Tax Strategies for 2007 BRISBANE SYDNEY WOLLONGONG MELBOURNE ADELAIDE Presented by Chris Wyeth BA LLB MTax DFP FTIA Representative of TYNAN MACKENZIE PTY LTD AFSL

The information provided in this presentation includes general information about complex areas such as tax laws, markets and investing in securities. The information is current as at 6 June In compiling the information, Tynan Mackenzie has not taken into consideration the investment objectives, financial situation or specific needs of any particular person. We caution you that, before making any decisions based on this information, you should consider with the assistance of an appropriately qualified and authorised adviser, whether the information is appropriate with regards to your particular needs, investment objectives and financial situation. We would be delighted to offer you this assistance. important notice

Tynan Mackenzie Firm of Professional Financial Advisers established in 1994 by David Tynan & James Mackenzie advising on over $3 billion long history of advising major companies, government departments and universities highly qualified consultants with backgrounds in accounting, law and financial services assisted by experienced support team

overview budget changes super changes – a refresher shifting assets to super tax deductible contribution strategies boosting tax free amounts in your super pension strategies while you work estate planning implications

budget changes + year end planning FY2008 – 15% MTR threshold increases to $30,000 $30,000 becomes new low threshold for reducing income by tax deductible contributions to super FY2009 – 30% MTR to $80,000 45% MTR to $180,000 reassess level of gearing as interest increases and personal tax decreases

budget changes + year end planning deductions worth more this year - prepay expenses change loans from variable to fixed and prepay (not applicable to a line of credit) pay deductible expenses & tax? (IT2582) from investment debt – not on your home loan employed spouse – wage plus super borrowings to pay are deductible – use business debt co-contribution vs personal concessional contributions

superannuation – phases deductible / employer / salary sacrifice contributions Undeducted contribution Withdrawal 0% / 16.5% income stream > 55 tax free $27k >60 no tax pension/ IS 0% tax 0% CGT Refund 30% tax credits 15% Tax 0% Tax accumulation 15% tax 10% CGT refund 30% tax credits Pre 83 Post 83 Undeducted Contributions CGT Exempt Invalidity rollover - no tax

contributions – new limits ContributionFY Deductible / Concessional Age based limits up to $105,539 <50 $50,000 ≥50 $100,000 $50,000 After tax / Non-concessional $1 million from 9 May 2006 $150,000 $450k in 3 Yrs $150,000 $450k in 3 Yrs SB Assets$1 million PI settlementsNot capped Overseas transfer Counts to NCC limit

contributions – more please? Small Business CGT Retirement Rollover – gain only Small Business 15 year exemption – proceeds but must retire in addition to the normal after-tax contribution limit pre-CGT business assets $1M lifetime limit (indexed) sale of chambers or other business assets

contributions – over the limit? excess concessional contributions ECC ECCT at 46.5% and counts towards UDC cap may pay from fund excess non-concessional contributions ENCC ENCCT at 46.5% must withdraw from the fund blow both limits and pay 71.4% tax!

who can contribute? Age< Concessional No work test Work test (70+ from 1/7/07) Mandated only Non-concessional Up to $450k No wk test if 63 or 64 40hrs/ 30days Max $150k No contrib’ns

spending your super when do I get access? over 55 and still working over 55 and permanently retired retire from any employer after 60 reach 65 do I have to start an income stream? NO however pension may be better than accumulation

lump sums & tax Current ComponentFY2008+ Classification Pre June 1983 Tax free component - contributions segment - crystallised segment Concessional Undeducted contributions Post 1994 invalidity CGT Exempt Post June 1983Taxable component Excessive component 46.5% No RBL’s!

