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]]>While there are many parts of this years’ Budget that apply to future years, we have summarised below the key changes you need to know about for the next 12 months.
There are 3 key areas we would like to make you aware of.
LOWER TAXES
Tax cuts were the headline act of this year’s “back in black” (a forecast return to surplus) bonanza.
The government has announced immediate tax relief for low and middle income earners (earning from $48,000 to $90,000) of up to $1,080 for singles or up to $2,160 for dual income families to ease the cost of living.
If the Coalition Government is re-elected, then this means immediate cash back to individuals in July 2019 when they lodge their tax returns.
The Coalition will also be lowering the 32.5 per cent rate to 30 per cent in 2024-25, increasing the reward for effort by ensuring a projected 94 per cent of taxpayers will face a marginal tax rate of no more than 30 per cent.
INSTANT ASSET WRITE OFF
Smaller businesses (income under $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 from budget night 2 April 2019 up until 30 June 2020. This has increase from the previous amount of $25,000, which if legalisation is passed, will approve a deduction of up to $25,000 from 29 January 2019 to 2 April 2019.
Medium sized businesses (income from $10 million to $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 from budget night 2 April 2019 to 30 June 2020.
SUPERANNUATION
Fortunately, super hasn’t been tinkered with too much this time.
The government will allow voluntary superannuation contributions (both concessional and non-concessional) to be made by those aged 65 and 66 without meeting the work test from 1 July 2020. People aged 65 and 66 will also be able to make up to three years of non-concessional contributions under the bring-forward rule.
Those up to and including age 74 will be able to receive spouse contributions, with those 65 and 66 no longer needing to meet a work test.
NEXT STEPS
We’re here to help you! If you have any questions about how the 2019 Budget affects you – please contact our office and one of our expert accountants will help you!
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]]>Life insurance when you are young and healthy may not seem important. However there are still significant risks of injury and illness.
If you’re away from the office for longer than your sick leave allows, you’re going to need a safety net!
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]]>This newsletter will provide five essentials that every small business owner should factor into their business plan.
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]]>The post Why women and men invest differently appeared first on Wealth Definition.
]]>This is according to recent research published by the Commonwealth Bank.
Contrary to traditional gender stereotypes, women feel just as confident and capable as men when it comes to managing everyday finances.
But when it comes to investing, there are significant differences in the attitudes and behaviour of women, according to Commonwealth Bank research, Enabling change: A fresh perspective on women’s financial security.
According to the research, one in two women have no investments of any kind, compared to 40 per cent of men. Women are also less likely to hold every kind of asset type, with the largest gaps in financial market investments (shares, exchange traded funds (ETFs) and derivatives) and alternative investments (such as gold, coins, stamps and art).
While the majority of the men and women surveyed have super accounts (78 per cent of men versus 70 per cent of women), women are less likely to be engaged with their super than men. Only 17 per cent of women said they engage regularly with their super, compared to 29 per cent of men.
The research points to four main reasons for the differences in investment attitudes and behaviour between men and women:
While women are confident financial managers, they continue to face ongoing economic challenges in Australian society, including lower salaries, less full-time employment and smaller superannuation balances.
Having access to less money in the first place could explain a lower engagement in investment and super decision-making for women. But conversely, it’s this lack of engagement which can further limit women’s ability to improve their financial position.
It may sound obvious, but the research also shows a strong link between early education in investing and higher levels of investment activity and engagement.
While 53 per cent of women say they were taught about managing their finances while young — a slightly higher proportion than for men — only 29 per cent were taught about investing, compared to 41 per cent of their male peers.
While many young women confidently managing their everyday finances, they are much less likely to have high levels of investment knowledge, with many only becoming confident investors later in life, when they have less time to see their assets grow.
In fact, when women were asked to define what financial security means to them, many focused on paying bills and coping with unexpected expenses, rather than building a comfortable lifestyle through long-term investments.
Compared to men, women are more risk-averse in their financial decisions, which can lead to lower levels of investment and lower returns.
