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Broadly speaking, there are five types of life insurance:

• Life cover (this is sometimes called death cover);
• Income protection cover;
• Total and permanent disability cover (TPD);
• Trauma cover; and
• Business cover (for either business expenses or a key person in the business).

We will look at each of these in turn. But before we do, let’s look at a few general concepts that apply to all or most forms of life insurance.

Insurance is like a bet… and we hope you lose it!

In many respects, the concept of insurance can be likened to a wager, albeit one with a unique and perhaps counterintuitive objective: the hope that the insured event will not occur. The fundamental principle of insurance involves the policyholder paying a relatively modest sum, known as the premium, on a regular basis. This premium represents the 'bet'. Should the 'insured event' transpire, the insurer then provides a payment to the policyholder or their designated beneficiaries. This payment is intended to mitigate the financial repercussions associated with the insured event.

Consider, for instance, life cover. This type of insurance policy is designed to provide a financial benefit upon the death of the insured individual. It is commonly sought by individuals who have financial responsibilities towards others, such as parents raising families. In the unfortunate event of a parent's death, the household would face a significant loss of income, potentially jeopardizing the financial well-being of the children. To address this potential vulnerability, parents pay a regular premium to an insurer. If the 'insured event' – the death of the parent – occurs, the insurer pays the agreed-upon sum to the beneficiaries of the policy, thereby providing a measure of financial support to the surviving family members. The premium paid is the 'bet', and the preferred outcome is to 'lose' this bet, signifying that the insured individual has not passed away. However, should the insured event occur, the financial security of their loved ones is at least partially assured.

The Premium

The premium is the payment made by the policyholder to the insurer in exchange for the insurance coverage. There are two primary structures for premium payments: stepped premiums and level premiums. It is important to note that the terminology used to describe these premium types has been updated within the Australian life insurance industry. By December 31, 2024, new retail life insurance policies are required to use the terms "variable age-stepped" for what was previously known as stepped premium, and "variable" for what was previously known as level premium ¹.

A variable age-stepped premium is one that typically increases each year. The amount of the premium is adjusted annually to reflect the changing probability of the insured event occurring. For example, with life cover, the likelihood of death generally increases with age. Consequently, a variable age-stepped premium for life cover will usually rise each year as the insured individual gets older. The insurer requires a higher premium to account for the increased risk of having to pay out on the policy ¹.

The other main type of premium is a variable premium. As the name suggests, with this structure, the amount paid each year generally remains constant and does not increase due to the policyholder's age ¹. While the premium amount might be higher in the initial years of the policy compared to a variable age-stepped premium, it offers the advantage of predictability. Over time, a variable premium often becomes more cost-effective than a variable age-stepped premium, as the latter continues to increase with age. The new term "variable" acknowledges that while these premiums don't increase due to age, they can still change due to other factors such as insurer repricing, indexation, or broader economic conditions ².

The decision of whether to opt for a variable age-stepped or a variable premium is a matter best discussed with a financial advisor. Variable age-stepped premiums generally offer lower initial costs, which can be appealing for individuals who prioritize immediate affordability and wish to allocate funds to other needs like mortgage payments or children's education. However, variable premiums provide certainty regarding future costs, allowing for better long-term financial planning. They can also prove to be more economical in the long run. Individuals who anticipate rising living costs may find the stability of a variable premium particularly attractive. The change in terminology aims to better reflect how premiums change over time, making the decision-making process clearer for customers ¹.

Table 1.1: Premium Terminology Update

Underwriting

When an individual applies for a life insurance policy, the insurance company conducts a process known as underwriting. Essentially, underwriting involves evaluating the risk associated with insuring the applicant. The primary goal of this process is to determine the likelihood of the 'insured event' occurring.

For life cover, the underwriting process assesses the probability of the applicant dying during the policy's term. To achieve this, the underwriter considers various factors related to the applicant's lifestyle (for instance, participation in high-risk recreational activities), health history, age, and other pertinent details. While insurers operate based on probabilities and cannot predict future events with absolute certainty, they can establish a reasonable assessment of the likelihood of a claim.

Based on the underwriting assessment, the insurer may take one of four courses of action.

Firstly, they may accept the policy without any modifications. In this scenario, the policyholder simply pays the premium, and the insurer is obligated to provide the agreed-upon benefit if the insured event occurs.

Secondly, the insurer might accept the policy but impose an exclusion. This means that the policy will not pay out in specific circumstances deemed to be of higher risk. For example, if an applicant engages in activities like skydiving, the insurer might exclude death or injury resulting from skydiving. However, the policy would still provide coverage for death or injury due to other causes.

Thirdly, the insurer may accept the policy but increase the premium to reflect a higher likelihood of a claim. This is known as a loading. The principle is straightforward: the applicant is required to pay a higher premium to compensate for the elevated risk they present.

Fourthly, in cases where the underwriter determines that the probability of the insured event occurring is excessively high, the insurer may decline to offer insurance altogether. An example of this might be an individual with a terminal illness applying for life insurance, where the insurer would almost certainly face a claim.

Factors that affect under-writing and the premium

Several factors influence the underwriting process and the premium charged.

Age is a significant factor; generally, younger individuals pay lower premiums for life insurance. The exception to this trend can sometimes be very young men, who may face higher premiums due to statistical data related to risky driving behaviours. The rationale is that younger people tend to experience fewer health issues and have a lower mortality rate compared to older individuals, thus representing a lower risk to the insurer.

Gender also plays a role, as women, on average, have a longer life expectancy than men, which often translates to lower premiums for women.

Health is another crucial determinant; healthier individuals are typically offered lower premiums due to their reduced risk of illness or injury leading to a claim.

Smoking is a well-established risk factor, and smokers invariably pay higher life insurance premiums due to the increased likelihood of health problems and premature death. This highlights an additional financial benefit of quitting smoking.

While most occupations do not significantly impact premiums, certain professions deemed to be inherently more dangerous may attract higher premiums or even lead to a refusal of coverage. For instance, individuals in extremely high-risk occupations might face challenges in obtaining life insurance. Neil Armstrong, for example, could not get life insurance before he flew to the moon.

Recent regulatory changes and market trends have also impacted underwriting practices. Notably, the Australian government implemented a ban on the use of adverse genetic test results in life insurance underwriting, effective from September 2024 ³. This reform aims to encourage individuals to undergo health-related genetic testing without the fear that negative results will negatively affect their ability to obtain life insurance coverage, including life cover, TPD, trauma, and income protection ³. This ban formalises a previous industry moratorium on genetic testing ⁵.

Furthermore, underwriting guidelines have been updated in response to the COVID-19 pandemic. As of June 2022, for life and trauma cover, individuals with asymptomatic, mild, or moderate COVID-19 infections who have fully recovered are generally accepted at standard rates, and the previous one-month deferral period has been removed ⁶.

There is also a discernible trend towards streamlining the underwriting process. For example, TAL introduced changes in October 2024 to reduce the reliance on mandatory medical tests for younger applicants seeking life, TPD, and income protection insurance, aiming to provide faster access to coverage ⁴. This suggests a broader industry move towards leveraging data and technology to make the application process more efficient ⁷.

Your Duty of Disclosure

A fundamental principle of insurance contracts is the duty of utmost good faith, which requires individuals applying for insurance cover to disclose all relevant information to the insurer.

Most insurance policies stipulate that the contract may be voided by the insurer if the insured person fails to disclose any information that is considered 'material' to the underwriting decision. Information is deemed 'material' if its disclosure could have influenced the insurer's decision regarding whether to offer coverage or on what terms.

Therefore, it is crucial for applicants to provide honest and complete answers to all questions asked by the insurer. Failure to do so can undermine the very purpose of having insurance, as it could lead to the insurer refusing to pay a claim.

Affordability

For many individuals, the primary consideration when it comes to life insurance is affordability. Insurance premiums can represent a significant expense, and allocating funds to a product that one hopes never to use can sometimes seem like a low priority.

Consequently, ensuring that life insurance is as affordable as possible is paramount. Several strategies can help make insurance more accessible from a cost perspective.

One approach is to utilise superannuation benefits to pay for certain types of insurance available within super funds, typically including life cover, TPD, and a limited amount of income protection. While this does not necessarily reduce the overall cost, it can alleviate the impact on day-to-day cash flow by using funds that are not readily accessible anyway.

Another avenue for reducing the financial burden of insurance is to claim tax deductions where applicable. Premiums for some life insurance types, particularly income protection, are often tax-deductible. Additionally, some life cover and TPD premiums, especially for self-employed individuals, can be effectively tax-deductible through superannuation contributions that reduce taxable income.

Accepting a degree of under-insurance can also make premiums more manageable. Under-insurance refers to having a level of coverage that is lower than what might typically be recommended based on one's financial situation and responsibilities. While it is generally advisable to have an appropriate level of insurance, obtaining some coverage, even if it is less than ideal, is often better than having no insurance at all if affordability is a significant constraint.

Another way to lower premiums is by accepting a portion of the risk yourself. For instance, with income protection, choosing a policy with a longer waiting period (the time one must be unable to work before benefits commence) can substantially reduce premiums. If an individual believes they could manage financially for a certain period, such as a year, if they became unwell, opting for a one-year waiting period could make the policy much more affordable compared to a policy with a shorter waiting period.

Finally, it is always prudent to obtain multiple quotes from different insurers and to avoid being overly loyal to a single provider. Significant savings can often be achieved by comparing policies and selecting the one that offers the best value for money.

Financial advisers can assist in this process and are knowledgeable about other strategies to ensure premiums are as affordable as possible, making affordability a key factor in their advice.

Continuity

When considering switching insurance providers, it is essential to ensure that coverage seamlessly continues from the old policy to the new one. Financial advisers can provide valuable assistance in this transition. The aim is to avoid any gaps in coverage, as the occurrence of an insured event during such a gap could leave the individual without financial protection.

Tell people you have the policy

Upon taking out a life insurance policy, it is crucial to inform trusted individuals about its existence. This should include, at a minimum, the executor of one's estate, as well as one's partner and close friends or relatives. The reason is simple: if an insurance policy exists but no one is aware of it, and the insured event occurs preventing the policyholder from communicating this information, a claim might never be made. This is particularly relevant for life cover, where, after death, the insured individual cannot inform anyone about the policy.

The same principle applies to other important documents such as wills and mortgage papers. Ensuring that loved ones and the executor (if appointed) know the location of these documents is vital. Storing digital copies can be effective, especially for individuals who move frequently, although original signed copies of legal documents like wills are still necessary for the executor.

As previously mentioned, life cover is an insurance policy that provides a financial payment to designated beneficiaries upon the death of the insured person.

The most prevalent form of life cover is term life insurance. This type of policy pays an agreed-upon benefit if the insured person dies or is diagnosed with a terminal illness. The maximum age at which insurers will continue to provide coverage varies, but it typically extends up to ages ranging from 70 to 79, with some policies offering cover until age 80 or even 85 ⁹.

Most term life policies include a terminal illness benefit, which allows for a payout if the insured individual is diagnosed with a terminal condition and has a life expectancy of less than 12 months ¹⁰. Some policies may offer a partial benefit payment in such circumstances, while others allow for the entire benefit amount to be paid out.

The word 'term' in 'term life insurance' signifies that the policy is in effect for a specific duration, known as the 'term' of the policy. This term is often one year, and for the policy to remain active beyond this period, the client typically needs to renew it annually.

Renewing the policy

Traditionally, most risk insurance policies, including term life insurance, are guaranteed renewable ¹⁴. This means that the insurer is obligated to renew the policy each year, irrespective of any changes in the policyholder's health, employment status, or personal circumstances that may have occurred since the policy was initially taken out. This feature is particularly important in cases of ill health that develop after the policy's inception. Due to guaranteed renewability, even if an insured person's health deteriorates, the insurer must continue to renew the policy as long as the health changes occurred after the policy commenced.

Who gets the benefit?

Most term life policies allow the policyholder to nominate the individual or individuals who should receive the benefit payment in the event of their death. If no beneficiary is formally nominated, the insurer typically has the discretion to decide who should receive the payment. In most cases, the insurer will pay the benefit to the deceased's estate, and the executor of the estate will then be responsible for distributing the funds according to the deceased's will.

Who uses Life Cover?

Individuals who should typically consider taking out life cover include:

• Parents who are still raising their children.
• Prospective parents who are trying to conceive or who are already pregnant.
• Husbands or wives (whether married or in a de facto relationship) whose partner relies on their income.
• Anyone else who has financial dependants.

How to hold your life cover

Life cover can be held either personally or through a superannuation fund. If held personally, the premium is generally not tax-deductible. However, when held within superannuation, the premium is often effectively tax-deductible. When paying for life cover through superannuation, one can either use existing superannuation balances or, if permissible, make contributions to a specific fund for the purpose of purchasing the life cover.

When using superannuation to fund life cover, it is essential to ensure that a binding death benefit nomination is lodged with the superannuation fund. This informs the fund trustees about the policyholder's wishes regarding who should receive the benefit upon their death. It is also important to remember that using superannuation to pay for life cover will reduce the overall superannuation balance, unless this reduction is offset by increased contributions. However, if using superannuation allows for the premiums to be effectively tax-deductible, the total amount paid for the cover will be reduced, which means the decrease in the superannuation balance will likely be more than compensated for by the increased wealth available outside of superannuation due to the tax savings. If these tax savings are reinvested, the individual will ultimately have more overall wealth.

More information

To learn more about Life Cover, please visit the ASIC website here.

Income protection insurance, as its name suggests, is designed to protect an individual's personal income in the event that they become unable to work due to illness or injury.

The fundamental idea is that if a person becomes sick or injured and cannot perform their job, any resulting loss of income can be compensated for by the insurance policy.

What income can I insure?

Insurers typically only allow individuals to insure income that is directly derived from their labour, often referred to as 'personal exertion' income. This is the income that would cease if the insured person were unable to work. 'Passive' income, such as income generated from assets that do not require active management (e.g., shares or investment properties), is generally not insurable. However, this is usually not a concern, as passive income typically continues even if the individual cannot work.

Income protection insurance can be complex, primarily because of the wide variety of features offered by different providers. Furthermore, the same insurer may offer varying terms to individuals with different income structures. It is advisable to discuss specific income protection needs with a financial advisor, who can help arrange cover that is appropriate for an individual's unique circumstances.

How long are benefits paid for?

One of the key ways in which income protection policies differ is the benefit period, which is the duration for which the insurer will pay income protection benefits. Common benefit periods include one year, two years, five years, or until the insured person reaches a specified age, such as 60 or 65. Generally, policies with shorter benefit periods have lower premiums.

Waiting period

Income protection policies often offer the option to adjust the waiting period, which is the initial period after becoming unable to work during which no benefits are paid. For example, an individual might choose a policy with a 30-day waiting period. If they are unable to work for less than 30 days, no benefit is paid. However, if the period of inability to work extends beyond 30 days, benefits typically commence from the 31st day.

Choosing a longer waiting period generally results in lower premiums because it reduces the likelihood that a benefit will be paid. People are statistically less likely to be out of work for extended periods, so insurers are less likely to make a payment on a policy with a longer waiting period.

Limits on benefits paid

Income protection benefits are typically capped at a maximum of 75% of the individual's pre-disability income. Many insurers calculate this pre-disability income based on the average income earned over the two years preceding the illness or injury. They will then pay up to 75% of this average amount.

Additionally, most insurers impose an 'absolute' upper limit on the monthly benefit payable. For instance, if a policy has an absolute limit of $12,000 per month, this is the maximum amount an individual can receive, regardless of their pre-disability income.

Agreed value or indemnity

Historically, income protection policies were available as either agreed value or indemnity policies. An agreed value policy allowed the insured amount to be established at the time the policy was taken out. These policies were often favoured by individuals with variable incomes, such as consultants or casual workers, whose earnings might fluctuate. When an agreed value policy was initiated, the individual had to demonstrate that the insured amount was realistic based on their current income. Once established, this amount would be paid out in the event of a valid claim, even if the individual's income had decreased during the policy period, provided the change in income was considered 'normal'.

However, as of March 2020, agreed value income protection policies are no longer available for new policies ¹⁵. This change was driven by concerns from the Australian Prudential Regulation Authority (APRA) regarding the sustainability of these policies due to substantial and ongoing losses experienced by insurers ¹⁵. APRA also raised concerns about the potential for moral hazard, where individuals might have less incentive to return to work, and the deviation from the fundamental principle of insurance, which is to indemnify against loss ¹⁶.

Currently, all new income protection policies are indemnity policies. If an individual holds an agreed value policy established before March 2020, it remains valid, and the terms under which it was purchased still apply. However, it is no longer possible to purchase a new agreed value income protection policy. Under an indemnity policy, the benefit paid is linked to the actual income earned in the period (typically 12 months) prior to the illness or injury occurring. Generally, the insurer will pay out between 70% and 75% of this lost income ¹⁸.

If an individual holds an indemnity policy and their income situation changes (e.g., they change or lose their job), it is crucial to inform their financial advisor immediately. This will help ensure that they are not paying excessive premiums for a sum insured that exceeds what the insurer would actually pay in the event of a claim. In addition to the discontinuation of agreed value policies, other significant changes have been implemented in the income protection market, including a maximum policy contract term of five years for new policies sold on or after September 27, 2021 ¹⁸. This means that at the end of the five-year term, policyholders will be offered the income protection products available at that time.

Renewing income protection policy

It is important to note a change specifically related to income protection policies.

As of October 2021, new income protection policies have a limited guaranteed renewability period of five years. Within this five-year period, the insurer must renew the policy annually, provided the insured person pays the premium. After the initial five years, the insurer can consider changes in the individual's income or personal circumstances when issuing a new policy, which will also have a maximum term of five years ¹⁵.

It is crucial to remember that even with these changes in income protection renewability, the insurer is not permitted to factor in changes to the insured person's health status when conducting the five-year review. Therefore, if an illness or injury develops that could potentially lead to a claim, the insurer cannot refuse to issue a new policy based on this change in health. The insurer can only adjust aspects of the policy related to other circumstances, such as age or income.

Who needs income protection cover?

Any individual whose financial circumstances would be negatively impacted by a loss of income should consider taking out income protection cover. This includes people with financial dependants, such as parents, as well as those with financial commitments like mortgages and other debts.

Essentially, most people should consider income protection cover.

To learn more about Income Protection Cover, please visit the ASIC website here.

Superannuation and income protection

Many superannuation funds offer a small amount of 'default' income protection cover to their members without requiring a formal application. Members often have the option to increase this level of cover by applying to do so.

The availability of income protection within superannuation can make it more accessible from an affordability perspective, not necessarily because the insurance is cheaper within super, but because the premiums are paid from pre-tax superannuation contributions, thus easing the strain on day-to-day cash flow.

However, it is important to note that if income protection premiums are paid by a super fund, they are not tax-deductible to the insured person. Therefore, there are both advantages and disadvantages to using superannuation for income protection, and the best approach depends on an individual's specific financial situation. Financial advisers can help clients determine whether using superannuation is the most suitable way to access this type of insurance.

Total and permanent disability (TPD) cover provides insurance protection in the event that a person becomes physically or mentally unable to work and earn an income. This type of cover is frequently offered as part of the same policy as life cover, as the financial consequences of becoming totally and permanently disabled can be similar to those of death, particularly for individuals with financial responsibilities. For example, if a parent with dependent children becomes disabled and cannot work, the family faces a loss of income, similar to the situation following the death of a parent.

What does total and permanent disability mean?

The definition of total and permanent disability can vary slightly between different insurers ²³. However, the core concept revolves around the insured person's inability to ever work again due to illness or injury ²⁵. For instance, Aware Super defines TPD cover as providing a benefit if a member becomes totally and permanently disabled due to illness or injury and is unlikely ever to work again ²⁵.

Own occupation versus any occupation

TPD insurance can provide cover based on two main definitions: 'own occupation' or 'any occupation' ²⁸.

'Own occupation' cover typically means that the insured person is unable to work in their specific occupation due to disability ²⁷. For example, if a plumber becomes paralysed and can no longer stand, they would likely be unable to continue their occupation as a plumber, even if they might be capable of performing other types of work ²⁸. It is important to note that the definition of 'occupation' is broader than just the immediate job tasks and considers the individual's qualifications, experience, and work history ³². 'Own occupation' cover generally offers a higher chance of claim approval but tends to have higher premiums and is typically available outside of superannuation ²⁸.

'Any occupation' cover, on the other hand, has a slightly more stringent definition. It typically means that the insured person is unable to engage in any work for which they are reasonably suited by their education, training, or experience ²⁸. For instance, in the previous example, if the paralysed plumber could still perform a desk job related to the plumbing industry, they might not meet the definition of 'any occupation' TPD ²⁸. 'Any occupation' cover generally has lower premiums but may be more challenging to claim on as the criteria are broader ²⁸. This type of cover is commonly offered through superannuation funds ³¹. Besides these two primary definitions, some policies may also offer cover based on the inability to perform 'home duties' or 'activities of daily living' ²⁴.

Under-writing

The underwriting process for TPD insurance is similar to that for life cover. Insurers assess the likelihood of the applicant becoming disabled in the future by considering similar risk factors as those used for life cover, such as participation in risky activities.

As with life cover, most insurers do not provide coverage for disabilities resulting from pre-existing conditions. Therefore, applicants are usually required to undergo medical tests and complete detailed questionnaires before TPD cover is provided.

Similarly, most TPD policies exclude disabilities that are self-inflicted. Insurers also tend to be cautious about offering TPD policies where the insured person might be financially better off being disabled, as this could create a potential for fraudulent claims. Consequently, most insurers verify an applicant's income before offering TPD cover, and if the income is low, the amount of TPD cover offered may also be limited.

Certain occupations known to have a higher risk of injuries may also attract higher premiums for TPD cover.

Who needs TPD cover?

Individuals who require life cover generally also have a need for TPD cover, as the financial implications of becoming disabled and unable to work can often be more severe than those following a death. Furthermore, individuals who are personally dependent on their continued good health for their livelihood should strongly consider TPD cover.

Trauma insurance, also sometimes referred to as critical illness insurance or recovery insurance, provides a lump sum payment if the insured person suffers a specified illness or experiences a specified event, regardless of the long-term consequences of that event ¹⁴. For instance, if an individual has a heart attack that does not result in death or total and permanent disability, they would not receive a payout from a standard life cover or TPD policy. Trauma cover addresses this gap by providing a benefit upon the occurrence of a defined traumatic event, helping to cover potential loss of income and significant expenses such as medical treatment and rehabilitation ¹⁹.

The list of illnesses and events covered by trauma insurance varies from policy to policy, but typically includes conditions like heart attack, stroke, and cancer ¹⁹. To receive a benefit, the insured person only needs to prove that the specified illness or event occurred; they do not need to demonstrate that it had severe long-term consequences like permanent disability ³⁶. Upon a successful claim, a lump sum amount, which is usually specified in the policy, is paid out. Most trauma policies include a survival period clause, typically requiring the insured person to live for a designated period, often 14 days, after the traumatic event ¹⁹. This means that if a person dies shortly after suffering a heart attack, a trauma benefit might not be payable to their estate, although a death benefit might be payable if the individual also held a life cover policy. Trauma insurance can often be combined with term life insurance and/or TPD insurance within the same policy ¹⁹.

Recent updates to trauma cover include improvements to the definitions of certain conditions. For example, Zurich Wealth Protection updated its Angioplasty (triple vessel) definition to cover angioplasty of all arteries and their branches, and removed an exclusion for certain thyroid cancers within its Cancer (excluding early-stage cancers) definition, effective from February 2025 ³⁸. These changes aim to provide broader and more relevant coverage to policyholders.

Who uses trauma cover?

Trauma cover tends to be less popular than life cover or income protection. This is partly because many individuals also have health insurance that covers some or all of the costs associated with illness, or income protection that provides financial support in case of income loss due to illness or injury. Nevertheless, there are situations where trauma cover is particularly beneficial.

For example, individuals who are not working may not be eligible for income protection, or those working part-time may not be able to obtain a significant level of income protection. This might include stay-at-home parents or those taking a break from paid employment. In such cases, trauma cover can provide a financial benefit to cover medical expenses and other costs if a traumatic event occurs. It is advisable to discuss the need for trauma cover with a financial advisor to determine if it is appropriate for one's specific circumstances.

To learn more about Trauma Cover, please visit the ASIC website here.

Businesses should consider two primary forms of life insurance: key person insurance and business expense insurance.

Key person insurance

Key person insurance is a policy taken out by a business to cover the financial impact of the death or disability of a key individual within the organization ¹⁹. Essentially, it functions as life and/or TPD cover where the business is the beneficiary. This type of insurance is often purchased by business partners. The purpose is that if one of the partners dies or becomes disabled, the business will receive a sum of money that can be used to buy out the deceased or injured partner's share of the business. This allows the remaining partners to continue operating the business without facing severe financial strain.

The amount of coverage is typically determined based on the potential financial loss the business would incur due to the absence of the key person. This will vary depending on the specific circumstances of the business, making it essential to discuss key person insurance needs with a financial advisor to understand its potential benefits.

Business expense insurance

Business expense insurance is often utilized by smaller businesses where the operational expenses would continue even if the principal is unable to work due to illness or injury. A common example is a self-employed tradesperson, such as a builder, who might become injured or ill and unable to generate income. However, the business's fixed costs, such as office rent, vehicle expenses, insurance premiums, and staff salaries, would still need to be paid. Business expense insurance helps cover these ongoing costs during the period the business owner is unable to work, ensuring the business can remain viable until they recover.

The specific amount and type of business expense insurance required will depend on the unique characteristics of the business, which is why it is recommended to discuss these needs with a financial adviser.

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Superannuation, or 'super' as it's more often known, is a major element of most people’s personal financial management. Apart from their own home, for many people superannuation comprises much of their entire personal wealth. It is very important.

Super is basically a form of compulsory saving for employees and a form of tax-advantaged investment for all working people, whether they be employees, self-employed, or enjoying retirement.

In this guide, we introduce the basics of superannuation: what super is for, how money gets into super, how it is managed when it gets there, and how it can be used both while it is in the fund and when it is paid out.

