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Let’s think Super

The material contained in this seminar is in the nature of general comment only, and neither purports, nor is intended to be advice on any particular matter. Persons should not act or relay upon any information contained in or implied by this seminar without seeking appropriate professional advice which relates specifically to his/her particular circumstances. Cutcher & Neale 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 presentation.

Ela Duraj

Good evening everyone and welcome to another finance catch-up organised by the NSW&ACT New Fellows Committee. My name is Ela Duraj, and I am the event organiser at the NSW&ACT Faculty. Thank you everybody for joining us today.

Although this is an informal meeting, I would like to start with, acknowledging the traditional custodians of the land and pay my respects to the elders past, present and emerging.
In today's meeting will have focus on superannuation and the meeting will be led by Stuart Chan and Mike Cooney. I guess the majority of you already know Stuart. He has presented for us at many online events and also a face to face starting a private practice workshop. And let me now introduce quickly Stuart.
Stuart is an accountant and a financial specialist, he presents on the regular basis for many professional body is like AMA, AAPM, and obviously the RACGP. He's been with Cutcher&Neale since 2009 and he specialises in accounting and financial services to medical professionals and small to medium businesses.
I just want to remind that this meeting is running an informal style, so there are, and no CPD points allocated, however, you can always record the self-directed activity.
The talk will be about superannuation, but we are happy for you to ask questions in a chat box and either me or any other New Fellows Committee Member will read them out loud for you.
So let me now pass onto Stuart, and let's start the meeting.
 
Stuart Chan
Thanks Ela.
Good evening everybody, so we're going to wing it a little bit tonight because we normally have Rebecca, Dr Rebekah Hoffman, one of the New Fellows Committee members actually moderating this or asking me questions about whatever the topic is, so I don't have an agenda, I don't actually have any presentation slides.
I have Mike Cooney with me here today, Mike is our senior investment advisor in Cutcher&Neale, and together we will look after a lot of our clients from their superannuation. I do a lot of the strategic work, and i'll talk a bit about that and then Mike does investment.
So it's like a think of superannuation as the bucket, so there is an opportunity to put water into the bucket and they call those contributions. And then, but once the word is in the bucket I guess it's what are you going to do with it, which is the investment side so, I'm going to start talking generally about it, and I think Ela is going to be looking at the chat box, so answer any questions specific to you.
I'm told that the group is wide and varied in terms of their stages and superannuation, so I might just start with some of the basics. Happy to answer any questions on the way.
So superannuation it's something that we encourage all of our doctors to think about. It is supposed to be, and it's actually one of the sole purpose to provide retirement benefits for the members of the superannuation fund in retirement. It’s about it's about saving for your retirement, so if I’m talking to my young GPs now, and saying: ‘Hey, you should be thinking about superannuation.’ It might not be front of mind. It was an easy thing for practice practitioners in the past in terms of superannuation because when you were a doctor and training, you were actually having superannuation deducted or paid into an account, so most of you have probably got ‘Aware Super’ or what was ‘First State Super’. Or have other industry type fund. So, when you're employed, your employer puts money into superannuation for you, so they call those concessional contributions. Concessional because someone claims a tax deduction for them.
And as you become a fellow as you move into probably a sole trader (and I’ve spoken about that structure in the past), so I’m gathering the most of you will be sole traders. You're no longer receiving salary wages so probably no one's putting in money into superannuation for you now.
So, we'll encourage our doctors to think about well, maybe you should be putting money into superannuation yourself, so making a personal superannuation contribution. But what that means is that it actually reduces some of your cash flow so we've got to think about that as well.
I might say from the outset, and Michael remind me about this is that we can't provide any specific advice tonight in relation to superannuation. Following the Royal Commission and all the inquiries, etc, there has been a renewed focus on providing appropriate advice. That is in the best interest of the Members, and that includes superannuation and, generally speaking, all financial advice.
And so we're going to talk about the rules and some of the generalities about it all. But we're happy to take any specific questions you've got, probably offline, and Ela can provide our contact details, and we can follow up over those conversations.
So we're going to talk about the specifics and some of the reasons why people think about it, and maybe some of the strategies as well. So I was talking about doctors getting money into superannuation via their employers contributions. But then when you become a fellow and a sole trader no one's putting money into superannuation for you, so suddenly you receive all this money it feels good, because you feel like you got a bit more cash around the place.
But if you don't have anyone contributing money into super for you, you've got to think about well what happens in retirement. Now that might seem a long way away, but the ATO and the government came out with a number of 1.6 not that long ago about three years ago and that sort of gave everyone a target in terms of superannuation, it's a fairly big number.
There's an amount that you can put into superannuation each year, and that applies for this financial year, which is $25,000. That's the contribution limit for concessional contributions, so if you are an individual sole trader, fellow and carrying on your own business, you could put in money to superannuation up to $25,000 and you could claim a tax deduction for that. So we encourage our doctors every single year, we're flat out at the moment because we're going through our doctors financial situations looking at what they've earned what their taxable income might look like, and that also means what their tax bill might look like and then having conversations about well, what can we do about that, and one of those things as well, should we be putting money into superannuation. You might say, and some of them say yes, we should do that because I get a tax deduction for it.
There's lots of things you need to think about in superannuation. So one of those is that once you contribute that money into superannuation, you might not get access to that money until you make what's called a condition of release, which is what trigger event allows you to take money out of superannuation, right? And what we're saying to most of our clients, is that if you're putting money into super, you almost have to plan that you can't touch that money till you know 60 at the earliest or 65 and simplify things were saying 65 years of age.
So it's a bit of a balancing act, because then you get a tax deduction if you can make these concessional contributions towards super. But you don't have the extra have access to that money so you've got to think about that as well. Now our clients have to think about well where would that money have gone.
So many people have mortgages, so they want to actually pay down a home loan fast, so that money could be sitting against their home loan or sitting against their in their home loan offset account as well, so one thing's for certain, that if someone in the 40s, for example, starts to put the $25,000 in a super and that money and Mike's done some analysis on this as well, is that, if that money earns 45% in this standard superannuation fund, and I might talk about the different types of superannuation funds as well, you might not get even with that earnings up to 1.6 mil which is sort of that target that the ATO have.
I might get Mike to talk about compounding, the power of compounding, and compounding works even better in superannuation. Because in superannuation you're sort of taking money from outside of the super environment putting it into the super environment. and inside the superannuation environment, the tax rate is 15%. And you compare that to the average rate of tax outside of you know superannuation for most doctors, you know it'll probably be in that 40% and possibly in the higher highest rate of tax around a 47% as well.
So if you can take money out of that 47% tax environment and put it into superannuation and you can get a good tax outcome. So super is good from a tax perspective. Super is also good from an asset protection perspective, some of you, I sort of recognise the names on some of them that had attended this session, we ran which we talked about structuring and I said in that many months ago now that one of the two key concepts, we always think about a tax, efficiency and also asset protection. So superannuation provides a good level of asset protection and it can also be very tax advantages as well.
Sorry, if I’m jumping around a bit, we just sort of got no set agenda, as it were, so are there any questions initially Ela before I keep going?
 
Ela Duraj
No, at the moment we don't have any questions, but I’ve got Declan Nugent here who's a New Fellows Committee Member and he will be reading them out.
So guys, if there's anyone who has any question of what you is talking at the moment, or something that you would like to know about super put them in the chat box and we'll read it, and Stuart or Mike will answer.
 
Stuart Chan
It’s a very broad area, so I’ll try and touch on lots of different things, so we talked about thinking about putting money into superannuation but then there's obviously the advantages and disadvantages, of doing so.
There's different types of superannuation funds, so the vast majority of those online tonight will have a retail super fund, I would have thought, from the hospital days from their training days, okay?
Then you go, so that's the retail funds, and they are, generally speaking, low cost, but what's happened is that your money's mixed up with everybody else, like a pulled investment, and actually Mike I might get you to talk about some of the differences in terms of retail super funds and down the other end of the spectrum, we have self-managed superannuation funds and then there's the thing in the middle, as well, so..
 
