Get a head start on EOFY Superannuation Planning

The end of the 2009/10 financial year is fast approaching, so now's the time to examine your situation and start planning your planning. Here are 6 ways to boost your superannuation.

1. Sacrifice your salary to super

If your marginal tax rate is more than 15 per cent, salary sacrifice can be a great way to boost your superannuation and pay less tax. By putting pre-tax salary into super rather than having it taxed as normal income at your marginal rate you may save tax.

2. Contribute to your super

Whether you make personal concessional (tax deductible) contributions or non-concessional (after-tax) contributions, putting money into super can be very tax effective and even be used to manage capital gains tax positions. This is because earnings on super assets are concessionally taxed at up to 15 per cent, compared with earnings on your personal investments which are taxed at your marginal tax rate, which may be as high as 46.5 per cent.

3. Contribute to your defacto-partner's super

You can claim an 18 per cent tax offset on super contributions of up to $3,000 made on behalf of a low-income or non-working partner. To be eligible for the maximum $540 tax offset, your partner's income must not be more than $10,800 per annum, while a reduced offset is available if your partner earns less than $13,800. Total income = assessable income plus reportable fringe benefits less salary sacrifice super contributions and certain business deductions

4. Qualify for a Government co-contribution

If your total income is less than $61,920, you may be eligible for a super co-contribution from the Federal Government. For each dollar in personal after-tax super contributions, the Government will contribute up to $1 to a maximum co-contribution of $1,000 for those earning less than $31,920.

5. Review your insurances and take them out in your super

Normally personal life insurance premiums are not tax deductible. However, if this insurance is held within your super fund and you make either salary sacrifice or personal concessional contributions, you are effectively getting a tax deduction on your insurance premiums.

6. Take advantage of imputation credits within your super strategy

When Australian companies pay dividends to their shareholders, they have often already paid company tax on the profits that are being distributed at the 30% company tax rate. When this is held within superannuation your fund can therefore claim an imputation credit on the dividend for the amount of tax paid by the company.

So before another financial year is behind us take the time to review your situation before implementing these strategies to avoid common traps and take advantage of some of these opportunities.

No matter what your goals for life, as with all investment strategy and product, seek advice and empower yourself to create wealth through understanding.

Scott Malcolm (scott@money-mechanics.com.au) is Director of Money Mechanics (ph: 6257 5557) a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.

The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.

Market update - April 2010

The ASX200 index rose 5.2% during March as positive economic leads out of the US and the continued positive momentum on home soil drove these gains. On the back of a positive February, much touted Merger and Acquisition activity has begun to emerge with listings in Miclyn Express Offshore and takeovers of MacArthur Coal, Arrow Energy and Lihir Gold. It was pleasing to see two of our preferred coal and gold exposures receive significant premiums as a result of these offers and we suggest this will by no means be the last of this activity. Company balance sheets are in a far better state now and companies are now looking for ways to grow their business by looking at competitors.

US recovery

The signs of recovery in the US continue. Payrolls rose by 162,000 last month, the most in three years, manufacturing grew at the fastest pace in more than five years, service industries showed signs of growth and home sales boosted optimism an economic recovery is gathering steam. At the same time, Fed officials noted slack in the economy reflected in a 9.7 percent unemployment rate and slowing inflation. The Fed hosed down any fears that growth may cause sooner monetary tightening in their March minutes stating,

“While recent data pointed to a noticeable pickup in the pace of consumer spending during the first quarter, participants agreed that household spending going forward was likely to remain constrained by weak labor market conditions, lower housing wealth, tight credit, and modest income growth.”

All of this was positive for the US market which recorded a 5.8% gain over March and is currently trading at its highest point since September 2008. Together with April generally being a strong month should provide continued positive momentum for equity markets.

Global Economy

Our international economist highlighted this week that OECD leading indicators are pointing to “vigorous growth” in the US and Japan which will offset a slower China. He notes that a slowing China will actually be a positive as it lessens the chances of an inflationary blowout that forces central banks to tighten monetary policy prematurely. Another point of note is the role exchange rates will play. We see extremely positive implications for the global economy as several non-Japan currencies such as the Korean Won rise against the USD, Yen and Euro. If this trend continues it will be very beneficial for manufacturers in the US, Japan and Europe. And go along way to overcoming weaker manufacturing growth in China. Currency strength would also imply a much slower rate of tightening by Asian central banks and any intervention to slow appreciation will give global liquidity a further boost.

Overall the foundations are being laid for global growth to grow above trend until 2012. OECD Leading Indicators suggest that economies with weaker currencies are poised to pick up the baton of manufacturing growth.

Equity Strategy

The economic numbers for the world have continued their steady improvement with the combination of fiscal expansion, monetary easing and the inventory cycle working their normal magic and driving the turn. China was the first to improve from late 2008, Australia joined in by mid-2009 and the US from late 2009. Much of the rest of Asia and Germany are also on the rise. There are laggards, such as southern Europe and Japan, but they detract from the overall picture only marginally.

The US is now in a clear cyclical recovery driven by the largest inventory cycle in 35 years. This, along with net exports, can drive the US economy for most of the rest of 2010. The balance-sheet-challenged consumer is likely to improve only slowly. Nevertheless, as the combination of strong new orders and productivity growth are combining to slowly lift perceptions of job security the consumer will respond in kind with some lift in spending, as the recent data is suggesting.

The major near-term risk to our global recovery view comes not from the US or other OECD countries, but China. China was the first to recover due to negative real rates and a large fiscal stimulus. This has worked almost too well: the dramatic growth surge has already forced authorities to try to control the buoyant situation. An investment property bubble in particular poses risks. While we believe the authorities can successfully bring growth under control (to settle at around 8% pa) there are, however, risks that tapping the brakes is taken too far.

The local economy has recovered quickly and is now growing strongly. Strong coal and iron ore prices will add to the growth in FY11. Supply-side shortages such as skilled labour, infrastructure and housing are already evident. Adding to the heat is rapid growth in government spending with little sign that authorities have plans to slow that momentum. As a result, Australia is looking at the prospect of the most rapid monetary-policy-tightening cycle since the 1980s. Rising rates will soon dampen the cyclical consumer consumption sectors of the economy, whilst the commodity and corporate spending contributions will still grow quickly, in our view.

Equity portfolio rotation remains rapid in response to the fast economic cycle. Last year it was about buying high beta in highly cyclical consumer sectors. With interest rates rising, these sectors, such as housing and discretionary retail, have already been sidelined in share-price performance terms. Lower beta domestic plays in mid to late cyclical sectors such as banking, media and transport are now preferred including CBA, Newscorp and Toll Holdings.

Increasingly the focus is moving towards quality growth sectors and stocks, the very counters that were ignored in 2009 due to their lack of leverage to the then emerging economic recovery. US-exposed stocks also bear a large weight in our recommendations given the still early stage of that country's recovery. These include CSL, QBE and Westfield.

Overall, we continue to see a buoyant equity market for this year with a Total Shareholder Returns still well over 15%. A combination of strong earnings growth and reasonable valuations present a still compelling picture.

The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.