Top tax tips for end of financial year planning

1. Top tax tips for end of financial year planning

2. General advice warning • [If this presentation is not presented exactly as issued by IOOF, or is represented as the financial adviser’s own presentation, the financial adviser must insert their own General Advice Warning and disclaimers in the place of those provided by IOOF] • This presentation has been prepared by IOOF Investment Management Limited (IIML), ABN 53 006 695 021, AFS Licence No. 230524, Australian Executor Trustees Limited (AET) ABN 84 007 869 794, AFSL 240023 and IOOF Ltd ABN 21 087 649 625, AFSL 230522.  IIML, AET and IOOF Ltd are members of the IOOF group of companies consisting of IOOF Holdings Ltd, ABN 49 100 103 722, and its related bodies corporate. IIML's contact details can be found on www.ioof.com.au , AET’s contact details can be found on www.aetlimited.com.auand IOOF Ltd’s contact details can be found on www.ioof.com.au. • This is general advice only and does not take into account your financial circumstances, needs and objectives.  Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser. You should obtain and consider a copy of the Product Disclosure Statement available from us or your financial adviser, before you acquire a financial product. Neither IIML nor IOOF Ltd are registered Tax Agents. You should consider the appropriateness of this information having regard to your individual situation and seek taxation advice from a registered tax agent before making any decision based on the content of this presentation.

3. Agenda • Personal tax rates – some interesting changes • Investing in a spouses name or splitting income • A tax deductible way to manage risk • The Medicare levy and private health rebate • Reducing capital gains on growth assets • Don’t forget about the little things • Consider insurance bonds • Access opportunities with superannuation • Investment gearing

4. Personal tax rates – some interesting changes

5. Investing in your spouses name or splitting income

6. A tax deductible way to manage risk • Income protection is a monthly benefit that pays you up to 75% of your income until you return to work* • Covers you for accidents, illnesses or major traumas • If you can’t return to work, it is payable until age 65** • Is designed to ensure that you can continue to pay the mortgage, put food on the table and carry on financially until you return to work • Income protection premiums may be tax deductible • ** Depending on your occupation • * Commencement subject to a waiting period up to a specified age (eg age 65)

7. Medicare levy and private health rebate

8. Reducing capital gains on growth assets • Tax on capital profits when assets are sold • 50% discount if held for more than 12 months • Strategies to reduce capital gains include: • sell assets when you have a low MTR • use excess franking credits to balance CGT • sell after dividend payment • offset capital gains against losses • keep accurate records • make a deductible contribution to super to offset gains

9. Don’t forget about the little things • Delay any income • Pre-paying your investment expenses • Keep your receipts • Claim your uniform

10. Insurance bonds • Tax effectiveness: • Marginal tax rate greater than 30%? • Income taxed in the hands of IOOF at 30% (if held for 10 years) • Benefit from imputation credits and other allowances • Can’t (or won’t) contribute to superannuation? • Reached contribution caps • Over 75 and do not qualify to contribute • Younger accumulator and saving for pre-retirement expenditure • Want to benefit from gearing strategies? • Consider using WealthBuilder as security • Competitive rates

11. Insurance bonds • Options for traditional tax effective investments: • Contributing to superannuation • Tax paid at 15% vs investor’s MTR • Cannot access funds until retirement /preservation age • Annual limits for contributions • Other traditional income producing, tax effective investments • Australian equities portfolio • Margin lending/negative gearing – cost of borrowing v capital growth, margin calls, fees and charges

12. Access salary sacrificing into super • Foregoing a portion of your gross salary for contributions into contributions • Especially effective for those on higher marginal tax rates • Maximum 15% contributions tax versus maximum marginal tax rate of 46.5%

13. Case study: salary sacrifice • Mary (age 49) earns a package of $80,000 and wishes to use $17,800 of her package to contribute into super. • * The 2013/14 tax scales include the Medicare Levy and low income tax offset.

14. Getting a 50 per cent return on your investment • Maximum co-contribution of $500 if make a $1,000 non concessional contribution • Minimum income to receive maximum co-contribution - $33,516 • Threshold at which no co-contribution is received - $48,516 • Every dollar of income earned above $33,516 reduces co-contribution entitlement by $0.03333 • .

15. A return of contributions tax for low income earners • Applies from 1 July 2012 to employees and self-employed people • Maximum payment of $500 • For example: $37,000 x 9% x 15% = $500 • Can be paid in addition to the co-contribution • Paid by the ATO into your super account after you complete your tax return for that financial year • Opportunity: pay for insurance premiums within super (such as income protection) Low income contribution Concessional contribution 15 per cent x = • Individuals earning up to $37,000 will receive a refund of contributions tax

16. Consider a spouse contributions to obtain a tax rebate • Contribute superannuation on behalf of spouse: • receiving spouse does not have to be working if under age 65 • if receiving spouse between ages 65 and 69 (inclusive) must satisfy work test* • Tax rebate of 18 per cent applies, capped at $540 on contributions of $3,000 per annum • full rebate available if spouse earns $10,800 or less • rebate cuts out when spouse earns $13,800 or more • No limit on level of contribution, except included in receiving spouse’s non-concessional cap • * Must be gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in the financial year in which the contribution is made.