Mike Cooney
Yeah that's right. So Hi everyone, my name is Mike Cooney, Senior Investment Advisor at Cutcher&Neale, as you can say I’ve been in the market for a long time and also, helping people with their and personal investments.
In terms of when you when you start out, you get a default fund, whether it’s Aussie Super, Aware Super, one of those big industry supers sort of the standard, the norm, and you know, they do pretty good job you get a, you know, you can choose whether you want to be, you know what's risk you would like to take, and generally you know the younger, you are the longer time horizon you've got, the potentially more risk, you can take as you can write out the ebbs and flows of the financial markets, which will happen, as we know, the market moves in cycles, and obviously, generally people said they suggest, as you get older you taper off that risk because you know you're entering retirement, you want to preserve that capital base.
And I can touch on that a little bit later as well, so that's a retail super. That’s pretty much really, you've got a few choices, you can make so.
Obviously, being an ethical investment is big becoming much more widely required choice, people are making those decisions, how they want their money to work for them and wanted to do so in an ethical manner. Which is, we've seen a big huge demand from our young doctors that have invested with us. And they, obviously, as Stuart mentioned, as you get older, you know you might want to add your rooms into the super, you can only do that by a self-managed super fund.
And you're required to have a balance of you know they sort of the I think the ATO have a number of around 300–400 thousands Stu balance which you probably need anyway, because you obviously need that amount to borrow against buying rooms if that's what the way we want to go.
The SMSF does not just for buying you know medical rooms, you can also use that for expanding your universe, and what you want to invest in, and having a little bit more I guess control over how you're investing and the sort of investments, you can do.
And we sort of help, you know, it's sort of, we have we start out with a very small, you know, sorry, a very standard retail product and then as that doctors, you know grow and their balances grow, you know, we sort of generally, not always, moving to an SMSF structure, because obviously that flexibility.
Yeah, SMSF structure is a little bit more, Stu can talk to this as well, but you know it is a lot more requirements that are needed, it's not as simple as when you have got a retail fund and where their money just goes in, set, forget.
So the strategy you actually do need to do things, and you probably need to employ someone to help you make those investments decisions because an SMSF Self-Managed Super Fund is a simply a structure. That’s all it is, it's not, it's just a trust like a superannuation trust is held in trust when you've got it with Aware Super or any the other retail super funds, that's a trust structure, SMSF means that you are the trustee so there's a lot more onus on you to you know, to make sure you're following the letter of the law. And also you've also got the onus to make the best decisions inside super.
 
Ela Duraj - on Eora / Cammeraygal / Guringai Country
We have some questions yeah. There’s something about what you were talking at the beginning about the 25 K.
 
Stuart Chan
Yeah I can see those. I might just circle back to what Mike’s said and then incorporate those questions Ela, do you think.
So, so when you first start out as a doctor you're an employed doctor, so your employer is contributing superannuation. Be at the practice that you were training at all the hospital, you were in earlier so, then you start out with most likely your retail super fund, which is what Mike was talking about earlier.
I know there's an insurance talk, but you should all of you should probably look at your insurance, your annual superannuation statement, Ela that includes you as well, and just check, you know contributions are going in.
There probably are some fees going out through there as well, one of those fees might be insurances as well. I’m not talking about insurances tonight, but a lot of people have insurances within this superannuation funds as well.
That's probably in to complement that any other insurances you might have outside of it, but people forget about that one other thing that I will talk about in when we're talking about our retail superannuation funds is that often and many of our younger doctors even our more experienced doctors, they may not have nominated a beneficiary to receive this super in the event that something were to happen to them. So go and check your annual statements check to give nominated somebody, your significant other. And also check about what sort of insurances you've got and that's really about paying some attention to your superannuation.
And then as GPs sort of progress through your career, you might be thinking about joining a practice, and you know, and then you might also thinking about being an owner of the rooms that run that your practice runs from, so that's when an SMSF, in particular, comes into play. So a self-managed super fund, that's what we mean by an SMSF.
One of the questions is, you know, you can buy investment property through super, and what are the advantages and disadvantages are. So yes, you can buy investment property through super. You need to think about whether you've got enough money to buy investment property in the first place. If you don't, it's possible for you to borrow inside an SMSF, if it's only an SMSF you can do this, right? And those borrowing arrangements are called limited recourse borrowing arrangements. You can only borrow inside superannuation under specific rules.
And when we present our self-managed super fund tax returns to our doctors, there's the paper works normally about that thick. I don’t know if you can see that clearly, but there's a lot of paperwork.
And Mike was alluding to that earlier there's a lot of responsibility to have a self-managed superannuation fund, so you don't want to enter that and make that decision lightly, because there's significant costs associated with it, but there's also significant advantages.
And you do it if you've got a particular strategy, so Mike was quite right and saying, you know, you've gotta have a decent amount in super before you're thinking about it, or you need before you thinking about a self-managed super fund, or you need to do a self-managed super fund for a specific purpose, such as buying your medical rooms through a self-managed super fund.
The question about the 25.. So $25,000 is the concessional contribution limit so there's two types of ways to contribute/put money into super: is the concessional contributions and there's also the non-concessional contributions. The easiest way I explain it, is that concession is like somebody is getting a benefit - that benefit is generally a tax deduction. So if you're a sole trader and you put that money into superannuation and you satisfy all the other basic eligibility requirements, then you could get a tax deduction for it, so it goes in as a concessional you get a tax deduction for it in your name. If you're a sole trader, it goes into super and it's taxed at 15%, right? So there is some taxing point, but 15% fairly low. If you didn't put that money into super that money might sit outside as taxable income and you'd pay tax at your marginal tax rates. The question is about, if you don't do the $25,000 maximum amount each year, how long do you have into the future, to be able to go and contribute the $25,000 that you've missed out, I think it is.
So it's effectively referring to this catch up. So if you haven't done your $25,000 contributions from 2019 and 2020 and 2021 so we're in the third year, it's possible that you can go back, so in 2021 you can go back to 2020 and look at what you put in versus the $25,000 limit. And also go and have a look at the 2019 year as well, so this concessions started in the 2019 year so it's the catch up payments. But you do need to make contributions for that, you also need to have, and I’m talking generally here, you want to go and check the specific rules and how they apply to you before you go and do this, you also need to have no more than $500,000, Mike, in your superannuation before you can.. So if you've got more than that you can't necessarily access, the catch up in the superannuation. So hopefully that answers Alvin’s question, as it were.
So we were talking about retail super, we were talking about self-managed super funds. So for those of you who have higher ambitions of running your own practice and also being your own landlord, and no doubt some of the senior fellows that you work with they own their rooms through a self-managed super fund. That's when you think well it's probably not a terrible idea to make sure I do at least a $25,000 tax deductible super contributions each and every year. We're encouraged and it's easy to say, but we encourage our doctors to almost adjust their home budget to be without that $25,000. And it doesn't have to be the full $25,000 necessarily but you know it's better for from a tax perspective if you can.
Even if you're putting something into superannuation and marrying up the cash flow requirements in terms of a mortgage etc. you'll have money going into super. The tax rate inside super is 15%, so there's, you know, if $1 goes in you lose 15 cents to tax, you've got 85 cents to invest in superannuation, right? And that earns money and then you have compounding inside a 15% tax environment, compared to money outside, so Mike, you might want to explain compounding, and particularly in the superannuation environment, how that can actually give you more money at the end of the period when in compared to investing outside.
 
