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au courant

January 2015

Happy New Year!

Welcome to the 8th edition of our newsletter 'au courant'. Those new to our newsletter may be wondering as to the origin of the name. It’s French, and means 'up to date'. Its literal translation is 'In the current'.

2014 was a very big year for us as we grew our practice, added a new addition to our family, picked up the award for 'Outstanding New Illawarra Business' at the Momentum Energy 2014 Illawarra Business Awards and employed our first staff member.

2015 is shaping up to be another big year and we are extremely excited about the following 12 months.

Onward to the year ahead!

Regards

Andrew



Yingying Cao, Wollongong Accountants, Andrew Webb Family & Business Accounting
Welcome to Yingying Cao

During late 2014, we welcomed Yingying to our practice. Yingying and I have worked together previously and we were thrilled when she decided to join us.

Originally from China, Yingying relocated to Wollongong in 2010 and has worked at other Illawarra accounting firms.

2014 was an exciting year for Yingying as well. She became a mum to her daughter Alice in May, and finished building a new home, moving in just before Christmas.

Yingying holds a Bachelor of Finance from Beijing Foreign Language University, a Master of Professional Accounting and Master of Commerce both from the University of Wollongong, and is currently completing the final stages of the CPA program. Yingying is also fluent in Mandarin.

We're so pleased to welcome Yingying, and we know she is the perfect addition to our rapidly growing business.
Wollongong Accountants, Wollongong Tax Adviser

Self Managed Superannuation Funds (SMSF) - Whose retirement plans do they benefit most, yours or your accountant's?

Fifteen years ago, Self-Managed Superannuation Funds (SMSF) were the domain of mainly wealthy business owners and high net worth individuals. Most accountants would have a few SMSFs setup for their top clients, and look after these as part of their overall annual tax and accounting function. SMSF work was a part time function for many accountants and only the larger accounting firms could justify full time SMSF specialist roles.



Fast forward 15 years and the SMSF industry now comprises an army of advisers, accountants and technology providers, the majority of whom are full time SMSF specialists.

Here are some statistics that demonstrate the growth in the industry:

 
  2000 2014
     
Total SMSF’s 200,178 539,375
Total Members 377,130 1,023,964
Total Assets ($m) 69,427 544,365


The meteoric growth in the SMSF industry has been accompanied by equal success in marketing the industry’s main product. It is very difficult to find a bad word written about SMSFs. Accountants have been at the forefront of this marketing and are often the main promoters of SMSFs.

SMSFs are great for the right people, and offer benefits and flexibility that other superannuation options simply cannot match. I have a SMSF myself and have advised people in the past that they should set one up.

However, the shift in the client’s level of responsibility, ongoing costs, reporting obligations and threat of severe penalties to the client if a mistake is made, means that they should not be entered into lightly.

Many of the benefits that SMSFs offer are simply not required for many clients and, in my opinion, SMSFs are often oversold. For many clients, setting up a SMSF is akin to spending hundreds of dollars on the latest iPhone, then using this phone to simply make and receive calls. All the extra features you’re paid a lot of money for are essentially wasted.

In some cases, I believe that this overselling is done to benefit the accountant’s long term interests more so than the client's. I know I risk much derision from members of my profession for voicing this opinion, though I have seen accountants employ the strategy of shifting their client base into SMSFs with the distinct aim of securing long term accounting and audit fees. Whilst the SMSF strategy was appropriate for many clients, I don’t think it was appropriate for all clients.

The motivation for accountants to recommend a SMSF is sometimes driven by the demographics of their client base. An accountant with an aging client base is faced with the inevitable loss of fees from his or her business clients as these clients retire and divest their trading businesses. The relationship with the client may be as strong as ever, though the accountant is simply not needed near as much after the client decides to sell their business and retire. By setting up a SMSF and rolling the clients wealth into this fund, the accountant is often able to supplant lost business accounting fees with SMSF accounting fees. Given modern life expectancy, some people spend longer in retirement than they did in business and these post retirement fees often last several decades.

Since 2007, the ATO have allowed SMSFs to borrow money for the purposes of purchasing an investment. Many people have used this strategy to purchase a residential property within their SMSF.  Limited recourse borrowing is a great strategy for the right person, though should always be part of a wider plan and strategy.

Too many people, in my opinion, have jumped to this structure as their first option (sometimes with help of properly developers masquerading as financial planners) without considering the long term implications. A single large illiquid, undiversified asset such as property is probably not the best way to finance a retirement where regular drawdowns are needed in the pension phase.

With all of this in mind, we have developed a comprehensive tool which assists in deciding if a SMSF is appropriate for you. This tool aims to take bias and guesswork out of the process and focus on the specific facts relevant to each person. If you are thinking about setting up a SMSF, or already have one setup, we encourage you to work through this tool and see if you have chosen the right option.

To access this decision tool from our website, click here

Wollongong Accountants; Andrew Webb Family & Business Accounting
The Murray Report

In late 2014, former CEO of Commonwealth Bank David Murray completed his report into the Australian financial system, as commissioned by the Treasurer Joe Hockey a year earlier. This review was designed to emulate previous financial system inquiries such as Campbell Report in 1981 and Wallis Report in 1997, which were catalysts for major economic reforms in Australia.


This Inquiry was charged with examining how Australia’s financial system could be positioned to best meet Australia's evolving needs and support Australia's economic growth.

The report made 44 separate recommendations across a number of specific themes including:
  • Resilience – strengthening the economy by making the system more resilient.
  • Superannuation & Retirement Income – Lift the value of the superannuation system and retirement incomes
  • Innovation – Drive economic growth and productivity through policy settings that promote innovation
  • Consumer Outcomes – Enhance confidence and trust by creating an environment in which financial firms treat customers fairly
  • Regulatory System – Enhance regulator independence  and accountability, and minimise the need for future regulation
 Some of the more newsworthy recommendations from the report were as follows:
  • Require banks to hold more capital to make them less susceptible to extreme events, such as a GFC or recession.
  • Abolishing limited recourse borrowing by superfunds
  • Make ASIC stronger with better funding and regulatory tools funded through industry via fees and levies.
  • Provide ASIC with the power to intervene earlier in the creation of financial products, before potential damage is done to those who are sold the products.
  • Raise the competency of financial advice providers and introduce an enhanced register of advisers.
  • Put regulation in place to facilitate new types of funding, using both debt and equity, emerging from technology e.g. crowdfunding
Given that our contemporary political leaders (from both sides of politics) seem much less willing or much less able to enact large reforms, than previous governments, it remains to be seen how many of these recommendations will ever be employed. To read the full report, click here.
Wollongong Accountants
Aspect South Coast School

The original artwork above, was a commissioned work by UK Artist Irina Rumyantseva. This 1 mtr square canvas, features Irina's much loved cows in shades of blue (the globally recognised colour for autism).

Irina has expressed some surprise at the popularity of her cows from her Australian fans. Jade is yet another lover of her adaptations of these bovine families.

We will be donating this artwork to Aspect South Coast School, our local school for children on the Autism Spectrum. It will be auctioned at their annual fundraising dinner on 27 March at the Novotel Northbeach.


We are also selling tickets in the school's raffle which will be drawn at the dinner. One of the wonderful benefactors of Aspect South Coast School, has very generously donated a brand new Hyundai i20 to the school to raffle. Tickets are $5 each. Please let us know if we can send a book or two your way. We would love some help selling them!


 
Copyright © 2015 Andrew Webb Family & Business Accounting, All rights reserved.


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