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Case Studies

Real people, real case studies + how we have helped!

OPERATING UNDER THE RIGHT BUSINESS STRUCTURE

Accounting

It was a really cold day, the rain was making the job dangerous, his sub-contractor just hadn’t turned up when Graham decided it was time to get some help.

He was operating as a sole trader roof plumber and could see the potential for work in the ever increasing housing boom.  He was a very skilled operator and hard worker, but couldn’t do it all on his own and really needed to set up a reliable team.  He had been offered a lucrative contract, but it would mean supplying two gangs of tradespeople and another vehicle.  He just didn’t know where to start or how he would afford it.

It was a really cold day, the rain was making the job dangerous, his sub-contractor just hadn’t turned up when Graham decided it was time to get some help.

He was operating as a sole trader roof plumber and could see the potential for work in the ever increasing housing boom.  He was a very skilled operator and hard worker, but couldn’t do it all on his own and really needed to set up a reliable team.  He had been offered a lucrative contract, but it would mean supplying two gangs of tradespeople and another vehicle.  He just didn’t know where to start or how he would afford it.

When Graham came to see us, we calculated the costs of a new vehicle, both financing and running expenses, the costs associated with employing team members and how to account for this when quoting on new jobs.  Graham did not have any income protection insurance so we worked through what would happen in the event that he could not work.  We also did a calculation of his tax given that all the current income was being earned at his personal tax rate.  He was horrified!

The outcome was the formation of a company both for asset protection purposes and the effectiveness of the current tax rates and also the fact that he would be employed by the company, have compulsory superannuation paid on his behalf and be covered by Workcover should he have a work related accident. 

The shareholding in the company is owned by a discretionary trust and so there is flexibility in paying franked dividends into the future.  Canny Accounting, along with his compliance work, assists with the company bookkeeping, lodges the BAS each quarter and keeps him up to date with any relevant changes.

Graham went on the accept two further contracts which will keep his company in work for more than two years.  He has been able to attract qualified and skilled team members and Canny Legal has prepared employment documentation to ensure that all wages are paid adhering to current legislation and onboarding and exiting of company employees is taken care of.

Graham now has peace of mind and is able to concentrate on the quality of the workmanship his company provides and mentor his team.  We are available for regular meetings on any business topic and he now doesn’t have to make decisions ‘on the run’.

In the 2020 financial year, he saved approximately $34,000 in tax from the changing his business structure, but the feeling of being ‘in control’ is the most valuable lesson to have come out of this exercise.

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INVESTING IN RETIREMENT +
RETIREMENT INVESTING

Advisory

We see this often – one member of a couple has already retired (or perhaps has never worked), and the spouse is considering retiring but they are unsure if they can afford it.

When we met Damian and Edwina, they were physically tired and wanted to stop working before they got to a point where their bodies were so burnt out they would not be able to do all the things they dreamed of in retirement.  They were concerned that they could not afford to retire and assumed they would not be entitled to anything from Centrelink because they own an investment property.

We see this often – one member of a couple has already retired (or perhaps has never worked), and the spouse is considering retiring but they are unsure if they can afford it.

When I met Damian and Edwina, they were physically tired and wanted to stop working before they got to a point where their bodies were so burnt out they would not be able to do all the things they dreamed of in retirement.  They were concerned that they could not afford to retire and assumed they would not be entitled to anything from Centrelink because they own an investment property.

We were able to structure our clients investments in such a way as to maximise their Centrelink entitlement without having to sell their investment property.  This  has resulted in their retirement income being funded by rental income, some age pension and minimal draw down on their super. 

Minimising the amount having to be drawn from super will mean their retirement funds will last longer.  In addition, being eligible for at least a part pension, meant my clients were issued a pensioner card which gives them so many discounts throughout the year, but none greater than a significant discount on their regular medications.

Our clients can access their money whenever they need, whether it is for a holiday or to upgrade their car etc. 

We are available on the phone or in person whenever our clients need them, ensuring they can concentrate on what is important to them – enjoying their retirement!

Based on: Couple, age 66 (male retired) and 61 (female still working)

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FINANCIAL SATISFACTION + THE POWER OF UPDATING LEGAL DOCUMENTS

Advisory + legal

Andrew lost his wife suddenly late last year, six months after having major heart surgery myself.  The tragedy and stress of last year made Andrew re-evaluate his life and made him question what he was doing and why.

Andrew decided life is too short and decided he wanted to travel around Australia with his dog at his own pace with no fixed agenda or time frames.  Andrew’s only problem was he didn’t know how he was going to afford to do this.

Age 60, widow.

Andrew lost his wife suddenly late last year, six months after having major heart surgery myself.  The tragedy and stress of last year made Andrew re-evaluate his life and made him question what he was doing and why.