This is reflected in the large gap between men and women holding market-based investments such as shares, with around nine male investors for every six female investors.
As the research shows, many women remain disengaged with investing, with long-term implications for their financial health.
That’s why it’s important for women to seek advice from a financial adviser to ensure they have the necessary guidance to enhance their financial wellbeing. In fact, according to the research, women who have benefitted from financial advice are typically more confident and financially secure, with around 1.6 times the assets of unadvised women.
Because women face a unique set of challenges, they need customised solutions – which is where your financial adviser comes in. If there’s an aspect of your finances that you need guidance on, they can help you understand your options and provide you with a plan to help you become financially secure.
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Under the transitional CGT relief reforms, a fund will be able to apply CGT relief to reset an asset’s cost base. This is where a member chooses to commute a pension and transfer benefits back to accumulation phase due to the introduction of the $1.6M transfer balance cap on 1 July 2017.
For a full discussion of these concessions please see the FirstTech fact sheet ‘Transitional CGT relief: $1.6m transfer balance cap’.
To apply the CGT relief measures a fund will need to satisfy certain eligibility requirements. This will depend on whether the fund uses the segregated or proportional (unsegregated) method to calculate its exempt income.
Where a fund was using the proportional method on 9 November 2016, the transitional CGT relief eligibility requirements include that an asset must not become a segregated current pension asset at any time between 9 November 2016 and 30 June 2017.
In this case, it’s important to note that an asset can automatically convert to being a segregated current pension asset. This is in situations where a fund ceases to hold any accumulation assets and 100% of the fund’s assets are used to support superannuation pensions.
Take an example where a fund had members in both the accumulation phase and the retirement phase. The member in the accumulation phase used 100% of their benefits to commence an account based pension between 9 November 2016 and 30 June 2017. The fund would automatically convert to using the segregated assets method from that time – as all of the fund’s assets would now be used to support superannuation income streams.
In this case, a fund that was previously using the proportional method as at 9 November 2016 would now fail the eligibility criteria to apply the relief. This is due to the fact that all of the fund’s assets will have become segregated current pension assets prior to the end of 30 June 2017.
It’s also important to note that as the fund was using the proportional method on 9 November 2016, it would not have the option of applying the eligibility criteria for funds using the segregated assets method on 9 November 2016 as the fund will not have held any segregated current pension assets as at that date.
Funds using the proportional method on 9 November 2016 that intend to apply the transitional CGT relief provisions should therefore ensure they don’t inadvertently convert to using the segregated assets method prior to 1 July 2017.
For example, this could occur where any remaining accumulation interests in a fund are:
Where any of these were to occur it would cause all of a fund’s assets to automatically convert to being segregated current pension assets. This would then cause a fund using the proportional method to fail the CGT relief eligibility criteria.
It is therefore critical that a fund intending to apply the CGT relief exercises caution before allowing any members to commence a pension or withdraw or rollover any accumulation benefits prior to 1 July 2017.
A strategy that may be effective at avoiding this eligibility trap, is to ensure the fund maintains a small accumulation account for at least one of its members during the period between 9 November 2016 and 30 June 2017.
This will ensure the fund is able to continue to apply the proportional method and will avoid any assets inadvertently converting to segregated current pension assets.
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]]>The post 2017-2018 Federal Budget Update appeared first on Wealth Definition.
]]>In prior years, there were many changes to superannuation and small business taxation. This year’s Budget only had a few changes in these areas.
Here’s a brief summary of what the Wealth Definition team believes are the key changes that may affect many of our clients.
The Government will extend by 12 months (to 30 June 2018) the ability for businesses with aggregated annual turnover less than $10 million to immediately deduct purchases of eligible assets costing less than $20,000, first used or installed ready for use by 30 June 2018. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the closing balance of the pool at 30 June 2018 is less than $20,000 (including existing pools). From 1 July 2018, the immediate deductibility threshold will reduce back to $1,000.