Mike Cooney
Yeah sure.
Look, I think, with any seasoned successful investable will agree with it, that the most important resource in investing in this game is time.
At most, inflexible and valuable commodity and with time, investing, it means compounding. Compounding or growth of a great asset and investment over many years is really where wealth is created. Now you've probably all heard about Warren Buffett I mean he's always talking about compounding and how that sort of you know created his wealth and then he's known as snowball not for the colour of his hair, but because the snowball as it travels down a hill it compounds. The bigger it gets the more snow it packs with each revolution. Now that, obviously, is a metaphor for compounding and explains that by small actions carried out over time can lead to really big results. So you know of course yeah if you interested in compounding, it really is, I guess, interest on interest so, say you lend someone a $10,000 and they pay 10% interest on the first year and then obviously on the second year that you're going to get 10% interest on $11,000, and so on, and so on. That's compounding, and you probably going that's great Mike where are we going to get 10% return interest right anyway, at this stage words. It's a really good point compounding doesn't just have to be with interest or bonds or any debt instrument.
When you look at stocks, you know a great way to think about stocks is, they're constantly reinvesting into themselves, if you look at a stock, for example, like you know, Amazon or Google, I think, Google pay, and Apple, so these companies that have, spectacular growth over the last couple of decades, you know unbelievable companies, but what they can't constantly do, and I think Amazon, and I think Google might pay like a very small dividend, but they don't generally pay much dividend, it is not like Australian shares. And what they do is when they get those profits they reinvest it into the company and it's shown that you know, obviously, they're going to spend that money better than we would. If you look at Australian shares, for example, like CBA or any of the banks and big miners, they pay a lot of their money out, they don't reinvest as much as some of these US names I’ve just mentioned. And so you're not getting that real compounding effect.
So what we look at when we're looking at stocks, for as an example we're looking at companies that are high, how we call, return on equity (ROE). That means is, if you if you invest $100 and you've got ROE of 25% return on equity, that means that $100 is returned 25%, so you look at that, you know, compared to, you know the interest rates at the moment you're getting in the Bank which is less than 1% you know some of these companies are still returning. Now some of that of course is factored in. But, for example, Apple they've got a return on equity, ROE of 85% so every, you know, every dollar they you know invest they're going to get 85 cents back. Again that's factored into the stock price, but that is another way to look at compounding and you know that's another way you need to think about this it's not compounding isn't just interest rates that's just an easy way to say it.
 
Stuart Chan
Then, having those stocks or those investments generally could be rental income, for example. [Yes] Super environment the tax rates is 15%, so that's one of the biggest points differentiation so you know company the tax rate is on passive income 30% so in your own names doctors, you know, if you're earning $250,000 or whatever you know you're probably going to pay the top rate of tax, compared to super which is 15%. So, the more you can get into super, and the more the money inside super earns in a 15% tax environment there's just going to be more there for your retirement in the future and that's ultimately what the superannuation environment was designed for as well, and the system was designed for that.
And, but I keep coming back to it. It makes sense, theoretically, to do that, but obviously cash flow is limited, so you've got home mortgages, and there might be school fees and you know, still debts that you need to manage, so it's about balancing the two, which is why it's really important to get specific advice in your circumstances as well. It's not a cop out it's just genuinely you need to make sure it's the right thing for you. So some of my doctors, we go: ‘Okay I’m not going to do it this this year Stuart, but I want to start small the next year’. So I might set, I'm going to budget to have $2,000 a month going into super, so by the end of the year, two lots of 12, $24,000 I’m close that 25,000, so it's about almost setting a savings plan, as it were.
That savings plan is similar to salary sacrificing, so in the hospital system, you could actually sacrifice some of your salary, so you don't take the salary, instead you say don't give me my salary, put it into super for me, right? So doctors will living off less, as it were, but that money was going into super.
I've actually got a client of mine and a client of Mike’s as well, a GP, young GP as well. From the get go, he was doing his maximum super contributions, as it were. So he was single at that point in time, so he was just adjusting his living etc. So he's actually built up a fairly decent amount in super. And because he's got a decent amount in there, we were able to pair it back now that he's got a home mortgage, as it were. So, but we've got a good starting point for it, so you can sort of ratchet it up when cash flow permits and ratchet it down. The key success, though, is that and he'll have an opportunity to buy in some practice, and also the rooms as well is that he did a little bit of super always along the way when cash flow permitted, as it were. So that he's not going to have to try and dump lots of money into super towards the back end of his career, and you can do that, of course, and that's you know we've done that, for many other clients as well.
I talked about concessional contributions, and there are two types. The second one is the non-concessional contributions. You don't get a tax deduction for non-concessional contributions, okay? They're the contributions that come out of your after tax savings. So that might be sitting in your home line offset account or against the home loan etc. So you want to think carefully about putting those amounts in there, we often do a combination of concessional contributions and non-concession contributions.
When we're trying to get a certain amount into super, because we want to go and buy something, will be that investments such as shares, will be that and investments such as property, etc, as it were. So retail super, self-managed super, the power of continually putting money into superannuation, as it were. And I’d certainly encourage all of you just to take an interest in your superannuation by checking your annual superannuation statements.
One of the questions that come up, is what's the minimum amount we should have in super before we thought even thinking about I self-managed superannuation fund. And if there's no hard and fast rule but we sort of got a figure of $250,000, right? And why that number well, if you think well, sometimes it costs you on average, say $2,500 to prepare financial statements in a tax return for a self-managed superannuation fund.
If you had $100,000 that $2,500 is a fairly big chunk of that you know $100,000 in super, if you've got say to $250,000, $2,500 is roughly 1%. You know, it's a smaller amount so you've got a bigger capital base to generate income to cover the cost of maintaining the self-managed superannuation fund. But as I said earlier, you might want to go there earlier and a self-managed superannuation fund if there was a specific strategy that you were looking at such as the purchase of medical rooms inside superannuation [Yeah].
 
Declan Nugent
And Stuart, this is Declan colleague. The other question about property, when you're mentioning self-managed super, for people who aren't earning enough, there's also the first homebuyer scheme as part of super otherwise isn't that correct.
 
Stuart Chan
Yeah there is that strategy as well, so Mike actually might be able to speak to this but, in general terms.
 
Mike Cooney
Very general terms. Thanks Declan. To be honest I’ve never used this, it does seem rare, but it's there, it can be used, the first home super saver scheme. So basically you can put in, I think the recent budget changes have allowed it to go up to 50,000 currently it's 30,000 I think that's not till 1 July 2022 and what that means is you can make voluntary or salary sacrifice and that's above the 9.5% or it's going to be 10% superannuation guarantee amount next year, so if you're not an employee and you're making those salary sacrifice or concessional contributions that will count.
So you used to have to alert your super fund, but you don't need to anymore so that's changed. Once you've sort of put in enough money and you feel like you want to buy a home, you need to apply for a determination by ATO. Once they have made a determination you're able to pull out that money up to a maximum at the moment of 30,000 plus any earnings that that $30,000 is generated over that period and then you'll have 12 months of which to sign a contract to buy a home.  Now this, you need to live in that home you can't be an investment property, you need to live there for at least six months. And then, obviously, if you say, for example, you decide you don't want to buy a home you can't find anything or all the prices have run away from me like today, you can decide to put that money back into super. Or you can keep it, but you got to pay another 20% tax on that money released.
There is a chance that the ATO reject an application, again, I’m not an expert in this area, has been used enough I don't believe, but it is there, and it is a tool to help you get into the market if you're looking for looking for your first home.
 