Please feel free to send a link for this e-book to any other person who would find it helpful. And, if you would like to discuss your own super situation, please do not hesitate to contact us.

What is super?

Super is a long-term savings arrangement designed to help individuals accumulate wealth to enable them to fund (at least some of) their own retirement. Becoming self-sufficient like this reduces people’s reliance on government services such as the Age Pension.

Many countries use some form of superannuation. Australia’s current system took form in 1983, when the Hawke Labor government reached an ‘Accord’ with trade unions. The unions agreed to forego direct pay increases in return for the introduction of compulsory super contributions for their members. Initially, employers were obliged to contribute an amount equal to 3% of their employees’ salary or wages into a super fund on that employee's behalf. At a stroke, this meant that all affected workers started to save 3% of their annual income in a savings vehicle which could not be accessed until retirement.

The system was expanded in 1992 to cover all Australian employees. This system became known as the ‘Superannuation Guarantee’ and it is still in place today. The introduction of compulsory super came as demographic analysts realised that the Australian population was ageing. This demographic shift would place a substantial strain on future social security benefits paid by the Government, especially in the form of the Age Pension.

The amount held in super has continued to grow impressively. As of early 2025, the total held in superannuation funds was approximately $3.9 trillion. That's a huge pool of national savings working towards funding our collective retirement. 💰

Forced Saving for Retirement

Given that employers must make contributions on employees' behalf, super is effectively forced saving. And given that superannuation benefits cannot generally be accessed until a person retires, super is effectively forced saving for retirement.

Saving for retirement is the predominant purpose of superannuation. Indeed, the law states that saving for retirement has to be the sole purpose of a fund if it is going to enjoy the tax concessions available for super. There is one other thing for which super is able to be used: it also provides a way for people to finance certain life insurance policies during their pre-retirement years.

The Superannuation Guarantee system has had a positive effect – something that is often overlooked when super becomes a political topic. International studies, such as the Mercer CFA Institute Global Pension Index, consistently rank Australia’s retirement income system among the best in the world. This is largely thanks to the robust framework of our superannuation system.

Put simply, Australia’s superannuation system is undoubtedly one of our key economic strengths.

Money that is transferred into superannuation on behalf of a member is known as a ‘contribution.’ There are two main types of contribution: concessional and non-concessional.

Concessional contributions

Concessional contributions are often known as ‘before-tax’ contributions. This means that they are generally made using income that hasn't yet been taxed at your personal income tax rate. Contributions can be made by employers or by you.

Employers make contributions in two ways:

1. Via the compulsory Superannuation Guarantee (SG) that must be paid for all eligible employees.
2. Via additional contributions over and above the SG amount (which can include salary that an employee chooses to have paid into their super fund instead of to them – usually known as 'salary sacrifice').

Individuals can also make a contribution into their super fund and claim a tax deduction for doing so. These are known as 'personal deductible contributions.'

Once concessional contributions arrive in a super fund, they are generally taxed at 15%. The fund pays this tax, and the member's balance is reduced accordingly.

Tax on concessional contributions

As mentioned, concessional contributions are taxed at a flat rate of 15% when they enter the super fund. The fund pays this tax directly to the Australian Taxation Office (ATO).

To illustrate how this all works, think of an employee earning $70,000 a year. Under the Superannuation Guarantee rules, her employer must make a contribution worth 12% of her salary into super (this is the rate for the 2025-26 financial year). 12% of $70,000 is $8,400. The employer pays this full amount directly into the employee’s super fund.

This is treated differently to the $70,000 of salary paid to the employee. For the employee’s salary, the employer must withhold the employee’s income tax and send it to the ATO, paying only the after-tax amount to the employee. So, for salary, the employer pays money to two places: the employee and the ATO. For super contributions, the employer pays the full pre-tax amount to just one place: the superannuation fund.

In our example, the employer contributes $8,400 directly to the fund. Once the money arrives, the fund pays tax of 15% ($1,260) to the ATO. This leaves $7,140 in the employee’s superannuation account.

This 15% tax rate on contributions is a key benefit of super. For the employee on $70,000, her personal marginal tax rate is 30% (plus the 2% Medicare levy). If she had received that $8,400 as salary, she would have paid $2,688 in tax and levy ($8,400 \times 32\%). This would have left her with only $5,712 in her pocket.

By receiving the money in super, she is $1,428 better off ($7,140 - $5,712). In return for having the money preserved for retirement, the employee starts with a significantly larger investment.

The lower tax rate within super is deliberate. It encourages people to use superannuation and helps their retirement savings grow faster, as more of the investment earnings are retained within the fund.

High Income Earners - Division 293 Tax

The standard 15% tax rate applies to contributions for people whose income is less than $250,000. For high-income earners who have an 'adjusted taxable income' over $250,000 per year, an additional 15% tax is levied on some or all of their concessional contributions. This brings the total tax on those contributions to 30%.

This extra tax is known as ‘Division 293 tax,’ named after the relevant section of the tax act. Your 'adjusted taxable income' for this purpose is basically your taxable income plus your concessional super contributions.

This reduces the tax benefit for high-income earners, but super remains a tax-effective vehicle. Even at 30%, the tax rate is still considerably lower than the top personal marginal tax rate of 45% (plus Medicare levy).

If your income is hovering around the $250,000 mark, some careful planning can make a real difference. It’s a good idea to seek advice well before the end of the financial year, as it's often too late to do anything afterwards.

Salary Sacrifice

Salary sacrifice is an arrangement where an employee agrees to have some of their pre-tax salary paid directly into their super fund by their employer. This adds to the compulsory Superannuation Guarantee contributions.

The logic is simple. As we saw in the example above, money contributed to super is taxed at a lower rate (15% or 30%) than salary paid to you personally. For most people, this means you end up with more money saved for the same amount of gross pay.

The financial benefit of salary sacrifice increases as your income and marginal tax rate rise. Here are the personal income tax rates for the 2025-26 financial year (excluding the 2% Medicare levy):

As you can see, anyone earning over $18,200 pays a higher rate of tax on their personal income than the 15% paid on super contributions.

Personal Deductible Contributions

Most people can also make contributions directly to their super fund from their own bank account and then claim a tax deduction for it in their tax return. This has the same tax outcome as salary sacrificing. You must notify your super fund of your intention to claim the deduction before you lodge your tax return.

The Concessional Contributions Cap

The tax advantage for concessional contributions is a ‘limited offer.’ There is a cap on the total amount of concessional contributions you can make each year. This cap includes your employer's SG payments, any salary sacrifice amounts, and any personal deductible contributions you make.

For the 2025-26 financial year, the annual concessional contributions cap is $30,000.

Contributions that exceed this cap may be taxed at your marginal tax rate.

If your total superannuation balance was less than $500,000 on 30 June of the previous financial year, you may be able to use the ‘carry-forward’ rule. This allows you to use any unused portion of your concessional cap from the previous five financial years. For example, if you only contributed $15,000 last year, you could potentially contribute up to $45,000 this year ($30,000 for this year plus the unused $15,000 from last year), provided your total super balance is below the threshold.

Contribution splitting

You may be able to 'split' some of your concessional contributions with your spouse. This involves transferring up to 85% of your before-tax contributions from a financial year into your spouse's super account in the following financial year.

This rule can be particularly helpful for couples where one partner has taken time out of the workforce or works part-time, often to raise a family, and has a lower super balance as a result. It allows couples to build a more balanced retirement nest egg between them.

Non-concessional contributions

Non-concessional contributions are made from your ‘after-tax’ money. Because you've already paid income tax on this money, these contributions are not taxed again when they go into your super fund. You also don't get a tax deduction for making them.

People often make non-concessional contributions when they receive a lump sum, such as from an inheritance or the sale of an asset, and want to invest it in the tax-friendly super environment. While the contribution itself isn't taxed, once it's in the fund, the investment earnings are taxed at the low superannuation rate of 15% (or even less for some capital gains).

The amount you can contribute as a non-concessional contribution (NCC) is also capped.

• The annual NCC cap is $120,000.
• If you are under 75, you may be able to use the ‘bring-forward’ rule to contribute up to $360,000 at once, covering three years' worth of caps.
• You can only make non-concessional contributions if your total superannuation balance was less than $1.9 million on 30 June of the previous financial year.

From 1 July 2022, the 'work test' (requiring you to have worked 40 hours in a 30-day period) was removed for people aged 67 to 74 wanting to make non-concessional contributions. This work test still applies if you wish to claim a personal tax deduction for your contributions.

Downsizer Contributions

A special rule allows eligible individuals to contribute up to $300,000 ($600,000 for a couple) from the sale of their main residence into their super. As of 1 January 2023, you only need to be 55 years or older to be eligible.

This is not treated as a non-concessional contribution and doesn't count towards your NCC cap. The total super balance limit of $1.9 million also does not apply to this type of contribution. It's a powerful way for older Australians to move wealth from their family home into the super system to better fund their retirement. This measure is quite specific, so we encourage you to seek advice if you're contemplating downsizing.

A member of a superannuation fund is entitled to transfer their benefits from one fund to another. This is known as a ‘rollover.’ A rollover does not trigger a tax charge, as the money was either taxed when it first arrived in the original fund (concessional contributions and earnings) or was not subject to tax in the first place (non-concessional contributions).

(There is one rare exception to this: when an 'untaxed element' is held in the existing super fund. This doesn't happen often, but it pays to check with your fund that all money has been taxed before you perform a rollover. We can help you check this).

Rolling over superannuation benefits has both advantages and disadvantages. It should only be done when the advantages clearly outweigh the disadvantages.

The advantages of rollovers

There are several good reasons to consider rolling your super benefits from one fund to another.

Consolidation

One of the main reasons to roll over benefits is to consolidate super accounts that might be spread across a number of different funds into just one or two.

Under the Superannuation Guarantee system, people often accumulate a new super account with each new job. This can be particularly true for those who have been in the workforce for a long time. Consolidating these accounts into one fund can make your super much easier to manage and keep track of.

It can also reduce the overall fees you pay. Super funds typically charge a mix of flat administration fees (a fixed dollar amount per year) and variable investment fees (a percentage of your balance). If you have multiple accounts, you're likely paying multiple sets of flat fees. Consolidating into a single fund means you only pay that flat fee once.

For example, a person may have two super funds holding $20,000 each. If they are paying a flat fee of $100 per year per fund, this is $200 in total, or 0.5% of their total benefits of $40,000. If they consolidate their benefits into one fund and pay only a single flat fee of $100, the total fee falls to 0.25% of their benefits.

Better insurance coverage

As we'll discuss later, super funds often provide life insurance for their members. The quality, cost, and features of this insurance can vary significantly between funds. Rolling your benefits over to a fund that offers insurance better suited to your needs can be a very sensible move.

However, comparing insurance policies can be complex. We encourage you to get advice before changing funds in pursuit of better insurance.

Lower fees

Beyond just saving on multiple flat fees, rolling over to a new fund might give you access to lower percentage-based management fees. Most super funds invest in similar markets, so for a given investment option, performance can often be comparable. Finding a fund that achieves solid results for a lower management fee means more of your money stays invested and working for you.

Insurance premiums can also differ between funds. It might be possible to get cheaper insurance by moving to another fund. But a word of caution: when comparing insurance, a lower price is only a benefit if the policies offer the same (or better) level of cover. Sometimes a cheaper policy is cheap because it is more restrictive or has more exclusions. The best policy is one that will actually pay out if you need to make a claim.

The risks of a rollover

Loss of ancillary benefits

The main risk when rolling over superannuation is the potential loss of valuable benefits, especially insurance.

Superannuation law allows funds to provide ‘ancillary benefits’ to members, which include risk insurance like death cover and total and permanent disability (TPD) cover. Many super funds offer this insurance to members on a 'default' basis, where you are automatically given a certain level of cover when you join.

When you roll your super out of a fund, you close that account, and any insurance cover attached to it will be cancelled.

This is a critical point. You must ensure you have equivalent or better cover in place in your new fund before you cancel your old policy. Otherwise, you could be left uninsured, which could be financially devastating for you or your family if something unexpected were to happen.

Recent government reforms, designed to stop members’ balances being eroded by unwanted fees, have meant that insurance on inactive, low-balance accounts is now automatically switched off. This makes it more important than ever to be aware of what insurance you have and to actively manage it.

A decision to roll over your super is often also a decision to change your insurer. This should be done with care and with a full understanding of what you might be giving up. Before you roll over your super, it's always best to check the fine print.

Once your contributions are in your super fund, they don't just sit there. The fund combines the money held on behalf of all its members and invests it in a range of assets. The goal is to generate investment returns, which are then added to your account balance, helping it grow over time.

All super funds are managed by one or more ‘trustees.’ As the name suggests, these people or companies manage the fund ‘on trust’ for the benefit of the members. In a large public super fund, the trustee acts much like a Board of Directors. In a self-managed superannuation fund, the members are also the trustees, meaning they look after their own retirement money directly.

Managed superannuation funds

The majority of Australians have their super in what are known as 'managed superannuation funds.' These are large funds where individual members have an account, but their money is pooled with all other members' money to be invested by professionals.

Frequently, members of these funds are given a choice as to how their money is invested. At a simple level, you can typically choose the level of risk you are comfortable with in the pursuit of investment returns.

Put very simply, managed funds generally invest in a mix of asset types:

• Cash and fixed interest: Such as term deposits and government bonds. These are considered lower-risk investments that typically provide modest, stable returns.
• Property: This can include direct ownership of commercial buildings or investments in listed property trusts.
• Equities: Generally shares in Australian and international companies.

Property and share-based investments tend to be higher risk, meaning their value can go up and down more dramatically. To compensate for this higher risk, they offer the potential for greater investment returns over the long term.

When you choose an investment option (for example, 'High Growth' or 'Balanced'), the fund directs your portion of the money towards a mix of investments that fits that profile. These funds charge fees for managing the investments on your behalf.

Self-Managed Superannuation Funds (SMSFs)

In a self-managed superannuation fund (SMSF), the members are also the trustees. This gives them direct control and responsibility for the fund's investment decisions.

An SMSF must have a documented investment strategy that outlines the fund's investment objectives and how it plans to achieve them. The ATO provides many helpful resources and guidelines for trustees on how to establish and maintain a compliant investment strategy.

Typically, the members of an SMSF have very similar financial goals, which allows them to manage their benefits under a single, unified strategy. For example, a married couple will generally have the same retirement timeline and risk tolerance, making it practical to manage their super together in an SMSF.

Investment profiles and superannuation

The term ‘investment profile’ refers to the level of risk an investment strategy is exposed to. At one end of the spectrum is a conservative strategy, which prioritises protecting the capital and will favour investments like cash and fixed interest. At the other end is a high growth strategy, which aims for maximum long-term returns and will favour investments like shares.

Generally, your investment profile should be heavily influenced by your investment timeframe—that is, how soon you will need to access the money. If you need the money in the short term, a conservative strategy is usually appropriate to avoid the risk of a market downturn just before you need to withdraw. If you won't need the money for a very long time, a growth-oriented strategy often makes more sense, as you have time to ride out the ups and downs of the market.

It's important to remember that super is different to your other savings. The money is 'preserved' until you reach a certain age and retire. This means that for most people, especially younger people, superannuation is a very long-term investment.

As a result, people can sometimes be a little too cautious with their super investments, switching to a conservative strategy too early in life.

It often makes sense to have different investment profiles for different pools of money. Consider Julian, for example. He is 30 and is saving for a house deposit. Julian has $50,000 in a personal savings account and $30,000 in his super fund.

Because the $50,000 will hopefully be needed for a home loan deposit in the next few years, a conservative approach for this money makes sense. The last thing he wants is for its value to drop just as he finds the right property.

Conversely, Julian cannot access his super for at least another 30 years. A conservative strategy for his $30,000 in super would mean missing out on decades of potential growth. For this money, a high growth option would be far more suitable for his circumstances.

In addition to providing for your retirement, your superannuation fund can also be used to purchase certain types of life insurance (sometimes known more generally as ‘risk insurance’).

Many, if not most, managed super funds offer various forms of life insurance to their members. Because of the tax-advantaged nature of super, holding insurance this way can often be a more cost-effective way to get the cover you need. What’s more, if you are already a member of a particular fund, setting up a new policy can be relatively easy.

As a general rule, premiums for death cover and total and permanent disability (TPD) cover are not tax-deductible if you pay for them personally from your after-tax income. However, if the policy is held within your super fund, you can pay for the premiums using pre-tax money (via concessional contributions), which creates a significant tax benefit.

Let’s look at an example. Wendy has a marginal tax rate of 30% (plus the 2% Medicare levy). She needs to pay an insurance premium of $1,000 for her life and TPD cover.

• If she pays this premium personally, she must use after-tax money. To have $1,000 left over to pay the insurer, she first needs to earn approximately $1,470. Of this, she pays about $470 in tax and the Medicare levy (at a rate of 32%), leaving her with $1,000.
• If she pays this premium via her super fund, she can contribute the money as a concessional contribution. To get $1,000 into the fund to pay the premium, she only needs to contribute about $1,176. The fund pays 15% contributions tax ($176), leaving it with $1,000 to purchase the policy.

From Wendy’s point of view, the insurance is about $294 cheaper in pre-tax terms ($1,470 - $1,176) when bought through super.

This tax effectiveness is not the only benefit. Superannuation is effectively forced savings for retirement, meaning the money is generally locked away. People who need life insurance most—for example, parents with financially dependent young children—are typically well below retirement age and often find their household budgets are tight.

Using super to pay for insurance premiums means you don't have to find the money from your day-to-day disposable income. This helps solve a common paradox: the very reason you need life insurance (e.g., having dependents) often makes it harder to afford.

Of course, if your super benefits are used to purchase insurance, there will be less money remaining when you eventually retire. If you spend some of your super, you will be left with less super. However, the point is that the total amount available to support you and your family—including personal savings and the insurance safety net—is greater than it would be if you paid for the insurance with your more highly-taxed personal income.

Using super to purchase income protection insurance

While it often makes sense to use super for death and TPD cover, it can be less advantageous to hold income protection insurance inside your fund.

Firstly, premiums for income protection insurance are generally tax-deductible in your personal tax return. If your marginal tax rate is higher than 15%, you will get a larger tax deduction—and therefore a lower net cost—if you hold the policy in your own name.

Returning to Wendy's example, let's imagine she is paying $1,000 for an income protection policy.

• If purchased through her super fund, the fund pays the $1,000 premium and can claim a tax deduction of 15% ($150). The net cost to her super balance is $850.
• If she pays the $1,000 premium personally, she can claim a tax deduction at her marginal tax rate of 32% (including the Medicare levy). This means she gets $320 back on her tax return, making the net cost to her only $680.

But tax is not the only reason that holding income protection in super can be tricky. When an insurance policy is owned by a super fund, any benefit payments are paid to the super fund, not directly to you. For you to receive the money, the fund must be legally allowed to release it, which depends on you meeting a ‘condition of release.’

While death or total and permanent disablement are clear conditions of release, the rules around temporary incapacity (which is what income protection covers) are much stricter. It is quite possible for the insurer to agree to pay your claim, but for the super fund’s rules to prevent you from accessing the money. This is illustrated in the following story.

A few years ago, a heart-breaking story emerged involving a father whose young daughter needed a liver transplant. He was a suitable donor, but the procedure to donate a piece of his liver required him to take three months off work.

He had an income protection policy held through his super fund and expected it would cover his loss of income during his recovery. The insurer agreed to pay the claim. However, there was a catch. The payment went to his super fund, and the fund's rules stated that benefits could not be released for what was termed ‘elective surgery.’ From a strictly legal standpoint, the surgery was elective for the father, as it was his daughter’s life at stake, not his own.

This frustrating situation highlights the importance of getting the structure of your insurance right. Super can be an excellent tool for funding some types of insurance, but it's not always the best solution for all of them. It is for precisely this reason that it is important to speak with an adviser before putting your risk insurances in place.

The overall purpose of super is to grow your savings to provide for your retirement. To ensure the money is there when you need it, there are strict rules about when you can access it. You must meet a ‘condition of release’ before a fund is allowed to pay benefits to you or your beneficiaries.

The most common conditions of release are:

• You have reached age 65 (even if you are still working);
• You have reached your ‘preservation age’ and have permanently retired;
• You cease an employment arrangement on or after age 60;
• You have passed away, in which case the benefit is paid to your beneficiaries or your estate.

Your 'preservation age' is the age you must reach before you can access your super upon retirement. It is set by law and depends on when you were born.

Special Circumstances

You can also access your super in some special circumstances, including:

• Permanent incapacity (you are unable to work again due to illness or injury);
• Temporary incapacity (income protection payments may be made from your fund);
• Severe financial hardship (subject to very strict criteria);
• Specific compassionate grounds (such as for certain medical expenses);
• You have a terminal medical condition.

The trustee of the super fund must ensure you have met a valid condition of release before any funds can be paid out.

How to withdraw the money

There are two broad ways to take your money out of super once you are eligible: as a lump sum or as an income stream (often called a pension). You can also use a combination of both.

If you plan to spend a large amount of money at once (for example, to pay off a mortgage), then a lump sum makes sense. If you need money to live on day-to-day, an income stream is usually the better option.

Income streams or pensions

An income stream involves keeping the bulk of your money invested in the super system while drawing a regular payment to live on. You are required to withdraw a minimum amount each year, which is calculated as a percentage of your balance.

The government strongly encourages people to use income streams. The main incentive is the tax treatment: once you move your super into the 'retirement phase' to start an income stream, the investment earnings on those assets become completely tax-free. No tax on interest, dividends, or capital gains. A 0% tax rate is very hard to beat!

There is a limit on how much super you can transfer into this tax-free retirement phase. This is known as the Transfer Balance Cap.

• The general Transfer Balance Cap is currently $1.9 million.
• This is a lifetime limit, and your personal cap may be different depending on your circumstances, especially if you have previously started an income stream.

For most people, this cap is more than enough. If you are fortunate enough to have more than $1.9 million, any amount above the cap can remain in an 'accumulation account', where earnings are still taxed at the low super rate of 15%.

Transition to Retirement (TTR) income streams

A Transition to Retirement (TTR) income stream allows you to start drawing an income from your super once you reach your preservation age, even if you are still working. The idea is to allow you to reduce your work hours without a big drop in your take-home pay.

When TTRs were first introduced, they shared the same tax-free earnings benefit as standard pensions. This made them a popular tax-reduction strategy. However, since 1 July 2017, the investment earnings on assets supporting a TTR are taxed at the standard 15%, just like funds in an accumulation account.

This change has reduced their appeal significantly. Now, a TTR generally only makes sense for people who genuinely need to supplement their income to be able to afford to ease into retirement.

Lump sums

Lump-sum withdrawals are often used to finance large, one-off expenses. Common examples include paying off a home loan, buying a new car, funding a big holiday, or helping adult children financially.

You do not have to withdraw your entire balance as a lump sum. You can take out just what you need. If you withdraw more than you immediately require, you need to consider where you will invest the excess money. Generally, it makes sense to leave as much wealth as possible within the tax-friendly superannuation environment to continue working for your future.

If you are self-employed, you need to pay special attention to your superannuation. While employees receive compulsory contributions from their employers, if you work for yourself, the responsibility for building your retirement savings rests entirely on your shoulders.

Research consistently shows that self-employed people, on average, reach retirement with significantly lower super balances than their salaried counterparts. For business owners, it’s all too easy to focus on the immediate needs of the business and push superannuation to the bottom of the to-do list, telling yourself you'll get to it 'next year.'

Too many small business owners consider the business itself to be their superannuation. This can be a high-risk strategy that compromises both wealth creation and your future lifestyle.

Superannuation is an especially powerful tool for the self-employed for several key reasons.

Tax advantages

The tax-advantaged nature of superannuation is a benefit everyone can access, but it's one that self-employed people should proactively use. When you make personal deductible contributions, you reduce your taxable income and therefore your personal income tax bill.

For example, a self-employed person with business profits of $80,000 a year faces a marginal tax rate of 30% (plus the 2% Medicare levy). If they decide to contribute $10,000 into super, they can claim that $10,000 as a tax deduction. This reduces their after-tax income by just $6,800 (the $10,000 contribution minus the $3,200 tax they would have otherwise paid on it).

Within the super fund, the $10,000 contribution is taxed at only 15% ($1,500), leaving an $8,500 asset in their super account. In effect, the business owner has given up $6,800 in immediate spending power to acquire an asset worth $8,500. That’s the equivalent of an immediate investment return of 25% on their money. The higher your personal income, the greater this benefit becomes.

Asset protection

For a business owner, benefits held within a superannuation fund are generally well-protected. In the unfortunate event that the business fails and you are pursued by creditors, the money inside your super fund is typically beyond their reach.

There are rules to prevent this from being misused. A court can 'claw back' contributions made with the specific intention of defeating creditors. This is why making regular, consistent contributions over time is a much better strategy than making a single large contribution just before the business gets into trouble.

Complementarity

Your superannuation can be managed in a way that complements your business strategy. One of the most effective ways to do this is by using a self-managed superannuation fund (SMSF) to purchase the commercial property from which your business operates.

Generally, you cannot use super assets for your own personal benefit before retirement. However, the rules do allow an SMSF to own a business property and lease it to a related party (like your business), as long as it is done on commercial, arm's-length terms.

This strategy offers several benefits:

• Your business pays rent to your super fund, effectively turning a business expense into a retirement saving.
• You gain security of tenure by being your own landlord.
• The rent paid by the business is a tax-deductible expense to the business, while it is taxed at the low super rate of just 15% inside the fund.
• It provides another way to channel money into the super system, separate from the standard contribution caps.

Automating the process

Human nature often leads us to procrastinate, especially with long-term goals. Many business owners find themselves in late June, scrambling to find spare cash to make a super contribution before the 30 June deadline. This is not the most effective approach.

A much better way is to automate the process. Set up a recurring monthly or quarterly transfer from your business account to your super fund. By contributing a smaller amount regularly, you can ‘set and forget’ your super contributions, ensuring you are consistently building your retirement wealth without the last-minute stress.