From July 2019, the Medicare levy will increase by half a percentage point from 2.0 to 2.5 % of taxable income. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.
From 1 July 2018, a new minimum threshold of $42,000 will be established with a 1% repayment rate and a maximum threshold of $119,882 with a 10% repayment rate.
From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting maintaining or collecting rent for residential rental property. Also, plant and equipment depreciation deductions will be limited to outlays actually incurred by the investors in residential real estate properties. These changes will apply on the prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either investor no longer owns the asset, or the asset reaches the end of its effective life. Subsequent owners will no longer be able to claim deductions for plant and equipment purchased by its previous owner.
From 7:30PM (AEST) on 9 May 2017, Australia’s foreign resident capital gains tax (CGT) regime will be extended to deny foreign and temporary tax residents access to the CGT main residence exemption. However, existing properties held prior to this date will be grandfathered until 30 June 2019.
From 1 July 2017, there will be an increase in the CGT withholding rate foreign tax residents from 10% to 12.5%, and a reduction of the CGT withholding threshold from $2 million to $750,000.
From 1 July 2018, the courier and cleaning industries will join the building and construction industry in needing to complete taxable payments reporting each year. More red tape!
The ATO now have an additional $32 million to target the cash economy. Expect more ATO audits with the data matching capabilities. Cafés, restaurants and other businesses that accept cash should ensure their point of sale systems have proper audit trails that match their cash deposits.
In an approach designed to crack down on some property developers failing to make GST payments to the ATO, property developers will no longer manage the GST on sales of newly constructed residential properties or new subdivisions. Instead, the Government will require purchasers to remit the GST directly to the ATO as part of the settlement process.
From 1 July 2018, a person aged 65 or over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. These contributions will be in addition to those currently allowed under the existing rules and caps and will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.
* This measure will apply to sales of a principal residence owned for the past 10 or more years and both members of a couple will be able to take advantage for the qualifying home. *
To encourage home ownership, voluntary contributions to superannuation made by first home buyers from 1 July 2017 can be withdrawn for a first home deposit, along with associated deemed earnings. Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Under the measure, up to $15,000 per year and $30,000 in total can be contributed (within existing contribution caps). Contributions can be made from 1 July 2017. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home together.
There has been lots of news recently about the removal of the 457 visa program. Businesses that employ foreign workers on certain skilled visas will pay a levy that will be channelled into the Skilling Australians Fund. From 1 March 2018, Businesses with turnover of less than $10 million per year will make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme.
This is just a general summary of how the Budget may affect you. If you haven’t met with us yet, now is the time to contact us to arrange an End of Financial Year meeting, so we can help you limit your tax payments, discuss your goals and plans for the next year, and grow your wealth. Remember, we both need time to implement any appropriate tax savings strategies for you well before 30 June 2017.
General advice disclaimer
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.]
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]]>The post Insurance: Covering anything that comes your way! appeared first on Wealth Definition.
]]>Reassessing your personal insurance to meet your family’s changing needs is essential. To ensure your family has adequate cover, you need to consider:
Adequate personal insurance can help ensure that you are financially prepared for the unexpected.
Most people are not prepared for the financial consequences that can follow unexpected events. If a couple who both worked full time and had two children suddenly had to survive on one salary, this would have a significant impact on their ability to meet mortgage repayments and other daily expenses.
Income protection insurance is one way to safeguard your financial situation in case of an illness. It pays you a monthly amount until you return to work.
Today, income protection insurance is less expensive and has more extras and flexibility than in earlier years. Also:
Could your finances survive if you suffered a serious illness?
If you were to become seriously ill, the last thing you’d want would be the added financial burden resulting from loss of income and medical bills.
Trauma insurance provides a lump sum payment should you incur a specified medical condition such as cancer. Your payout could help you maintain household costs, service your mortgage and meet ongoing medical costs.
Given that one in two Australians will be diagnosed with cancer before the age of 85, having a financial safety net such as trauma insurance in place can provide you with valuable peace of mind.