lump sums & tax tax on lump sums from FY2008 Age<5555 – Tax free Component 0% Taxable component 21.5% Up to $140K – Nil Over $140K % 0%

income streams No maximum payment (except NCAP) New minimums Age Current average 5.2%6.6%8.5%10.5%13.3%16.6%20.5% New 4%5%6%7%9%11%14%

income streams - tax Age TaxableYesNo Tax freeYesNot applicable Tax offset15%Not applicable

strategies - shifting assets to super potential costs – CGT, stamp duty is it worth it? How long before you earn the costs back? sell assets with low CGT cost shift assets with no stamp duty – shares offset CGT with personal concessional contribution to super

strategies - shifting assets to super transfer assets in specie – beware of restrictions on acquiring assets from members Exception for business real property – wholly and exclusively used in a business – not necessarily your business asset transfers create tax – but no cash! Individuals can choose to treat contribution as concessional or non-concessional Transfers from company or trust – tax at 15%! + FBT?

strategies – pre-tax contributions Practice income$150,000 Super contribution Nil Taxable income $150,000 Income tax ($50,100) Income $99,900 Net income + super $99,900 Net increase in wealth from salary sacrifice $7,950 In FY2007 tax deduction = $5,000 plus 75% of balance so to achieve same deduction contribute $38,333 Practice income $150,000 Super contribution ($30,000) Taxable income $120,000 Income tax ($37,650) Net income $82,350 Super cont.$30,000 Cont. Tax($4,500) Net Super cont.$25,500 Net income + super$107,850

strategies – super vs home loan loan$400,000 salary $200,000 living costs $60,000 interest on home loan 7% super earnings rate 8% interest only repayments $28,000 pa P&I repayments $4,700 /mth loan term 10 years

strategies – super vs home loan

funds committed once in super ensure other source of liquidity – include transition to retirement pensions immediate tax saving and tax free income on withdrawal ongoing after tax cost consider duration, age and risk profile

strategies – borrow for super? defer sale of asset – better price or lower tax? unable to contribute in the future - age 65 & unable to work? proceeds of sale will exceed the lower contribution caps for FY2008 and beyond? short term interest cost vs longer term tax savings

strategies – boost tax free $ amalgamate super with pre-1983 start date 2 funds - $1 million started 1990 $10,000 started 1971 – tax free amount $3,333 new tax free amount increases to $336,564 contribute $200,000 after tax new tax free amount increases to $603,211

strategies – contribution splitting direct super to spouse who can access earlier or access tax free increase Centrelink payments steer super away from potential estate challenges

strategies – co-contributions $1,000 after tax contribution = max $1,500 payment above $28,000 assessable income + RFB payment is reduced phase out at $58,000 salary sacrifice can help you reduce income to the range where you receive co-contribution self-employed are eligible from FY2008 – test = assessable income – business deductions

Strategies – transition to retirement Case study Fred Follower 60 earns a net $250,000 at the bar invest $500,000 in either shares or property (with $400,000 borrowed funds) $650,000 in super $1 million home with $300,000 mortgage needs $80,000 pa living costs

strategies – transition to retirement Practice earnings $250, % $12,500 less Super contribution $4,000 Income tax $85,388 (Super contb’n tax $600) Interest cost $52,500 Reduce home loan $40,000 Net cashflow $80,148 Practice earnings $250, % $20,000 TTR Pension $65,000 less Super contribution $100,000 Income tax $41,439 (Super contb’n tax $15,000) Interest cost $52,500 Reduce home loan $60,000 Net cashflow $80,061

strategies – transition to retirement Net property $130,000 Super $700,445 Home loan ($260,000) Total $570,445 Net shares $130,000 Pension $637,000 Super $91,120 Home loan ($240,000) Total $618,120 shares provide better after tax yield - diversify net improvement of $47,675 in year 1 improves with saving on home loan interest creates long term wealth in tax-preferred environment

strategies – transition to retirement replace taxable income with tax-free pension income + tax offset but no access to lump sums best after 60 is one partner retired? start normal income stream in that person’s name is your super in the right persons name?

strategies – income streams example of long term effect of proportionality $500,000 invested in AP on 1 July 2006 after tax contributions of $200,000 in the AP assume reset tax-free at either 55 or 60 assume either no Pre-83 service or ESD of 1 July 70

strategies – income streams

clients with pre-83 start date or tax-free amount benefit from starting pensions 0% tax in fund Grow the tax free amount separate taxable and tax-free monies into different funds? –may increase the tax free amount for withdrawal –but government may legislate against this

questions? Chris Wyeth