Wealth Pipeline

Whether an individual should allocate excess cash flow to their mortgage or make concessional super contributions depends on various factors. Principal considerations include the individual’s tax rate, liquidity needs, cash flow position and risk tolerance. Before analysing these considerations, we will briefly outline the tax benefits of topping up super compared to making extra home loan repayments.

Aussie equities have rallied in recent weeks however the outlook still sees global markets stuck in defensive mode with uncertainty surrounding Europe, US and China.  

Many believe that income protection premiums are fully tax deductible.  However, this is not always the case.  As income protection policies are designed to replace income at the time of a claim, the Australian Tax Office (ATO) allows a tax deduction on the premiums paid.  These deductions are dependent on claims being treated as income and not capital.  As a result, if there is a component of the IP premium that goes towards a death or physical injury benefit, then that part of the premium is not an allowable deduction.  IP premiums inside superannuation are only tax deductible to the extent that the policy terms satisfies the SIS Act’s ‘temporary incapacity’ definition. 

Singles earning more than $130,001 and families earning more than $260,001 will lose access to their private health insurance rebate from the 2012-13 financial year onwards, under a means test that recently received Royal Assent and will become effective on July 1, 2012.

It is becoming mainstream knowledge that superannuation funds can borrow under certain circumstances.  However, what is less known is that the relevant legislation does not stipulate where the money can be borrowed from.  As a consequence it is possible for a superannuation fund member or their relative etc to lend money to their fund.  This is particularly effective for acquiring assets that banks are not generally willing to lend for such as equities (shares) and/or if the superannuation fund wants to obtain cheaper funding.