Andrew decided life is too short and decided he wanted to travel around Australia with his dog at his own pace with no fixed agenda or time frames.  Andrew’s only problem was he didn’t know how he was going to afford to do this.

We met Andrew and took the time to ask him lots of questions to find out exactly what was important to him and what his goals were – what did the next chapter of his life look like?

We were able to arrange Andrew’s financial affairs in such a way that he “gets paid” a certain amount every fortnight with the balance invested to suit his needs. Andrew is happy because he is free to travel knowing he will have enough to cover his essential costs such as food, fuel etc.  Andrew also feels comfortable that no matter where he is on his travels, Canny Advisory is managing everything on his behalf and we are only a phone call away when he needs us.

Through the discussions with Andrew, we uncovered he had not updated his Will since he lost his wife.  I introduced him to one of our lawyers through Canny Legal who immediately attended to this.  Andrew was very happy knowing that he could have all of his financial and estate planning needs addressed under one roof.

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MAXIMISING CENTRELINK +
RETIREMENT SAVINGS

Accounting

  • John & Mary Smith have a SMSF with a balance of $306,000. This is Mary’s super balance as John has been drawing on his super balance in retirement.
  • John is aged 70 and Mary is aged 65 and are both retired.
  • They recently sold their home and will receive $810,000 net proceeds as a result of the sale.

Case Study

  • John & Mary Smith have a SMSF with a balance of $306,000. This is Mary’s super balance as John has been drawing on his super balance in retirement.
  • John is aged 70 and Mary is aged 65 and are both retired.
  • They recently sold their home and will receive $810,000 net proceeds as a result of the sale.

Goals

  • Maximise Centrelink entitlements for John
  • Maximise retirement savings

Strategy

Centrelink applies the asset test and income test to determine eligibility and entitlement to centrelink benefits. All joint assets and income are included for Centrelink purposes. In addition, if an individual is age pension age, all their superannuation is included as a financial asset regardless of whether they are receiving an income stream from their super or not. As John is age pension age and Mary will not be age pension age until she is 66.5 years old, we could consider making a super contribution to Mary’s accumulation account. In this way none of her super will be counted when determining John’s age pension entitlement, thereby maximising John’s entitlement to Centrelink.

Based on John & Mary’s age and meeting certain conditions for contributions, Mary could make a downsizer contribution of $300,000 to her super within three months of settlement. In addition, as she triggered the bring forward non-concessional contribution prior to her 65th birthday, she could make $154,000 as a non-concessional contribution to super before 30th of June. After 30th of June, she could make another non-concessional contribution to super of $110,000. In total, Mary would have transferred $564,000 into super which would not be counted for Centrelink purposes. The balance of the sale proceeds being $246,000 would be held in cash to fund the build of their new home. This is also not counted as an asset for Centrelink purposes as this money will be used to fund the build of their new home and therefore exempt asset. However, it is important to note, that the deeming rules will be applied to the $246,000 to work out the deemed income.

As a result of the Mary making super contributions, John is now eligible for the full age pension of $711 per fortnight or $18,507 per year or until Mary reaches age pension age.

Should they need access to money in addition to the age pension, they can take lump sums out of super which would not be considered income for Centrelink purposes. Once Mary turns 66.5 years old, all her super would be counted for Centrelink purposes. At that time, it may be worth considering, whether she should commence receiving a pension from her super fund.

The SMSF balance will have a balance of $870,000 due to the super contributions. Super Funds generally pay 15% income tax on all earnings in the fund while in accumulation phase. Once Mary reaches age pension age, Mary could commence an account-based pension from her SMSF and start receiving an income stream. By starting a pension, all the earnings generated by the SMSF will now be tax free. Assuming, based on a super balance of $870,000, the earnings is 5%, the SMSF will save $6525 in tax each year simply by starting a pension. In addition, if say, 60% of the earnings were from fully franked dividends, the SMSF would get a tax refund of $11,185 every year. That is extra cash each year that could be reinvested or used to fund the pension. If John and Mary were taking a pension of $50,000 per year, their super balance would still increase each year by $4685.

Results of the advice:

  • John will be eligible for the full age pension until Mary turned 66.5 years old. That is additional income of $27,760.
  • Contributing to Super meant the money will be invested at a higher return than investing in cash. The tax on the earnings in the super fund is only 15% while in accumulation and tax free once Mary starts receiving a pension.
  • Once Mary reaches age pension age, by commencing an account based pension, they are able to save $6525 in tax and receive an additional $11,185 in ATO tax refunds each year.
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DISCLAIMER: these case studies are based on the individual needs and circumstances of individual clients and should not be taken as advice for your own situation

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