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]]>The post Home & Residential Care: what you need to know appeared first on Wealth Definition.
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The person requiring care must be assessed and approved by the Government’s Aged Care Assessment Team (ACAT) in order to access home care. ACAT helps older people and those who care for them. It helps decide what kind of care will best meet their needs when they can no longer manage on their own. Doctors, nurses and social workers make up the ACAT.
ACAT thoroughly assesses a person’s situation and care needs. They provide information on suitable care options and can help arrange access or referrals to residential or home care in the local area. You can arrange an appointment with the ACAT closest to you by accessing the Government’s aged care portal ‘My Aged Care’. This can be found at www.myagedcare.gov.au or calling 1800 200 422. Alternatively your doctor can make an appointment with the ACAT in your area.
Many people who need care are not aware that a variety of services are available for those. Especially to those who prefer to stay at home.
Home Care Packages provide Government subsidised services to assist people to remain in their home for as long as possible.
Services include:
Other services may also be provided such as aids and equipment to assist with mobility, communication or personal safety.
There are four levels of Home Care Packages:
The Aged Care Assessment Team (ACAT) will assess each applicant. Each applicant must be assessed as having care needs at least equivalent to a level 1 – basic care needs package.
An ACAT approval for a particular level of home care also enables access to any level of home care package lower than the approved level.
At the commencement of the package, the client (you) and the home care provider will enter into a Home Care Agreement. This sets out the basis on which services will be provided.
The home care provider can then claim a subsidy from the Government. This is dependent on the level of home care package provided.
Consumer Directed Care, or self-directed care, allows older people and their carers to make choices about the types of care services they receive and the delivery of those services. This includes who delivers the services and when.
Clients receive an individualised budget and a monthly statement of income and expenditure. This provides transparency regarding the level of funding and how the funds are spent.
The My Aged Care website at www.myagedcare.gov.au provides home care information. Alternatively the national contact centre can be reached on 1800 200 422.
From 27 February 2017, Home Care packages are allocated to clients through ‘My Aged Care’ at www.myagedcare.gov.au or call 1800 200 422. Once a package is allocated, the individual will be able to choose who provides their home care services. It will also be easier to change providers if you move or are unhappy with the service.
Clients who start receiving a home care package on or after 1 July 2014 will pay a basic daily care fee. They will also receive an ‘income tested fee’ administered by the Department of Human Services.
An income tested fee is payable where the client’s assessable income exceeds the income free area. The amount of income tested fee payable cannot exceed the actual cost of care.
The Centrelink / DVA rules are used in calculating the assessable income. This includes the amount of Age or Services Pension payable (less minimum pension and energy supplements). The income tested fee is calculated as 50% of assessable income over the income free area of $26,072.80 (singles) or $20,235.80 (member of a couple, living together) or $25,604.80 (member of a couple, living separately).
The income tested fee is capped at:
The lifetime cap applies to means tested fees across home care and residential aged care. For example, if Paul paid $40,000 in income tested fees for home care and then moved to a residential aged care facility, he would only have to pay a further $23,313.28 in means tested care fees to reach the $63,313.28 lifetime cap (note the lifetime cap is subject to indexation).
The basic daily care fee of 17.5% of the maximum single age pension ($10.10 per day) is payable in addition to the income tested fee.
If you or a family member can no longer manage to live independently at home, you may need to consider moving into residential aged care. Before you do, there are many factors to consider. This includes your eligibility, the costs involved and the effect on your finances and lifestyle.
All aged care homes must provide a specified range of care and services to residents, according to their individual needs. These services include:
For residents with higher care needs additional services will be provided. This is the provision of special medical equipment, such as wheelchairs, basic medical and pharmaceutical supplies, nursing and therapy services.
While some aged care homes specialise in a particular level of care, many offer a range of care levels so that residents can stay in one location when their care needs increase.
While the Australian Government provides funding to residential aged care homes to assist with the costs associated with providing care, most residents will have to pay fees and charges.
