need:

The most important item is the income for the year. This includes all group certificates (including Centrelink payments), bank interest, dividends, rental income etc. The tax office now has the ability to track down most of the incomes earned by taxpayers such as bank interest, dividends, sale of property etc so make sure you include it. If you don’t; then you may be charged with both hefty penalties and interest charges.

What do you need to know about deductions:

When it comes to claiming expenses then there are three things you need to be aware before it can be allowed as a deduction:

1. actually incurred – unless you have spent the money then you can not claim a tax deduction. So you can not ask your tax agent “what can I claim?” You need to ask “which one of these items that I have spent can I claim?”

2. meets the deductibility test – you must be able to show that the expense was incurred in the course of gaining or producing assessable income.

3. satisfies the substantiation rules – you must have a written evidence to prove their deduction.

The three most commonly misunderstood expenses by clients are: motor vehicle, mobile telephone and home office.

Final note: this year new and lower tax rates will apply.

If you have specific tax questions, feel free to contact me.

happy new (financial)year

Happy New (financial) Year to you all.

Unless you work on Saturdays, today is the last working day for financial year 2011 – 2012. I don’t know about you but for some reason I seem to have only two dates in my calendar: Tax Time and Christmas – what happens between these two date is a blur to me. Have you heard the old saying “as you get older, the years go faster”. Boy, do I get it now!

So what have we learnt in the last 12 months? – I am thinking: PROBABLY NOTHING. We still don’t understand:

-          why the Greeks and the Spaniards can cause so much havoc to the world economies

-          why our super funds have not done as well

-          why our property values have gone down

-           why we have more wrinkles on our faces

I could go on for ever but I am sure you don’t have the time because you probably have already received 10 more emails or updates while reading my blog and you haven’t even got to the end.

My advice is to forget about the last 12 months and start planning for the next 12 months. You can not change the past but may be you can make changes that will make it easier for you in the future by not making the same mistakes. Let’s see if I can help you with some basic “common sense” advice.

1. We live in volatile and unpredictable times - so go with the flow. Don’t react to the markets, whether it’s shares, superannuation or property. The markets will always sort out over the longer period of time.
2. Most common mistakes? It’s the old “fear and greed”. The “greedy” simply invest for the wrong reason – either tax or quick returns. When the markets are going up they jump in because they don’t want to miss out even if they can’ afford it and when the markets are down and they read that the world will collapse, they quickly get out and lose…..
3. If you are going to invest – only invest within your own capabilities and cash flow and always invest for the longer term. DON’T OVER COMMIT.
4. Shares or Property? Best advice is learn what their advantages and disadvantages are before you decide – don’t just take advice form the real estate agent or the stockbroker.
5. Buying property in US? Are you crazy??
6. Rent or Buy? Given what the property prices are, for young people most of the time it is better to rent and save the difference. Only when you have saved a deposit of at least 20% will buying start to make sense.
7. Should you be cashed up? Yes, always have funds in a bank account for “rainy days”.
8. Should repaying the mortgage be a priority? Absolutely.
9. Learn to BUDGET
10. Learn to SAVE regularly

Feel free to ask for advice - my business is giving “financial advice”.

negative gearing

Whenever I discuss with friends or clients about "negative gearing" a rental property I am reminded how little people understand the term "negative gearing". So I've decided to re-visit it and give you an explanation of exactly what it is and how it works.

 "Negative gearing" is the technical term for "losing money".   If this surprises you then you better read on. To "negative gear" an investment means that the expenses are greater then the income which means there is a loss.

The best way to explain "negative gearing" is to use the following profit and loss statement with an assumption that the taxpayer is in the 30% tax bracket, as most Australians currently fall into:

Rental Income	$20,000
Less Deductions
Running expenses	-$5,000
Bank interest	-$25,000
Net Loss	-$5,000

So the first step in understanding the “negative gearing” strategy is the rental property must lose money – and in this example it has lost $5,000. At the end of the year this loss is included or claimed in the tax return and this is where most people get it wrong believing that they will get the full $5,000 refunded by the tax man. Not true!