Stuart Chan
I think it's a, it's a good point there, sorry Mike. It's a tool to help you save up that deposit, that's what it was designed for Declan. I actually have a young GP who actually took advantage of this they weren't in Sydney so they, he and his partner were making those contributions and then did the withdrawal, so that gave him enough funding to actually cover the deposit, as it were, to affect the purchase of it. So it's not something and honestly I haven't dealt with too much of it all, and the rules are quite straightforward, I think that you just got to make sure you're not through each of the rules as well. It's probably a good idea for an article, we could do Ela, if it's something that people are after and some practical some practical guidelines on that.
 
Mike Cooney
Yeah.
 
Stuart Chan
So, we were talking about the two types of contributions that go into superannuation.
We've talked about tax rate, oo so we're talking about property. So I’ve been talking about property in terms of medical rooms.
You can only buy property through a self-managed super fund, you can't buy property, direct property anyway, through a retail superfund such as Aware Super etc, okay? So it's only a self-managed, when people are thinking about buying property.
If it's not medical rooms, so we have many clients who have actually investment property inside of a self-managed super fund. One of the things I’d say from the outset, is that every time you deal with superannuation you've needs to be very careful you can't receive a benefit from your super fund, so you couldn't buy a property on the coast, which you use as a holiday home and have that owned by superannuation. Massive no, no, right? So don't even don't even go towards that temptation, as it were, because one of the one of the key rules about a superannuation is that you can't benefit from it, prior to retirement, so if you were thinking about buying residential apartment, you could do that through a self-managed superfund, you have to accept the fact that you won't be able to utilize it. And if you wanted to utilize it you'd have to get it out of superannuation then you'd have to look at well do I satisfy any of the conditions of release, or does the superfund need to the sell it to somebody? And there's also strict rules about related party transactions. So anyone related to the member of the super fund if they're doing a transaction between them between them, you've got to think very carefully about it well.
So that's because there was a question there for in terms of investment property through super. A – it has to be a self-managed super fund. It is possible to borrow inside the superannuation environment. There's a limited number of banks that will actually lend to a self-managed super fund. The major banks, generally speaking, are not in the market of lending to self-managed super funds, so they used to be they pulled out of it because it's actually quite complicated. And it's got to be appropriate in in the best interest of the client.
I have a client that I took on not that long ago. They have a massive loan inside superannuation so you know in excess of $2 million. When they took that loan out they were in their 60s, so the question is, should they have actually been allowed to borrow that amount of money, are they going to be able to pay it off in that period of time? So that's a clear example of making sure you get the right advice, even though it makes sense to have and, in this situation, it was medical rooms inside a superannuation environment yes it's great idea from a tax, from an asset protection, but is it still in the best interest of in my instance, the client or the members of that superannuation fund. The borrowing rules are very important, as it were, yes, you can borrow, should you still do it though? Well you know you need to get the right advice about that so.. I'm just looking through for any of the other questions.
 
Mike Cooney
Might just talk a little bit about when you're looking at your portfolio within super. Is that all right Stuart? [yeah]
Because we’ve sort of touched on few different asset classes, we touched on fixed income or bonds, stocks and, of course, property. They're probably the major asset classes that we're looking at, for we going to keep it pretty simple but, you know and it's generally when you're looking at your portfolio depends on your risk profile, I think we touched on earlier, if you're high risk or low risk. A mix and match of those different asset classes and a few others, but keeping it simple for tonight's diversification is very important, there is no crystal ball.
We just don't know you know what's going to be the best performing sector. We do know over time, over a long period of time that shares generally outperform that stocks, you know, obviously a stock is a, we are effectively buying a piece of a company that's, you know, it's over the long term, you you're getting full exposure that company does well, you're in a piece of that company. It's a bit of an emotional rollercoaster of time, it's not for everyone.
So generally people like to mix and match those wild fluctuations, we think like bonds. Bonds is an instrument and, basically, is there for, you know, maybe you lend some money they pay you back and interest right so let's call it 5% so you're knocking your capital. Is pretty capital stable but it's an income generating assets, so you know every you know, six months or three months, whatever the terms are, there's no growth really generally just getting an income out of that asset it's an important part of a portfolio, because it offers that stability of balance in your portfolio and people who have lower risk tolerance will generally have a larger weight to asset classes like bonds.
And, of course, you know there's property. Now property is considered a growth assets like stocks, because it can fluctuate. It's a bit easier to understand, for the most people, obviously it's probably less volatile than stocks, but that might challenge but as a general rule, it does earn income, like a debt instrument, like a bond, in the rental income, obviously, if it's tentative, it's called capital growth, like a share so hopefully you know it appreciates in price when it's in from the time you bought it. Tax deductions, it can offset some of the expenses like rental income, and you can use that against your interest rates and obviously it's a physical asset, a lot of people are very you know love it in Australia, because it's  obviously an asset class, has done so well. But it's something you'd say in touch tangible people understand it and there's not that much specialized knowledge it's not complex to go and buy a property. Of course, you know you probably might not be tentative, it might be empty, interest rates may arise, and that can cause higher repayments. Get mentioned it can be obviously they can be vacant and there's also high entry and exit costs when you're looking at property market generally.
So having a mix and match of those different asset class, tend to act in a way that obviously protect you because you know, things will happen markets will crash. If you do not diversified if you've got all your money in the stock market well it's going to hurt. You don't need to be a hero, this is your super but you know. It won't be fatal if the market crashes and you've got a diversified portfolio of many different assets and that you know we're talking international shares, aussie shares. Set amount of property, and bond, set amount of allocated to a bond portfolio. That's a total, you know, sort of portfolio and, as I said before, it depends, where you see it on the risk spectrum, some people hate risk, some people love the risk, and they can sleep like a baby, even the markets rocking around like it did last March.
So that really that's it's a personal situation, as I said earlier, the younger you are, the chances are that you've got more time to ride out those waves of market volatility and that's generally consensus that that's where you should invest but it's not for everyone.
 
Stuart Chan
It's really good point there, so I encourage all of you to have a look at your, assuming you're with a retail fund right, so when you get your annual statement have a look at it. Do you know which investment profile you're in, are you in a what they call it like a balanced, Mike? Or a growth or conservative, etc. All of you will have shares invested in through your First State Super or Aware Super now, or some super, whichever you choose, whichever, wherever you are, as it were. So you don't have a choice in terms of the stocks you pick, or the investments, etc.
You know self-managed superannuation environment you have complete control, but it comes with additional costs and responsibilities that's why it's appropriate when there's a particular strategy that you want to undertake.
There's also something in the middle. Let’s say, where you get to be able to pick some of the stocks that you want. And, I mean investments we're not talking about you know individual stock picking or anything like that, but you can actually invest in companies that have property, so you can actually get that diversification as well with you know some control, but not with all of the responsibilities of a self-managed superannuation fund.
One thing that's probably worth mentioning is that so we're going to all this effort to talk about why we put money into super because it's for our retirement etc. That we should be doing, and along the way we there's advantages from a tax perspective but fast forward and it's important to not lose sight of the big picture is that on some might be closer than others towards it let's say 65, but if you get to 65 and you satisfy that condition of release. And that's when you're allowed to take money out of superannuation you're effectively go into pension phase, so a lot of your senior colleagues who know if you're practicing in their rooms, etc, there might be nearing this. So when you get into pension phase and if you've got 1.6 in super from you know and that's combo of shares or cash or property or whatever the case may be. And you go in a pension phase you're required to take money out of superannuation at that point in time, so it comes back out, but you might not have to pay tax in it in your name.
And there's no tax inside the superannuation fund so let's say you're a diligent saver and you put money into super, are you doing the tax deductible contributions and you might even put some extra contributions on the way. And you eventually get to 1.6, that number is actually going to increase to 1.7 from the first of July and probably good to know now that the $25,000 limit that we've been talking about, the tax deductible limit or cap, that's going to increase it to $27,500 from the 1st of July.
What that means practically for all of you is that you might be able to put a little bit more into superannuation you will be able to put a little bit more in superannuation from 1st of July.
So coming back to the example, if you have been diligent and you get to 1.6 and then you switch on pension at that point in time. If you've invested, and you know Declan’s picked whatever investments, he wants and it's earning 5% you know, on 1.6 is $80,000 there'll be no tax on that $80,000 inside superannuation. And you can take that $80,000 out of superannuation and you won't pay tax on that in your own name, right?
So you still might be working part time, so you can supplement you're getting $80,000 tax free, which is the equivalence of you know just doing straight assuming 50% tax rate $160,000 of gross medical fees after tax sort of thing, so you know it's important so 65 might seem like a long way away. But if you're not thinking about it you'll sort of get to year on year on year on year, where, and it’s perfectly good reasons why people say I’m not going to put money into super: As I said, mortgages and school fees and you know just paying off debt, etc, but the longer you wait. The harder, it is to sort of get up to that magic number now 1.6 / 1.7 you know it's a target right, you can get more in there and we, you know that would be fantastic. But there's different strategies, probably a bit more in depth than conversation that we're talking about generally today in superannuation.
 
