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2019-20 Update on Super Rates and Thresholds

2019-20 Update on Super Rates and Thresholds, in brief, the ATO on 4 March 2019 have published the super rates and thresholds for the upcoming 2019/20 financial year.

There is no change to the concessional contribution (CC) cap of $25,000. Whilst indexation from 1 July 2017 increases in $2,500 increments, the AWOTE indexation was insufficient to trigger and increase. As a result, there is no change to the non-concessional contribution (NCC) cap of $100,000.

Income year Your age at this date Concessional contribution cap
2019-20 All ages $25,000

Note that that first year of any unused concessional cap carry-forward rules commences in 2019/20 financial year and is subject to a member’s total superannuation balance (TSB) being less than $500,000 at 30 June 2019.

The low rate cap, the ETP cap for life benefit termination payments and the death benefit termination payments ETP cap for the 2018/19 income year all increase to $210,000.

The CGT cap amount and untaxed cap plan amount increases to $1,515,000.

The maximum contributions base indexes to $55,270 per quarter for the 2019/20 income year, providing an annual equivalent of $221,080.

No change occurs to the general transfer balance cap of $1,600,000 for the 2019/20 income year, nor the defined benefit income cap of $100,000.

For more on 2019-20-update-on-super-rates-and-thresholds, see ATO here.

By |July 2nd, 2019|aged care, budget, investors, retirement, Uncategorized|Comments Off on 2019-20 Update on Super Rates and Thresholds

Top budget measures impacting SMSF professionals

News from SMSFAdviser – Miranda Brownlee 03 April 2019 

Beyond the big-ticket tax cuts and cash handouts, the federal budget had important proposals and promises for SMSF professionals. SMSF Adviser rounds up the measures that matter most to the SMSF sector.

BDO partners, business services, Chris Balalovski said that the headline measures for superannuation in the 2019–20 federal budget, which were previously announced in the lead-up to budget night, were the measures allowing greater flexibility around making contributions by older individuals.

Mr Balalovski noted that they are limited to individuals who are 65 and 66, which means only an additional two years in age increment in respect of two of the measures and up to age 74 in respect of another.

“There aren’t too many individuals in Australia who will satisfy the criteria and who have the available money to be able to make the contributions at that point in their life,” he said.

“So, it’s very welcome and a step in the right direction with flexibility in super, but it only applies to a limited group.”

Mr Balalovski said that the few superannuation-related changes in this year’s budget are a reflection of where the superannuation sector has been at in the past several years, with professionals and super members fatigued by the constant changes made by both sides of politics in regard to super.

“Given the current proposals for the removal of the refund of excess imputation credits which will impact on SMSFs, it’s probably no surprise that the government is treading very cautiously and slowly in regard to any further changes to super,” he said.

“That’s welcome by the industry as well, because it gives contributors and savers a greater degree of certainty that their plans won’t be disrupted in any significant way by any further measures which has been the hallmark of the past several years with regard to super.”

Fitzpatricks Private Wealth head of strategic advice Colin Lewis agreed that, given the upcoming election, there was never going to be “wholesale changes at this late stage in the game”.

“There was only ever going to give a few favourable tweaks around the system which we’ve seen,” Mr Lewis said.

The government did propose a couple of administrative changes to ECPI to help reduce some of the complexity in this area and administrative burden in this area.

It also announced a proposal to allow superannuation funds with interests in both accumulation and retirement phases during an income year to choose their preferred method of calculating exempt current pension income (ECPI).

It also plans to remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year.

One of the less positive developments for the SMSF sector was a proposal to expand the SuperStream rollover, as it is expected to delay the extension of SuperStream to SMSFs till 31 March 2021, from its current commencement date of 30 November this year.

The government also announced that it will provide $42.1 million over four years to the ATO to increase activities to recover unpaid tax and superannuation liabilities.

ASIC and APRA were also provided with additional funding aimed at strengthening their effectiveness, which some fear could lead to a rise in levies and compliance costs for licensed advice firms.