Automating your savings is far better than the alternative: simply forgetting! If you think this would suit you, get in touch and we can show you how to set it up.

Congratulations! By reading this guide, you’ve taken a significant step towards understanding one of the most important financial assets you will ever own. We've covered a lot of ground, from the basics of how money gets into your super account to the strategies for how it's invested and, eventually, how you can use it to fund your retirement.

If there is one key message to take away, it is this: superannuation is your money, and your engagement with it today will have a profound impact on your lifestyle in the future.

The journey of your super

We've seen that super is more than just a savings account; it's a powerful, tax-effective structure designed to help you build wealth. The journey begins with contributions—the steady flow of your employer's Superannuation Guarantee, topped up by your own smart decisions around salary sacrifice, personal contributions, and special measures like the downsizer scheme. Understanding the caps and rules is the first step to maximising what you put in.

Once inside the fund, your money is invested. We’ve discussed how choosing an investment profile that matches your age and goals is vital. A growth strategy over the long term can harness the power of compounding, while a more conservative approach can protect your capital as you near retirement. Regularly reviewing your fund's performance and fees, and consolidating multiple accounts, are simple actions that can save you tens of thousands of dollars over your lifetime.

We also explored the critical role of insurance. Super offers a cost-effective way to secure essential Death and TPD cover for your family, but it's vital to ensure it's the right cover for you and to be cautious about holding income protection inside your fund.

Finally, we looked at how you can access your money. The transition from working life to retirement is made possible by turning your super balance into a tax-free income stream—a strategy that represents the culmination of decades of saving and investing.

What's your next step?

This guide has given you the foundational knowledge, but the next step is about action. We encourage you to:

1. Log in to your super fund's website. Check your current balance, see how it's invested, and review the fees you are paying.
2. Check your insurance cover. Do you have it? Is it enough? Is it the right type for your needs?
3. Think about your contributions. Could you contribute a little more through salary sacrifice? Are you eligible to make use of carry-forward or downsizer rules?

Superannuation can seem complex, but its core principles are straightforward. Small, informed decisions made consistently over time are what build a comfortable and secure retirement.

While we hope this ebook has been helpful, it provides general information only. Your situation is unique. For advice tailored to your personal circumstances and financial goals, there is no substitute for a discussion with a professional.

If you’re ready to take the next step and create a clear plan for your future, please don't hesitate to contact us.

Superannuation, or 'super' as it is more often known, is a cornerstone of most people’s personal financial management. Apart from their own home, for many people superannuation comprises their entire personal wealth. It is very important.

Super is a long-term savings arrangement designed to assist individuals to accumulate wealth to enable them to fund (at least some of) their own retirement. Becoming self-sufficient reduces people’s reliance on government services such as the age pension.

Many countries use some form of superannuation. Australia’s current system of superannuation took form in 1983, when the then Hawke Labor government reached an ‘Accord’ with trade unions. The unions agreed to forego direct pay increases in return for the introduction of compulsory super contributions for their members. Initially, employers were obliged to contribute an amount equal to 3% of their employees’ salary or wages into a super fund on that employee's behalf. At a stroke, all affected workers started to save 3% of their annual income in a savings vehicle which could not be accessed until retirement.

The system was expanded in 1992 to cover almost all Australian employees. This system became known as the ‘Superannuation Guarantee’ (SG) and it is still in place today. The rate of the SG has gradually increased over the years and, as of the current financial year, stands at 12%. The introduction of compulsory super came as demographic analysts realised that the Australian population was ageing, and this would place a substantial strain on social security benefits paid by the government (especially the age pension).

Originally, most superannuation funds were managed by professional money managers in large industry or retail funds. Over time, a system through which people can manage their own superannuation has been developed. People manage their own superannuation through what is known as a self-managed superannuation fund, or SMSF. The popularity of this approach remains strong. As of March 2025, there were more than 615,000 SMSFs with almost 1.2 million members. Together, these funds manage approximately $930 billion in assets, which represents about a quarter of all superannuation assets in Australia.

This guide is all about SMSFs. We explain what an SMSF is, who an SMSF suits, how to use an SMSF and how to 'finish up' an SMSF when it is no longer needed.

This guide is a starting point for self-managed superannuation. If you have an SMSF, or if you are thinking of establishing one, we encourage you to get in touch with us. Running your own SMSF can be both personally and financially rewarding – but it needs to be done right. We can help you ensure that you make an intelligent and informed decision about whether and how to manage your own superannuation.

We hope you enjoy this guide!

A self-managed superannuation fund (SMSF) is a special type of trust. A trust is a legal arrangement in which the legal ownership of an asset is separate from the beneficial ownership. The legal owner of an asset (the trustee) is responsible for managing that asset. The beneficial owner (the beneficiary or member) is the person for whose benefit that asset is maintained. In a trust, the assets must be managed for the betterment of the beneficial owner.

Most superannuation funds, both large public funds and SMSFs, operate via a trust structure. The trustees are the legal owners of the trust assets, and the fund members are the beneficial owners of those assets.

There are many different kinds of trusts. Many businesses, for example, operate through some form of trust, often using a company as the trustee. Private investors might make use of an investment trust. A testamentary trust is a trust that is created when a person dies and wishes to have their assets managed on behalf of their beneficiaries (for example, if their beneficiaries are still children and are not yet able to manage assets themselves).

A self-managed super fund is a special type of trust because its core purpose is to provide retirement income and other benefits to its members. Because of this specific purpose, the trust qualifies for special income tax concessions under the tax law.

An SMSF is a super fund that is managed by its members, which is why they are often called ‘DIY funds.’ The Australian Taxation Office (ATO) is the main SMSF regulator and has the responsibility of overseeing them in Australia.

The members themselves, or a company they own and control, act as the trustees. This means the trustees control the SMSF’s investments and are directly responsible for the SMSF’s administration and its compliance with the law.

Every SMSF is governed by its trust deed. The trust deed sets out the rules the SMSF must follow. It also outlines the obligations and responsibilities of the people connected to the SMSF, namely the members and the trustees. The rules for paying contributions, investing assets, paying benefits to members on retirement or death, and other matters affecting the SMSF are all found in the trust deed.

The three essential parts of a trust are present in an SMSF. These are:

1. a trustee;
2. trust property (the fund's assets); and
3. beneficiaries, who in this case are called "members".

The trust deed must contain special rules for the SMSF to be a 'complying' super fund and be eligible for tax concessions. However, it is the trustee’s year-to-year conduct that ultimately determines the SMSF's ongoing eligibility for these concessions.

To be classified as an SMSF, the fund must satisfy a number of conditions set out in section 17A of the SIS Act. A key change in recent years was the increase in the maximum number of members, which provides more flexibility for larger families. The main conditions are:

1. the fund must have six or fewer members (this was increased from four as of 1 July 2021);
2. if the trustees of the fund are individuals, each member must also be a trustee;
3. if the trustee of the fund is a company, each member must be a director of that company;
4. the members are not in an employment relationship with each other, unless they are relatives;
5. no trustee receives any personal payment or remuneration for performing their duties as a trustee of the fund.

Members

People who use an SMSF to manage their super are known as members of that fund.

A person is a member of a fund if the trustee of the fund holds benefits on their behalf. The role is analogous to a beneficiary of a family trust, or a unitholder of a unit trust. The member is entitled to receive benefits from the SMSF on the occurrence of certain specified events, such as reaching a certain age or retiring, or upon death (in which case the benefits are paid to the member’s estate or dependants).

Most SMSFs have two members. Often, these members are a couple, leading to the colloquial term 'mum and dad' funds. However, it's also common to see multiple generations of a family as members in a single fund. It generally does not make sense for unrelated people to be members of the same SMSF, as they will usually prefer to keep their financial arrangements separate by establishing their own funds.

The most distinct feature of a self-managed superannuation fund is that each member of the fund must also be a trustee of that fund. There are two ways to be a trustee: in one’s own name as an individual, or as a director of a company where that company is the trustee of the fund. To be a self-managed superannuation fund, every member must have a direct managerial role and responsibility for the fund's assets.

Up to Six Members

An SMSF can have no more than six members. This limit was increased from four to six on 1 July 2021, providing greater flexibility, particularly for larger families who may wish to manage their superannuation together in a single fund.

The number of members is limited to ensure the fund remains genuinely 'self-managed'. The rule that all members must also be trustees means that every member will automatically have access to financial information and a say in the fund's strategy. This direct involvement reduces the need for some of the broader consumer protection rules that apply to large public funds. Keeping the fund to a small group of related individuals helps ensure it remains workable, cost-effective, and easier to run.

Single Member Funds

Under general trust law, it is not possible for a person to be the sole trustee for themselves alone. This is because the separation of beneficial ownership and legal ownership of trust property is an essential aspect of a trust. If the same person holds both, the trust ceases to exist.

This posed a problem when the SMSF rules were being drafted: how can the ‘all members must be trustees’ rule be satisfied in the case of a single member fund? Two solutions were established:

1. a sole director/shareholder company can act as the trustee, with the member as that sole director and shareholder (this creates the necessary legal separation between the individual member and the corporate trustee); or
2. another person can be appointed as a second individual trustee, provided that other person is a relative and does not hold any benefits in the fund.

A “relative” is defined widely and includes parents, children, siblings, aunts, uncles, cousins, and their spouses. “Spouse” includes a de-facto or same-sex partner.

Members who are also employees

A person cannot be a member of the same SMSF as their employer, unless they are related. This rule is in place to ensure that self-managed super funds do not become de-facto employer-sponsored funds without the extensive consumer protection rules afforded to employees in large corporate super plans.

Auditor

An auditor is an independent financial professional who is required to review your SMSF each year. Their role is to check that the fund is being run in accordance with all relevant rules, which includes both the fund's own trust deed and the broader superannuation law.

In order to comply with the law and gain access to the various tax concessions, an SMSF must engage a registered and independent auditor each year. In recent years, the ATO has reinforced strict auditor independence standards. This means that the professional who prepares your fund’s accounts and financial statements cannot also act as its approved auditor. This ensures a clear separation of duties and an objective review of your fund's compliance and financial position.

The ATO provides extensive guidance on the role and importance of the SMSF auditor on its website.

Administrator

For an auditor to be able to perform their role efficiently, various administrative tasks need to be completed for the SMSF throughout the year. This includes preparing annual financial statements, processing contributions and rollovers, and lodging the fund's tax return. While a trustee can perform these tasks themselves, it is common to engage a professional SMSF administrator. Using a specialist administrator typically means the work is performed more effectively and ensures the annual audit can be completed in a more efficient and therefore less expensive way.

With over a million Australians choosing to manage their own super, there are clearly several advantages to this approach. Let’s look at some of the main ones in turn.

Control

The primary benefit of an SMSF over any other type of super fund is control. As a trustee, you have direct, legal control over the fund's assets and its strategy.

A key feature of this control is the ability to make direct investments. Trustees can build a portfolio that precisely matches their goals and risk appetite. Popular investments include:

• Direct Australian and international shares
• Direct property (commercial or residential)
• Managed funds and Exchange Traded Funds (ETFs)
• Term deposits and other cash products
• Artwork and other collectibles (subject to very strict rules)

Members are also able to invest in direct property, either using the available cash in their fund or through limited recourse borrowing arrangements (which we discuss later). For example, a common strategy involves purchasing a property within the SMSF. The rental income, along with member contributions, can be used to cover the property's outgoings and any loan repayments. The aim of this strategy is often long-term capital growth. This growth may not be realised until the members meet a condition of release and start a retirement pension, meaning a significant portion of the capital gain could be received tax-free.

The control that trustees have over their SMSF also means they can act quickly to adjust their investment strategy in response to market changes or shifts in their personal circumstances.

Information

Related to this enhanced control, using an SMSF means you don't have to wait for an annual statement to find out how your investments are performing. The information is always readily available.

The proliferation of sophisticated, cloud-based SMSF software now means trustees can have a live, consolidated view of their entire portfolio—including bank accounts, shares, and property—at their fingertips. This immediate access to information allows for more timely and informed decision-making.

Synergy with other investment and business strategies

SMSFs can create powerful synergies with a member’s other investment and business activities. The SMSF's investment strategy can be prepared as part of an overall financial plan that reflects the members' goals and total financial position, including their estate planning.

For example, it can make sense for an SMSF to minimise property investments if the members’ non-super assets are already heavily invested in property. This creates a balanced overall investment portfolio, even if the SMSF invests solely in shares.

Another example relates to death benefits. While death benefit payments to dependants are generally tax-free from any super fund, the fact that an SMSF is controlled by the deceased member’s close relatives often allows for more effective tax planning and greater certainty in how benefits are handled.

Personal Satisfaction

Many, if not most, people who run SMSFs do so simply because they enjoy it. They value the control and are genuinely interested in investing and learning about financial markets.

This doesn't mean an SMSF has to take up a great deal of time. Some trustees adopt a simple "buy and hold" strategy with quality blue-chip shares or index-tracking funds. This approach has the added benefit of lower administration costs due to fewer transactions.

Other trustees enjoy spending more time actively managing their SMSF investments. In some cases, a member may choose to only hold investments they believe are ‘ethical’ or that align with their values, often referred to as ESG (Environmental, Social, and Governance) investing. A powerful example of this is Australian doctor Bronwyn King, who discovered her default super fund was investing in tobacco companies. This led her to start a global movement, Tobacco Free Portfolios. This story, highlighted in publications like The Guardian, shows how an SMSF can empower individuals to align their investments with their personal values.

Put simply, for many people, taking an active role in securing their financial future is deeply rewarding.

Life Insurance

Holding life insurance through an SMSF can be very tax-effective. Insurance premiums paid by the fund are generally tax-deductible to the SMSF, which can significantly reduce the net cost of the cover. In some cases, this tax saving can offset a large portion of the fund's annual running costs.

Any insurance benefits paid into the SMSF are included in the fund’s assessable income. The tax paid will depend on the fund’s circumstances at the time, but the maximum rate is 15%, and it is 0% if the fund is paying a retirement income stream.

While large super funds also offer life insurance, members are typically restricted to the insurer and policy chosen by the fund's trustee. The ability to choose your own insurer is a significant advantage of an SMSF. Poor practices within the insurance sector have been highlighted by regulatory reviews over the years, including the Financial Services Royal Commission. An SMSF gives you the control to select a reputable insurer with a policy that best suits your specific needs.

Money that is transferred into superannuation on behalf of a member is known as a ‘contribution.’ There are two types of contribution: 'concessional' and 'non-concessional.' Making a contribution into a self-managed superannuation fund is generally quite simple. Most SMSFs make use of a dedicated bank account, and a deposit into this account is all that is required for a contribution to take place. The fund’s administrator then needs to keep a clear record of the contribution type, the amount, and the member it relates to.

The rules around how much you can contribute, and how those contributions are taxed, are regularly updated. The information below reflects the regulations for the 2025-26 financial year.

Concessional contributions

Concessional contributions are made from 'before-tax' money. This means the contributions are made from income that has not yet had personal income tax applied. They include employer contributions (Superannuation Guarantee or SG), salary sacrifice contributions, and personal contributions that you claim as a tax deduction.

These contributions are generally taxed at a flat rate of 15% when they enter the super fund. The fund pays this tax. As this rate is lower than most people's personal income tax rate, it creates an immediate tax saving.

High Income Earners - Division 293 Tax

While the typical tax rate on concessional contributions is 15%, an additional 15% tax is applied to the contributions of high-income earners. This is known as Division 293 tax.

This higher rate of 30% applies to individuals whose 'income for Division 293 purposes' is more than $250,000 a year. This income level includes your taxable income plus your concessional super contributions. The extra tax only applies to the contributions that fall within the amount you are over the $250,000 threshold.

For example, if your income is $260,000 and your concessional contributions are $20,000, your total 'income' for this test is $280,000. The amount over the threshold is $30,000. Since your contributions ($20,000) are less than this excess amount, your entire $20,000 contribution will be taxed at 30% instead of 15%.

If your income was $240,000 and your contributions were $20,000, your total 'income' is $260,000. This is $10,000 over the threshold. In this case, only $10,000 of your contributions would be subject to the extra 15% tax, while the remaining $10,000 would be taxed at the standard 15%.

This measure reduces, but does not eliminate, the tax benefit of contributing to super for high-income earners. Even at 30%, the tax rate is still significantly lower than the top marginal income tax rate (currently 45% plus the Medicare levy). Effective tax planning is valuable for those near this income threshold.

The Concessional Contributions Cap

The tax advantage for concessional contributions is limited by an annual cap. For the 2025-26 financial year, the general concessional contributions cap is $30,000 per person.

This cap includes all your concessional contributions: employer SG payments, salary sacrifice amounts, and any personal contributions you claim as a tax deduction. If you exceed this cap, the excess amount is effectively added to your personal taxable income and taxed at your marginal rate (though you get a credit for the 15% tax already paid by the fund).

Since 1 July 2022, the 'work test' no longer applies to individuals aged between 67 and 75 who wish to make personal deductible contributions. This means if you are under 75, you can make these contributions regardless of your employment status.

Carry-Forward Concessional Contributions

If your total superannuation balance was less than $500,000 at the start of the financial year, you might be able to contribute more than the annual cap. The 'carry-forward' rule allows you to use any of your unused concessional cap amounts from the previous five financial years.

For example, if you only contributed $20,000 in the previous year (when the cap was $30,000), you would have $10,000 of unused cap space that you could potentially use in the current year, allowing you to contribute up to $40,000 ($30,000 for this year + $10,000 from last year).

Salary Sacrifice

Salary sacrificing is an arrangement with your employer to have some of your before-tax salary paid directly into your super fund as an additional concessional contribution. The logic is simple: the money goes into super and is taxed at 15%, which for most people is much lower than their personal income tax rate.

The financial benefit of salary sacrificing increases as your personal income increases. The personal income tax rates for the 2025-26 financial year (excluding the 2% Medicare levy) are:

As you can see, anyone earning over $45,000 a year receives an immediate tax benefit by salary sacrificing, as their marginal rate is 30% or higher, compared to the 15% tax in super. Remember that your total concessional contributions, including salary sacrifice, cannot exceed the annual cap.

Non-concessional contributions

Non-concessional contributions (NCCs) are made from your 'after-tax' money. Because you have already paid personal income tax on this money, these contributions are not taxed again when they enter your super fund. You do not receive a tax deduction for making them.

The benefit of making NCCs is that once the money is in the superannuation system, any future investment earnings on it are taxed at the low superannuation rate (a maximum of 15%), rather than at your personal marginal tax rate.

The Non-Concessional Contributions Cap

The amount you can contribute as an NCC is also capped. For the 2025-26 financial year:

• The annual cap is $120,000.
• If you are under 75 years of age, you may be able to use the 'bring-forward' rule to contribute up to $360,000 at once, which represents three years' worth of your annual cap.

A critical rule is that you can only make non-concessional contributions if your total superannuation balance was less than $1.9 million at the start of the financial year. The amount you can contribute under the bring-forward rule may also be limited depending on how close your balance is to this $1.9 million threshold.

As with concessional contributions, the work test has been removed for individuals under 75, making it easier for older Australians to contribute to their super.

Downsizer Contributions

Since 1 January 2023, individuals aged 55 or over may be eligible to make a 'downsizer' contribution into their super fund of up to $300,000 from the proceeds of selling their main residence.

• This is a per-person cap, so a couple could potentially contribute up to $600,000 combined.
• The home must have been owned for at least 10 years.
• This type of contribution does not count towards your non-concessional cap and can be made even if your total super balance is over $1.9 million or you are over age 75.

This measure is designed to encourage older Australians to downsize from large family homes, and it provides a valuable opportunity to boost retirement savings.

One of the main advantages of a self-managed superannuation fund is that the trustees are in control of the investments made by that fund.

However, this control comes with significant responsibility. The law requires that every SMSF must have a written investment strategy. This isn't just a document to be created and filed away; it should be a living guide for all investment decisions. Your investment strategy must be reviewed regularly (at least annually) and must now specifically consider the diversification of the fund's assets and whether to hold life insurance cover for the members. The ATO provides detailed guidance on its website about creating and maintaining a compliant investment strategy.

The Member’s Investment Profile

When developing an investment strategy, the first thing to consider is the members’ investment profile. Put simply, an investment profile is a way of establishing the level of risk that a member is prepared to take in the pursuit of investment returns. As a general proposition, higher potential returns are associated with an increased risk of a 'negative return'—a fancy way of saying ‘losing money.’

Investment profiles lie on a spectrum. At one end is a ‘conservative’ profile, which aims to protect capital by favouring investments such as cash and fixed interest. At the other end is a 'high growth' profile, where investments with greater potential for growth (and volatility), such as property or shares, are preferred.

Generally, your investment timeframe is the biggest influence on your profile. If you need money in the short term, a conservative approach is usually best. If you won't need the money for a very long time, a growth-oriented strategy often makes more sense.

It is worth remembering that superannuation is different from other savings. The money is generally preserved until you reach your 'preservation age' and retire. This means the investment horizon for super is often much longer than people realise. As a result, people can sometimes be too quick to switch their superannuation investments to a very conservative profile, potentially missing out on years of valuable growth.

For example, consider a newly married couple, both aged 30, saving to buy a family home. The $50,000 they have in personal savings for a deposit should be invested very conservatively, as they need to protect it for short-term use. Their superannuation, however, is a different matter. They likely cannot access it for at least 30 years. For that portion of their wealth, a conservative strategy makes little sense; it would typically be invested in a portfolio geared for long-term growth.

Complementarity

A key advantage of an SMSF is that its investment strategy can work in harmony with the members’ personal and business financial affairs. This is difficult to achieve with a large public fund, where you have no control over the fund’s specific assets.

For instance, consider a couple running their own successful business. They could decide to use their SMSF to purchase the commercial premises from which their business operates. This is known as acquiring 'business real property', and there are specific rules that make this a workable strategy. By doing this, the rent paid by the business goes to their own super fund instead of an external landlord, building their retirement wealth while giving their business security of tenure. When structured correctly, this perfectly complements their overall business and investment strategy.

Keep it Simple

Many successful SMSF trustees choose to keep their investment strategy very simple. A simple strategy is easier to manage, understand, and is often cheaper to administer.

For example, a simple SMSF might use just two investments: a high-interest cash account and a single, low-cost index-tracking Exchange Traded Fund (ETF). The cash account provides stability, while the ETF provides diversified exposure to the share market for growth.

The fund's asset allocation can then be easily adjusted by changing the proportion held in each investment. A fund with members in their 70s might hold 60% in cash and 40% in the ETF. Conversely, a fund with members in their 30s might hold only a small amount in cash and have the vast majority invested in the growth-focused ETF. This simple, two-asset structure allows trustees to easily manage the fund’s risk profile over time.

Direct Property

For many Australians who wish to invest their superannuation in direct property, an SMSF is the only practical way to do so.

Clients wishing to make an investment in direct property need to take extreme care. It is absolutely vital to understand the rules. For residential property, no member or any party related to them (such as a child) can live in the property or rent it from the fund, even at market rates. Doing so is a serious breach of the 'sole purpose test' and can lead to severe penalties. The rules for commercial property are less stringent, which is why it is more commonly used in strategies involving a member's own business.

We strongly recommend getting professional advice before purchasing any property within a self-managed superannuation fund.

Borrowing

Under certain strict conditions, it is possible for an SMSF to borrow money to purchase an investment asset. This ability is discussed in the next chapter.

A Limited Recourse Borrowing Arrangement (LRBA) allows the trustee of an SMSF to take out a loan to purchase a single asset (or a collection of identical assets). The asset is held in a separate trust (often called a 'bare trust') until the loan is paid off.

The 'limited recourse' aspect of the loan is a critical feature. It means that if the SMSF were to default on the loan, the lender’s claim is limited only to the specific asset purchased with the loan. The lender has no recourse to any of the other assets held within the SMSF.

Background

The laws governing SMSF borrowings were clarified on 7 July 2010. Arrangements entered into after this date are governed by sections 67A and 67B of the Superannuation Industry (Supervision) Act 1993.

These rules place several key restrictions on the borrowing:

1. Single acquirable asset – The borrowed funds must be used to purchase a single asset. For example, you can purchase a single property, but you cannot use one loan to buy two separate properties. A parcel of identical shares in one company is considered a single asset.
2. Repairs vs Improvements – Borrowed funds can be used to maintain or repair the asset to preserve its value, but they cannot be used to improve the asset in a way that fundamentally changes its character. For example, an SMSF cannot borrow to buy a small house and then borrow again to knock it down and build a block of flats. It is important to note that while borrowed funds cannot be used to improve an asset, the SMSF can use its own separate cash (from contributions or earnings) to fund improvements. The restriction only applies to the use of the borrowed money.
3. Limited recourse – As noted above, the lender’s security must be limited to the asset being financed. They cannot have a claim over the SMSF's other assets.

In recent years, most major banks have stopped offering LRBA loans to SMSFs, meaning lending is now dominated by specialist non-bank lenders. It is also possible for an SMSF to borrow from a related party (such as a member), but if this occurs, the loan must be on strictly commercial, arm's length terms. The ATO has provided 'Safe Harbour' guidelines that, if followed, ensure the loan is considered compliant.

Borrowing to buy shares

While possible, using an LRBA to buy shares is less common. The rules do not allow for a progressive sell-down of a share parcel held under an LRBA; the entire parcel must be sold at once. This lack of flexibility makes it a less popular strategy compared to property.

Residential property

Borrowing to purchase residential property is a far more common LRBA strategy. Consider this example: a forty-five-year-old couple have $250,000 in their SMSF. They wish to buy an investment property valued at $650,000. They use their super balance as a deposit and borrow the remaining $400,000 through an LRBA.

The property is then rented out. The rental income, combined with their ongoing super contributions, is used to cover the loan repayments and other property expenses.

The primary driver of this strategy is the expected capital growth of the property over the long term. The goal is often to hold the property until the loan is repaid and not sell it until the members have reached their preservation age and commenced a retirement income stream. By doing this, any capital gain realised on the sale could be received entirely tax-free.