Major reforms to the aged care system, including the way fees and charges are calculated, apply to residents first entering residential aged care on or after 1 July 2014 or move aged care facilities and choose to be assessed under the new rules.
One of the key changes is that all aged care facilities will be subject to the same fee structure, regardless of the level of care the resident requires.
There are two main types of fees payable for aged care:
An accommodation payment is an entry fee payable for residential aged care. It is like an interest free loan to the aged care facility. The amount you pay as an accommodation payment will depend on the facility you choose to enter. It is also determined using a number of factors including quality of the facility, location and demand.
Aged care facilities must advertise the maximum amount of accommodation payment payable on the government’s My Aged Care website www.myagedcare.gov.au. This website provides details of all aged care facilities in your area as well as the facilities key features.
An accommodation payment can be paid as a lump sum (known as a Refundable Accommodation Deposit), regular periodic payments (known as Daily Accommodation Payments) or a combination of both. In most cases, the entire lump sum bond balance will be refunded upon departure from the aged care facility.
Protections are in place for residents who are assessed to have ‘low means’ and cannot be asked to pay the advertised accommodation payment. At the time of entry to the aged care facility, the government measures your ‘means tested amount’. If it is less than a specified threshold, you will not have to pay the advertised accommodation payment.
A resident may however be asked to make a contribution towards the accommodation cost of your care known as an accommodation contribution.
Your means tested amount is determined by the value of your income and assets – added together.
Means tested amount = income tested amount + asset tested amount
The income tested amount uses total assessable income measures. Total assessable income includes ordinary income (as assessed by Centrelink / DVA) plus:
The asset tested amount includes assets as assessed by Centrelink. This includes any property or item of value that you or your partner have an interest in within Australia and overseas. It can also include assets that you have gifted (above the allowable threshold) within the last five years.
Assessable assets also include:
All aged care residents pay a basic daily care fee. The basic daily care fee is equivalent to 85% of the maximum single age pension.
The means tested fee is another ongoing daily fee, charged in addition to the basic daily care fee. The amount you will pay is calculated based on your means tested amount. The means tested fee is capped at $26,380.51 per annum or $63,313.28 over your lifetime.
Note: If you enter aged care on or after 1 January 2016, rent from your former home is included in the means tested fee calculation. For those that entered aged care before 1 January 2016, any income derived from renting is exempted from the means tested fee calculation where you pay at least a portion of your accommodation payment as Daily Accommodation Payments (DAP).
Some aged care facilities are approved by the government to provide extra services across the whole facility or in a designated part of the facility. In addition to designated extra service facilities, some standard aged care facilities offer extra services on an opt-in basis.
Extra services mean that the facility will provide you with a higher standard of accommodation and services. This will be paid for in the form of a daily extra service fee. Extra services may include a choice of meals, wine or massages.
Accommodation and services vary from one facility to another. So you will need to check with the provider for details of services and extra service fees.
If a resident does not pay the accommodation payment in full, interest will be charged on the amount of the bond that is outstanding. These are referred to as Daily Accommodation Payments (DAP). These payments are not refunded to the resident when they leave, nor do they reduce the outstanding amount of the bond. The rate of interest charged is capped by the government.
Married pensioners may each receive a higher rate of pension, under the government’s ‘separated due to ill health’ provision, if one or both members of the couple are in aged care.
If you entered care prior to 1 January 2017, are renting your former home and paying a Daily Accommodation Payment or Daily Accommodation Contribution, the value of your former home is exempt from the Age Pension assets test and rental income is exempt from the income test.
If you enter care from 1 January 2017, however, your former home becomes an assessable asset after 2 years (unless occupied by your spouse) and rental income is assessable for Age Pension income test purposes.
Special tax offsets may be claimed by the resident or even the person who financially supports the resident in aged care.
For example, under the net medical expenses tax offset you may be able to claim a tax offset for payment of ongoing aged care fees. The dependant tax offset may also be claimed by a person supporting an aged care resident.