By |April 3rd, 2019|Auditor, budget, investors, retirement, Self Managed Super Fund News|Comments Off on Top budget measures impacting SMSF professionals

Why investors need to be wary in 2019

Why investors need to be wary in 2019

By Ben McCaw, MLC,  SMSFAdviser 22 February 2019 

The rise in share market volatility is a reminder of vulnerabilities that have accumulated in the financial system.

The fragilities underlying the prolonged strong returns of the past few years became more apparent in the final quarter of 2018. 

Returns have been generated on the foundation of ultra-low interest rates and central bank asset purchases since the global financial crisis.

The key fundamental change has been tightening liquidity. During the March quarter of 2018, we saw the first challenge to the perception that the strong return environment will persist.

The stronger US wages data resulted in a sharp interruption to the US share market’s relentless rise.

The surge in equity volatility was a reminder of these fragilities that have accumulated in the financial system.

Investor behaviour has, to some extent, shifted towards “selling the rally”. This is in contrast to what has been a perennial “buy the dip” mentality over the past decade.

However, a sustained shift in investor expectations requires repeated confirmations that the future is not as rosy as previously presumed.

In the final December quarter of 2018, monetary policy, global trade and related concerns about global and Chinese economic growth, as well as the US budget impasse, all combined to more clearly shift investor expectations.

This resulted in the worst year since 2008 for share markets.

Bond villains

However, in contrast to 2008, when government bond yields fell and their returns surged, bonds have mostly not been effective diversifiers of risk during 2018.

During 2018, both bonds and shares declined in value at the same time. This means that the only reliable way to limit downside risk has been to accept lower returns.

Our understanding of this reality is the reason why our real-return portfolios have been positioned so defensively.

What does the future hold?

While it can take a long time, the fundamentals will ultimately drive investment outcomes. Asset prices that are high suggest low future return potential.

While there are some exceptions such as emerging market shares, our assessment is that asset prices are mostly not cheap and, in some cases, as with US shares and nominal bonds, are still high.

However, the path of returns will depend on how investor expectations change. A trade deal between the US and China that is favourable for economic growth is still possible. The argument over the Mexico border wall can be resolved.

We also know that the US Federal Reserve (Fed) is “data dependent” and that US economic growth is still robust.

So, a positive mindset could resume across global financial markets, and we have seen some of that during January in response to soothing words from the Fed and hopes for a US-China trade deal.

A new direction for the Fed

However, liquidity is tightening and has turned into a headwind. The rise in share market volatility is a reminder of vulnerabilities that have accumulated in the financial system.

We also know that the Fed understands the imperative to build policy options for the next economic downturn.

Indeed, the Fed, under the leadership of Jerome Powell, has partly removed the “lower for longer” bias that distorted the outlook for US interest rates. This is a very important change for all risk asset markets.

The presumption of interest rates remaining “lower for longer” has been a core driver of stretched valuations across asset classes

Even small movements in long- term discount (interest) rates can have a profound effect on the periods when inflation is volatile valuation of all assets. Share prices, for example, can move significantly if the market revises its cost of capital assumption.

Further interest rate rises by central banks would likely drive the market’s perception of the “natural” interest rate higher again. 

Yet, even if the real economy remains strong enough for interest rates to normalise, a strong economy by itself will not drive a strong share market.

Taking risk may not reward investors during periods when inflation is volatile or stubbornly low.

In this vein

In this vein, perhaps the most threatening aspect for shares of a strong US economy is that higher inflation could lead to the erosion of the high corporate profit margins across most industry sectors.

Tight labour markets continue to threaten wage growth, while higher borrowing costs will eventually dampen net profit margins.

Thus, while corporate sales revenue growth may persist given a strong US economy, there is no guarantee that profit growth will keep up with expectations.

This leaves investors potentially facing the double penalty of a rising cost of capital and declining profit growth.

Taking risk may well reward investors over the coming year, but this may prove unwise if one chooses to ignore elevated share valuations and global political risks.

We believe that focusing tightly on risk control while taking opportunities when they present themselves will be beneficial. This is a challenging period that will test all investors.

Dr Ben McCaw, portfolio manager, capital markets research, MLC

By |February 27th, 2019|investors, retirement, Self Managed Super Fund News, Uncategorized|Comments Off on Why investors need to be wary in 2019

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