Business premises

Using an LRBA can also be a tax-effective way to own your business premises. The property is bought by the SMSF using the borrowing arrangement and then leased back to the members' business on commercial, arm’s length terms. The rent paid by the business then helps to pay off the loan within the super fund, effectively allowing the business to fund the purchase of its own premises for the ultimate benefit of its owners in retirement.

It is worth noting, however, that business properties held in an SMSF are not eligible for some of the valuable small business Capital Gains Tax (CGT) concessions that might otherwise be available if the property were held in a different structure.

Getting advice

Borrowing within an SMSF adds significant complexity, cost, and risk to the fund. It is not a strategy to be entered into lightly. The administrative and legal requirements are strict, and the consequences of getting it wrong can be severe, potentially negating any financial benefit.

Professional advice from a qualified financial adviser and a legal professional specialising in this area is not just recommended; it is essential to ensure the arrangement is structured correctly and is appropriate for your specific circumstances and risk profile.

There are two main ways a person can withdraw money from superannuation once they are eligible: as a lump sum payment, or as a regular income stream (commonly known as a pension).

When deciding how best to withdraw your money, you need to consider how you will use it. If the funds are for a large, one-off expense, a lump sum might be appropriate. However, if the goal is to fund your lifestyle over many years, leaving the bulk of your money within the superannuation system and drawing a pension is often the more effective long-term strategy.

Income streams or pensions

When you start an income stream, you keep the majority of your benefits within the superannuation fund and withdraw a legislated minimum amount each year. You can choose to receive these payments at a frequency that suits you, such as fortnightly, monthly, or annually.

The government encourages people to use this method to fund their retirement. The main incentive is a significant tax break: once you commence a pension in the 'retirement phase', the investment earnings (including both income and capital gains) on the assets supporting that pension become entirely tax-free.

This means your superannuation fund can become a tax-free investment vehicle in retirement. Zero tax is a powerful feature for wealth preservation.

A critical rule that governs this is the Transfer Balance Cap (TBC). This is a lifetime limit on the total amount of superannuation you can transfer into the tax-free retirement phase.

• The general Transfer Balance Cap is currently $1.9 million.
• It is important to understand that each person has their own personal TBC. If you have never started a pension before, your TBC will be the full $1.9 million. If you started a pension in previous years when the cap was lower (e.g., $1.6 million), your personal cap will be a different amount. You can check your personal TBC on the ATO website via your myGov account.

For people fortunate enough to have more than their personal TBC in super, any amount above the cap must remain in an 'accumulation account', where investment earnings continue to be taxed at the standard super rate of up to 15%.

Given the tax-free status of assets in the retirement phase, it generally makes sense for anyone who has met a condition of release (such as retiring after age 60, or turning 65) to commence a pension up to their personal cap.

Transition to Retirement Income Streams (TRIS)

A Transition to Retirement Income Stream allows a person who has reached their preservation age (currently 60) to start drawing an income from their super while they are still working.

When TRIS pensions were first introduced, the assets supporting them also enjoyed tax-free earnings. However, this was changed on 1 July 2017. Now, the investment earnings on assets supporting a TRIS remain taxed at up to 15%, just like funds in an accumulation account.

This change means a TRIS is now less of a tax-planning tool and more of a flexible income tool. It is most useful for people who genuinely need to supplement their income, perhaps because they have reduced their working hours in the lead-up to retirement.

It is worth noting that once a member with a TRIS meets a full condition of release (for example, by turning 65), their TRIS automatically converts into a retirement phase pension. From that point, the investment earnings on the assets supporting it will become tax-free (subject to their TBC).

Lump sums

Lump-sum withdrawals from superannuation are often used to finance a specific, one-off payment. This could include paying off a mortgage, buying a new car, funding a holiday, or assisting adult children financially.

You do not have to withdraw your entire balance as a lump sum. Generally, it makes financial sense to leave as much wealth as possible within the low-tax environment of superannuation. However, every individual's circumstances are different, and it is always worth seeking advice when considering a significant withdrawal.

Self-managed superannuation funds and withdrawing money

The rules around retirement phase pensions create a powerful strategic opportunity for SMSFs. Because capital gains are eliminated on assets sold to support a pension, trustees can plan their investment realisations accordingly.

Put simply, an SMSF can invest in growth assets that primarily target capital gains, with a view to holding those assets until after the members have commenced pensions in the retirement phase. By doing this, the fund can potentially sell the asset without paying any capital gains tax.

Consider the earlier example of a couple whose SMSF borrowed to purchase their business premises. They could hold this property for many years while the business pays rent to the fund. Once they turn 65 and commence retirement pensions, they can sell the property. If the property has appreciated significantly in value, the large capital gain that is realised on the sale could be received by the fund entirely tax-free, because the asset was supporting their retirement phase pensions.

This is a perfect example of how the investment and withdrawal strategies of an SMSF can be combined to achieve highly effective outcomes.

The Australian Taxation Office (ATO) is responsible for enforcing the Superannuation Industry (Supervision) Act 1993 (SIS Act) and other super laws as they apply to SMSFs.

If the SMSF’s trust deed is drafted properly and the trustees comply with the law, the SMSF will be eligible for tax concessions. These concessions, such as the low tax rate on contributions and earnings, are what drive the enhanced investment performance of superannuation. It is these tax concessions that make super such an attractive investment vehicle.

Although the rules can seem onerous, trustees are normally able to satisfy them without difficulty. The ATO's approach is generally to be helpful, not obstructive. It is important not to overstate the risk of breaching the law. Except for cases of dishonesty or severe negligence, an SMSF that has inadvertently breached the super law will generally be given the opportunity to rectify the issue. Where there is a minor breach, the ATO typically uses its discretion to deem the SMSF as having complied with the rules, provided the trustees have been cooperative.

What happens if an SMSF breaches the law?

An SMSF must be a 'complying' super fund to get the benefit of the tax concessions. If an SMSF seriously breaches the super law, it may be declared a 'non-complying' fund and lose these benefits. Trustees may also become liable for significant penalties.

It is virtually unheard of for trustees to deliberately make their fund non-complying. The financial consequences are catastrophic. More common errors tend to be inadvertent, for example, a payment is misdirected, or an investment is made without fully understanding the rules. The ATO is mostly forgiving when honest errors are made, provided they are reported and fixed. The best option for a trustee who discovers an error is to work with their administrator and auditor to disclose it to the ATO and present a plan for rectification.

SMSF Compliance and the Annual Audit

SMSF compliance operates on a 'self-assessment' system. The fund’s independent auditor plays a critical role in this. Each year, the auditor must review the fund and provide a report to the trustees. This report is then used to complete the SMSF's annual return, which is lodged with the ATO.

The audit has two parts:

1. A financial audit, which checks the accuracy of the fund's financial statements.
2. A compliance audit, which checks if the fund has complied with the SIS Act. This includes checking for things like illegal loans to members, breaches of the in-house asset rules, and ensuring the fund is meeting the sole purpose test.

If the auditor finds a breach of the law, they are required to report it to the trustees. If the breach is significant and is not rectified, the auditor must then report it to the ATO in an Auditor Contravention Report (ACR).

The ATO’s Penalty Powers

In the past, the ATO's main penalty was the "nuclear option" of making a fund non-complying. Today, they have a wider range of penalty options that allow them to apply a more proportionate response to breaches. These include:

• Education directions: Ordering a trustee to complete an approved education course.
• Rectification directions: Ordering a trustee to take specific action to fix a breach.
• Administrative penalties: The ATO can personally fine trustees for specific breaches. These fines must be paid by the trustee from their own money, not from the SMSF.
• Trustee disqualification: The ATO can disqualify a person from acting as a trustee of any SMSF.

These powers allow the ATO to penalise trustees for serious mistakes without having to resort to making the entire fund non-complying.

Consequences of a Fund Becoming Non-Complying

If a fund is made non-complying, it faces a devastating tax penalty. The fund becomes liable for tax at the highest marginal tax rate (currently 47%) on the market value of its total assets at the start of that financial year, less any non-concessional contributions. For an SMSF with $1,000,000 of assets, this would result in a tax bill of around $470,000.

This is a serious penalty, and although it is rare, it explains why a conservative and compliant approach is essential. It is simply not worth taking risks with your SMSF's complying status.

Common Problem Areas

The ATO publishes data each year on the most common breaches reported by auditors. While the specifics change slightly year to year, the main problem areas are consistently the same. The data for the 2023 financial year shows the most frequent contraventions were:

Note: Data is illustrative based on recent ATO statistical reports.

Setting up a SMSF

Who can set up a SMSF?

There is no legal restriction on who can establish an SMSF. They are set up by people of all ages and from all walks of life. Historically, they have been most popular with people who have higher incomes or significant existing wealth, as well as those approaching retirement. However, it is increasingly common for younger people to establish SMSFs to take control of their superannuation early in life.

How much do you need to set up a SMSF?

There is no legal minimum balance required to start an SMSF. However, a practical, common-sense approach is needed.

The costs of running an SMSF (such as administration, audit, and statutory fees) are relatively fixed, regardless of the fund's size. Therefore, on a smaller balance, these fees represent a higher percentage of the assets, which can hinder investment returns. For this reason, a larger starting balance generally makes an SMSF a more cost-effective option.

While various industry bodies have suggested potential starting balances from $200,000 to $500,000 to be cost-competitive with large public funds, there is no magic number. The decision should not be based on cost alone. There can be excellent reasons to set up an SMSF with a smaller balance, such as:

• A strong desire to have direct control over investments.
• The intention to make large contributions in the near future.
• The need to hold a specific asset that cannot be held in a public fund, such as the member's business premises.
• A commitment to a simple, low-cost investment strategy (e.g., using cash and a single ETF), which can minimise administration costs.

Ending an SMSF

SMSFs are not necessarily forever. There are many reasons why an SMSF may need to be wound up. In an article for the excellent online publication, Firstlinks, commentator Julie Steed nominated the ‘seven D’s’ that may trigger the end of an SMSF. They are:

1. Death;
2. Disability;
3. Dementia;
4. Disinterest;
5. Divorce;
6. Departure; and
7. Disqualification.

Some of these deserve more comment.

Death

When a member of an SMSF dies, their benefits must be paid out to their beneficiaries. This can reduce the fund's balance to a point where it is no longer efficient to run. More importantly, the death of a member has a direct impact on the trustee structure. For a fund with individual trustees, there must be at least two. If a death leaves a sole surviving member, they cannot continue the fund alone as an individual trustee. They would need to either appoint a new trustee, convert to a corporate trustee structure, or wind up the fund.

To ensure a member's benefits are dealt with according to their wishes and to minimise disputes, it is vital to have a valid Binding Death Benefit Nomination (BDBN) in place.

Disability and Dementia

A member who becomes disabled may need their benefits paid out, which can reduce the fund's balance. More critically, if a member suffers from a condition like dementia that causes them to lose mental capacity, they are no longer legally able to act as a trustee.

This is a significant issue that all trustees should plan for. Having an Enduring Power of Attorney (EPOA) in place can allow a trusted person to step into the incapacitated member's shoes and act as a trustee on their behalf. This can be a way to keep the fund operating smoothly without being forced to wind it up.

Disinterest

If trustees lose interest in managing their own super, or find it has become too much of a burden, they will need to wind up the fund and transfer their benefits to a public fund where professionals can manage the investments on their behalf.

Divorce

Many SMSFs are run by couples. While there is no legal requirement for a fund to be wound up upon divorce, it is usually impractical for a separated couple to continue as co-trustees. Trustees owe a fiduciary duty to all members of the fund, and this can be very difficult to uphold in a situation of conflict. The most common outcome is that the SMSF is wound up as part of the formal separation of assets.

Departure

To receive tax concessions, an SMSF must be an ‘Australian superannuation fund’ at all times. This requires meeting several residency tests, the most important of which is that the fund's 'central management and control' must ordinarily be in Australia. If trustees move overseas permanently or for an extended period, the fund may fail this test. If this happens, the fund may lose its complying status, which has severe tax consequences. Therefore, moving overseas will often necessitate winding up the SMSF.

Disqualification

A person can be disqualified from being a trustee for several reasons, the most common being bankruptcy. A disqualified person cannot be a trustee of an SMSF or a director of a corporate trustee. Because all members must be trustees, this effectively means the disqualified person's benefits must be removed from the fund, which will often require the SMSF to be wound up.

Options for winding up the SMSF

When an SMSF is wound up, there are three main options for the members' benefits:

• Pay out the benefits: If members have met a condition of release (e.g., they are retired), their benefits can be paid out to them in cash.
• Roll over to another fund: Members can roll their benefits over to a large public fund (like an industry or retail fund). This is the most common option.
• Convert the fund to a Small APRA Fund (SAF): A SAF is like an SMSF, but it has a professional licensed trustee instead of the members. This option can be useful if the members want to keep a specific asset (like a property) that a public fund would not accept as a rollover, but they no longer can or want to be trustees themselves. Converting to a SAF does not trigger a change in beneficial ownership, so it generally does not create a Capital Gains Tax event.

Further Information

Winding up an SMSF is a formal legal process that involves finalising accounts, lodging a final return, and notifying the ATO. Once again, the ATO have developed a short video explaining the need for an SMSF to plan for things that might cause an SMSF to need to finish up:

ASIC have also provided a short page on their excellent Moneysmart website dealing with getting out of an SMSF. You can view it here.

Often, businesses are the best investments. We regularly recommend clients buy or start businesses, or further develop existing ones, wherever a client is suited to this by inclination, personality, or training. The extra economic benefits, improved tax planning and, hopefully, the Capital Gains Tax (CGT) free profit on the ultimate sale mean this is an option clients cannot afford to overlook.

In this updated ebook, we look at three particular aspects of a successful modern business. These are:

1. The business plan
2. Staffing
3. Time management

The list of things that could be included in an ebook about business is almost endless. However, our experience is that these three elements are the ones that need the most attention. Happily, they are also the ones where improvements – even little ones – make large differences. So, like all good plans, let's start at the beginning...

A successful business doesn't happen by accident. It's the result of a good idea, implemented systematically over time, according to a pre-conceived plan. This is true whether you're starting from scratch or taking an established business into a new phase of growth. It's also true regardless of your business's location, competition, or the post-pandemic economic landscape.

A good business plan reflects the owners’ personal preferences and ambitions. It accommodates their private lives and, by anticipating expected problems, helps to reduce future stress. If there's a plan for what's going to be done and why, it will likely be implemented more successfully and with much less angst. For example, a good business plan will cater for peak workloads by introducing new support staff or technology well before the peak arises.

Sometimes the plan is just in the owners’ heads. They have strong views on what will work and they set about doing it. That's commendable, and there are many examples where this has worked well. However, the prospects of good results are greatly increased, and the prospects of bad results are greatly decreased, if the plan is documented. This should be done in a disciplined and structured way, identifying what should and shouldn't be done, who will do it, and why.

Even if you're the only one who will ever see it, writing your plan down makes it more concrete and helps you spot gaps or weaknesses.

It's a good idea to analyse and check the plan regularly. How often depends on the circumstances. For stable businesses, once a year might be fine. For businesses experiencing rapid change, a quarterly or even monthly review might be necessary. Monitoring and updating the business plan is an intrinsic part of building and maintaining a successful business.

Owners can choose to develop their own business plan or seek help from a consultant. The following table lists the pros and cons of each option:

Of course, a combination of both options is often the best path.

Getting started

A well-executed business plan should maximise business profit. This, in turn, will maximise the goodwill in the business.

Start with a vision. Planning can't happen without one. Formalising the process helps turn abstract ideas into a practical reality. This formal statement is called a “vision statement” and is usually kept short and simple to best express the core ideas about the business's future direction.

To help create a vision statement, owners should first establish a set of principles and values that will underpin their business. Once the principles and values are developed, reflect on what each one means:

• what each value is about and what it really means
• whether it is fully understood by staff and clients
• what other ideas are associated with each value

The values can then be translated into a set of principles and standards of behaviour and incorporated into the vision statement.

Thinking about the clients

An ethos of client care and support should dominate the plan. If this occurs, the business should flourish by all measures of success, especially client service and profitability.

You'll need to define the demographics of your business. The planning process should then be developed around meeting the needs of those clients. In today's market, this goes beyond simple demographics. Consider the entire customer journey:

• How do clients first discover you? (e.g., Google search, social media, word of mouth)
• What is their experience when interacting with your website, social media, or physical store?
• What is the purchasing or service delivery process like?
• How do you follow up and encourage repeat business?

Using analytics from your website and social media can provide powerful insights into your client base.

Thinking about the owner

A good business plan reflects the personal preferences and ambitions of the owners. Apart from setting goals, the plan must also accommodate their private lives. The process of preparing a business plan allows owners to identify what's important to them and ensure their preferred lifestyle is considered. For example, the needs of a young family might dictate the hours the business is open.

The business plan process often presents a good opportunity for reflection on the priorities of the business owners – and for thereby ensuring congruence between personal and professional goals.

In our observation, this is one of the most poorly recognised elements of a business plan. Too many owners let their private lives run second to the business, thinking the business is necessary for the family to flourish. While true, factoring the family into the business plan keeps personal responsibilities in focus.

Put simply: too many parents miss too many school concerts or football games. A plan helps prevent that.

What a business plan looks like

There's no single standard format. A business plan should be flexible, reflecting the needs of the people who created it. It can be long and detailed or focused solely on the big picture.

However, using a template can help develop a logical strategy, especially if a third party like a bank or investor will see it. One suggested structure is set out below.

Executive Summary

This is a concise overview of the entire plan. Although it appears first, it's always written last. It should highlight the purpose of the business, its target market, competitive advantages, projected profits, and capital needs.

Mission

The mission statement provides a succinct outline of the business’s purpose. It defines the business’s goals, objectives, and values.

Business position

This section determines where the business stands in relation to its competitors. It involves a close examination of client profiles, competitor activities, and the overall market. In 2025, this must include an analysis of your digital position:

• Who ranks higher than you on Google for key search terms?
• What is their social media presence like?
• What are their online reviews saying?

We generally urge caution with external market researchers; they can be expensive and can't replace the owner's intimate knowledge of their clientele.

Organisational strength

Here, you analyse the internal and external factors affecting your business.

• External factors (often uncontrollable): Legislation, economic trends (e.g., inflation, interest rates), demographic shifts, technological advances, and sustainability expectations.
• Internal factors (controllable): Your team's skills, financial resources, physical premises, business systems, and your digital infrastructure, including cybersecurity protocols to protect your business and client data.

Strategic audit

This is where you perform the classic SWOT analysis to review the Strengths, Weaknesses, Opportunities, and Threats affecting the business. This analysis helps you identify the critical success factors required to gain a competitive advantage.

Functional strategies

It is now time to develop the specific strategies to meet your goals. Each strategy should follow the SMART principle:

The person responsible for implementing the strategy also needs to be identified. Common strategies include:

• An operating strategy – how the business will run day-to-day.
• A financial strategy – budgets, cash flow projections, pricing, and funding.
• A marketing strategy – A modern plan must be integrated. How will your traditional marketing (e.g., signage) support your digital marketing (e.g., social media, SEO, email campaigns), and vice versa?
• A resources strategy – staffing needs, technology stack, and other resources.

Implementation

This is the action plan. It details the specific tasks, assigns responsibilities, sets deadlines, and establishes Key Performance Indicators (KPIs) to track progress.

A simpler alternative

The template above is comprehensive. Many businesses prefer something simpler. If so, follow Einstein’s maxim:

"Everything should be made as simple as possible, but not simpler."

A basic plan must address four key themes:

• Where is the business now? (Your current situation)
• Where could the business be? (Your vision and goals)
• How do you get there? (Your strategies and tactics)
• How will you know when you've arrived? (Your metrics for success)

More Information

The Australian Government's business.gov.au website is an excellent resource. It offers a free business plan template and guide, along with a wealth of other information for starting and growing a business. You can find it here.

Virtually all businesses employ staff, making human resource management a vital process. This has become even more critical in the modern workplace, with an increased focus on flexibility, culture, and employee well-being. Businesses have legal obligations to fulfil while also needing to build a positive and cooperative culture.

This chapter focuses on the modern recruitment process and key legal obligations in Australia.

Recruitment process

The relationship with your employees is shaped from the very first interaction. A clear, compliant recruitment process is essential.

The procedure should be documented and cover:

• Recruitment and selection procedures (including diversity and inclusion principles)
• Personnel records for each employee
• Employment contracts
• Onboarding and induction procedures
• General conditions of employment
• Leave entitlements
• Termination procedures
• Remuneration and benefits
• Equal opportunity, anti-harassment, and psychological safety policies
• Training and development procedures
• Performance review processes
• Internal grievance resolution procedures

Businesses need robust strategies for employee retention. This isn’t about being best friends; it's about fostering mutual trust, respect, and accountability. In today's market, employees expect:

• Job satisfaction and meaningful work
• A genuine work/life balance
• Flexible working conditions (e.g., remote or hybrid options)
• Open and transparent communication
• A positive and inclusive workplace culture
• Recognition and appreciation
• Fair and appropriate rewards
• Psychological safety (the ability to speak up without fear of punishment)

The rise of remote and hybrid work models means businesses must also consider how to manage and engage a distributed team, maintain a strong culture, and provide the right technology and support.

The Fair Work Act 2009

The Fair Work Act 2009 is the main legislation governing the employer-employee relationship in Australia. It provides a safety net of minimum entitlements, enables flexible working arrangements, and promotes fairness at work. While the Act is from 2009, it is frequently amended. It is crucial to stay up-to-date with changes.

Key areas covered by the Act include:

• The National Employment Standards (NES)
• Modern awards system
• Minimum wage
• Unfair dismissal protections
• Rules for enterprise agreements
• Record-keeping and payslip obligations

The government's Fair Work Ombudsman is the primary resource for employers. Their website (www.fairwork.gov.au) has up-to-date information, tools, and calculators.

Types of employees

When recruiting, it's vital to correctly classify employees. This should be stipulated at the time of engagement and confirmed in the employment contract.

Full-time employees

A full-time employee works, on average, 38 hours per week. They are engaged on an ongoing (permanent) basis or for a fixed term and are entitled to all NES benefits like paid annual and personal leave.

Part-time employees

A part-time employee works, on average, less than 38 hours per week with reasonably predictable hours. They receive all NES entitlements on a pro-rata basis.

Casual employees

A casual employee has no firm advance commitment to continuing and indefinite work according to an agreed pattern of work. They are paid a higher hourly rate which includes a 25% casual loading in lieu of benefits like paid sick and annual leave. Since 2021, casual employees who have worked for 12 months and meet certain criteria have a right to be offered or request conversion to permanent employment.

To find out more about the different types of employees refer to: Fair Work Ombudsman – Types of employees.

National Employment Standards

The NES are 11 minimum entitlements that must be provided to all national system employees. An award, employment contract, or enterprise agreement cannot provide for less than the NES.

1. Maximum weekly hours: 38 hours per week, plus reasonable additional hours.
2. Requests for flexible working arrangements: Certain employees can request changes to their work arrangements. Employers must respond in writing within 21 days and can only refuse on reasonable business grounds.
3. Parental leave and related entitlements: Up to 12 months of unpaid parental leave, with the right to request an additional 12 months.
4. Annual leave: Four weeks of paid leave per year, paid pro-rata for part-time employees.
5. Personal/carer’s leave and compassionate leave: 10 days of paid personal/carer's leave per year. 2 days of compassionate leave per occasion.
6. Paid Family and Domestic Violence Leave: A crucial update. All employees (including part-time and casual) are entitled to 10 days of paid family and domestic violence leave in a 12-month period. This is a standalone entitlement and does not accrue.
7. Community service leave: Unpaid leave for voluntary emergency management activities and paid leave for jury duty.
8. Long service leave: An entitlement based on state or territory legislation.
9. Public holidays: A paid day off, except where reasonably requested to work.
10. Notice of termination and redundancy pay: Minimum notice periods for termination and redundancy pay based on length of service.
11. Fair Work Information Statement: Employers must give every new employee a copy of this statement before, or as soon as possible after, they start their job. It can be downloaded from the Fair Work website.

Paid Parental Leave Scheme

The Australian Government's Paid Parental Leave scheme provides financial support to eligible working parents.

• Parental Leave Pay: Provides up to 20 weeks of pay at the national minimum wage rate for eligible parents of newborn or newly adopted children. This entitlement is flexible, with parents able to share the weeks and claim in blocks.
• Eligibility: The claimant must be the primary carer, meet residency requirements, have met the work test, and have a family income under the current threshold (which was $350,000 per family as of 1 July 2023, but you should always check the Services Australia website for the latest figures).
• Employer's Role: In most cases, the employer provides the Parental Leave Pay to their long-term employees and is reimbursed in advance by Services Australia. This means there are no cash flow issues for the business.

For further information on this scheme, refer to: Paid Parental Leave Scheme for Employers.

Employment contracts

A written employment contract is crucial. It should clearly state the terms of employment and must be consistent with the NES and any applicable modern award. A contract cannot undercut minimum entitlements.

Be very careful when paying an "all-inclusive" or "over-award" salary. A general statement that the salary covers all entitlements is not sufficient. The contract must specify exactly which award entitlements (like overtime, penalty rates, and allowances) are being "bought out" by the higher rate, and the employee must be better off overall than they would be under the award.

Discipline and termination of staff

Disciplinary action must be handled fairly and for a valid reason. It's essential to have a clear, documented procedure.

1. Documentation: Assume every action will be scrutinised later. Document everything in writing—discussions, warnings, specific examples of underperformance or misconduct.
2. Investigation: For performance issues, talk to the employee. Explain the problem clearly and give them a chance to respond. Often, a frank conversation is all that is needed.
3. Progressive Discipline: If the issue persists, implement a performance improvement plan with clear, measurable goals and a timeline. This should be documented and agreed upon. If there is still no improvement, a formal written warning may be necessary.
4. Dismissal: This should be the last resort (except in cases of serious misconduct). If warnings and support have not worked, termination may be necessary. It's wise to seek professional advice from an employment lawyer or Fair Work before taking this step.

