In this issue
How to boost your super with a lump sum
Harnessing the power of LinkedIn to build your personal brand
Who needs a testamentary trust?
Welcome to our August newsletter and, with winter winding up and tax returns on the way for some, there may be sunnier days ahead.
While the price of most goods and services continues to rise, the good news is the rate of increase is continuing to slow and the markets are beginning to breathe a sigh of relief. The Consumer Price Index rose 0.8% in the June quarter and 6% annually in the lowest increase since September 2021. And in some areas prices fell including domestic holiday travel, accommodation and petrol. In the US, sharemarkets ended July higher after inflation eased to its lowest level in two years.
Nonetheless, cost-of-living pressures continued to affect our spending with a sharp fall in retail turnover of 0.8% in June. Those figures, along with the better-than-expected US data bringing concerns of tighter monetary policy, kept the ASX200 in check as some banks, commodities and miners suffered. The Australian dollar was also affected, hitting its weakest levels in more than two weeks. Unemployment remains at 3.5% with the number of people employed increasing by about 33,000 and the number of jobless decreasing by 11,000.
Meanwhile tightening global oil supplies and high hopes for the outlooks of Chinese demand have seen a steady increase in Brent crude futures to around US$84 a barrel. But iron ore continues its downward trend, falling 2.6% since the beginning of 2023.
How to boost your super with a lump sum
If you’re lucky enough to have received a windfall, perhaps an inheritance or a retrenchment payout, your first decision will be what to do with it.
Assuming you have decided against a shopping splurge, finding the best place to invest a lump sum is all about the effect on your tax bill and how soon you will need access to the funds.
For those interested in investing their lump sum for a longer term, superannuation is one approach because of its tax benefits.
But be aware that, while super can be a tax-effective investment, there are limits on how much you can pay into your super without having to pay extra tax. These are known as contribution caps.
Different types of contributions
There are two types of super contributions you can make – concessional and non-concessional – and contribution caps apply to both.
Concessional contributions are paid into super with pre-tax money, such as the compulsory contributions made by your employer. They are taxed at a rate of 15 per cent.
Non-concessional or after-tax contributions are paid into super with income that has already been taxed. These contributions are not taxed.
So, the tax you pay depends on whether:
- the contribution was made before or after you paid tax on it
- you exceed the contribution caps
- you are a high income earner (If your income and concessional contributions total more than $250,000 in a financial year, you may have to pay an extra 15 per cent tax on some or all of your super contributions.)
Investing after-tax income
There are many different types of after-tax contributions that can be made to your super including contributions your spouse may make to your fund, contributions from your after-tax income, an inheritance, a redundancy payout or the proceeds of a property sale.
From I July 2024, the annual limit for non-concessional or after-tax contributions is $120,000. You can also bring-forward two financial years’ worth of non-concessional contributions and contribute $360,000 at once but then you can’t make any further non-concessional contributions for two financial years. Note that are certain limitation on these types of contributions.
It is also useful to note that, under certain conditions, there are some types of contributions that do not count towards your cap. These include: personal injury payments, downsizer contributions from the proceeds of selling your home and the re-contribution of COVID-19 early release super amounts.
The Downsizer scheme allows the contribution of up to $300,000 from the proceeds of the sale (or part sale) from your home. You will need to be above age 55 but there is no upper age limit, the home must be in Australia, have been owned by you or your spouse for at least 10 years, the disposal must be exempt or partially exempt from capital gains tax and you have not previously used a downsizer contribution.
Giving your super a boost
A review of your super balance and some quick calculations about your projected retirement income might inspire you to give your super a boost but not everyone has access to a lump sum to invest.
A strategy that uses smaller amounts could include any amount from your take-home pay. These contributions will count towards your non-concessional or after-tax cap.
Alternatively, you add to your super from your pre-tax income using, for example, salary sacrifice. These types of concessional or pre-tax contributions attract a different contribution cap: $30, 000 per year, which includes all contributions made by your employer.
If your super fund balance is less than $500,000, your limit may be higher if you did not use the full amount of your cap in earlier years. You can check your cap at ATO online services in your myGov account.
The rules for super contributions can be complex so give us a call to discuss how best to maximise your benefits while avoiding any mistakes.
Harnessing the power of LinkedIn to build your personal brand
Linkedin is a powerful tool to help you establish and maintain your reputation and develop your career and business. So, if you either don’t yet have a presence on Linkedin or suspect you may not be getting the best out of the platform, we’ve got a few tips for you!
Linkedin was created in 2003 as a way for professionals to network and has been around longer than many other social platforms including Facebook, Twitter, Snapchat, and Instagram. Its popularity is one reason why it’s a platform you need to have a presence on. It hosts more than 900 million professional profiles, which means nearly an unlimited supply of network connections and opportunities.i
What are the benefits of Linkedin?
Establish yourself as the knowledgeable professional you are. One way to think of Linkedin is your digital business card. Unlike a business card, you can say a lot more about who you are, your strengths, expertise and experience.
Expand your network. Linkedin allows you to reap the benefits of engaging with others. It’s a critical tool for professional development and business development as you connect with those who could potentially benefit from what you offer.
Learn and grow professionally. Given Linkedin’s professional focus, it’s a great tool to build your knowledge and keep you up to date with what is happening in your industry. It features business news and educational articles on various topics. With a bit of regular scrolling, it’s possible to do a lot of learning.