Residential aged care is a complex area. Getting the right professional financial advice can make all the difference in ensuring your assets and income are structured effectively, managing any changes to your pension payments and ensuring you have sufficient income to support your lifestyle and care needs.
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Gearing is the strategy of borrowing money to invest. Just as you take out a loan to buy a home, you can also borrow money to invest in other assets These include shares, property or managed funds.
Gearing enables you to boost your investment earning power by increasing the amount of money you have available to invest. While investing with someone else’s money sounds like a great strategy (and it can be), there are risks involved. So it’s not suitable for everyone.
Implementing a geared investment strategy is a long term commitment. It is suitable for investors with time horizons of five years or more. This allows enough time for you to benefit from the returns of growth assets. It also allows you to ride out any short-term market fluctuations. If you are considering gearing, you will need to ensure you have sufficient excess disposable income. This will service your loan repayments and cope with an increase in your loan repayments if interest rates were to rise (allowing for a 1.5% increase in rates is probably a safe buffer).
You should also consider taking out sufficient insurance. This includes income protection, life, trauma, and total and permanent disability insurance. This is so that if you are unable to work due to accident or illness, you or your dependants can either continue to service your loan repayments or the loan can be repaid in full.
The main benefit of this strategy is that the amount you have available to invest is increased by the amount you have borrowed. So you earn investment returns on a larger amount. Depending on your circumstances, there may also be tax advantages associated with this type of investment.
Borrowing to invest is a sophisticated strategy and is not suitable for everyone. The main risk is that by increasing the amount you have invested, you increase your potential losses. If your investments perform poorly, you may be left paying off a loan that is larger than the value of your investments. The points below summarise the main benefits and risks associated with borrowing money to invest or gearing.
Gearing may be classified into three levels – positive, neutral and negative. The category your geared investment falls into is determined by how much interest you pay on the loan. This is compared with how much income your investment earns.
For example, let’s say you invest $150,000 in a managed fund, of which $50,000 is borrowed. The interest on your loan is 8% pa or $4,000 in repayments.
There are three main ways you can generate the capital required to gear your investments.
Home equity gearing is borrowing against the existing equity in your home. This allows you to release capital tied up in your home and use it to finance income-producing investments. You can establish a home equity loan by setting up a redraw facility within your existing home mortgage. You can also arrange an additional line of credit. These types of lending arrangements offer flexible loan and interest repayment options.
A margin loan allows you to borrow up to a set percentage value (typically 50% to 70%) of selected shares and/or managed funds. The initial investment can comprise cash, approved securities such as shares and managed funds, property, or a combination of these.
Unlike other managed funds, with a geared unit trust (also known as a geared managed fund), the product manager uses the assets held within the unit trust as security for borrowing. The trust is then geared at a pre-determined level. The fund manager is responsible for all issues surrounding the borrowing. If you invest in a geared unit trust, your liability will be limited only to the amount you have invested with the trust.
If you use gearing as part of your financial strategy, at some point the loan capital and interest will need to be repaid.
The three main options for repaying your loan are:
You will need to work with your financial adviser to ensure your financial plan takes into account the repayment of this capital.
The base Loan to Value Ratio (LVR) is the maximum amount you can borrow expressed as a percentage of your total investment value. The current LVR is the total amount you have borrowed on your variable and/or fixed rate loan expressed as a percentage of your total investment value.
A big consideration with margin lending is that you may be subject to a ‘margin call’. This may happen if the value of your investments goes down sufficiently to exceed the base LVR. For example, this could occur if markets fell significantly. If this happens, your lender may need sufficient funds from you to bring the loan back in line with the base LVR. If you receive a margin call, you may need to make a loan repayment. Alternatively, you may invest more money or sell some of your units or shares to reduce your gearing level.
Gearing may also offer potential tax advantages, such as:
Gearing can be a highly risky strategy so it makes sense to get professional advice upfront.
Here are some ways your financial adviser can help:
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