Serious Misconduct

Serious misconduct is behaviour that is so severe it would be unreasonable to require the employer to continue the employment (e.g., theft, fraud, assault, or a serious breach of safety procedures). In these cases, you can dismiss an employee without notice, but you must conduct a fair and thorough investigation first.

Unfair dismissal

An employee is protected from unfair dismissal if their dismissal was harsh, unjust, or unreasonable. To be eligible to make a claim, an employee must have completed a minimum employment period and be under the high-income threshold.

• The minimum employment period is 12 months for small businesses (fewer than 15 employees) and 6 months for larger businesses.
• The high-income threshold is indexed annually (it was $167,500 per annum as of 1 July 2023, but check the Fair Work website for the current figure).

The Small Business Fair Dismissal Code

Small businesses have some protection if they follow the Small Business Fair Dismissal Code. If a small business employer strictly follows the Code, the dismissal will be deemed fair. A copy of the Code and a checklist are available here: Small Business Fair Dismissal Code.

For more information, refer to the Fair Work Commission's Unfair Dismissals Benchbook.

This section introduces the timeless concept of time management and identifies areas where busy business owners can better balance the demands placed upon them, updated for the distractions of the modern digital world.

Two classic books in this area are The Effective Executive by Peter Drucker and The Time Trap by Alec Mackenzie. Their principles remain profoundly relevant.

Licensed by Google

The Biggest Time Wasters (and How to Beat Them)

Meetings

Surveys suggest half the time spent in meetings is wasted. In our digitally connected world, "meeting fatigue" is a real problem. Before calling or accepting a meeting, ask:

• Is this meeting necessary? Could this be an email, a shared document, or a quick message on a platform like Slack or Teams?
• Who really needs to be there? Don't invite people out of courtesy.
• Is there a clear agenda and objective? Circulate an agenda with time allocations beforehand and stick to it.
• Could it be shorter? The default 60-minute meeting is rarely necessary. Try 25 or 45 minutes instead.

The Telephone & Digital Communications

The phone, email, and instant messaging are powerful tools but also massive sources of distraction.

• Screen your calls. Have a system (or a person) to filter calls so only urgent and important matters get through immediately.
• Batch your communications. Instead of reacting to every ping and notification, set aside specific times in the day to check and respond to emails and messages. Turn off notifications outside these times.
• Be direct. Start calls with "What can I do for you?" to focus the conversation. Use clear closing lines like, "Great, so the next step is X. I'll let you go now."

Ineffective Delegation

Delegation is an art and an essential feature of all good businesses. Effective delegation means empowering your team, not just offloading tasks.

• Delegate outcomes, not processes. Focus on the desired result. If a team member finds a better way to get there, that's a win.
• Expect small mistakes. They are learning opportunities. Look at the system, not the incident. Is the process flawed? Is more training needed?
• Hire people you can trust. If you can't trust your staff to do the job, you either have the wrong staff or the wrong mindset.

Paperwork & Digital Clutter

The problem with paperwork is the time it takes to create, read, file, and find. The same is true for digital files.

• Handle it once. When a document or email comes in, decide immediately: delete it, delegate it, do it (if it takes <2 minutes), or defer it (schedule a time to handle it).
• Go digital, but stay organised. Use scanners and cloud storage to reduce physical paper. However, you must have a logical and consistent digital filing system (e.g., using platforms like Google Drive, Dropbox, or SharePoint).
• Use templates. Create standardised forms, email responses, and documents for recurring tasks to save time and ensure consistency.

Procrastination and Lack of Focus

The modern world is designed to steal your attention. Self-discipline is about intentionally managing your focus.

• Set clear goals. Use your business plan to set long-term, short-term, and daily goals. Write them down. A to-do list is a simple but powerful tool.
• Distinguish urgent vs. important. The Eisenhower Matrix (above) is a great tool for this. Focus your energy on what's important, not just what's screaming for your attention.
  
• Practice "Deep Work." This concept involves scheduling blocks of time for focused, uninterrupted work on your most important tasks. This means no email, no social media, and no phone calls.
• Use technology to fight technology. Use apps that block distracting websites, manage your tasks (like Asana, Trello, or Monday.com), and help you focus.

Socialising

Workplace socialisation is the lubricant that maintains good relationships. However, studies show a huge amount of an executive's time can be spent on non-business interactions. It's about finding the right balance. Be friendly and approachable, but learn to politely excuse yourself from conversations that are drifting.

More Tips for Modern Time Management

• Utilise Technology Wisely: Leverage modern tools for efficiency. Video conferencing platforms like Zoom, Google Meet, and Microsoft Teams have made remote collaboration seamless, saving immense travel time. Project management software can keep your team aligned, and cloud accounting systems (like Xero or MYOB) automate financial tasks.
• Prioritise Ruthlessly: Successful leaders don't do everything; they make sure everything important gets done. This means saying "no" to things that don't align with your priorities. Do one important thing at a time, and do it well.
• Schedule 'Buffer' Time: The unexpected will always happen. Schedule blank blocks of time into your week to handle urgent tasks that pop up, so they don't derail your entire plan.
• Monitor Your Progress: Regularly review how you're tracking against your goals. Are you spending your time on the right things? A simple end-of-day review (What did I achieve? What's the plan for tomorrow?) can make a huge difference.

It’s hard to think of anyone who has achieved long-term financial security without owning at least one piece of residential property—typically the family home. Most of the people we see either own a home, are in the process of paying one off, or aspire to do so. This is why we make owning a family home a key aspect of our advice.

When we see clients who already own their home, they often ask us common questions. These include: Should I sell my existing home to upsize? Should we renovate? With interest rates changing, is our mortgage still right for us? Is our home protected if something goes wrong (especially important for self-employed clients)? Should I use the equity in my home to invest? Should I use my home as security to help my children buy their first property? The list goes on.

For clients who do not yet own a home, the questions are just as pressing: Should I rent or buy? Or should I consider 'rent-vesting'—renting where I want to live and buying an investment property elsewhere? Should I buy something affordable for now and upgrade later? Or should I stretch my budget to get into my 'forever home' straight away? Should I put my savings into shares instead of a deposit?

These are all excellent questions. We've decided to produce this ebook as a way of helping you find the answers to them.

Buying a home has never been a bigger issue for many Australians. We see this reflected in the nation's home ownership rates. According to the 2021 Census, 67% of Australian households own their home (either outright or with a mortgage). While this is still a healthy majority, it represents a gradual decline from the roughly 70% level seen in the latter part of the 20th century. This trend is particularly noticeable among younger generations, who are finding it takes longer to get a foot on the property ladder.

You could argue that this isn't a dramatic drop, especially considering our population has grown strongly and home prices have grown even more so, particularly during the boom of the early 2020s. Housing affordability remains a significant challenge, yet nearly seven out of ten households have managed to secure their own piece of Australia.

Owning a home, and the variations on that theme, remains a major point of interest for our clients, whatever their age. What's more, the home continues to be the greatest store of wealth for most people. Superannuation is catching up, and as the system matures, it may one day overtake the family home as the most valuable asset for the average person. However, it's likely that as super balances grow, home values will also be influenced, due to a 'wealth effect' between these two asset classes. That is, people may be more willing to take on larger loans to buy a home as their retirement savings rise. Furthermore, as older generations pass their wealth on, their adult children often use at least some of it to purchase or upgrade their own home. Wealth from other parts of the economy always seems to find its way into the residential property market.

Such is the importance of the family home in our thinking: people feel wealthier and more secure the better their home is. As a result, if the economy continues to grow over the long term, the value of the average home is likely to keep growing as well.

Please feel free to share this ebook with anyone else you think would find it beneficial. And, if you'd like to discuss your own situation, please don't hesitate to contact us.

Buying a family home is a unique purchase. It is the only large acquisition we make that is one part financial and an equal part emotional. Alright, we admit it: it is perhaps two parts emotional and one part financial. These elements intersect, meaning every buyer has a unique list of personal preferences for what they are looking for in a home.

There are three main variables that impact these preferences: location, features and price. Let's look at each of these in turn.

Location

Most people start their property search by first deciding on a location. Then, they look for a specific house within that area.

These are the common factors that influence where people choose to live:

• Amenity (simply choosing the ‘right’ suburb is very important to many people);
• Schools;
• Transport (public and private);
• Parks and leisure facilities;
• Shopping and dining options;
• Natural features such as coastline or bushland;
• Proximity to family and friends;
• Noise levels (e.g. how close a property is to a freeway or airport flight path);
• The overall feel of the street and neighbourhood;
• Proximity to work; and
• Digital connectivity (access to reliable, high-speed internet is now essential for many).

A word of caution on proximity to work. Many people buy a home for its convenience to their workplace… and then change jobs. It pays to think not only about where your current job is, but also where future work might be. This is easier in some occupations than others. A teacher, for example, may have many potential schools to work at, whereas a marine biologist might have fewer options.

The Role of the Adviser

When buying a family home, there are many factors to consider. Typically, a buyer needs to 'trade-off' some of these factors. Talking them through with a knowledgeable person can save a great deal of time, money and heartache. A good adviser more than pays for themselves here.

To give just one example: many people seriously underestimate the impact, both in time and money, of living a long way from where they need to be. Many outer suburbs, for example, require families to own two cars as public transport is limited and services are spread out. The RACV estimates the average annual running cost of a medium-sized car is now over $18,000. If you choose a location where your family can comfortably rely on one car instead of two—by being closer to public transport, schools or work—you could save that $18,000 each year.

At a 6% interest rate, dedicating that amount to mortgage repayments would allow you to borrow an extra $250,000. Looked at another way, you could say the price of that second car is a quarter of a million dollars' worth of home.

Features

Our circumstances often dictate the features we need in a home. A family with three teenagers simply cannot live in a one-bedroom flat, no matter how much they love each other. A person with mobility challenges should typically look for single-storey homes without steps.

Other features are more a matter of preference. Some people love century-old Victorian-era homes. Others want something brand new. Some people swear by brick; others prefer different aesthetics.

Common features that people look for in a property include:

• Number of bedrooms;
• Number of bathrooms;
• Size and style of outdoor space;
• Size and style of indoor living space (e.g. open-plan or separate zones);
• A dedicated home office or study area;
• Style of housing (e.g. contemporary, classic, minimalist);
• Car parking;
• Swimming pools;
• Sustainability features (e.g. solar panels, good insulation, EV charging); and
• The overall ‘vibe’ of the property.

The Role of the Adviser

Once again, an experienced adviser can help clients identify the features they truly need. For example, many clients say they are buying their 'forever home' but don't factor in that their mobility might become an issue down the track. An adviser might prompt them to consider single-storey properties or those that could be easily adapted in the future.

Similarly, younger clients who haven't started a family often seriously underestimate their space requirements after children arrive. As any parent of teenagers will tell you, you don't just need more rooms; you need more space in every one of them!

Price

This one is pretty important. For most people, it's the decisive factor. No surprises here: the right home at the wrong price is, in fact, the wrong home.

The Role of the Adviser

Working out what a client can afford is where a financial adviser often makes their most useful contribution. Let's look at the main factors that determine how much you can afford to spend on a home.

Repayments

Most people borrow at least some of the money needed to buy a home. The loan repayment is typically the single biggest expense of owning the property.

ASIC's MoneySmart mortgage calculator is an excellent tool you can use to work out repayments. You can input a loan amount to see the repayments at a certain interest rate, or you can start with a repayment figure you're comfortable with and see how much that allows you to borrow.

It is vital to test how your repayments would change if interest rates were to rise. You must ensure you can afford repayments at a higher rate than what's currently on offer, unless you are fixing the rate for a long period.

To assess what you can afford, a common rule of thumb is to keep your mortgage repayments to around 30% of your after-tax income. If a buyer earns $80,000 after tax, this equates to $24,000 a year, or $2,000 a month. According to the calculator, with a home loan interest rate of 6%, she could borrow:

• $278,000 over 25 years;
• $300,000 over 30 years.

If she increases her repayments to 35% of her after-tax salary ($2,333 per month), she could then borrow:

• $325,000 over 25 years;
• $350,000 over 30 years.

This shows how small changes in your budget can affect your borrowing power. Remember, this calculation is for the loan amount only and does not include the deposit you will need to have saved.

Stamp Duty

In all Australian states and territories, stamp duty (or land transfer duty) is payable on a property purchase. This can be a very large expense that many first-time home buyers, in particular, forget to factor in. For example, someone buying a property in Melbourne at the median price (around $1.1 million in early 2025) would pay approximately $60,000 in stamp duty.

Thankfully, most state governments offer stamp duty concessions or exemptions for eligible first-home buyers up to certain property value thresholds. This can save you tens of thousands of dollars, so it's essential to check the rules in your state or territory.

Lenders' Mortgage Insurance (LMI)

If you borrow more than 80% of the property's value, your lender will almost certainly require you to pay for Lenders' Mortgage Insurance (LMI). This insurance protects the lender, not you, in case you default on the loan. The premium is typically a one-off payment, often between 1% and 4% of the loan amount, and can usually be added to your loan balance.

To avoid LMI, you need a deposit of at least 20% of the purchase price. However, the Australian Government's Home Guarantee Scheme can help eligible buyers purchase a home with a deposit as small as 5% without needing to pay LMI. This has been a game-changer for many first-home buyers.

Legal Fees

Purchasing a property involves legal work, usually handled by a solicitor or conveyancer. This includes reviewing the contract, conducting searches, and managing the transfer of title. You should budget between $2,000 and $3,500 for these services.

Council and Water Rates

These are ongoing costs for all property owners. They vary from one council area to another but can typically be estimated before you purchase.

Insurances (Building and Contents)

Lenders will require you to have building insurance from the moment you sign the contract, as you are responsible for the property even before you settle. It's also wise to arrange contents insurance for when you move in. Premiums for these policies have been rising, especially in areas prone to floods or bushfires.

Body Corporate Fees

If you buy an apartment, townhouse or a unit in a complex with shared areas (like driveways, gardens or lifts), you will likely have to pay body corporate (or owners' corporation) fees. These cover the maintenance and insurance of the common property and are disclosed to buyers before purchase.

The Real Estate Institute of Australia (REIA) reported that in December 1980, the median house price in Sydney was $76,000. In Melbourne, it was $43,000. Fast forward to mid-2025, and the median house price in Sydney is hovering around $1.6 million, while Melbourne's is approximately $1.1 million. That’s a staggering increase in value over four and a half decades. The growth is even more pronounced in the most sought-after suburbs.

Prices in other capital cities have also seen immense growth over the long term. For example, while Perth's market was subdued for several years in the late 2010s, it experienced a significant boom in the early 2020s, with prices rising faster than almost anywhere else in the country.

The point is this: over the long run, housing has been a very good investment.

Of course, share prices have risen a lot, too. The Russell Investments/ASX Long-Term Investing Report is one of the most reliable and unbiased reports on the market. The latest edition, reflecting data to December 2024, shows that over the past 20 years, Australian shares have returned an average of 9.1% per annum. This is an excellent result, but it sits just behind residential property, which averaged 9.8% per annum over the same period. Homes have certainly been powerful investments over the years.

Why have prices risen so much?

The media is full of theories and explanations. The most convincing ones include the following elements:

1. A long period of historically low interest rates through the 2010s, which dramatically increased borrowing capacity.
2. Australia’s economic stability. While our record 28-year run without a recession ended in 2020, the economy has proven remarkably resilient, providing a secure backdrop for investment.
3. Strong international interest in Australian property, connected to a perception of Australia as a safe haven with stable political and legal systems.
4. Sustained population growth, driven largely by immigration. Australia's population is growing by hundreds of thousands of people each year, and most new arrivals are eager to enter the property market.
5. Tax settings such as negative gearing for investors.
6. A deep-seated cultural belief in property, leading to a sense of 'fear of missing out' (FOMO) whenever the market starts to rise.
7. Significant government stimulus and household savings built up during the COVID-19 pandemic, which fuelled a major price boom in 2020-21.

Will this trend continue?

Home values can’t, and won't, go up every year. We saw a clear example of this in 2022 and early 2023, when the Reserve Bank of Australia began the most rapid series of interest rate hikes in a generation. Prices in most capital cities fell during this period, before staging a recovery through 2024.

One of the key measures of value is the housing affordability index. When homes become less affordable, demand eventually cools, which in turn eases the pressure on prices. In short, things simply cannot stay unaffordable forever.

Affordability—and therefore home values—are particularly sensitive to interest rate changes. Many recent home buyers who fixed their loans at record-low rates of around 2% have experienced this firsthand. Imagine a borrower with a $1,000,000 loan whose fixed rate expires. If their new variable rate is 6%, their annual interest cost skyrockets from $20,000 to $60,000. Because this interest is not tax-deductible, a person on a 37% tax rate would need to earn an extra $63,500 in pre-tax income just to meet that increased expense.

So, home values do not rise every year. That said, history shows they have risen significantly each decade. When you look at home values over several decades, there is a clear and powerful upward trend.

What are future home prices expected to be?

Fifty years is a long time, but many would argue that this is how long property should be held for. Property can be an inter-generational asset, and over multiple decades it has historically produced excellent returns. Obviously, precise predictions of future prices are impossible. There are too many variables. But we can look at some fundamentals to make an educated guess, starting with Australia's population.

The Australian Government's Centre for Population provides the following projections (based on 2022 data):

Income levels will rise too. If inflation averages a modest 3% a year, a $1,100,000 home purchased in Melbourne in 2025 will be worth over $3,600,000 by 2061 from inflation alone.

This population growth is driven by immigration and a strong desire to live in a country seen as safe, prosperous and desirable. These aspirations are shared by those already here; owning a home is a core part of the Australian dream. Over 80% of people aged over 65 own their own home—the highest rate for any age group.

There is no precise formula, and it’s a simplified model, but when you combine our cultural obsession with property, dramatic population increases in key cities, and long-term inflation, you get a powerful case for significant home value increases across the coming generations.

The data we've discussed seems to make a persuasive case for home ownership. But not everyone agrees, and it is always useful to look at a contrary position. Phil Ruthven, a well-known economics and social commentator, has long argued that owning the home you live in can be an irrational choice. He suggests that for many, you would be better off renting a home that suits your current lifestyle and implementing a disciplined investment strategy with the money you would have otherwise spent on a mortgage deposit and ownership costs.

Mr Ruthven’s argument centres on the high and often "hidden" costs of home ownership: the money and hours spent on maintenance and improvements, council rates, and the significant transaction costs like stamp duty every time you move.

There is certainly merit in what he says. If you move frequently or your home is in a suburb with poor capital growth, renting may indeed be the better financial option. For buying to outperform renting, house prices generally need to rise each year by enough to cover all the costs of ownership (interest, rates, maintenance, stamp duty) that a renter doesn't have to pay. The exact "breakeven" rate of growth changes with market conditions, but it's a real hurdle that needs to be cleared.

On balance, though, we find most people are better off owning their home. Fundamentally, the great advantage of home ownership is that it forces you to save. Outside of compulsory superannuation, most people would not save a cent without the discipline of regular home loan repayments. Each payment has a principal component that builds your equity, like putting money in the bank.

Yes, there may be other ways of managing wealth that look more 'efficient' on a spreadsheet, but few people have the discipline to follow them. If they don't buy a home, they often don't invest the difference; they simply spend it. Over the two decades to December 2024, residential property earned an average of 9.8% per annum. Most clients who owned properties during that time did very well, and those who didn't missed out.

What are the advantages of home ownership?

The advantages of owning your home are as much psychological as they are financial.

• Security and Stability. This is perhaps the biggest advantage. You are safe from the whims of a landlord who might sell the property, or from the stress of a volatile rental market with soaring rents and low vacancy rates. This is your home, your castle. It provides a sense of permanence and control that is important for wellbeing.
• Forced Savings. As mentioned, repaying a home loan is a disciplined way to build wealth over the long term. Later, when the home is paid off, you save on rent. A mortgage is eventually repaid; rent is due forever.
• Capital Gains Tax Exemption. When you sell your main residence, any profit you make is generally free from Capital Gains Tax (CGT). This is a massive tax advantage that is not available on most other investments, like shares.
• An Asset for Retirement. For most retirees, the family home is not counted in the assets test for the Age Pension. This can make a significant difference to your eligibility for government support. It can also be a source of funds in later life through schemes that allow you to access your home equity.
• Freedom and Lifestyle. You have the freedom to renovate, decorate, get a pet, or make changes to the property to suit your lifestyle, without needing a landlord's permission.

What are the disadvantages of home ownership?

Despite the benefits, owning a home isn't without its challenges and risks.

• High Costs. Property is expensive to buy and to hold. Acquisition costs include stamp duty (which can be tens of thousands of dollars), legal fees, and bank fees. Holding costs include council rates, water rates, insurance, interest on your loan, and ongoing maintenance and repairs. These can add up to a significant amount each year.
• Financial Stress and Risk. A mortgage is a huge financial commitment. If interest rates rise sharply or your income falls, the pressure of making repayments can be immense. Property prices can also fall, meaning you could end up with negative equity—owing more than the home is worth.
• Lack of Diversification. For most people, their home is their single biggest asset. This concentration in one asset, in one location, is a significant risk. While property has performed well historically, a major downturn in the market could have a much bigger impact on your personal wealth than if your money were spread across different investments.
• Illiquidity. A property is not a liquid asset, meaning you can't convert it to cash quickly or easily. Selling a home takes time, effort, and money. While home equity loans allow you to borrow against your property's value, this also takes time and comes with its own costs and risks.
• Opportunity Cost. The large amount of money tied up in your home deposit and repayments could have been invested elsewhere, potentially earning higher returns. This is the core of the "rent vs. buy" debate.

Who should own the home?

This is often a key question for self-employed clients. To them, the worst aspect of a business venture going wrong is the risk of losing the family home. This causes the most angst and pain and can place immense strain on a marriage. Ask yourself how your partner would feel if your business or investment activities put the family home at risk. It would likely rank as one of the most stressful events you could face.

As a result, the question of whose name the family home should be in is one that all business owners, company directors, or professionals in fields with high litigation risk (like medicine or law) need to resolve.

Important Note: The following information is general in nature. Structuring ownership for asset protection is a complex area of law and finance. You must seek specialist legal and financial advice tailored to your personal circumstances before making any decisions.

Should a spouse own the family home?

As a general principle, if you don't own an asset, you can't lose it in a lawsuit against you personally. Therefore, for people in 'risky' professions, having the family home owned solely by the spouse in the 'less risky' profession can often shield it from creditors. If one partner is a surgeon and the other is a salaried employee, it may be sensible for the employee to be the sole owner on the title.

This strategy is purely for asset protection from external threats. It is important to understand that the Family Law Act generally ignores nominal ownership between spouses in the event of a separation. The court has wide powers to divide all assets of the relationship, regardless of whose name they are in.

Family trusts and the family home

Owning the home in a family trust can be another effective asset protection strategy. However, this is a sophisticated approach with significant trade-offs. The main downsides are that a home owned by a trust is not your main residence, meaning:

• The Capital Gains Tax (CGT) exemption for a main residence is lost.
• Land tax may be payable annually, which does not apply to a main residence.

Despite these costs, there can still be advantages, especially for those with significant wealth or at high risk. A trust can help with estate planning and the inter-generational transfer of property. The security of knowing the home is protected from litigation can, for some, be worth the extra tax cost. This is a strategy that requires careful legal and financial advice.

When should homes be sold?

In our experience, people are often too quick to sell their home, particularly when upgrading. If you are living in your second or subsequent home, ask yourself this question: do you wish you had kept the first home you bought? For most people, the answer is a resounding yes.

We believe you should always consider never selling your old home when you upgrade, and instead retain it as an investment property. While not everyone has the financial capacity to do this, it can be one of the most powerful wealth-creation strategies available. The first few years may be financially tight, but before long, the value of both your new home and the old one will likely rise, and the decision will be validated.

A helpful strategy here involves using interest offset accounts. You can withdraw the equity from your old home and place it in an offset account against the loan on your new home. This reduces your non-deductible debt. Meanwhile, the loan on your old home is now fully deductible against the rental income it generates. If you think this could be relevant for you, please let us know.

What if your home is not expected to appreciate?

Clients in capital cities often assume home prices always go up. This is optimistic, but that optimism has a solid base: in most capital cities, they almost always do go up, at least eventually.

But outside the major capitals, the position is more complex. In some regional towns, prices can stagnate for years or even fall. If you choose to live in a regional area for lifestyle reasons, you might consider separating your lifestyle choice from your investment decision. This means living where you love, but owning an investment property in a major capital city with stronger long-term growth prospects.

Homes for children

Property is an inter-generational asset, and parents should be thinking that far ahead. The 'Bank of Mum and Dad' is now one of the biggest "lenders" for property in Australia, a testament to how difficult it has become for young people to enter the market.

Simply put, we encourage clients to help their adult children buy their first home as early as is sensible. A loan, a gift for a deposit, or acting as a guarantor on a loan can allow the next generation to enter the property market years earlier than they could on their own. This lets them buy at today's prices, not the much higher prices of the future. If the children can stay at home for a while and rent out their new property, the tenant and the tax benefits can pay much of the holding costs, accelerating the wealth creation process.

The main downside is the risk that the property may fall in value, exposing the parents under any guarantee. However, with basic common sense and a long-term view, this is a manageable risk that can create a permanent financial advantage for your children.

Apartments

Clients should approach buying an apartment with caution, particularly those bought 'off-the-plan' or in large, high-rise towers. In recent years, issues with build quality have highlighted the risks of new developments.

While the widening price gap between houses and units makes apartments a more accessible entry point into the market, the investment prospects can be highly variable. The best apartment investments tend to have a point of scarcity—they are in smaller, boutique blocks, in highly desirable locations, perhaps with unique views or features that cannot be easily replicated. These are the properties that hold their value and have better capital growth prospects.

High-rise is often high-risk. A large supply of similar apartments in the same building or area can suppress price growth for years. If you are considering an apartment, an established property in a smaller block is generally a safer bet.

Tourist accommodation

We are not fans of investments in 'tourist accommodation' either. Think serviced apartments or units in holiday resorts. There is often an over-supply, the capital gain prospects are poor, and the costs are incredibly high.