How to master Linkedin
Power up your profile – It’s important to have a complete and compelling profile. If you’ve signed up with good intentions at some point and never got around to completing your profile, you are doing yourself a disservice. Linkedin’s internal search only ranks profiles that register as “complete,” and these can get more than 20 times as many views as incomplete profiles. Here are some things to consider doing:
- Add a good-quality photo of yourself and a background image that reflects your personality and profession.
- Mention your industry and location in your headline.
- Include a summary of who you are, what you do, and what you have to offer. Include a call to action for people to contact you.
- Build keywords into your profile so that they will come up if people search for a particular skill set. Also consider customising your unique link address so you can be found easier.
- Describe your current position. Sharing samples of your work is a great way to demonstrate your skills and capabilities.
- Add your previous work history, education details, and at least four skills or areas of expertise
And finally, when it comes to your profile and presence on Linkedin, there is nothing more powerful than an endorsement from a client or colleague. Be strategic about what you ask for and use on your profile to highlight your strengths and skills.
Connecting with others – This is what Linkedin is all about so make the most of your existing connections. It can be challenging reaching out beyond those to people you don’t know, and the most successful approach is always going to be a personal message rather than the default ‘I’d like to add you to my connections’. Think about why you’d like to connect with them, whether you admire their achievements or work in the same industry sector. Linkedin also offers interest-based and professional groups, which can be a great place to connect with others.
Engaging with others – This is a key component of leveraging Linkedin. If you are on Linkedin but do not engage with others, you are unlikely to generate many new connections. The beauty of social networks is they promote dialogue – so they enable you to demonstrate your expertise and position yourself without overtly ‘selling’ so you can have the conversations you would like to with the people you would like to talk to.
Sharing valuable content – Through sharing articles or insights, you can establish yourself as a knowledgeable professional in your field. Think of what useful information for others would be and provide some commentary on content that you don’t generate or write.
Whether you use Linkedin and/or other channels to build and strengthen existing client relationships and to find and help prospective clients, the principles are the same: focus on the other person and their needs, be yourself and build relationships one at a time. If you do this, you’ll reap the rewards!
Who needs a testamentary trust?
The rising cost of living is grabbing all the attention right now as people struggle to pay the increasing prices. But in the meantime, our collective wealth has been growing steadily and is being transferred to the next generation at increasing rates.
In fact, the value of inheritances as well as gifts to family and friends has doubled over the past two decades.i
A 2021 Productivity Commission report found that $120 billion was passed on in 2018 and that amount is expected to grow fourfold between now and 2050. In 2018, the value of the average inheritance was $125,000 while gifts averaged $8000 each.
So, there is a lot at stake and it means that estate planning – a strategy for dealing with your assets after you die – is vital to help fulfil your wishes and protect the interests of the people you care about.
One powerful tool in planning your estate is a testamentary trust, which only comes into effect after your death. It operates in a similar way to a discretionary family trust and your Will acts as the trust deed, providing instructions for the trust.
It allows you to control the distribution of your assets and provides a way of managing any tax implications for your beneficiaries. Testamentary trusts are often used to protect assets from unforeseen circumstances such as lawsuits, creditors and divorces and they can help to preserve a family’s wealth.
A testamentary trust can be useful for those with blended family relationships and children with complex needs. For example, a child with a disability who is unable to manage their own investments can be supported by the use of a trust. Testamentary trusts may also help to provide some certainty for parents that their young children will be provided for. They are also often used by philanthropists as a way of providing a legacy for a cause they support.
Choosing a trustee
If you are setting up a testamentary trust, you will need to appoint one or more trustees who will manage administration and distributions.
The trustee could be a family member (who may also be a beneficiary) or the role could be handed to an independent person or organisation.
Trustees should understand the tax situation of each of the beneficiaries to ensure that the timing and amount of distributions don’t inadvertently cause difficulties for them. Trustees must also lodge a tax return every year and maintain trust accounts and records.
As the ATO points out, for the trust to operate effectively, a high level of co-operation between family members may be important so that tax, financial and other information is shared.
The pros and cons
Whether or not you should set up a testamentary trust in your will depends on your own circumstances.
The positives include:
- The ability to control the distribution of income
- The possibility of some tax advantages for your beneficiaries
- A level of protection for your assets from lawsuits, family breakdowns and business difficulties
- A way of keep a family’s wealth intact into the future
- Support for vulnerable beneficiaries such as those with special needs or lacking financial experience and minors
- Can be used by anyone with assets to distribute, whatever the size of their estate
On the other hand, there are a number of considerations to be aware of such as:
- The complex paperwork and reporting required
- The cost to establish the trust and keep it running
- The possibility of disputes among beneficiaries or with the trustee over the future of the trust, distributions, and its administration
Testamentary trusts are a valuable strategy to help ensure your wishes are followed. They can shape your legacy, provide fairly for your loved ones and protect assets.
Call us if you would like to know more about establishing a testamentary trust and to see whether it is suitable for you.
Bottrell Business Consultants
93 Lawes Street
East Maitland 2323, NSW
P 02 4933 6888
E office@bottrellbusiness.com.au
W https://www.bottrellaccounting.com.au/
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This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Authorised Representative No. 1243642 and Bottrell Wealth Pty Ltd is Corporate Authorised Representative No. 1243427 of InterPrac Financial Planning Pty Ltd (AFSL 246638).