17. Make a personal deductible contribution • Personal contributions into superannuation can be claimed as a deduction • Applies to people who are self-employed, non-working and retired • Especially effective for those on higher marginal tax rates • Maximum 15 per cent contributions tax versus maximum marginal tax rate of 46.5 per cent • Contribution cap and age restrictions apply

18. Transition to retirement (TTR) • TTR strategy has been well publicised and promoted over the last few years • The strategy combines: • concessional contributions such as salary sacrifice and personal deductible contributions • pre-retirement pension • Applies to people aged 55 to 65 • Depends on your age, superannuation make-up, account balance and taxable income • Note: • Employed persons will maximise the benefit of a TTR by commencing their TTR strategy at 1 July • Self employed people can start it at any time during the year

19. Case study: TTR strategy • Joe is 55 and earns $80,000 pa • $7,400 is currently paid pa into super as employer contributions • His current superannuation balance is $250,000* • He requires approximately $60,000 pa for living expenses • Joe will continue working full time • He wishes to maintain the same level of income after-tax • Joe commences a pre-retirement pension • * Contains 100% taxable component

20. Case study: TTR strategy • * 2013/14 tax scales including Medicare Levy, low income tax offset and mature age workers tax offset

21. Case study: TTR strategy • Net super position

22. Case study: TTR strategy Employer Superannuation fund Salary income $80,000 pa • Employer SGC • $7,400 • taxed at 15% • Accumulation fund • Net contribution $21,250 pa • Earnings taxed at max. 15% • CGT rate 10-15% • Pension fund • Start balance - $250,000 • Rolled over from accumulation fund • Earnings and capital gains are tax-free • Salary sacrifice • $17,600 • taxed at 15% $17,600 net of salary sacrifice Taxed at MTR Net income (est) $61,253 pa • Taxed at MTR • Less 15% rebate • If over age 60, pension income would be tax-free Pension payments $11,552 / $14,341 pa - Paid monthly

23. Investment gearing • Borrowing to invest • Enables acquisition of larger investments than possible with own funds alone • Negative gearing - expenses exceed income • Magnifies positive returns, but equally magnifies losses

24. Who could benefit from investment gearing? • Understand and accept the increased risks involved • Risk profile suitable for gearing • Minimum seven year investment timeframe • Can benefit from the potential tax advantages • investors on a high marginal tax rate (if the investment is negatively geared)   • investors on a low marginal rate of tax (if the investment is positively geared) • Gear into growth assets such as shares and property which are expected to perform well over the longer term

25. What are the tax benefits of gearing? • Interest may be tax deductible at marginal tax rates • Consider prepayment of up to 12 months interest to bring forward tax deductions • Any franked dividend paid in relation to the shares gives the investor a franking credit • Building allowance/depreciation deductions where investment is in property • 50 per cent of any capital gain derived from the sale of the investment will be exempt from tax, provided investment held for at least 12 months

26. Case study: gearing • Chris chose to invest $100,000 of his own capital and borrow $75,000 against the family home, investing the full amount in Share X • Over the five years of the loan, Chris’ investment grew from $5.00 (initial share price) to $10.00 (end value of Share X) • Chris received dividends of $2.00 per share • The gross borrowing costs can be covered by the dividends received

27. Case study: How margin lending can increase returns • The example only refers to capital growth and dividends. It is before capital gains tax, fees and any potential franking credits. Assumes a marginal tax rate of 46.5% (including Medicare levy) and interest of 9% pa and paid annually in arrears.

28. Case study: What if share price halves? • The example only refers to capital growth and dividends. It is before capital gains tax, fees and any potential franking credits. Assumes a marginal tax rate of 46.5% (including Medicare levy) and interest of 9% pa and paid annually in arrears.

30. Disclaimer • [If this presentation is not presented exactly as issued by IOOF, or is represented as the financial adviser’s own presentation, the financial adviser must insert their own General Advice Warning and disclaimers in the place of those provided by IOOF] • This presentation is believed to be correct at the time of publication, however to the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on the information it contains. • IIML and AET are Responsible Entities of managed investment schemes, trustees of superannuation entities and operators of Investor Directed Portfolio Services. IIML is the Trustee of the IOOF Portfolio Service Superannuation Fund ABN 70 815 369 818. AET is the Responsible Entity of IDPS like schemes, the Trustee of a number of Small APRA Funds and the provider of a number of small and self-managed superannuation fund solutions and estate planning services.  IOOF Ltd is a Friendly Society and the issuer of IOOF Wealth Builder Investment Bonds. • Where you proceed with an investment in an IOOF Group product, IOOF may receive remuneration via fees for that product.  If you seek personal financial advice from a financial adviser, they may receive remuneration via commission payments from IIML, AET or IOOF Ltd.  Details of remuneration will be outlined within a Statement of Advice where personal advice is provided, or can be provided upon request. • All assumptions and examples are based on current laws (as at 1 February 2012) and the continuance of these laws and IOOF’s interpretation of them.  IOOF does not undertake to notify its recipients of changes in the law or its interpretation. All examples are for illustration purposes only and may not apply to your circumstances.