Mike Cooney
There is a question there from someone regarding examples of bonds that we'd recommend. We can't do that, make recommendations of a specific assets, I can tell you what we do at the moment, we only invest in investment grade, what does that mean that means triple BBB and above.
So if you're not familiar with the ratings agencies that basically means pretty safe and secure debt instruments, you know things like you know it's Commonwealth bank and NAB, be they would be generally rated and double AA or better, so you know that's the sort of secure investments. When you got that any portfolio, you can get what's called junk bonds, which triple BBB minus and beyond there's plenty of that floating around at the moment there's obviously, junk gives you an idea that they're probably a lot higher risk. And that's what you know you might get a higher interest rate, which is obviously hard to get at the moment, however, you know there's a high chance that they might default, and that means you might lose some of your money, if not all, so potentially.
So that's just one thing to think about with bonds, I mean we can't give you recommendations, which means that we would buy just the way we look at our universe. We like to keep when we when we've got a capital stable portion of our portfolios, we like to keep it as it should be, in that capital instability .Now we may forget some a return in terms of some of that income that you might get from you know junk that might be 10 7% 8%. We have we prefer to keep that safe and secure and learning, you know, three 3% to 4% but knowing that they're pretty safe investments.
 
Stuart Chan
There's actually a question there, which is a very good question from Karen about Division 293, so I am, and this is really important, and this is the thing with super that's such a big area and it's you know you have to make sure it's specific to you.
So division 293 there's a possibility that, if your adjusted taxable income so just think about your tax return is a label called taxable income, right so and then there's a concept called adjustable taxable income it's basically your taxable income and add back other deductions, such as you might have a rental property and it's negatively geared and. You know it's maybe negatively geared to $5,000 so that $5,000 gets added on to your taxable income to come up with as adjusted taxable income number, if your adjusted taxable income is to 250 plus right I think it's 250 still, Mike. And then you put money into superannuation, okay? Or your employer puts money into super and it's the concessional type, which is the tax deductible type. I said to you earlier, that when it goes in a super it gets taxed at 15% but, unfortunately, if you're in damned if you're in this category of having a high income earner according to the ATO and the government and have adjusted taxable income of in excess of 250. Then the money that goes into super that $25,000 it will be subject to an additional 15% tax only on the $25,000, up to the $25,000.
So what that means practically is that you're putting 25,000 into super, you'll get a tax deduction in your name. But it gets taxed effectively at 30% inside super and you go well that's not really good. But what you've got to remember is that okay it's 30% inside super, but if you didn't put that money into super. You probably would have had that outside in your tax return, so your taxable income may have been $25,000 higher, so what was your tax rate versus the 30% tax rate in super. Generally, when we're doing this analysis for a lot of doctors is that they're going to be paying more than 30% tax right. So they'll still be better off doing it, right, and they might be trying to save money into super, knowing that they want to sort of save up a deposit for a property be at the medical rooms, or to buy investment property, because that's what they're interested in. Or they actually trying to get money in a super so they can go and set up a particular portfolio of shares or whatever the case may be.
We're not directing you any one particular direction about the investments inside super, we're talking about the vehicle itself the box, if you will, and you're putting the bucket I referred to earlier and you're trying to put as much water into the bucket as you're allowed basically. So that's what division 293 is. An extra tax. Now, you can have that paid by the super fund or you can pay that outside with your own money. Most of our clients were suggesting that they pay that outside with their own money and you go, why would you do that? Well you're going through all this effort to put money into super and you actually want to keep the money in super. So that it's compounding away in that better tax environment and you're trying to save your retirement, right?  So, generally speaking, and we can only speak in general terms, now, it's probably, we direct most of our clients to consider paying that outside that additional 15% tax so it's on $25,000 it's an extra 15% so it's $3,750 or something like that 3750. That's the maximum amount that div 293 that extra 15% tax doesn't apply to the second type of contribution, which was as non-concessional. Non-concessional, so no one gets a concession there's no benefit, that benefits the tax deduction so, those non concessional that go into super they don't get tax of 15% so the earnings inside superannuation get taxed at 15% whilst you're an accumulation phase and that's probably a really important point.
There's two types of phases when super, most of the people online here I’m going to have a guess or an accumulation phase, so you're accumulating, you're trying to save in superannuation okay.  So you know it gets taxed at 15%.  When you're in pension phase right you're in pension you're taking money out of super potentially the not gonna pay any tax in superannuation. So 15% tax right on the earnings and super, and in pension phase potentially zero percent tax, so you can see why people want, like, it's such a good idea from a strategic perspective to do this superannuation.
You just need to work through the practicalities of how you do it, as it were, and I’ve been talking about you know the doctors online claiming deductions, etc. You also should consider superannuation for your spouse or your significant others or partners, etc, because we often have clients, where the doctor, because we've been doing tax deductions only has a higher balanced and their partner, okay? So we actually would like to have both parties on roughly the same amount and all working towards that that 1.6 or whatever transfer balance caps are that's the 1.6 which will increase to 1.7.
Sorry I’m trying to not use too much jargon, but in superannuation will this just jargon everywhere, as it were.
 
Declan Nugent
So Stuart that probably lends us to a question there about: If I have a stay at home partner, can I make super contributions on their behalf?
 
Stuart Chan
Thank you Declan. You can, but you may not necessarily be able claim a tax deduction for okay, so and that's the challenge, so you want to make a super contribution, you want to claim a tax deduction for it. You probably have to have a person on a on a decent amount of income or have some income to get the benefit of that some of that super contribution. You can make spouse contributions, and there are some rebates, etc, so the government to a co-contribution as well, and we can also post up something on that as well. So they're relatively small contributions in a super, Declan, and for [inaudible], as it were, but you know, a small contributions every single year they might help but I'm pretty sure they relate to non-concessional contributions, so no one's going to get a tax deduction for that amount going through.
There is a possibility of splitting contributions right, again, you need to check this, so it's possible for a doctor, to make a contribution and super and then to split some of that to a spouse, as it were.
And why would we do that, well, we might want to balance the spouses superannuation balances up to the doctors balance where we're trying to make sure both parties get to the 1.6. You don't want to have one person straight on the 1.6 and then another person on you know, $300,000 or $400,000. You'd rather have you know both of them on the same time, on the same level, so that we can make contributions along the way, but that's getting into the specific strategies of that person at that point in time so.
There is a…
 
Ela Duraj - on Eora / Cammeraygal / Guringai Country
Stuart, there was a question, it was like a case-based scenario question.
There is a case for a 55 years old GP, so there is no private home loan depth to contribute as much non-concessional contribution over a period of five years, so in that case 550 K in total to get the balance, up to the transfer balance limit for the financial year 2022 $1.7 million, so that they get more into super than the 1.7 limit via further SG…
 