The amount of the tax benefit a person will get depends on what tax bracket they are in. So if we assume that the tax bracket is 30% then the tax refund applicable to that loss will be $1,500 (i.e. 30% of $5,000). And as you can see this leaves the investor with a net loss of $3,500.

So basically, what has happened is that the investor has lost $5,000 to gain a tax refund of $1,500. At this point you may ask: so why do people get into “negative gearing”? There are tow reasons for this:

The first one, I believe, is most people just don’t understand it and they do it because they heard it from their friends and/or relatives.

The second reason why people get into “negative gearing” strategy is they are hoping that over period of time the value of the property will go up and once they sell it they will make their profit. That's in theory - however, what happens in the real world is another thing. And when you take into account the Capital Gains Tax that will apply when you sell the property - you can only question how good an investment a "negative gearing" is.

And the moral of the story?  DON'T get involved with “negative gearing” because you think or someone told you that "negative gearing" is a good tax deduction. Make sure you understand what it means......

If you have questions specific to your situation, feel free to call me or email me.

tax questions

Every year I get asked many “what can I claim” tax questions by clients but for some reason they are all the same questions every year. Here are my explanations for the top 5 most commonly asked questions:

1. UNIFORM AND LAUNDRY expenses - for a person to be able to claim uniforms it must be a UNIFORM - a uniform is a specific occupation uniform such as a nurse or bank office where the there may be a "logo" and it is a specific colour or shape. Wearing a suit is NOT a uniform. Wearing a nice white shirt or dress at work because the boss asked you to wear is NOT a uniform.  

 2. TRAVEL TO AND FROM WORK - the tax man is very clear that "travelling between home and work is NOT allowed". If you are required to use your own car to go to, say, the bank to do the banking or visit other sites YES you can claim that but you must keep a logbook or make a reasonable calculation of how many kms you have travelled.

 3. TRAVEL OR MEAL ALLOWANCES - if your employer pays you travel allowance then keep records of what kms you did to earn that allowance. Remember! most allowances are paid to you tax-free but come end of the year they need to be included in your taxable income so unless you have deductions to offset them you will pay extra tax.  Same applies to meal allowances.  

4. MOBILE PHONES - how much you can claim depends very much on how much YOU think you use it for work. There is no formula set by the tax man it is up to you to calculate it. I hate having to advise on this because there is no specific answer and my gut feeling is NONE of it is really a business claim. Mobile phone expenses need to be apportioned with regards to itemised account, detailing work and non-work related calls against total costs (even if the fees are capped). My personal test is this – if work requires you to use your mobile phone business then ask the employer to pay for it – end of subject.

 5. HOME COMPUTER – this is also an interesting one and not an easy one to explain when you consider that almost all of us have a computer in our homes. The tax requirement is that YOU must justify the business use of a computer. My gut feeling is that not many people can justify the use of their home computers for business. Same as the mobile phone – if work requires you to use a computer at home then simply ask the employer to provide you with a company computer.

If you have questions specific to your situation, feel free to call me or email me.

greek economy

The troubles with the Greek economy continues to plague the world markets, even as late as this week there was more concerns about the Greeks and the effect it has on the share market, which in turn affects yours and mine superannuation.

Have you stopped to ask why the Greeks are in such difficult times? Has anyone tried to explain to you how could this happened? Last November I gave an explanation so it may be worth that I re-publish it and let’s see if it will help you understand it in “layman” terms:

It is a slow day in a little Greek Village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt and everybody lives on credit.

On this particular day a rich tourist is driving through the village, stops at the local hotel and lays a $100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the $100 note and runs next door to pay his debt to the butcher.

The butcher takes the $100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the $100 note and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmers' Co-op takes the $100 note and runs to pay his drinks bill at the taverna.

The tavern owner slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit.

The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the $100 note.

The hotel proprietor then places the $100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the $100 note, states that the rooms are not satisfactory, pockets the money, and leaves town.

And that, Ladies and Gentlemen, is how the Greeks got themselves in trouble:

No one produces anything.