Consider this real-life example. A client, without getting advice, bought a Gold Coast apartment for $400,000 while on holiday. It seemed a good idea at the time. The rent was strong at $30,000 a year, which looked like it would easily cover the $22,000 in annual interest. The problem was the hidden costs: management fees of $15,000 a year and cleaning costs of $6,000 a year. Throw in rates and water, and the total outgoings ballooned to more than $45,000 a year. The cash shortfall was $15,000 a year.

Years later, the apartment is worth less than what they paid for it. New apartment blocks are always springing up, making older ones less desirable. What's more, holiday renters can treat a property roughly. Holding costs of $15,000 a year meant this family’s own week at the Gold Coast each year was costing them more than $2,000 a day. That’s what we call an expensive holiday.

In summary, tourist accommodation is too risky. 'Owners' are at the mercy of the managers, and there are far better ways to invest your money.

Introduction

In this chapter, we want to discuss some important elements of home ownership from a woman's perspective. It can be challenging to get a completely accurate picture, as it involves gathering data from various sources. But in doing so, a clear pattern emerges. While many women are successful homeowners, single mothers in particular face significant hurdles.

General Overview

The Good News

Let's start with some positive findings. When we look at the first home buyer market, single women are a force to be reckoned with. Recent data consistently shows that single women are more likely to buy their first home than single men. This demonstrates a clear proactivity and desire for the security that property ownership provides.

Furthermore, home ownership rates for women living as part of a couple remain very high, typically around 75-80%, which is on par with their male partners. In terms of gender and property, the main issue isn't about capability or desire, but rather how life events—particularly parenthood and separation—can impact a woman's ability to own a home.

The Financial Landscape for Women

Despite this proactive approach, women still face financial headwinds. According to the Workplace Gender Equality Agency (WGEA), the national gender pay gap for full-time work is currently 13.0%. This gap is even larger when you look at total remuneration, and it's most pronounced in the highest-paying industries.

This income gap contributes directly to a wealth gap. The HILDA (Household, Income and Labour Dynamics in Australia) survey consistently finds that single men have more wealth than single women. A significant part of this is the gender superannuation gap. Due to factors like the pay gap and time taken out of the workforce to care for children, women, on average, retire with significantly less superannuation than men. This not only affects retirement but also reduces the savings that could potentially be used for a home deposit earlier in life.

The Impact of Parenthood and Separation

For many women, the biggest barrier to home ownership arises after having children, especially in the event of a separation. While partnered parents have high rates of ownership (over 75%), the numbers change dramatically for sole parents.

Recent analysis based on the 2021 Census and other survey data reveals a stark picture:

• The home ownership rate for couples with children is approximately 76%.
• The rate for single mothers is drastically lower, at around 35%.
• The rate for single fathers is also lower than for couples, at approximately 45%.

These figures tell a clear story. Becoming a sole parent more than halves a woman's likelihood of owning a home. Given that around 80% of sole-parent households in Australia are led by women, this is a challenge that disproportionately affects mothers.

The reasons are twofold. Firstly, raising children alone is expensive and time-consuming, which limits the hours available for paid work. Secondly, the remaining parent is trying to support a family on a single income, which is often lower than a man's to begin with due to the pay gap. This creates a 'double whammy' that makes saving a deposit and servicing a mortgage incredibly difficult.

Furthermore, studies show that when single mothers do manage to buy a home, they tend to own properties of lower value compared to single fathers, concentrating them in the cheaper end of the market. A single father is significantly more likely to own a home in the top quintile (the most expensive 20% of properties) than a single mother.

Summary of Home Ownership and Women

In summary, we can say the following:

• Women are highly motivated and proactive property buyers.
• However, women earn less than men on average and have less superannuation wealth.
• Couples have high rates of homeownership.
• Upon separation, women are far more likely to become the primary carer for their children.
• Sole parents have much lower rates of home ownership (35% for women, 45% for men).
• Single mothers who do own homes tend to own less valuable properties.

While women generally do well with property, single mothers face a substantial disadvantage. The next section outlines financial planning strategies to help address this.

Strategic Financial Planning Responses

So, what can a person facing this inequality do? All strategies must start from a simple point: the core challenges are typically lower income and the financial burden of raising children. The most effective strategies, therefore, are those that address these two issues.

1. Maximise Government Support
   This is the most important recent development. The Australian Government's Family Home Guarantee is specifically designed to help eligible single parents buy a home. Under this scheme, you may be able to purchase a property with a deposit as small as 2% without having to pay Lenders' Mortgage Insurance (LMI). This can reduce the time it takes to save a deposit by years and is a potential game-changer.
2. Anything Realistic That Increases Income
   We emphasise realism here, particularly given the demands of child care. Once kids have arrived, it's not a simple matter of working more hours. However, options to explore include:
   • Changing jobs to a higher-paying employer or industry.
   • Negotiating a pay rise in your current role.
   • Exploring flexible or remote work that reduces travel time and costs, allowing for more productive work hours.
   • Undertaking study or micro-credentials to qualify for a better-paying job. Online courses have made this more accessible than ever.
   • Starting a small business or 'side hustle' that can be managed around family commitments.
3. Anything Realistic That Decreases Expenses
   Again, the emphasis is on realism, as most costs of child-rearing are unavoidable. However, a thorough review of your budget can often reveal savings. Standard financial planning strategies in debt management, minimising discretionary spending, and ensuring you are receiving all eligible Centrelink benefits can free up cash flow that can be funnelled towards a savings goal.

The journey to home ownership for a single mother can be tough, but with strategic planning and by taking advantage of targeted support, it is by no means impossible.

The family home is more than just a place to live in retirement; it's a significant financial asset. For the average household, the home represents over 40% of their total wealth. What's more, over the last 20 years, residential property has delivered average returns of 9.8% per annum. With many retirements now lasting 25 years or more, the home remains a very important asset long after you stop working.

Financial Planning, Retirement and the Family Home

One of the key benefits of the family home in retirement is that its value is generally exempt from the assets test used to determine your eligibility for the Centrelink Age Pension. This is a major advantage and a key reason why many retirees are reluctant to sell.

This can lead to two very different retirement scenarios. The ideal is being 'asset-rich and cash-rich', where you own your home and have enough superannuation and other investments to fund your lifestyle comfortably. In this world, the home provides tax-advantaged capital growth while your super provides the income.

However, a more common situation is being ‘asset-rich but cash-poor.’ This is where you own your home, which may be worth a great deal, but have limited funds for day-to-day living. For people in this situation, the idea of downsizing—selling their current home and buying another for a lower price—can be very tempting.

In the past, downsizing was often seen as a last resort. Today, thanks to some important government initiatives, it has become a powerful strategic option with significant pros and cons that need to be carefully weighed.

The Downsizing Decision: Pros and Cons

The Case For Downsizing (The Pros)

• Significantly Boost Your Super. This is the biggest change in recent years. The government's downsizer contribution scheme allows eligible individuals (currently aged 55 and over) to contribute up to $300,000 per person ($600,000 for a couple) from the proceeds of selling their home into their superannuation. This is possible even if you would normally be too old or have too much in super to make contributions. It's a powerful way to move capital from your home into the tax-free environment of a retirement income stream.
• Free Up Cash for Your Lifestyle. The original motivation for downsizing is still compelling. Selling a $1.5 million home and buying one for $1 million can free up a substantial sum to fund travel, hobbies, or simply live more comfortably.
• Reduce Maintenance and Bills. A smaller, newer home typically comes with lower running costs, less maintenance, and less physical work in the garden, freeing up both time and money.
• A Home That Better Suits Your Needs. Downsizing allows you to move to a home that is better suited for your later years—perhaps a single-storey property with no steps, closer to family, or with better access to healthcare.

The Risks of Downsizing (The Cons)

• High Transfer Costs. Selling one home and buying another is expensive. Selling a $1.5 million home in Melbourne could cost over $30,000 in agent's fees. Buying a new property for $1 million would attract around $55,000 in stamp duty. Add in legal fees and moving costs, and the total changeover cost could easily approach $90,000. Your 'freed-up' cash is significantly less than you might think.
• Impact on Your Age Pension. This is a critical point. While your family home is exempt from the Centrelink assets test, the cash you free up is not. Even if you use the downsizer rules to contribute that cash to super, the balance in your superannuation account is assessed. Therefore, downsizing can reduce or even eliminate your eligibility for the Age Pension.
• Reduced Future Capital Growth. By moving from a $1.5 million asset to a $1 million one, you are reducing your exposure to the property market. Over a long retirement, this can mean missing out on a significant amount of potential tax-free capital growth.
• Emotional and Social Costs. Leaving a home full of memories can be emotionally difficult. Moving to a new, unfamiliar area can also lead to social isolation, especially if you move away from your established network of friends and family. This can be a particular problem for a surviving spouse.

Alternatives to Downsizing

If the goal is to improve your cash flow in retirement without selling your home, there are several alternatives to consider:

• The Home Equity Access Scheme. Formerly known as the Pension Loans Scheme, this is a flexible reverse mortgage run by the government that allows eligible seniors to receive a voluntary non-taxable loan from Centrelink, secured against their property.
• Private Reverse Mortgages. Commercial lenders also offer products that allow you to borrow against the equity in your home, with the loan typically repaid when you sell the property or from your estate.
• Renting Out a Room. Taking in a housemate or boarder can provide a steady, tax-effective income stream to supplement your retirement funds.
• 'Rent-vesting' in Retirement. You could rent out your family home (which you retain) and then rent a cheaper property for yourself elsewhere. This can generate cash flow, though the net rent would be assessable for income tax and Centrelink purposes. It's a great way to 'try before you buy' if you're considering a sea change or tree change.

Estate Planning and Inter-Generational Planning

The decision to downsize or retain the family home has a substantial impact on your estate. Put simply, the more valuable your home is when you die, the greater the amount that can be distributed to your beneficiaries. Retaining a larger home may also put you in a better position to provide assistance to younger generations, for example, by acting as a guarantor on a child's home loan. This is a key trade-off to consider in your decision.

As financial advisers, we rarely look at a client in isolation. We see people as part of a family, and we know that your financial goals are often intertwined with the wellbeing of your children and grandchildren. Inter-generational financial planning (IFP) treats the family as what it usually is—a single, vertically-integrated economic unit. Most people think across the generations when it comes to their wealth, and so do we.

This is never more true than with the family home. Property accounts for the largest portion of household wealth in Australia, and we are on the cusp of the largest inter-generational wealth transfer in history. Research from the Grattan Institute highlights that older Australians have accumulated vast wealth, primarily through property, which will be passed down in the coming decades. Understanding how the family home fits into this picture is essential.

Inheritances

For most families, the home is the most significant asset that will be passed down. It's important to understand how this happens. Most couples own their home as joint tenants. This means that when one partner dies, their share automatically passes to the surviving partner. The home only becomes part of a person's estate (and therefore governed by their will) upon the death of the last surviving owner.

Provided the home was the deceased's main residence, its transfer to a beneficiary is generally free of Capital Gains Tax (CGT). This makes it a very tax-effective way to pass on wealth.

The Timing of Inheritance

The challenge with inheritances is that they often arrive too late. With Australians living longer than ever, most people don't receive an inheritance until they are in their 50s or 60s. By this stage, they are often past their own peak financial pressures, like raising children and paying off a large mortgage. The inheritance is welcome, but it would have been far more impactful 20 years earlier.

This is why modern inter-generational planning is less about waiting for an inheritance and more about providing assistance to younger generations during your lifetime.

Assisting Younger Generations to Buy a Home

The 'Bank of Mum and Dad' is now a major force in the Australian property market, estimated to be one of the nation's biggest lenders. For many young people, parental help is the only way they can get onto the property ladder. Common ways to assist include:

• Gifting or loaning money for a deposit. This is the most direct method.
• Acting as a guarantor on a loan. This uses the equity in the parents' home to secure the loan for the child, reducing the deposit they need and helping them avoid Lenders' Mortgage Insurance (LMI).
• Buying a property in conjunction with a child. This involves co-ownership and requires a detailed legal agreement.

These strategies allow the next generation to buy a home years earlier, securing a property at today's prices rather than the inflated prices of the future.

The Importance of Written Agreements

While families operate on trust, the law operates on written documents. Any financial assistance provided to children should be formally documented. Is it a gift or a loan? If it's a loan, what are the repayment terms?

A formal Loan Agreement is crucial. It clarifies expectations and, importantly, can protect the funds in the event of a child's relationship breakdown. Without an agreement, money intended as a loan to your child could be treated as a gift to the couple and divided up in a family law settlement. A verbal agreement is notoriously difficult to prove. Being clear and formal from the start protects everyone involved.

Using Superannuation to Help Buy a First Home

Since a home is bought with after-tax dollars, using a low-tax environment to save for a deposit is a highly effective strategy.

The First Home Super Saver (FHSS) Scheme

For the younger generation, this should be the first port of call. The FHSS scheme allows individuals to make voluntary contributions to their superannuation (up to $15,000 per year, and $50,000 in total) to save for their first home. These contributions are taxed at just 15% instead of their marginal tax rate. When they are ready to buy, they can withdraw these contributions, along with the associated earnings. The FHSS scheme is the government's purpose-built tool to help young people save a deposit faster.

A Strategy for Parents

Parents can also use their super to help. A client in their early 60s, for example, might be able to make salary sacrifice contributions to their own super fund, take advantage of the low 15% tax rate, and then withdraw the funds tax-free after they turn 65 to gift to a child. This can be a powerful way to boost a child's deposit, especially if the child has already maximised their own FHSS scheme. This is a more complex strategy that requires careful planning around contribution caps.

The key takeaway is that the superannuation system offers significant advantages for accumulating a home deposit when used strategically across the generations.

The family home is central to the financial identity of most Australians. This chapter provides a snapshot of the key facts and figures that shape the property market today, summarising many of the themes we have discussed throughout this ebook.

The Big Picture: A Nation of Homeowners

Australia remains a nation of homeowners, but the way we own our homes is changing. According to the 2021 ABS Census:

• 67% of Australian households own the home they live in.
• This is comprised of 32% who own their home outright (with no mortgage) and 35% who are currently paying off a mortgage.

While the 67% headline figure has only fallen slightly from the ~70% seen in previous decades, the makeup has shifted significantly. The proportion of households owning their home outright has steadily declined, while the proportion with a mortgage has risen. This reflects that people are buying later in life and carrying their home loans for longer.

A Generational Divide

The most significant trend in home ownership is the growing divide between generations. The likelihood of owning a home is now heavily dependent on your age. Analysis of the 2021 Census data shows a stark contrast:

• Among households led by a person aged 65 or over, the ownership rate is over 80%.
• For households led by a person aged 25 to 34, the ownership rate is around 40%.

This generational gap has widened considerably over the last few decades. Younger Australians are finding it takes much longer to gain a foothold in the property market than it did for their parents and grandparents.

The Affordability Challenge

The primary reason for this generational divide is affordability, which has reached crisis levels in recent years. This challenge has three main components:

1. High Property Prices: House prices, particularly in the major capital cities, have significantly outpaced wage growth for two decades. The national house price-to-income ratio now sits at a record high, meaning property has never been more expensive relative to average earnings.
2. The Deposit Hurdle: With high prices comes the need for a larger deposit. Recent studies estimate that it now takes an average Australian couple over 10 years to save a 20% deposit for a standard house. This is a massive barrier to entry.
3. High Servicing Costs: For much of the 2010s, record-low interest rates helped to offset the impact of high prices. That has now changed. We are in an environment of higher interest rates, creating a painful "double bind" for new buyers: record-high prices combined with much higher mortgage repayments. Data from the Reserve Bank of Australia shows that mortgage payments as a share of household disposable income are now at their highest level on record.

The Rental Market Squeeze

The challenges in the ownership market are mirrored in the rental market. In the years following the pandemic, Australia has experienced a severe rental crisis, characterised by:

• Record-low vacancy rates, often below 1% in major cities.
• Rapidly rising rents, far outstripping inflation and wage growth.

This situation has added another dimension to the "buy vs. rent" debate. While buying is expensive and difficult, the alternative of renting has become increasingly insecure and costly, adding a powerful "push" factor for many to pursue ownership despite the hurdles.

The Long-Term Drivers

Despite the cyclical challenges of affordability and interest rates, the long-term drivers of the Australian property market remain powerful.

• Population Growth: Australia has one of the fastest-growing populations in the developed world, driven largely by immigration. The government's Centre for Population projects that our population will continue to grow strongly, particularly in the major capital cities. This provides a constant and enduring source of underlying demand for housing.
• A Resilient Economy: Australia's economy has proven to be stable and resilient over the long term, creating a secure environment for property investment.
• A Cultural Belief in Property: Owning a home remains a core aspiration for most Australians. This deep-seated cultural preference ensures there is always a strong desire to buy, which underpins market sentiment.

These factors help explain why, despite periods of price falls and affordability challenges, the Australian property market has consistently trended upwards over the very long term.

On the second Tuesday of May each year, the Commonwealth Treasurer stands up in Parliament to deliver the Federal Budget. It’s an event of enormous importance to the nation, with the media and public alike paying close attention before and after the big night.

Your household budget might not have the same national importance, but from your perspective, it's far more critical to your financial wellbeing than anything the Treasurer announces.

At its heart, a personal budget focuses on two things: your income and your expenditure. The goal is simple: ensure your income exceeds your outgoings to get ahead financially. Yet, many of us struggle to know exactly where our money comes from and where it goes. Budgeting is the process of tracking this flow of money to understand your financial habits and plan for the future.

The benefits of budgeting are immense. It empowers you to make smarter financial decisions by showing you what you can truly afford. Sometimes, it delivers tough news: you might need to cut back. But often, it brings pleasant surprises. Many people discover they have more room to breathe, ramp up their investments, or boost their superannuation contributions—once they've crunched the numbers.

Viewed from another angle, a budget can show you how much you need to earn to support the lifestyle you desire. For some, this has been the catalyst to seek a higher income after calculating their present and future cost of living.

Either way, budgeting provides vital information for managing your finances. Knowledge is power, and budgets provide powerful knowledge. 💡

The best part? In today's digital age, budgeting is easier than ever. Forget dusty ledgers; if you can use a smartphone or a computer, you have all the tools you need. From simple spreadsheets to sophisticated apps that link directly to your bank accounts, technology has made tracking your finances incredibly straightforward.

This e-book is designed to guide you, step-by-step, in creating your own income and expenditure budget, putting you firmly in control of your financial future.

We hope you find it valuable, and please feel free to share it with anyone who might benefit.

Do you know what your income truly is? You might be surprised to find that many people don't. Then again, you might not be surprised at all!

Part of the reason is that "income" can mean different things. For instance, if your employer pays you a salary of $90,000, they see that as your income package. However, that's your gross income, before tax. Based on current tax rates, a pre-tax income of $90,000 would incur about $19,588 in tax and Medicare levy. This means you only take home around $70,412. From a budgeting standpoint, this after-tax figure is what really matters.

Superannuation is another layer. Your employer must contribute a percentage of your earnings to your super fund. This rate is currently 12%. On a $90,000 salary, that’s an additional $10,800 your employer pays towards your retirement. While it's certainly part of your total remuneration, it’s not money you can spend today, so we don't include it in our working budget.

For your personal budget, we focus on what's called ‘purchasing power’. This is the actual amount of money you have available to spend, save, or invest. So, a pre-tax salary of $90,000 results in purchasing power of about $70,412 per year. In this e-book, when we say ‘income’, we mean your purchasing power—your take-home pay.

Sources of income

For most people, the main source of income is their job. However, there are many other forms that should be included in any budget.

Beyond traditional employment, think about any other money that regularly comes in. This could be from investments (like share dividends or rent from a property), government benefits, or child support payments. In today's economy, it's also common to have income from a 'side hustle', freelance projects, or the gig economy—driving for a rideshare service or selling crafts online, for example. All of these should be included.

Please note, we do not include potential lottery winnings as a source of income! (But we do include the tickets as an expense in the next chapter…)

Calculating your income

To calculate your total income, you simply need to add up the cash you expect to receive from all your sources. The table below shows an example.

As you can see, the income streams arrive at different times. To make sense of it all, we need to convert everything to the same time period.

We recommend using a monthly period, as most regular expenses like rent, mortgages, and bills are paid monthly. This consistency makes it easier to compare your income with your spending. To convert different pay cycles accurately:

• Weekly to monthly: (Weekly amount × 52) ÷ 12
• Fortnightly to monthly: (Fortnightly amount × 26) ÷ 12
• Quarterly to monthly: Quarterly amount ÷ 3
• Yearly to monthly: Yearly amount ÷ 12

Here is the same table, with all income converted to a monthly figure.

Now we have a clear, single figure for the money available to spend each month. We encourage you to create your own version of this table to calculate your monthly income.

Last year’s or this year’s income?

Strictly speaking, a budget is a plan for your future income and expenses. Where possible, use figures for the coming year. If you know you're getting a pay rise, use the new amount.

However, some income sources can't be known for certain. Investment returns fluctuate, and freelance or gig economy work can be unpredictable. In these cases, using an average from the last 3-6 months often provides a more realistic estimate than relying on a single month or the entire previous year. The goal is to use the most accurate and representative figures you can.

Hopefully, working out your income was an insightful exercise. Now for the other side of the coin: tracking your spending. We'll be honest, this part can feel a bit more confronting. Most of us have only a few sources of income, but money seems to flow out in dozens of different directions.

The key to a good budget is getting a realistic handle on your expenses. Let's break down how to do it effectively in this digital age.

Fixed vs. Variable Expenses: Know What You're Dealing With

Before we start tracking, it's useful to understand the two main types of expenses:

• Fixed Expenses: These are the predictable costs that stay the same each month. Think of your rent or mortgage, loan repayments, insurance premiums, and most subscriptions like Netflix or your gym membership. They are the foundation of your budget.
• Variable Expenses: These costs change from month to month based on your activities and choices. This category includes groceries, petrol, eating out, entertainment, and shopping. This is where you have the most control to make changes.

A good budget accounts for both, ensuring the essentials are covered while giving you a framework for your discretionary spending.

How to Track Your Spending in the Digital Age

In the past, budgeting meant hoarding receipts and manually entering every purchase into a ledger. Thankfully, it's much easier now.

The first step is to gather your spending data from the last two to three months to get a representative sample. For bigger, less frequent costs, you may need to look back over a full year. Here are the most effective ways to do it:

1. Use a Budgeting App
This is by far the easiest method. Apps like Frollo, WeMoney, or your own bank's built-in budgeting tools can securely link to your bank accounts and credit cards. They automatically download your transactions and categorise them for you. It does most of the heavy lifting, giving you a clear, visual breakdown of your spending habits with minimal effort.

2. Analyse Your Bank Statements
If you'd rather not use an app, your online banking portal is the next best thing. You can download your statements for the last few months (most banks allow you to export them as a CSV or spreadsheet file). Once in a spreadsheet, you can sort transactions by retailer to group them into categories (e.g., all your Woolworths and Coles shops go under 'Groceries').

3. Track Cash and Other Payments
While we live in an increasingly cashless society, you might still have some cash expenses. The simplest way to track these is to use a notes app on your phone to quickly jot down what you spend. Don't forget to account for repayments to Buy Now, Pay Later (BNPL) services like Afterpay or Zip. These can be easy to lose track of, so treat them as a distinct expense category.

Putting It All Together – Your Spending List

Now it's time to compile all your spending into a master list. The goal is to create a comprehensive list of what you spent money on over the last year, and then calculate a monthly average.

Look over your app data or statements for the past 12 months to catch those lumpy, irregular costs like car registration, insurance renewals, and holiday spending. For these annual costs, simply divide the total by 12 to get a monthly figure to set aside.

Here is an example of what your completed list might look like. We have used more up-to-date categories and figures that are more reflective of current living costs.

Forecasting Next Year’s Spending Budget

With a clear picture of last year's spending, you can now build a forecast for the year ahead. For each item, make a realistic estimate of what you'll spend. Add any new expenses you anticipate, like school fees for a child starting school or a new car loan.

If you don't know the exact future cost, use last year's figure as your baseline and adjust it. Many costs rise with inflation. For example, private health insurance premiums and council rates tend to increase each year, so adding 5-7% to last year's cost is a sensible move.

The basic rule is to be realistic, but if you're going to err, it's better to slightly overestimate your costs. That way, any surprises are likely to be pleasant ones.

You've done the hard work of tracking your income and expenses. Now it's time for the moment of truth. This is where you see your entire financial picture in two simple numbers and find out if you are operating with a surplus (a 'profit') or a deficit (a 'loss').

To find out, you simply subtract your total monthly expenses from your total monthly income.

Let's use the figures from our example in the previous chapters:

A positive number means you have a surplus, which is fantastic news. A negative number means you have a deficit, which is a clear signal that some changes are needed.

Planning for Lumpy Expenses and Smoothing Your Cash Flow

Your budget might show a monthly surplus, but that doesn't mean you'll have extra cash every single month. Life includes large, irregular bills—like car registration, insurance premiums, or council rates—that can disrupt your cash flow.

Instead of being caught off guard, plan for them. A great modern strategy is to create one or more "sinking funds". This involves:

1. Adding up all your expected annual expenses (e.g., $1,800 for car costs + $3,000 for a holiday = $4,800).
2. Dividing the total by 12 to get a monthly amount to set aside (in this case, $400 per month).
3. Setting up an automatic transfer of this amount each month into a separate, high-interest savings account.

When the big bills arrive, the money is already there waiting. This smooths out your spending and turns unpredictable costs into manageable monthly amounts.

What to Do If Your Budget Shows a Surplus

Congratulations! A surplus means you have money available to actively improve your financial position. This extra cash is a powerful tool for building wealth. The primary goal is to use it to grow your net assets (your assets minus your debts). Here are the best ways to do that:

• Build an Emergency Fund: Before anything else, aim to save 3-6 months' worth of essential living expenses in an easily accessible savings account. This is your financial safety net against job loss or unexpected crises.
• Pay Down High-Interest Debt: Tackling debt on credit cards or personal loans is a guaranteed investment. Paying off a card with a 20% interest rate gives you a 20% return on your money.
• Invest for the Future: Once your emergency fund is healthy and high-interest debt is gone, you can start investing. This could involve making extra contributions to your superannuation or building a diversified portfolio of shares and Exchange Traded Funds (ETFs).