Stuart Chan
Yeah, I'm reading that as well, so I might break that down because that's probably going to be quite specific so and I'm not taking a cop out but we've got to speak generally.
So if you've got a doctor and they've got no private debt, no home loan debt and I guess no other obligations and they have money lying around that they can actually put into super there may well be a financial case to make these non-concessional contributions there the after tax monies.
The limit at the moment is $100,000 per year for these non-concessional, now there's some age limits on putting money into super, but at 55 you're generally Okay, so they could every single year do $100,000 so and get extra money into super, so that they get closer to their 1.6 TBC cap, the total transfer balance CAP or in financial year 2022 John 1.7 million super. We've got some clients who have been very fortunate in that situation, whether they are ready at that 1.6 /1.7 in their late 40s.
The relevance of hitting 1.6 or 1.7 those is very important point, they will be precluded from making any further non-concessional contributions, as it were, so they can't put any more after tax dollars in they can still do the concessional contributions, the tax deductible ones, but what a great place to be, and if they're able to do that, because now that money is just going to sit there in Super you've got 1.6 let's say, because then that math is easier.
You know, if that earns 5% invested there's you know there's the $80,000 they already. And that's adding on to the 1.6 you know and it's compounding away so by the time they actually go to switch on pension phase let's say in 10 years time it's you know 65 they're going to have more than the 1.7 in there, so one of the great things if you can get to that limit faster it's going to be earning money and investing in that 15% tax environment reinvesting, so that you can end up with more than 1.6 /1.7. You'll only get up to 1.6 /1.7 the tax concession where earnings up to that number will be tax free the balance above that 1.6 /1.7 will be taxed at 15%, which is still pretty good when you compare it to a doctor's tax right, as it were.
So I think one of the other questions Ela there from John was can I also to personal super contributions, the 25s each year? Yes, so when you get to that 1.6 1.7 limit you can't make any more non-concessions, but you can still do subject to age and work tests, etc, the tax deductible contributions, which are the $25,000 amounts or soon to be $27,500 amounts.
 
Mike Cooney
And that's right and, at the moment you do need to meet the work test out of the question, but I think it's 2023 you no longer may need to make that work test, if you have other income, which is a obviously recent change with a budget that was announced a few months ago.
 
Stuart Chan
Every year there's in the budget and I don't know if you guys listen to, Mike and I obviously do, get beer and pizzas, ready for the budget there's always tinkering with superannuation so they'll change the year, and you know, talking about changing the age pension and making people work longer to you access it, so and the age pension sometimes they match that back with personal super so when can people access money out of superannuation.
I think that's good, maybe another important point to discuss is when can you access it, so there's these things, called conditions of release okay?
You have to, it's generally age based or employment related so you know we've got a cheat sheet here, you can't see it. On cheat sheet, because even Mike and I, we need to check this every single time, so this is, which is why we're going to speak generally at the moment, we've got to make sure it fits our clients circumstances. General conditions are released, you know under age 60 permanently retired so most of our doctors do not do that, or they might do that for a specific purpose, if they want to access it earlier or my average over the age of 60 permanent retirement, termination of gainful employment, so you have to be employed by somebody and if you terminate your employment then you can access it. Reaching 65 is the most obvious one so it's 65 you've got full access basically. Okay, and then you can start flicking into pension phase. I'll probably just leave it there, in terms of when you can access it.
I keep it simple for my doctors and say you can't touch it to 65 right, if you do need to access it earlier than we can look at specific purposes that's definitely excluding Declan the you know, the first home savers scheme try to access it.
 
Declan Nugent
So I was just gonna ask for people who are at the early stage of this journey and not in a self-managed fund, do you guys have any specific advice about which fund, how they choose which fund to continue with. Whether it's Aware it's aware whether it's one of the others in terms of looking at performance or fees or how easily to do that.
 
Stuart Chan
Yah, Mike has done it recently for a client, so you can probably talk to that.
 
Mike Cooney
Yeah, look it's again we can't really recommend, that is giving advice.
So I can't do that, but you know I think performance, obviously, is not an indication of future performance, so I mean you can only take that as so far, obviously fees do play their part, so you know it, having low fees, can really help.
I think when you look at some of the old legacy superannuation funds that sometimes pop up on our radar, it's astronomical some of the fees, you know, 2%–3%.
And that's the way it used to be, it's getting much, much more efficient system, certainly with the retail super. I saw Uni super quoted 0.5 or 0.6 recently, that's not a recommendation, just an example. Aussie super obviously probably the biggest in Australia, I'm sure they're very competitive with their fees, but you know you need to look beyond that Look how they're invested it. If they say, you know, you were a balanced investor, how are they investing that money, because I think when I look under the hood of some of these retail funds, they say that they're balanced investor. But they probably got 80% of their money invested in the growth assets which might not actually suit you, might not be that comfortable having that much in the stock market and property, for example.
The way they sort of bend the rules, you know not being critical of them I think they do a great job mostly, but sometimes I will say certain things like it's defensive property or property is a great asset, it is what it is. You can't sort of bend the rules to make it more palatable if you're a balanced investor and sometimes that's how they sort of outperform. Is because they've got you know, in good times if you've got more assets in growth, obviously they're going to they're going to do better. So it is worth having a look, and looking at it, as I say, look under the hood of the things I can show the fees are competitive. Making sure it's investing the way you want it to be the you know the risk profile is actually what do you think it is and also. You know, some of them do offer preferences like i've already mentioned, whether it's you know ethical investing and how are they doing it ask those questions, I mean we've got an ethical investment. Because but we've got a slightly different way and we look at things that are making a positive impact to society, now we did this because we looked under the hood of some of these ethical investments and now just full of tech, which are you know you know, mining and they're not producing tobacco sure that's fine but they're not actually going out of their way to improve society in the environment. So that's why you know we look at things slightly differently and just make a bit and get to be more engaged have a look, and what they're doing and how they're doing it and what's their philosophy about investing is what I would suggest.
 
Stuart Chan
Declan if you are approaching someone to say help me choose between you know the retail funds what the X, Y and Z funds that they be providing some advice, and what they'd have to do is like okay what's this fund performance was that found performance, what are the terms in there, what are some of the features and benefits, etc. So kind of like picking private health insurance is sort of matching up side by side and then making sure that matches up to what your objectives are as well, so it's a hard one because you sort of try to pick between, the doctors in the doctors space typically UniSuper, it’s Aware Super which was First State Super and you know, maybe some of the other states supers when they've moved into state, etc, as it were. So it's it's probably hard one it's probably easier to compare a retail super fund to, you know, like a self-managed or the one in the middle, so and I call them generically [inaudible] accounts so and i'm not making a recommendation, but like [can’t hear] have a [can’t hear]  account. Who else has got [can’t hear] accounts? Macquarie?
Yeah so these accounts that kind of I talked about self-managed super on that side, and then I talked to retail. Retail you've got no control, other than picking an investment style, such as balanced or conservative or property or whatever. Self-managed super you got full control, as it were, this thing in the middle, here it gives you some flexibility, so you can pick Mike maybe from the top 200 stocks on the ASX something like that?
 
Mike Cooney
Yeah I mean you can pick all sorts of different fund managers, sometimes you can do direct shares, you know, there is, there is something in the middle there, so you don't have that you know added responsibility of having a self-managed fund. It's a little bit more expensive, generally, but you know it's it gives you a lot more lot more control.
 
Stuart Chan
So if you going retail then, Mike, retail low cost that the [inaudible]  accounts high cost and self-managed super fund high cost again probably right.
Mike Cooney
Potentially, yeah.
 