No one earns anything.

And the whole village thinks they are out of debt…….

eurovision 2012

Finally – it’s here – I have been waiting for this weekend for the last 12 months. Forget about the AFL grand final, forget about FA cup – what I am talking about is much better and exciting than that. Yes – I am talking about EUROVISION SONG CONTEST – 3 glorious nights of pure entertainment like we have never seen before. So jump on my band wagon and improve your life by experiencing this extravaganza…….

Now back to more boring taxation:

As we are heading towards the end of the financial year, for the next few weeks I will concentrate on articles to do with tax. Tax time is good for us accountants but not so good with tarpapers because as a rule we all hate tax - right?

The tax office regularly is in contact with us tax agents with emails and here is the latest one:

“In the lead up to tax time, your clients may ask you about minimizing tax through tax-effective schemes. You can help your clients avoid penalties or tax debts by explaining the difference between legitimate tax minimisation and abusive tax avoidance schemes.
Your clients may ask you about minimising tax throughtax-effective schemes. They may ask you to complete a tax return based on advice they obtained from another scheme promoter. You can help your clients avoid penalties or tax debts by explaining the difference between legitimate tax minimisation and abusive tax avoidance schemes. Taxpayers are entitled to minimise their taxation liabilities and receive benefits provided under the law through investment activities. However, investment schemes and legal structures that do not comply with the law are considered to be aggressive tax planning arrangements – commonly referred to as tax schemes.”

To date I don’t think there is a tax avoidance scheme that I have not come across or heard of in the past but they keep coming around every year. Personally, I will never get involved in anything that I know is a sham and clients asking me to get involved with them are quickly shown the door. And yet for some reason there is still that feeling amongst some people that there is that “secret” on how not to pay tax.

There are genuine legal items that may reduce the tax you pay but they are all part of the legitimate tax rules.

So, before you consider any fancy tax schemes – think about it, research it and if still not sure speak to a professional. The Tax Office comes down very hard on tax cheats.

Remember! It is your responsibility to comply with the tax laws. If you are involved in a tax avoidance scheme you will be liable for firstly for the tax that you avoided in the first place, plus penalties plus interest. You have been WARNED……….

news reports

Yesterday morning I got into the car to come to work and as usual I put on the news to catch up with the overnight news and I wish I hadn’t - the leading news item was that the sharemarket overnight lost “billions of dollars!!!!” due to some problems with Greece.

And to make things worse the announcer went on to say that superannuation funds have also lost over $70 billion or as he put it “wiped off”. I thought “oh no, this is not going to be a good day for me” because I know that these sorts of news do create panic and worry in people’s minds.

By now you should know sharemarkets going down is not something to ignore but at the same time it should not cause you concern because the reality is that the sharemarket does not lose money for anyone – what it does is it reduces the “paper value” of any shares at a given point of time

e.g. let’s say you have 1,000 shares in Company X which is valued at say $2.50 each giving a total value of $25,000. If the market goes down to say $2.28 per share - you have not lost any shares, you will still have the same 1,000 shares it is just the total value of those shares as of that moment will be $22,800. Technically, this is a loss of $2,200 but it is only “paper loss”. In other words, you will only lose that money if you choose to sell them then. But if you don’t sell and keep the 1,000 shares and wait for the shares to go up then you would recover that loss.

This is why it is important for people that dabble in the sharemarket to do so for the longer period of time – not for the short term.

And the same applies to property. Recent articles in the papers reported that property values are down by 10% from the same time last year. So if you bought a property last year for let’s say $500,000 then the value of that property now is $450,000. Now if someone told you that your house is worth 10% less than say 12 months, would you feel that you have lost money? Of course not. You would definitely like to know that the value has gone up but if the market says that it is down then you just accept it and get on with life. Would you panic and sell your house for 10% less? Of course not.

I hope my explanation will help you understand what the news reports mean when they scream “Property values are down!! Or billions have been wiped off sharemarkets”.