Deciding on the best strategy depends on your personal goals and circumstances. A conversation with a financial adviser can help you create a clear plan to make the most of your surplus.

What to Do If Your Budget Shows a Deficit

Seeing that your expenses are higher than your income can be stressful, but your budget has done its job: it has given you the clarity needed to take action. A continued deficit is unsustainable, so it's important to address it right away.

There are two sides to the equation you can work on:

1. Reduce Your Spending
Your detailed budget is now your roadmap for finding savings.

• Start with variable costs: These are the easiest to change. Can you reduce spending on takeaway food, entertainment, or subscriptions you don't use often?
• Review your fixed costs: You may be able to lower these by shopping around. Compare providers for insurance, electricity, and your mobile/internet plan. See if you can refinance your mortgage to a lower interest rate. Small changes here can lead to big annual savings.

2. Increase Your Income
Look for opportunities to boost your earnings. This could mean:

• Negotiating a pay rise at your current job.
• Developing new skills to apply for a promotion or a higher-paying role.
• Turning a hobby or skill into a side hustle for extra income.

Often, a combination of reducing spending and increasing income is the most effective approach.

The most important thing to remember? Don't just do nothing! Your budget is the first step towards taking control.

On the second Tuesday of May each year, the Commonwealth Treasurer stands up in Parliament to deliver the Federal Budget. It’s an event of enormous importance to the nation, with the media and public alike paying close attention before and after the big night.

Your household budget might not have the same national importance, but from your perspective, it's far more critical to your financial wellbeing than anything the Treasurer announces.

At its heart, a personal budget focuses on two things: your income and your expenditure. The goal is simple: ensure your income exceeds your outgoings to get ahead financially. Yet, many of us struggle to know exactly where our money comes from and where it goes. Budgeting is the process of tracking this flow of money to understand your financial habits and plan for the future.

The benefits of budgeting are immense. It empowers you to make smarter financial decisions by showing you what you can truly afford. Sometimes, it delivers tough news: you might need to cut back. But often, it brings pleasant surprises. Many people discover they have more room to breathe, ramp up their investments, or boost their superannuation contributions—once they've crunched the numbers.

Viewed from another angle, a budget can show you how much you need to earn to support the lifestyle you desire. For some, this has been the catalyst to seek a higher income after calculating their present and future cost of living.

Either way, budgeting provides vital information for managing your finances. Knowledge is power, and budgets provide powerful knowledge. 💡

The best part? In today's digital age, budgeting is easier than ever. Forget dusty ledgers; if you can use a smartphone or a computer, you have all the tools you need. From simple spreadsheets to sophisticated apps that link directly to your bank accounts, technology has made tracking your finances incredibly straightforward.

This e-book is designed to guide you, step-by-step, in creating your own income and expenditure budget, putting you firmly in control of your financial future.

We hope you find it valuable, and please feel free to share it with anyone who might benefit.

Let's walk through a practical example. Andy is a self-employed plumber earning $100,000 a year after business expenses. Based on the current tax brackets, his marginal tax rate is 30% (plus the Medicare levy). Andy already owns his home, valued at $600,000, and has a mortgage of $200,000, giving him $400,000 of equity.

Here is a quick snapshot of his assets before the new investment:

Andy decides to buy an investment property for $600,000. He uses the equity in his home as security, allowing him to borrow the entire $600,000 purchase price, plus an extra $30,000 to cover stamp duty and other acquisition costs. After he makes the purchase, his financial position looks like this:

Andy’s equity has fallen, but only by the amount of the purchasing costs he had to pay.

So, the new loan constitutes the ‘gearing’ part of the term ‘negative gearing.’ Now we come to the negative part.

Andy appoints a property manager to look after the rental. The ongoing costs of the property, such as council rates, insurance, and management fees, come to $3,000 a year. The property generates a rental income of 3% on its value, which is $18,000 per year. The interest rate on his new investment loan is 6.0%. On a loan of $630,000, this equates to $37,800 in interest each year.

This is how the property's cash flow looks for the year:

These figures show that Andy makes a cash loss of $22,800 on the property each year. For tax purposes, Andy can deduct this loss from his other income. So, Andy’s taxable income falls from $100,000 to $77,200 for the year.

The income tax (including Medicare levy) payable on $100,000 is approximately $21,592. The tax payable on $77,200 is approximately $14,752.

This means that negative gearing has reduced Andy’s tax bill by $6,840. The annual loss of $22,800 is therefore partially offset by this tax saving, reducing the after-tax loss to $15,960.

As long as the value of the property increases by more than this $15,960 shortfall per year, Andy will be better off because of the investment. A gain of $15,960 is 2.66% of the property's $600,000 value. So, as long as the property market grows by more than 2.66% annually, the short-term loss Andy covers will be offset by the longer-term capital gain.

According to the 2024 Russell Investments/ASX Long-Term Investing Report, the long-term average return for residential Australian property to December 2023 was 9.3% per annum over 10 years. This total return includes both rental income (typically 2-3%) and capital growth. Over 20 years, the figure was 10.2% per annum. If historical performance is any guide, Andy's investment should be profitable.

Capital Gains Tax

If Andy were to sell the investment property, he would have to pay Capital Gains Tax (CGT). If he holds the property for more than 12 months, his capital gain is reduced by 50% for tax purposes. The remaining 50% of the gain is then taxed at his marginal rate of 30%. This means the effective tax rate on the total capital gain is 15%.

Taking this tax into account, the property's value needs to rise by slightly more to ensure a profit. If we factor in the 15% tax on the gain, the annual capital growth required to break even rises from 2.66% to approximately 3.13%.

That said, our advice with property is often to hold it for the very long term. If you never sell an asset, you never trigger a capital gains tax event.

Repayment

With this new investment, Andy should direct all his spare cash towards repaying his original home loan. The interest on that loan is not tax-deductible, making it more expensive debt. He should aim to repay that non-deductible debt as soon as possible. We discuss this further below in the section on debt management.

Negative gearing is not just for housing

The term ‘negative gearing’ often brings property to mind, but it simply refers to any situation where the holding costs of a debt-financed investment are more than the income it produces. This can absolutely apply to a portfolio of shares if the dividends received are less than the interest paid on the loan used to buy them.

As long as the income you receive from an investment is taxable (like dividends from shares), the interest you incur on money borrowed to purchase that investment is generally tax-deductible. This means negative gearing can provide a tax benefit whether the asset is property or shares.

A third main 'class' of investment is fixed interest or cash, such as a term deposit. It would be unwise to borrow money for this type of investment, as the interest you earn will almost certainly be less than the interest you pay on the loan. With no prospect of capital growth to make up for this shortfall, there is no financial benefit. So, negative gearing really only applies to growth assets like property and shares.

Property and Shares: A Tale of Two Asset Classes
We don't usually like sporting analogies for investing. After all, building wealth isn't a competition where one person wins and another loses; it's more like personal fitness, where the goal is simply to improve your own position.

But we can’t resist highlighting the 'neck and neck' race between Australian shares and residential property over the long term. Each year, the Russell Investments/ASX Long-Term Investing Report gives us a chance to see how they've performed. It's a fantastic resource because it cuts through the short-term noise and focuses on 10 and 20-year returns.

Looking at the 10 years to December 2023, the race was incredibly close:

Over 20 years, property had a slight edge:

Now, please don’t read this as a reason to sell your shares and buy property! The 'winner' changes all the time. To prove the point, let's look at the return for just the single year of 2023 from that same report. It tells a very different story:

The real lesson here is that both shares and property have historically delivered strong returns over the long term. The bumps of individual years tend to smooth out over time. It matters less which of these you choose, and more that you choose to invest for the long run. It's like deciding between going for a run or a ride on your bike. Both will improve your fitness; the most important thing is that you get moving.

There’s also a logical reason why these two asset classes perform so similarly. When house prices rise, people feel wealthier and spend more. This boosts the economy, lifting business profits and, in turn, share prices. This increase in wealth is then often used to buy more property, and the cycle continues. Australia's consistent population growth through migration also provides a strong foundation for housing demand, supporting this entire process.

The Case for Shares

The Russell Investments/ASX report is invaluable for demonstrating the virtue of patience. For example, the 2022 calendar year was challenging for share investors. The ASX 200 index fell, and even after including dividends, the total return was negative. An investor looking only at that one-year period might have felt quite discouraged.

However, one year is far too short a time to judge an investment. When we zoom out, a much more reassuring story emerges. As we saw in the table above, the average return on Australian shares over the 10 years to December 2023 was 9.1% per annum. This period included the uncertainty of the pandemic and inflationary pressures, yet long-term investors still saw their purchasing power grow significantly.

When we extend the analysis to the 20 years to December 2023, the news is even better. The long-term rate of return was 9.7% per annum. This demonstrates that investors who stay the course for the truly long term have historically been well-rewarded.

An investment returning 9.7% per year for 20 years compounds to a total return of over 540%. If you had invested $100,000 in 2003, it would have been worth over $640,000 by the end of 2023. This is why we always stress that investing is a long-term game. Ten years is a minimum timeframe; the longer, the better.

Dividend Yield

The dividend yield is a simple way to measure the income return from shares. It's calculated by dividing the annual dividend per share by the price per share. So, if a share costs $20 and pays an annual dividend of $0.80, the dividend yield is 4% ($0.80 / $20).

The long-term average dividend yield on Australian shares has historically been around 4% to 4.5%. This is a relatively high yield compared to many other global markets, and it provides a substantial part of the total return from shares. Furthermore, Australian investors often benefit from franking credits, which can increase the effective return from dividends even further. This strong income component is one of the key attractions of the Australian share market.

Agnetha owns a hairdressing salon which earns her about $100,000 a year after expenses. Her marginal tax rate is 30%. Like Andy in our previous example, Agnetha owns her home, valued at $600,000, with a mortgage of $200,000. Her starting financial position is:

Agnetha decides she wants to build a share portfolio for long-term growth. After a discussion with us, she decides to establish a line of credit loan against her home for $200,000. She plans to use this to build a diversified portfolio by purchasing units in an Australian shares index-tracking Exchange Traded Fund (ETF). At the end of the investment period, her net assets look like this:

Her chosen ETF pays an annual distribution (dividend) of 4%, which equates to $8,000 per year on her $200,000 holding. The interest rate on her investment loan, secured against her home, is 6.0%. This equates to an annual interest cost of $12,000. Agnetha therefore makes a cash loss of $4,000 for the year ($8,000 income - $12,000 interest).

This $4,000 loss is tax-deductible. At her 30% marginal tax rate, this reduces her income tax by $1,200 ($4,000 x 30%). This tax benefit reduces her effective loss for the year to just $2,800.

This means that if her ETF units grow in value by more than $2,800 (or 1.4% of the $200,000 invested), the capital gain will more than offset the short-term holding loss.

As with Andy's property example, any capital gain would be taxable upon sale, but at a discounted rate. For Agnetha to make a profit after paying Capital Gains Tax, the portfolio's capital growth needs to be approximately 1.65% per year.

As we saw in the last chapter, the long-term return on the Australian share market has historically been well in excess of this figure. With an index-tracking ETF set to largely follow the market's 20-year average return of 9.7% per annum, Agnetha's strategy puts her in a strong position to build wealth over time.

It's also worth noting that many Australian share ETFs provide franking credits with their distributions. These credits can further reduce an investor's tax liability and, in some cases, can turn a small pre-tax loss into an after-tax gain, making the investment even more attractive.

We have seen many people build substantial wealth, and it's rare to see it done without using debt. We have also seen debt contribute to financial hardship. This makes it clear that debt is a two-edged sword: used wisely, it can accelerate wealth creation; used carelessly, it can be destructive. The difference lies in the approach of the prudent investor.

In today's world, with the high cost of living and high tax rates, accumulating significant wealth from salary alone is a slow process. Superannuation helps, but for most people, its benefits are a long way off. For those who want to build wealth sooner, borrowing to acquire appreciating and income-producing assets is a well-established solution.

Tax-Deductible Debt: The Investor’s Friend
For the prudent investor, debt can be a powerful friend. Historically, those who have borrowed sensibly to acquire quality investment assets have ended up much better off. This is because, over the long term, the returns from major asset classes like property and shares have typically been greater than the cost of borrowing to acquire them. In the current environment of higher interest rates, this principle remains the same, but it places an even greater emphasis on careful investment selection and managing your cash flow.

The benefits of a geared investment strategy are enhanced by several factors:

1. Most geared investments have some of the owner’s own money (equity) in them. This means the return is earned on a larger capital base than the investor could have afforded on their own.
2. Growth assets produce capital gains, which are not taxed until the asset is sold. As the famous investor Warren Buffett has noted, this tax deferral is like receiving an interest-free loan from the government. When the asset is eventually sold after being held for more than a year, the gain is usually eligible for a 50% tax discount.
3. Tax benefits exist if the investment is negatively geared, as the annual loss can be deducted against other income, reducing your tax bill and improving your net cash flow.
4. For property investments, tax deductions can sometimes be enhanced through depreciation claims on the building and its fittings.

One of the most effective ways to manage the risk of gearing is diversification. Simply put, don't put all your eggs in one basket. By investing in a number of different assets, and even different asset classes, you can reduce the risk of a single poor-performing investment wiping out your equity.

Key Considerations Before You Borrow
It’s clear that those who have borrowed sensibly to invest over the last few decades have generally done very well. Looking to the future, it is likely that prudent investors who use debt to acquire quality assets will accumulate more wealth than those who do not.

However, this strategy is not without risk, and it is not suitable for everyone. A prudent investor should only proceed with a negatively geared investment if they can confidently say 'yes' to the following:

• Can you afford the shortfall? You must have a secure and stable income from other sources that is sufficient to cover not only your living expenses but also the cash shortfall from the investment each year.
• Can you weather a storm? You need to be able to withstand a market downturn without being forced to sell at the worst possible time. This means having a financial buffer to avoid a margin call on a share loan or to manage a period of vacancy in a rental property.
• Are you in it for the long haul? Gearing works best as a long-term strategy. The investment should be made with the intention of holding it for at least seven to ten years, preferably longer.
• Is your financial life secure? Your strategy should be flexible enough to cover major life events like serious illness, disability, or redundancy. This is typically managed with personal insurance.
• Can you actually use the tax benefits? Negative gearing works best for investors on middle-to-high marginal tax rates who can take full advantage of the tax deductions. It is of far less value to those on low tax rates or with no taxable income.

Handy Hints for Getting the Money
If you are a prudent investor with a good credit history and you're buying a quality asset, obtaining finance should be straightforward. That said, here are some tips to make the process smoother:

• Shop around. The first offer you receive is unlikely to be the best. Speak to different lenders and consider using a finance broker who specialises in investment loans. Their service can be excellent and their rates just as competitive as going directly to a bank.
• Be organised. Make sure your loan application is clear, concise, and supported by all the necessary documents, such as recent pay slips, tax returns, and statements. A well-prepared application makes a good impression.
• Don't overextend yourself. Be realistic about how much you can afford to borrow and repay. Banks will do their own assessment, but you are the ultimate judge of your comfort level with debt.
• Be upfront and honest. Always provide complete and accurate information. If something goes wrong later and the bank discovers you withheld important details, it can seriously damage your relationship with them.
• Communicate. If your circumstances change or you run into trouble, tell the bank straight away. Lenders are far more reasonable and helpful when you are proactive and honest with them. Trust is a valuable commodity in banking.

Ultimately, a bank will be reasonable with you if you are reasonable with them. It is always best to play with a straight bat.

Often, an investor who is using gearing will also have private debt, such as the mortgage on the home they live in.

It is vital that these different types of debt are kept separate. Using separate loan accounts, perhaps even with separate lenders, is the best practice. The reason is simple: the tax-deductible nature of interest on an investment loan makes it significantly ‘cheaper’ than interest on private debt.

For example, an investor paying a 6.0% interest rate on both their home loan (non-deductible interest) and an investment property loan (deductible interest) is actually paying much less on the investment loan after tax. If the investor’s marginal tax rate is 30%, the tax deduction effectively reduces the cost of the investment interest by 30%. This brings the after-tax or ‘effective’ interest rate on the investment loan down to just 4.2% (6.0% x (1 - 0.30)).

Where these two types of debt co-exist, it makes sense for all spare cash flow to be dedicated to repaying the more expensive, non-deductible loan first.

This leads to a common and powerful strategy often called ‘debt recycling’. The goal is to pay down your non-deductible home loan as quickly as possible, while maximising your deductible investment debt. By structuring your loans correctly, you can use borrowed funds to pay for all tax-deductible expenses, freeing up your own cash to attack your private debt.

The need for strict separation of loans is crucial here. To see why, imagine you have a single $200,000 loan facility that you used to borrow $100,000 for a home extension (private debt) and $100,000 to buy shares (investment debt). If you make a $20,000 repayment, the bank will consider half of that repayment ($10,000) to have reduced the private portion of the loan, and half to have reduced the investment portion. You have unintentionally paid down your ‘good’ tax-deductible debt.

Now, imagine you had two separate loans of $100,000 each. You could direct the entire $20,000 repayment to the private home loan, reducing it to $80,000. Your tax-deductible investment loan would remain at $100,000, allowing you to claim the maximum amount of interest as a deduction.

To claim a deduction, you must be able to show the Australian Taxation Office (ATO) that the borrowed funds were used for an income-producing purpose. The easiest way to do this is with separate, clean loan statements where every dollar drawn can be traced directly to the purchase of an investment asset. You can read the ATO’s general guidance on claiming interest deductions here.

Prioritising Your Debt Repayment
Here is a common structure used to implement this strategy effectively:

1. Direct all income (e.g., your salary) into an offset account linked to your private home loan. This reduces the interest calculated on your non-deductible debt every day.
2. Pay for all your living expenses using a credit card.
3. At the end of the month, pay off the credit card in full using money from your salary in the offset account.
4. Pay for all investment-related expenses (e.g., council rates, repairs) directly from your investment loan or a line of credit established for investment purposes.

This structure ensures your own cash is focused on reducing your private debt, while your deductible debt is maximised for tax purposes.

There is no need to be tricky when it comes to tax. The ATO has seen every scheme imaginable. As long as you follow the rules and maintain clear records, gearing is a perfectly legitimate strategy. The ability to deduct interest and other costs on income-producing assets has been an accepted principle in Australia’s tax system for more than a hundred years.

So, when should you use negative gearing simply to reduce your tax bill?

The answer is never.

You should only borrow money to buy an asset if you genuinely expect the total return to be greater than your total costs. In other words, the expected income (rent or dividends) plus the expected capital growth must be higher than the interest and other holding costs associated with the investment.

If this fundamental condition isn't met, you will lose money. It doesn’t matter that the loss is tax-deductible. A loss is still a loss. You would literally be better off paying your income tax and putting what's left of your money in the bank.

How much higher should the expected return be? This depends on your personal tolerance for risk, but as a guide, we often suggest that the total expected return (income + growth) should be around 4% higher than the interest rate on your loan. This margin compensates you for the risk you are taking on and the effort involved.

It is absolutely critical to see negative gearing as an investment strategy that has a tax benefit, rather than a tax strategy that has an investment flavour. You should never gear into an investment just to get a tax deduction. Negative gearing only makes sense when you genuinely and reasonably expect the after-tax capital gain to be significantly greater than the accumulated after-tax losses you incur while holding the asset.

Positive gearing is the opposite of negative gearing. It occurs when the income from a debt-financed asset (like rent or dividends) is greater than the interest and other holding costs. This means the investment generates a net profit from day one, even before any capital growth is considered.

While less common with residential property in major cities (where rental yields are often low), positive gearing is certainly achievable, particularly when investing in shares.

For example, consider an investor who borrows money at a 6.0% interest rate to buy a portfolio of established, blue-chip Australian shares. Let's say that portfolio has an average dividend yield of 5.0%. On a pure cash basis, this investment is still slightly negatively geared (5.0% income vs 6.0% cost).

However, the magic of franking credits can change the picture entirely. If those 5.0% dividends are fully franked, their "grossed-up" value (the dividend plus the attached tax credit) is actually around 7.1%. For tax purposes, the Australian Taxation Office sees an income of 7.1% and an expense of 6.0%. The investment is now positively geared, generating a net taxable profit. This strategy allows an investor to benefit from both positive cash flow (after tax) and the potential for long-term capital growth.

A Word of Warning
Positive gearing can improve your cash flow and reduce your risk. However, you must be cautious of products that sound too good to be true.

In the past, we have seen structured investment products marketed aggressively on the promise of positive gearing. In one infamous example from before the Global Financial Crisis, a well-known institution encouraged clients to borrow from one arm of its business at 9% per annum to invest in another arm that offered a "guaranteed" 12% annual return.

What could possibly go wrong? The answer was in the fine print. The "guarantee" was, in fact, discretionary. After a few months, the institution simply stopped the 12% income payments but continued to charge clients the 9% interest on their loans. There was nothing the clients could do but pay the interest and wait years to get their original capital back.

The lesson is timeless: always do your own due diligence, read the fine print, and be deeply sceptical of anything that promises a high return with no risk. If a deal seems too good to be true, it almost certainly is. Sticking with quality, transparent assets like publicly-listed shares or well-located property is always the most prudent path.

Welcome to our e-book on estate planning.

Broadly speaking, estate planning is the process of arranging for the management and transfer of your assets in anticipation of your death or incapacitation. It’s really about ensuring your wealth and your wishes are handled exactly as you'd want. While most people think of it as just preparing a Will, a truly effective estate plan is much more comprehensive.

A Will is certainly a cornerstone document, but modern estate planning also looks at what happens if you're unable to make decisions for yourself. This involves considering documents like Powers of Attorney. Furthermore, in our increasingly digital world, it also means planning for your digital footprint – everything from social media profiles to cryptocurrency. 🪙

Beyond that, a complete plan considers other significant assets like your superannuation benefits, family businesses, investments held in structures like family trusts, and property you own as a joint tenant. Each of these is governed by different rules and won't necessarily be covered by your Will.

This e-book will walk you through all the major areas of estate planning. We hope you find it helpful, and as ever, please feel free to share a link to this e-book with anyone you think would benefit from having a good read!

A Will is a legal document that outlines your wishes for what happens to your property after you pass away. It is signed by you, the 'testator' or 'Will maker'. For most people, the Will is the most important document in their estate plan. However, this isn't always the case. If you have structured your affairs smartly for asset protection, you may find that you personally own very few assets. The bulk of your wealth might be held in structures like trusts or super funds.

Only assets that you own personally are controlled by your Will. Assets held in superannuation funds or family trusts are not part of your personal estate and are not directed by your Will. These must be considered separately as part of your overall estate plan.

Testamentary capacity

To make a valid Will, a person must have “testamentary capacity”. If a Will is made by someone lacking this capacity, it can be declared invalid. Generally, testamentary capacity means the Will maker is over 18, of sound mind, and understands the nature and effect of creating a Will. This isn't usually an issue for most, but with an ageing population and a greater prevalence of conditions affecting cognitive function, like dementia, it's becoming a more frequent concern.

If a Will is made by an older person, or someone with a known health condition, there's a higher chance it could be challenged later on the grounds of a lack of capacity. To guard against this, it is wise to take steps to prove capacity at the time the Will is signed. This might include obtaining a formal assessment from a doctor, particularly one who specialises in aged care, confirming the Will maker's mental state and their understanding of the document they are signing.

Formal requirements to create a valid Will

For a Will to be valid, it must be in writing, and properly signed and witnessed. Traditionally, this means the Will maker must sign the document in the physical presence of two independent adult witnesses, who then also sign the Will. These witnesses cannot be beneficiaries in the Will, nor can their spouses, as any gift to a witness (or their spouse) would be void. This is why relatives are typically not suitable witnesses. The witnesses are there to confirm that they saw the Will maker sign the document; they don't need to read the contents of the Will itself.

In a significant modern development, many states now have permanent provisions allowing for Wills to be witnessed remotely using audio-visual technology (like a video call). These rules were widely introduced during the COVID-19 pandemic and have since been made lasting. While this provides flexibility, the traditional method of signing in person remains the gold standard for minimising the risk of a future challenge.

What happens if a Will is not valid?

If a Will is found to be invalid for any reason, the law will first look for the most recent, valid Will made previously, and that will be used to administer the estate.

If no valid Will exists, the person is said to have died 'intestate'. The estate is then distributed according to a statutory formula set out in state law. These rules typically direct the estate to the deceased's spouse, children, and other close relatives. Sometimes, a Will might be valid but fails to deal with all of the person's assets. This is known as a 'partial intestacy', and the statutory formula applies only to the assets not covered by the Will.

The possibility of a Will being invalid can also give a disgruntled person leverage to challenge it, as an executor might prefer to settle a claim rather than risk having the entire Will thrown out in court.

Clearly, none of these outcomes reflect the wishes of the Will maker. It is therefore vital to ensure your Will is properly prepared and validly executed.

Executing a new Will revokes the old one

When you sign a new Will, it automatically revokes (or cancels) any previous Wills you have made. While most Wills include a specific clause like, “I hereby revoke all former Wills and testamentary dispositions,” this isn't strictly necessary, as the act of making the new one is enough.

Even so, it is good practice to physically destroy any old Wills and all copies to avoid any confusion after your death.

Some basic rules for executing a Will

• The Will maker should read the final document carefully to ensure it perfectly reflects their wishes.
• The Will maker must sign and date the Will in the presence of two adult witnesses.
• The witnesses must not be beneficiaries or the spouse of a beneficiary.
• The witnesses should then sign each page and print their full name, address, and occupation on the final page.
• Everyone should use their normal signature and, ideally, sign with the same pen.
• Do not make any handwritten changes to the final document. If a last-minute alteration is needed, it's best to have the solicitor prepare a fresh version.
• The original Will should be kept in a safe place, unbound and unmarked. It's also helpful to let your executor know where it is.
• Consider preparing a separate list of digital assets (like online accounts, passwords, and digital photos) and instructions for your executor on how to manage them.

