- On May 10, 2021
- May/June 2021
CUTCHER & NEALE
Welcome to the May edition of Financial Paracetamol.
Kickstart your children’s super!
Helping your children secure their financial future is a goal shared by most parents.
While saving money for your children in bank accounts, managed funds and other investments is a common approach, the tax efficiency and compounding effect of superannuation which makes it an effective savings vehicle cannot be ignored.
If you have working children, you may know that the superannuation guarantee (SG) currently requires your child’s employer to pay 9.5% of their earnings into their superannuation fund.
From July 1, 2021, the SG is legislated to rise in half per cent increments every year until it reaches 12% of wages in 2025.
Using average weekly ordinary times earnings figures (AWOTE) and assuming an inflation rate of 1.50% and a super earnings rate of 4%, your child could expect to accumulate a super balance of around $785,000 by age 65.
Investing additional money into your child’s super fund early on in their life can make a significant difference to how much wealth they accumulate in super at retirement.
Depending on your tax structure, you may be able to make tax deductible contributions (concessional contributions) into your child’s super fund - the cost to you for making these contributions can potentially be halved due to the tax benefit you receive.
In addition, you can consider making one-off after-tax contributions (non-concessional contributions) into your child’s fund.
A one-off non-concessional contribution of $50,000 made to your child’s super fund at age 18 compounds to by age 65 – note that it could add an extra $250,000 to their balance.
Even more remarkable to note is that making yearly non-concessional contributions of $10,000 into your child’s fund from age 18 to age 40 could add a massive $762,000 to their balance by age 65, potentially setting them up for a comfortable lifestyle at retirement.
Superannuation can be a powerful savings option you can use to kick-start and secure your child’s financial future.
However, the pros and cons of investing in your child’s super should be weighed carefully and we advise that you consult with your adviser before deciding.
Estate planning is more than just a will…
Estate planning is the process of developing a strategy to deal with your assets after you pass away.
An estate plan is more than just having a will prepared and traditionally also includes an appointment of a power of attorney and enduring guardianship.
Unlike your other assets your superannuation fund does not automatically form part of your estate, which means additional planning is also needed concerning your super fund.
Ordinarily when looking at undertaking estate planning many people focus on the preparation of their will, and place primary importance on providing for their families.
This is very important, but making sure this is completed in a tax effective manner is also critical in ensuring you provide for your chosen beneficiaries.
One tax effective strategy that can be incorporated into your estate plan is the creation of a testamentary trust when preparing your will.
A testamentary trust is a trust established under a valid will.
A testamentary trust operates like a discretionary trust but can only come into existence after you pass away.
The utilisation of a testamentary trust in your estate plan can create asset protection, flexibility when distributing income, and income tax savings for its beneficiaries.
Outside of your home it is likely your superannuation fund will also form a large part of your wealth and needs to be considered when looking at your overall estate plan.
When it comes to your super however, you will need to also make sure it is distributed in accordance with your wishes as it is not automatically paid to your estate after you pass away.
Where your super is paid will largely depend on whether binding death benefit nominations (BDBN) are in place.
We appreciate that undertaking the estate planning process is not the most exciting task to do but the consequence of not preparing will likely be detrimental to your family after you pass.
It is also important to not ‘set and forget’ once all the planning is complete.
A process should be put in place to periodically review your estate plan to ensure it continues to be applicable to your personal circumstances, in line with your wishes and remains tax effective.
30 June 2021 – It’s time to get organised! Here is your pre 30 June tax checklist
It’s not long now until the end of another financial year rolls around and we all know what that means… time to review your records and get organised before it’s too late!
Here are a few handy hints and tips to help you to get prepared prior to the end of the 2021 tax year:
- Service fees are one of the biggest expenses for many doctors. Ensure these are being paid in line with your agreements and are paid in full by 30 June.
- Can you prepay any expenses such as professional memberships, subscriptions or even donations to bring forward your deduction?
- Consider maximising your concessional superannuation limit of $25,000 - it’s important that payments are paid well in advance of 30 June to give your super fund enough time to process
- Ensure your motor vehicle logbook is up to date. Costs such as fuel, repairs and insurances are claimable based up to your relevant business use percentage.
- Have you purchased any assets during the year? Get this information together now whilst it is readily available. With the instant asset write off being extended to 31 December 2020 there may be some significant deductions here.
We also appreciate that your practice manager plays a crucial role in gathering information on behalf of the practice at this time of year. Here are a few key areas we suggest should be a focus:
- Ensure staff salaries and superannuation are paid and reconciled for the tax year, superannuation must be paid before 30 June 2021 if you wish to claim a deduction.
- Review expenses to ensure explanations are clear, especially around items such as entertainment, staff training and repairs.
- The practice clearing account should be cleared in full, with all doctor and service payments made by 30 June 2021.
- Do you sub-lease rooms? Now is a good time to ensure that any annual rent reviews have been attended to during the year.
- Also remember STP finalisation needs to be completed prior to 14 July 2021.
Tax is one of the largest expenses you have, so it makes sense to ensure you are maximising any deductions that may be available to you.
Why automation is key in effective cloud accounting
Keeping on top of your cloud accounting and reconciling transactions can be a time-consuming task – but it doesn’t have to be!
Here are our top tips for helping you automate your processing to achieve increased accuracy and greater efficiencies, saving you valuable time.
Creating bank rules for each bank account is a fantastic way to automate many of your transactions that occur on a regular basis. Examples of these are income amount, wages and bank fees.
Setting up a bank rule will allow you to select the contact, account code, GST treatment and description.
This rule will then automatically apply these selections for you each time creating better accuracy of your data.
Bank rules will save you time and create better efficiency as each reconciled transaction will be the same – less chance of you needing to fix any reconciling errors.
Another time saving option is setting up repeating bills for regular supplier invoices and transactions – set up as a draft to approve or automatically approve awaiting payment each and every month.
When using this automation there is no need to create these bills from scratch ever again.
Pay your suppliers in bulk with a batch file. In Xero select multiple bills from different suppliers, create a batch payment file (ABA file) and upload to your internet banking.
This can reduce the risk of paying the wrong amount or supplier in error and increasing your efficiency.
Add on programs such as Hubdoc or Dext (formerly ReceiptBank) allow you to upload receipts, invoices and bills.
Key data is then auto extracted using OCR technology to digitally read the information. Dates, invoice numbers, totals and GST amounts are extracted and populated automatically for you and then pushed to your linked accounting file can then be matched to your bank statement lines
These add ons can help streamline your bills process by saving data entry time and reconciling your bank accounts in a simplified, seamless process.
Adopting these efficient and time saving strategies will undoubtably provide you and your team more time in the day to spend on improving practice efficiencies, patient care and reaching overall practice goals.
Important Disclaimer: The material contained in this publication reflects General Advice only, and has not been prepared to provide specific Personal Advice to any particular individual(s). It does not take into account the individual circumstances, risk profile, needs and objectives of specific individuals. The examples are used for the purposes of illustration only. Readers should not act upon any matter or information contained in or implied by this publication without seeking appropriate professional financial planning advice. The publishers and authors expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication. If the advice relates to the acquisition or possible acquisition of a particular financial product, you should obtain a copy of and consider the Product Disclosure Statement before making any decision.