Stuart Chan
But what you got to it, so this is where whoever's giving you advice has to toss all this up and explain it to you.
 
Mike Cooney
Yeah.
 
Stuart Chan
More flexibility on this, so you can do what you want to do less flexibility on that side as well as it were, so, yeah.
 
Declan Nugent
And the fees guys are fairly easy to find in the super product disclosure information? And how do people approach if they're not with a specific advisor looking at the performance is there a reliable or easy way of doing that.
 
Stuart Chan
I think whether there's any websites and match them all up. I'm not aware or nothing brings to mind that sometimes the best way to look at it Declan is actually look at when you get your, are you with Aware, no, so you don’t have to tell me, let's assume you’re with Aware Super.
 
Declan Nugent
I’m OK to disclose it. I'm with Aware Super currently considering changing to UniSuper, because of some of these factors we were talking about.
 
Stuart Chan
Yeah, so just look at the ledger is how I describe it so you've got contribution is going in and you have a $50 insurance or fees going out etc, and then you look at the performance.
So it really will, when we did it for a client recently we were looking at some different ones and Mike went through and did that analysis but it's a bit manual isn't it Mike?
 
Mike Cooney
Yeah there's no sort of easy way like you mentioned Stu. I think if you just get online, you can see what their performance has been, as I say, dig a little bit deeper see how they're generating that performance. You know I think the costs are all pretty transparent now for sorry the rules future financial advice, which is a few years ago now they've requested that all super funds to nominate in dollars, as well as percentage based and try and make it really easy to say and understand what are the fees you paying.
You know, be much more clear around their super, superannuation statements so that's been pretty good, and it has come into effect so. Your statement should be able to give you very clearly what it is you're paying in fees your performance very clearly again and online, you should be able to see you know what other funds are doing and sort of compare from that.
 
Stuart Chan
And there might be people online and we've had different jobs around the place so one of the common things about superannuation is, it's not unusual have two or three different policies, a little bit here a little bit there.
One of the simplest approaches, is to consolidate that like you've read it in the paper like simple. Why have three or four policies which you know 4000 year or whatever. And Declan might be what you're going through you, maybe you're better off amalgamate them into one, the one that you so choose that fits your purpose and you're satisfied. On the insurances so that you don't have a lot of fees, even if they're small fees eating away.
So we've had some situations where people have had three different retail funds and unbeknownst to them they've had insurances in each of the three retail superannuation funds so they've got multiple cover. That might not be in their best interest, so they might not even be able to claim on one of them, so putting them all into one, and that leads us to another really important point.
Before you roll out of one super fund and which is why you have to get specific advice and into another one, you need to make sure that you're not going to give something up so, in not to pick on Declan, but if Declan moves from First State / Aware Super to Uni super and Declan has insurance in Aware Super, is he going to be able to get the same insurance in Uni Super? What if there was a health issue and you couldn't get the extra amount that would you have been better off keeping some money in Aware Super to maintain the insurance, for example, as it were, so I don't know Ela there's an insurance told coming up, but that specifically in the superannuation that as it were. And superannuation is also used on occasion to help fund insurances so when doctors are first starting out. Cash can be a little bit tinier, as you start, as you sort of working on your career, but you might need insurance is in place, because you've got dependence and mortgages etc. So sometimes it's possible to do your insurances the right type of insurances, for example, you probably don't want income protection inside your superannuation vehicles but life insurance is okay, so you have your super money.
being used to pay for your insurances Okay? But you don't want to eat down your superannuation savings, with insurance premiums forever in a day so you've got to revisit those strategies, as it were. And that's.
 
Mike Cooney
Sorry, I was going to jump in. That's exactly right I think we've had a you know 31 year old, she had several different super accounts and she was insured for more than $2 million, and she had no, you know dependent so she just had no idea that she had all these different super accounts, we paying out for insurance premium she didn't need. So it's really important to be aware of what you've got and what sort of insurances you do have.
And the other thing I would certainly mentioned just on back of Stuart was  saying regarding you know life insurance income protection you haven't outside because you know I've said it's tax deductible sorry, but one thing to be aware of is total and permanent disability, which is generally a default insurance, you have it inside super. Now inside super you can't have what's happening, and I know we are sort of stepping into the insurance world here you can't have what's called ‘own occupation’. Now you all have you guys ever studied for close to a decade to become doctors, What that means is, if you have a bad accident and you, you know can't work like you would hope to. And it's not your under your own occupation is under what they call any occupation, that means they can not pay you out that total and permanent disability payment which generally is you know same as a life payment which can be in the millions of dollars, they can choose not to pay that out because I say, well, actually, you know you were.. You can't be a surgeon, because your hands are busted up, but you know you used to work as a barman and you know what, off you go, you can go and work as a barman it's really important to be aware of that and understand what that means it's called any and own occupation. I'm sure you're going to pick it up, but that's one of the limitations of having bad insurance inside superannuation.
 
Stuart Chan
One other sorry, just as we as we're talking we think about some other things, so if anyone is going to or intending to make a super contribution.
And wanting to claim a tax deduction for it before the end of this financial year, 30 June and only talking about Aware Super because we're talking about it there. The amount of people making transfers to Aware Super is because you can imagine, pretty big right so they've actually got some guidelines to say that you probably need to get it in before the 25th of June via b-pay to ensure that it gets into the superannuation bank account, so it gas to be cleared funds inside and we're talking about Aware – Aware Superannuation. The same would go for anyone making contributions to their own self-managed superannuation fund, as it were. So it has to be in cleared funds and also if you're doing a personal contribution and you want to claim a tax deduction for it. You must lodge a notice of intent, so what you're doing is you're telling Aware Super just because we're using Aware Super as an example. That I intend to, hence my notice of intent, to claim a tax deduction for this much of the money that are put into superannuation.  I intend to claim 25,000 as a tax deduction and then they know the other 25 is non-concessional contributions and you need to have that notice acknowledged before you lodge your tax return, the 2021 tax return in which you're going to claim a tax deduction for, as it were, yeah.
 
Mike Cooney
I just say, the questions come through, someone in their early 30s asking whether I should be growth or high growth?
Again it's up to you, your relationship to risk is a personal relationship. I can't tell you what you should/shouldn't do it really what I’d suggest you do is do a you know, maybe completed risk profile questionnaire. And it just it's about understanding your relationship to risk we call it the sleep test, you know if you're going to wake up in the middle of night. And look at the stock market and get oh the ASX is down, you know 3% you know you can't sleep well that's not a good way to for you to be invested. You want to be able to sleep comfortably at night and know that that will happen then there's that will for 3% in a session or more as we've seen last March, so you know if you want to be a high growth investor and you feel you can stomach those swings, because it is a roller coaster of times, well then fine, and he want you know that that suits you that's great if you can't stomach those swings and you're in you're feeling a bit kitty when the market is doing what it does sometimes and collapsing, and you know rolling again, then, maybe that's not for you and i'd consider a lower risk profile, so you know, adding different asset classes like bonds of the mentioned smooths out those wild swings and makes it a little bit more palatable to be able to sleep at night.
 