Just ignore it but if “the worry persists” see your financial adviser.

tax schemes warning

Couple of days ago the Tax Commissioner Michael D’Ascenzo issued a press release warning taxpayers to steer clear of tax avoidance - 

“It is at this time of year we see an increase in the number of tax avoidance schemes being promoted. As appealing as an investment opportunity may sound, sometimes the promised tax benefits might not be available under the law," Mr D'Ascenzo explained.

Modern tax schemes can be very sophisticated and may masquerade as complex investments or other arrangements that can appeal even to experienced investors. Just like genuine investments, these schemes might promise you 'wealth creation' or financial security. Others can exploit your social or environmental conscience by promising you large up-front tax deductions for donations to charity or 'green initiatives'. Many are marketed via social media or glossy promotional brochures, with offers of exclusivity and the stamp of approval from so-called 'experts'.

My advice – DON’T FALL FOR THESE SCHEMES without first doing your research and seeking independent advice. If you're considering entering into an arrangement that will affect your tax liabilities, it's important to carefully investigate and understand the tax consequences before making your investment decision.

You know the old saying: if it seems too good to be true, it probably is.

If not sure, feel free to ask me – my business is to keep your financial affairs in proper order.

super beneficiaries

Superannuation and wills

For most people superannuation will be their second biggest asset after their home and it is important to know how it works with regards to will.

The technical set up of a superannuation fund is this: superannuation benefits are not owned directly by fund members, but are held in trust and only the trustee of the superannuation fund is permitted to pay them. And because superannuation money is put aside for retirement, it is treated differently to other estate assets on the death of a superannuation fund member.

Nominating a beneficiary

A member can not make instructions in their will on how the superannuation funds are to be distributed. What the member can do is to nominate a beneficiary to receive their superannuation benefits in the event of their death. And in order for the trustee of the superannuation fund to accept that member’s nomination of beneficiary, the beneficiary must meets the definition of dependant in the SIS Act, or their legal personal representative (LRP), who may then distribute the proceeds in accordance with the will.

Definition of dependant

The superannuation definition of a dependant, because only superannuation dependants can receive a death benefit (except where there is no dependant), but only tax dependants receive concessional tax treatment on superannuation death benefits received.

Dependants under superannuation legislation

Superannuation death benefits can be paid to ‘dependants’ as defined in sub-section 10(1) of the SIS Act. This includes:

-          spouse (including de facto and same sex partners)

-          children (of any age)

-          financial dependants

-          people in an interdependency relationship with the deceased, or

-          the deceased’s LPR on behalf of the estate.

Dependants under taxation legislation

While the SIS Act governs who can receive superannuation death benefits, it is the Income Tax Assessment Act that governs the tax consequences of the payment of superannuation death benefits. For tax purposes, a death benefits dependant is defined to include:

-          a spouse or former spouse (including de facto and same sex partners)

-          a child, aged less than 18

-          any person who had an interdependency relationship with the member just prior to death

-           any person who was a dependant of the member just prior to death, or

-           any person who receives a superannuation lump sum because of the death of another

Taxation of superannuation death benefits

What all this means is that the dependants you nominate are likely to pay tax unless they fall within the definitions of the tax legislation. For example, all proceed (regardless of the amount) paid to a dependant for tax purposes, will be tax free. The same applies where a lump-sum superannuation death benefit is paid to an estate and the estate pays the proceeds to a dependant for tax purposes.

If the proceeds of a lump-sum superannuation death benefit are to be paid to a non-dependant, the tax-free component of the payment will be tax free. However, the taxable component will be subject to tax at up to either 16.5 per cent or 31.5 per cent (including the Medicare levy but excluding flood levy) depending on whether the taxable component is a taxed element or an untaxed element.

So what should you do?

As soon as you read this blog – take the time to find out from your superannuation fund who your beneficiaries are. Most clients do have their spouses and children, which in most case is OK – but over the years as marriages break-up and the children grow up and stop being financially dependant then it is time to change the nominations. As a rule, if your children are grown up, married and have their own separate lives they should not be nominated as beneficiaries in your superannuation fund.

If not sure, feel free to ask me – my business is to keep your financial affairs in proper order.