Stuart Chan
A really interesting comment there in Wee-Sian’s message is that there was a statement that Aware Super put you know, the amount of direct automatically into high growth. So it's probably something that everyone should be aware of so what's the. default investment, you know strategy that your retail superannuation funds go into.
And I’d probably revisit one of Mike’s earlier comments so, generally speaking, and this isn't specific advice that you know if you're early in your early 30s you've probably got more time on your hands ,you probably can accommodate more risk, and you know, generally speaking, maybe he's more growth oriented. But you've got to go through the process and check the that suits yourself. I've got plenty of young doctors who you know what they're very conservative they don't want it, because they won't pass asleep tests, they don't want to wake up, and you know hear the news on the hear the news and then worry about what they're investing etc so they'd rather a slow and steady approach so they've got to pick the investment strategy that best fits them as Mike was indicating as it were.
There's another question there from Kieran, when we start SMSF if are we able to withdraw partners super as well and starts a joint SMSF. Yeah, that's really good question.
So a self-managed superannuation fund is, you're generally allowed to have four members okay, so you can definitely have two members, two partners in there and what generally happens is that you can roll money out of your existing superfunds, bearing in mind what I just said earlier about Declan – he needs to check that it suits his purpose and then he's not going to give something up if he rolls all his money out of Aware Super, for example, and insurances as an example and then you can have both have both partners superannuation balances are starting point and then you can also direct your employers to contribute to that self-managed superannuation fund as well. So hopefully that answers your question there Kieran.
 
Ela Duraj
And he just added that the partners working in the company, salary base, that's okay still?
 
Stuart Chan
Yeah so, you can set up an SMSF, with two people / two members / partners. And if one of the partners is working in a company receiving salary, they would talk to their employer about asking the employer to contribute into their nominated self-managed superannuation fund [yeah].
And there's some there's some you know specific mechanics that you have to go through about how you get the money and then reporting and all of that sort of stuff but yeah and that's very much something that I could do [yeah].
 
Stuart Chan
I was just gonna say well sort of coming up to nine o'clock. And just wanted to reiterate, we started off a bit slow and the questions are coming better now it's such a broad area so we've tried to speak generally and  hopefully we've covered enough of the air on superannuation but I’d encourage all of you to seek specific advice to make sure that it fits your purpose right. As you go and do it, you want to make sure you want to make sure you don't miss out on a tax deduction if you thought you were going to get a tax deduction. And you don't want to also put money in a super without having thought about I do actually need that money now or am I going to need it for something else in you know, two years’ time. Can I access that money so someone and some of your other fellows on the on the phone line might be closer to satisfying a conditional release. So if they go and put money in they might get a chance to take it back out if they need it again, but if you're, like Declan is too young to access money, then he can't do it, so you know put locking it up and I don't want to sound like you use the word locking it up, but putting in a super and not being able to access it needs to be thought about carefully.
 
Mike Cooney
I think you know I think for me partying sort of words would be you know, the way to think about super and the rules that are around it. If you remember back to little Johnny Howard, our Prime Minister in 2000 and I can't remember seven or six you know he opened up the floodgates to super and ever since then they've been causing. Why do they keep closing, why do they have limitations keep coming in, because when you get to the 60 when you get to 65 or whatever it is you decide to retire. or they change the rules and when you can access this money you enter a tax free environment it's you know after your own personal home is the second best investment vehicle, you will have.
Do obviously what you do inside of that is also really important that's what I do, but in terms of you know, tax vehicle, it is the second best after your personal you private home/private residence.
So, think about it, if you can't afford to buy those contributions, over time, you can do it, because you're getting obviously that tax deduction on the way in, and you know, have a look at it be aware of it, be engaged. Read your statements and if you don't have you know if you're unsure about anything seek advice is what I would say. And certainly when it when you coming up to you know the questions we had from John you coming up to retirement it's a very tricky system, it's very easy to get tricked up. Make sure yeah it's certainly, you know as you go, you can take advice, but when you're entering that phase it's it's so important to get it right, you only get one shot at retiring, so you want to make sure it's done correctly.
 
Stuart Chan
There are some other key points which and because we've got doctors are all spectrums so when you're closer to retirement there's a lot more, you can do. So in addition to those types of contributions we talked about which was concessional / non-concessional there might be other ways to get money in, so you might have heard of the downsides of contribution. Right so you've got to be downsizing and then you can put more money into superannuation which is outside of you might be selling a business. Right and then with the proceeds of the sale of that business there's these small business concessions as well, you might be able to get more money in superannuation.
All of that's really driving and facilitating people putting money into super. The challenge is as Mike said is getting money into superannuation so when it's in there, you don't necessarily take it out.
Coming back to the SMSF sorry, I said there's four members, so you can potentially have husband wife or two partners, of course, but you might even be able to have adult children or different family members that it’s.. Let’s talk about the Members going up to six okay and that's right isn't my six year.
Yes, that's right, so you can actually have mom dad and the four kids potentially at some point, in time, but you got to think very carefully about that so whilst the financials might make sense you're going to have, you know mom and dad maybe in retirement phase, and then the kids in accumulation phase, so you might add extra complexity around that that was a question we had very recently, but if it fits your circumstance in a particular strategy, for example, you might be worth considering so that's sort of leaves us on the point that and it's a place it's not a cop out but make sure you get advice which is specific to your circumstances, as it were, when it comes to superannuation because it's an expensive exercise, particularly around buying property we've had a situation where a doctor bought their rooms or via super but via unit trust because that's how you used to have to do it in the past. They didn't do it right so unfortunately we're having to unwind that whole arrangements so effectively they're going to pay stamp duty to get that property back out. Of that you know trust into the superannuation fund, which is, which is essentially where it is right now. So they're just gonna you know they're going to cop unfortunately 60 odd plus thousand dollars, with a cost to unwind it because it wasn't done correctly in the first place, and as Mike said it's pretty easy to trip up, as it were, yeah.
 
Mike Cooney
It's pretty well designed system it's the fourth largest private pension system in the world, you know the little Australia as designed something pretty unique and special so you know utilize it.
 
Stuart Chan
Yeah we'd encourage you to do it yeah and Ela, I don’t know if we remember a lot of the situation, when we talk about structuring you know sole trader if you're setting up a practice at some point, you might be paying your money in service fee into your own trust. That trust is actually paying rent to you know, maybe your property and super, which is a lot of what doctors do. So you're moving you know, one of the two key things about super is it's very efficient for tax because you got 15% tax here and you're moving income from the doctor at 47% maybe via trust to a 15% tax environment.
The other really good thing about it is that it's good from an asset protection perspective so it's protected it's locked away and it's very hard to access, so provided you haven't put money in there, knowing you've got someone chasing you it's protected, as it were, so asset protection tick tax efficiency tick provider that fits your personal strategies and requirements, as it were.
 
Ela Duraj - on Eora / Cammeraygal / Guringai Country
Perfect Thank you very much Mike and Stuart you're always amazing, so I think everybody already found it valuable and guys, if you would like to listen to that talk again cause I know there were a lot of information, it is recorded I’ll be editing it so hopefully it will be online within two weeks.
Remember that you can always access our previous recordings that we did on the finance topics and they are all on the on demand section, so I will send you a link to our website in a follow up email, so thank you again everyone, and I hope I see you at our next meeting, which is in a month's time on insurances so you will get the link to the registration as well in my follow up email.
Thank you one more time Mike and Steve are did was great.
 
Stuart Chan
Thank you Ela, and if anyone has any further follow up questions for strategy or investments feel free to get out details directly from Ela or via the Cutcher&Neale website so hopefully that's okay.
 
Ela Duraj - on Eora / Cammeraygal / Guringai Country
Correct. Okay perfect, thank you very much.
 
Stuart Chan
And sorry for picking on you Declan.
 
Declan Nugent
Not a problem thanks for being flexible, in the absence of Rebecca.
 
Stuart Chan
And No problems at all.
 
Declan Nugent
Cheers guys.
 
Mike Cooney
Thank you.
 
Stuart Chan
Have a good evening everyone.
 
Ela Duraj
Thank you, bye.
 
 

Other RACGP online events

Originally recorded:

16 June 2021

Building financial security doesn’t occur in one night, so why should this topic? Come to our NSW&ACT New Fellows online meetings and hear our expert presenters dispense their prescription!
This event attracts 3 CPD points

This event attracts 3 CPD points

Presenters

Stuart Chan

Mike Cooney

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