Simple Wills for couples

A very common type of Will for a couple is one where each partner leaves their entire estate to the other. If their partner does not survive them, the estate then passes to their children in equal shares.

For those with straightforward family situations and finances, a 'simple Will' like this is often a sensible and cost-effective approach. Assuming each partner appoints the other as their executor, the main questions to resolve are:

1. If my partner doesn't survive me, who should be the 'reserve' executor to manage my estate?
2. If we both pass away, who should be the guardian of our children under 18?
3. If neither our spouse nor our children survive us, who should inherit our estate?

The answers to these questions are deeply personal.

Reserve executor

The 'reserve' executor should be someone you trust implicitly. It is often wise to appoint two or more people to act jointly, such as a trusted sibling and a good friend. This provides a valuable check and balance. If your children are young, the role of executor also becomes that of a trustee, managing their inheritance until they reach a certain age. In this case, choosing someone with financial sense is a good idea.

Crucially, the guardian and the trustee (executor) should not be the same person. This avoids a potential conflict of interest where the person looking after the children also has sole control over their money. Separating these roles protects the children's inheritance.

Who should be the guardian?

We often suggest that the most natural guardians are the children's aunts and uncles. A common approach is to appoint the siblings from both sides of the family to act jointly as guardians. This allows the family members who are best placed at the time to decide amongst themselves who will take on the day-to-day care of the children. It avoids the problem of nominating one specific person who, by the time they are needed, may be living overseas or be otherwise unable to take on the role.

Remember, the simultaneous death of both parents is a very rare event. In most cases, there is time to update a Will if circumstances change. For the vast majority of families, appointing the siblings of both parents is a robust and sensible strategy.

Who should benefit if no spouse or child survives?

This is what's known as the 'ultimate beneficiary' clause, and it deals with a highly unlikely scenario. You need to decide who would inherit your estate if your entire immediate family were to pass away. Common choices include parents, siblings, nieces and nephews, or a favourite charity. What's important is to have a plan in place. It's better to have a good Will that covers this remote possibility than to have no Will at all because you are undecided on this one point. You can always update it later.

What assets are controlled by a Will?

A Will only deals with assets you own in your personal name. It's critical to understand what this does and does not include.

• Assets owned as 'Joint Tenants': These are not controlled by your Will. The family home is often owned this way by couples. When one joint tenant dies, their share automatically passes to the surviving joint tenant(s), regardless of what the Will says. This is known as the 'right of survivorship'.
• Assets owned as 'Tenants in Common': Your share in an asset owned this way is controlled by your Will. When you die, your portion passes to your beneficiaries according to your Will.
• Assets in a Family Trust: These are owned by the trust, not by you personally, so they cannot be gifted in your Will. Your estate plan needs to address who will take control of the trust.
• Assets in a Superannuation Fund: Super is also held in a trust structure and is not controlled by your Will. We discuss this in detail in a later chapter.

This shows that effective estate planning must look beyond the Will and consider how all your assets are owned.

Who should be the executor?

Choosing your executor is one of the most important decisions you will make. This person (or persons) is responsible for carrying out your wishes, paying your debts, and distributing your assets. Here are some key qualities to look for:

What happens if you die without a Will?

If a person dies without a valid Will, they are said to have died intestate. Each state has laws that dictate how the assets will be divided, essentially following a statutory family tree.

The urban myth that 'the government gets everything' is almost always untrue. The state only inherits if there are absolutely no living relatives, no matter how distant.

The rules vary between states, but as an example, under the Succession Act 2006 (NSW), the distribution is generally as follows:

• If you have a spouse, but no children: Your spouse inherits the entire estate. A 'spouse' includes a de facto partner.
• If you have a spouse and children of that relationship: Your spouse still inherits the entire estate.
• If you have a spouse and children from a previous relationship: This is more complex. Your spouse is entitled to your personal effects, a statutory legacy (a set amount, which is indexed regularly and is currently over $490,000), and half of whatever remains. Your children from the previous relationship share the other half of the remainder.
• If you have children, but no spouse: Your children share the estate equally. If a child has already passed away, their own children (your grandchildren) inherit their parent's share.
• If you have no spouse or children: The estate passes to your parents, then siblings, then grandparents, and so on, following a set order of next of kin.

There are obvious problems with relying on these rules. The process of administering an intestate estate is more complex and costly. Most importantly, the rigid formula is unlikely to match what you would have wanted. For example, most people with children from different relationships would want to design a more tailored outcome than the one prescribed by law. Making a valid Will is the only way to ensure you decide who gets what.

Many people use discretionary trusts, often called family trusts, to hold business assets or investments. A fundamental principle of a trust is that its assets are not owned by any individual person. This means they cannot be gifted in your Will.

This separation is precisely why trusts are so effective. They help protect family wealth from business risks or the personal financial troubles of a family member, and they allow for that wealth to be passed down through generations. Because you don't 'own' the assets in the trust, they are not part of your personal estate to be dealt with by your Will upon your death.

So, how do you ensure the family wealth held in a trust goes to the right people? The answer lies not in gifting the assets, but in passing on control of the trust itself.

Who controls the assets in a trust?

The key to a family trust is not who owns the assets (the trustee does, on behalf of the beneficiaries), but who holds the ultimate power. This power usually rests with a person known as the "Appointor".

The Appointor has the critical power to appoint and remove the trustee. By controlling who the trustee is, the Appointor effectively controls the trust. While the name "Appointor" is most common, some older trust deeds might use other terms like "Guardian," "Protector," or "Principal" to describe this role.

The trust deed is the rulebook for the trust. It will specify who the current Appointor is and, most importantly, what happens to the role if the Appointor dies, loses mental capacity, or wishes to retire. Every trust deed is different, so the first step in your estate plan must be to review the deed carefully.

Some deeds contain automatic succession clauses, naming a successor Appointor directly within the document. More commonly, the deed will outline a process for the current Appointor to nominate their successor.

The Solution: Passing on Control

Since the trust assets themselves can't be included in your Will, your estate plan must focus on ensuring the role of Appointor passes smoothly to the person or people you want to take over.

Where the trust deed allows it, a common and effective strategy is to nominate the next Appointor in your Will. This integrates the succession of your trust with the rest of your estate plan.

For example, your Will can include a specific clause that exercises your power of appointment and nominates your chosen successor(s). Typically, you might nominate the executor(s) of your Will to also become the Appointor(s) of the trust. If your Will establishes a testamentary trust for your children, you might nominate the trustee of that trust to be the new Appointor.

It is absolutely vital to understand what this does and does not do:

• It DOES pass the ultimate control of the trust to your chosen successors.
• It DOES NOT merge the trust's assets with your personal estate.

The trust remains a separate entity and must continue to be administered according to its own deed for the benefit of its beneficiaries. Your successor Appointor simply steps into your shoes, gaining the power to supervise the trust and ensure it is managed properly for the family's future benefit.

Getting this wrong can have serious consequences, potentially leading to the 'wrong' person gaining control of significant family assets or resulting in expensive and stressful legal battles. As trust deeds can be complex, this is an area where seeking expert legal advice is not just recommended, but essential.

Superannuation is another area that is often misunderstood in the estate planning process. A common mistake is to assume your super will automatically be paid out according to the terms of your Will. This is not the case.

Your superannuation is held in a trust environment. When you die, it is the trustee of your super fund—not your Will—who determines how your remaining super benefit is paid out. Unless you have given them a specific, binding direction, the trustee has the discretion to pay the benefit to either your estate or directly to one or more of your eligible dependants.

In making their decision, the trustee will consider various factors, including the nature of your relationships, the financial needs of potential beneficiaries, and any other claims on your benefit. While they will usually try to respect your wishes, problems can arise, especially in cases involving blended families, multiple relationships, or conflict between your children.

Fortunately, there are ways to take control and ensure your super goes exactly where you want it to.

Taking Control: Death Benefit Nominations

The primary tool for directing your super death benefit is a death benefit nomination. There are a few different types:

• Non-Binding Nomination: This is simply a guide for the trustee. You are expressing a preference, but the trustee is not legally required to follow it. They retain the final say.
• Binding Death Benefit Nomination (BDBN): This is a formal, written direction to the trustee. If your BDBN is valid, the trustee must pay your benefit to the person(s) you have nominated. It removes the trustee's discretion.

For members of most large retail and industry super funds, a BDBN is typically 'lapsing', meaning it expires after three years. You must remember to renew it, otherwise it becomes non-binding and the trustee's discretion is restored.

For members of a Self-Managed Super Fund (SMSF), the fund's trust deed can allow for a non-lapsing BDBN, which remains valid indefinitely unless you actively change or revoke it.

A BDBN can be challenged and found invalid if, for example, the fund's deed doesn't permit it, it wasn't signed and witnessed correctly, or the person nominated is not an eligible beneficiary.

Taking Control: Reversionary Pensions

If you are already retired and receiving a pension from your super fund, you have another powerful tool available: a reversionary pension.

When you start a pension, you can nominate a 'reversionary beneficiary' (who must be an eligible dependant, usually your spouse). If you do this, upon your death, your pension balance does not form a 'death benefit'. Instead, the pension payments simply switch over and continue to be paid to your nominated beneficiary automatically.

This is a seamless transfer that operates independently of your Will and any BDBN you may have in place for other super accounts. It is a very effective estate planning strategy for couples.

Who Can Receive a Super Death Benefit?

Here we have a crucial distinction. The law defines who is eligible to receive a super benefit, and separately, it defines who can receive it tax-free. They are not the same.

A death benefit can only be paid to a 'superannuation dependant' or to your estate. A super dependant includes:

• Your spouse (including a de facto partner)
• Your child (of any age)
• A person in an interdependency relationship with you
• A person who was financially dependent on you at the time of death

Notice that a child of any age can receive a super death benefit. However, for tax purposes, the definition is much narrower. A benefit is only tax-free when paid to a 'tax dependant':

• Your spouse (including a de facto partner)
• Your child who is under 18 years old
• A person in an interdependency relationship with you
• A person who was financially dependent on you at the time of death

The key difference is that an adult child who is financially independent is not a tax dependant. This has major tax consequences.

The Tax on Super Death Benefits

The tax treatment of your super death benefit depends entirely on whether it is paid to a 'tax dependant' or a 'non-tax dependant' (like an adult, independent child).

This tax can significantly reduce the inheritance received by your adult children. Strategic planning, such as withdrawing funds from super before death where possible, or timing the use of a BDBN, can sometimes help manage this tax, but requires careful advice.

Asset Protection and Other Issues

Beyond tax, you should also consider asset protection. If you know a beneficiary is going through financial difficulty, bankruptcy, or a marital breakdown, paying a large lump sum directly to them from your super fund may be unwise. The money could be lost to creditors or become part of a family law settlement.

In these situations, a better strategy might be to use a BDBN to direct your super benefit to your estate. Then, your Will can specify that this inheritance is to be held in a protective testamentary trust for that beneficiary's benefit, shielding it from their personal risks. This shows how your superannuation strategy and your Will need to work together seamlessly.

Your life is not static, and neither is your family situation. Getting married, entering a new partnership, separating, or divorcing are all major life events. Each one has a direct and significant legal impact on your estate plan. Failing to update your Will and other documents after a change in your personal life can lead to your assets ending up in the wrong hands.

Starting a New Relationship: Marriage & De Facto Partnerships

When you commit to a new partner, it's a time of optimism and new beginnings. It must also be a time to review your estate plan.

If you are getting married

In Australia, the act of getting married automatically revokes your entire Will. The only exception is if your Will was specifically made 'in contemplation' of that particular marriage.

This means if you have a Will from before your marriage (perhaps leaving assets to your parents or siblings), it becomes void the moment you are married. If you were to pass away without making a new one, you would be considered 'intestate', and your estate would be distributed according to the statutory formula, which may not be what you intended.

The rule is simple: if you get married, you must make a new Will.

If you enter a de facto relationship

Entering a de facto relationship does not automatically revoke your Will. However, after a certain period of time (which varies by state, but is often two years, or less if you have a child together), your de facto partner gains significant rights. They would be recognised as an eligible person to make a claim against your estate for provision if they were not adequately provided for in your Will.

Therefore, when a new relationship becomes serious, it is just as important for de facto partners to review and update their Wills to reflect their new circumstances and wishes.

Blended Families: Balancing Competing Interests

Blended families are a wonderful and common feature of modern life, but they create unique estate planning challenges. A frequent dilemma is how to provide for your new spouse while also ensuring your children from a previous relationship are looked after.

A simple Will leaving everything to the new spouse can be problematic. If you pass away first, your assets go to your new spouse. When they later pass away, their own Will would dictate where those assets go—which may mean your children receive nothing.

Expert advice is essential to navigate this. Strategies to fairly balance these competing interests often include:

• Life Interest or Right to Reside: Your Will can grant your surviving spouse the right to live in the family home for their lifetime (a 'life interest') or for a specified period. After they pass away or the interest ends, the house itself is then passed to your children.
• Testamentary Trusts: You can create a flexible trust in your Will. This can be structured to provide an income stream or capital for your surviving spouse during their lifetime, with the balance of the trust assets being protected for your children to inherit later.

li>Mutual Wills: A couple can make a binding agreement to create Wills with specific terms that cannot be changed after the first person dies. This can provide certainty but can also be very rigid.

These situations require open conversations and careful legal drafting. Our role is to help you explore these options with sensitivity and find a solution that protects all the people you care about.

The End of a Relationship: Separation & Divorce

Just as starting a relationship impacts your Will, so does a relationship ending.

Separation

When you separate from a spouse or de facto partner, it has no automatic effect on your Will.

This is a critical point that many people miss. Even if you have formalised a property settlement, your existing Will remains valid. If that Will leaves assets to your former partner, they will still inherit them if you were to pass away before finalising your divorce and making a new Will. It is vital to update your Will as soon as you separate.

Divorce

In the past, divorce did not automatically change a Will. That is no longer the case.

Today, the law in most Australian states says that when you get a divorce, your Will is read as if your former spouse had died before you. This means:

• Any gift you left to your former spouse is automatically revoked.
• Any appointment of your former spouse as an executor, trustee or guardian is also revoked.

While this new rule provides a safety net, you should not rely on it. It is still best practice to make a new Will immediately after your divorce is finalised. This is because the automatic revocation only applies to your ex-spouse. It may not remove their family members whom you may also no longer wish to benefit. Furthermore, if your Will appointed your ex-spouse as the main executor and beneficiary without naming adequate backups, revoking their provisions could lead to a partial intestacy.

A new Will provides certainty and allows you to build a fresh estate plan that reflects your new life.

The family home is more than just an asset; it's a place of memories and often the cornerstone of a family's wealth. How you plan for its future depends entirely on how it is owned. Ownership can be by a single individual or by multiple people as co-owners.

Individually-Owned Homes

If you own your home in your sole name, it forms part of your estate when you die. It will be dealt with according to the instructions in your Will. For example, if your Will states that your estate is to be divided equally between your children, they will inherit the home together. They can then decide whether to sell the property and share the proceeds, or to keep it, perhaps as a shared investment.

Co-owned Homes

There are two ways for multiple people to co-own property in Australia. The method of co-ownership is critical, as it determines what happens when one owner passes away.

Joint Tenancy

This is the most common form of ownership for couples. The defining feature of a joint tenancy is the 'right of survivorship'.

When one joint tenant dies, their interest in the property automatically passes to the surviving joint tenant(s). This happens by operation of law, regardless of what is written in the deceased's Will. The property does not form part of the deceased's estate.

For estate planning, this means that while a joint tenant is alive, their 'share' cannot be gifted to someone else in their Will. However, it's still essential to have a Will, because you might outlive the other joint tenant(s) and become the sole owner, at which point the property would form part of your estate.

In the rare event that joint tenants die at the same time (for example, in an accident), the law generally deems the older person to have died first. This means the property passes momentarily to the younger joint tenant, and is then distributed according to the younger person's Will. This can have unintended consequences if the joint tenants have different wishes for their estates.

It's also possible for one joint tenant to 'sever' the joint tenancy without the other's consent, converting the ownership to a tenancy in common. This is a powerful tool if circumstances change—for example, in a relationship breakdown—as it allows your share to be directed by your Will rather than automatically going to the other owner.

Tenants in Common

Under a tenancy in common, the right of survivorship does not apply. Each co-owner holds a distinct, transferable share of the property (e.g., 50/50, or any other proportion).

This share does form part of your estate and is distributed according to your Will. This form of ownership is common for business partners or family members (other than couples) who purchase property together. It provides certainty that each owner's share will pass to their own chosen beneficiaries.

Tax Treatment of an Inherited Home

Generally, if you inherit a person's main residence, there are favourable tax rules. If the executor sells the home within two years of the person's death, any capital gain is usually disregarded, and no Capital Gains Tax (CGT) is payable. The Commissioner of Taxation has the discretion to extend this two-year period if the delay in selling is for reasons outside the executor's control.

If you inherit the home and decide to keep it, you are generally taken to have acquired it for its market value at the date of death. When you eventually sell it, CGT will be calculated based on the change in value from that date. If you live in it as your own main residence, you may be able to claim the full main residence exemption yourself. The tax rules for deceased estates can be complex, and professional advice is always recommended.

Specific Issues to Consider

Second and Subsequent Marriages

As we saw in the last chapter, marriage revokes a prior Will. This is a critical issue for blended families. If you own your home before entering a second marriage and intend for it to go to your children, your marriage will void the Will containing those wishes. It is essential to create a new, carefully drafted Will as part of the process of getting remarried to ensure both your new spouse and your children are provided for as you intend.

Residential Aged Care and the Family Home

Moving into residential aged care is a significant life event with major financial and estate planning implications for the family home.

• Aged Care Means Test: How the family home is treated for the government's means test depends on who is living there. The value of the home is generally exempt from the assets test if a 'protected person' (like a spouse or dependent child) continues to live there. If not, it will be included in the assessment, which affects the cost of care.
• Funding Aged Care: A major decision is whether to keep or sell the home to fund the accommodation costs, often paid as a large lump sum called a Refundable Accommodation Deposit (RAD).
• Impact on the Estate: This decision has a huge impact on your estate. If the home is kept, it passes to your beneficiaries as real estate. If it is sold to pay a RAD, what remains in your estate is the RAD balance, which is returned as cash after you pass away. This can unintentionally alter who gets what, especially if your Will gifts the 'house' to one person and your 'cash' to another.

Planning for aged care should always be done in conjunction with a review of your estate plan to ensure the two are working together.

Intergenerational Financial Planning and the Family Home

As its name suggests, intergenerational financial planning (IFP) aims to treat a family as what it so often is – a single, vertically-integrated economic unit. Most people naturally think across the generations when it comes to their wealth, and it’s only right that financial advice reflects this reality.

This is especially true when we consider the family home. According to the Australian Bureau of Statistics, our homes account for around 47% of all Australian household wealth. What’s more, while the dream of homeownership remains central to our culture, the path to achieving it has changed. Today, around two-thirds of Australians live in a home they own (with or without a mortgage), but this figure varies significantly between age groups. Put simply, homes are the cornerstone of financial security and aspirations for most of us.

We believe every client is a candidate for intergenerational thinking. We always take a little extra time with our clients to understand more about them, their perspective on life, and their relationships with family. The purpose isn’t purely social; this understanding often uncovers important facts, hopes, and attitudes that we can blend into our advice, making our strategies more personal and effective.

This eBook discusses one of the most significant elements in IFP: housing. Given the ongoing challenges of housing affordability and the shifting economic landscape, we think this is the perfect time to discuss how your home can be managed when thinking about the transfer of wealth across generations.

We'll explore three key aspects of the family home: how to manage it in retirement, how to help your adult children (or even your parents) purchase their own home, and how to manage the property upon entry into the aged care system.

The Family Home and Retirement Planning

One of the key benefits of the family home is that its value is exempt from the assets test used to determine your eligibility for the Centrelink Age Pension. Furthermore, if you need to move into an aged care facility, the home continues to receive special treatment. For the aged care means test, only a capped portion of the home's value is counted in the assets test, and it is exempt entirely if a 'protected person' remains living there.

These rules often provide a strong reason for older Australians to hold onto the family home, even after they have moved into residential aged care.

The Great Wealth Transfer

In 2021, the Australian Government's Productivity Commission released a landmark report, 'Wealth transfers and their
economic effects'. It confirmed what many of us have suspected: Australia is on the cusp of the largest intergenerational wealth transfer in its history.

The report found that inheritances are expected to quadruple in real terms by 2050. The wealth of older generations, largely built on the back of the property market, is now beginning to pass to their children and grandchildren. However, this transfer is happening later in life. The average age to receive an inheritance is now in the late 50s, long after many of the major costs of raising a family have been met.

This creates a fascinating dynamic: a significant transfer of wealth is coming, but its timing might not be ideal for recipients. This makes proactive, intergenerational planning more important than ever.

Inheritances upon Death – Estate Planning and the Family Home

The first thing to note is that a family home doesn't automatically form part of a person's deceased estate. The way a property is owned is key. Most couples own their home as ‘joint tenants’. This ownership structure includes a ‘right of survivorship’, which means when one owner dies, their share of the property automatically passes to the surviving joint tenant(s). The property only becomes part of an estate when a single, final owner passes away.

The main alternative is ‘tenants in common’. Under this structure, each person owns a distinct, separate share of the property (e.g., 50/50 or 70/30). This share does not automatically pass to the other owners. Instead, it can be gifted to anyone through the owner's will. Understanding the difference is fundamental to good estate planning. For a clear explanation of these two ownership types, this video from Legal Aid in New South Wales is a helpful resource:

Capital Gains Tax (CGT)

As long as a home was the principal place of residence of the deceased, there is generally no CGT payable when the property is transferred to beneficiaries or sold as part of the deceased estate.

The Australian Taxation Office (ATO) provides a two-year window after the owner's death for the beneficiaries or executor to sell the property without incurring CGT. It's possible to apply for an extension to this period in certain circumstances.

Furthermore, the principal place of residence exemption is quite flexible. If you move out of your home (for example, to travel, work elsewhere, or move into care), you can continue to treat it as your main residence for CGT purposes for up to six years if you rent it out, or indefinitely if you do not. The crucial rule is that you cannot claim another property as your main residence during that time. This can be particularly valuable if an older person needs to live with relatives for a period before moving into formal aged care.

Targeting the Inheritance

Sometimes, clients wish to leave specific assets to particular beneficiaries. A common scenario involves an adult child with a disability who has always lived in the family home. In these cases, parents might choose to leave the home directly to that child, while other assets, like shares or superannuation, are left to their other children. This is a powerful estate planning tool, but it requires careful thought to ensure the outcome is both fair and practical for everyone involved.

What to do with the Inheritance?

When a home is inherited, it can ultimately be kept or sold. If it's kept, a beneficiary might choose to live in it, making it their new principal place of residence and continuing its CGT-exempt status.

Alternatively, it can be kept as an investment. If the home is a typical residential property, holding onto it can be a sound financial decision. According to the 2024 Vanguard/Russell Investments ASX Long-Term Investing Report, the 20-year average return on Australian residential property to 31 December 2023 was 9.6% per annum. This return was remarkably similar to that of Australian shares (9.3% p.a.) over the same period, highlighting property's strong performance as an asset class.

Whether a home is kept often depends on the number of beneficiaries. As you'd expect, the more people who inherit a single property, the harder it can be to keep it. The beneficiaries would need to agree to become co-owners, which requires them to have similar goals and financial circumstances.

Keeping the home is most common when there are few beneficiaries. A sole inheritor simply makes their own decision. If there are a few beneficiaries, they might become co-owners. Another popular option is for one beneficiary to ‘buy out’ the share of the others, allowing one person to keep the family property while the others receive their inheritance in cash. This requires careful negotiation and valuation to ensure a fair outcome for all.

Timing the Inheritance

Most inheritances are received later in life. The Productivity Commission's research shows a clear trend: the probability of receiving an inheritance peaks when people are in their late 50s and early 60s.

What this tells us is that while inheritances are growing larger, they are typically arriving after the most financially demanding years of life—such as raising children and paying off a first home—have passed. This delay highlights a core challenge in modern financial planning: how can the wealth of one generation be used to help the next when they need it most? We will explore exactly this in the next chapter.

Assisting Younger Generations to Buy a Home

As we established in the introduction, the great wealth transfer typically happens after the recipient has passed their 50th birthday. By this age, they are often well past their peak expense years – the period when they are raising children and establishing their lives. The costs associated with raising children are significant, meaning cash flow is often tightest in a person's 30s and 40s.

Unfortunately, inheritances, when they come at all, usually arrive long after the children have grown up and flown the nest.

So, how helpful would that financial boost be if it could be received earlier in life – when it's most needed, but before the benefactor has actually passed away?

For this reason, a growing number of our clients are looking for practical ways to help their adult children buy a home now. The most common strategies include:

• Buying a home in conjunction with a child;
• Providing a guarantee for a loan;
• Utilising interest offset accounts;
• Gifting money for a deposit; or
• Making a 'soft loan' that is documented legally.

We'll discuss each of these in more detail.

Buying a Home in Conjunction with a Child

In some cases, parents and children choose to buy a home as co-owners. Typically, the parents might contribute to the deposit, assist with the loan repayments, or use the equity in their own home to make the purchase possible.

This strategy can be a fantastic way to get a younger person onto the property ladder, but it's not for everyone. The child ends up owning a share of a home, not the whole thing. For some, half a home is infinitely better than no home. For others, it might be less than they need or want. It's important to have a frank conversation about long-term intentions from the outset.

The strategy works best when family dynamics are clear and straightforward, for example, with an only child. In this situation, owning the property as joint tenants can be a good option. As we mentioned earlier, this means when one owner passes away, their interest automatically transfers to the other.

Alternatively, the property can be owned as tenants in common, where each party's share is legally separate and can be dealt with in their will. The decision of which ownership structure to use has significant legal and financial consequences, and you should always seek legal advice on this matter.

Guaranteeing a Loan

It's an open secret that a large percentage of first-home buyers receive parental help, and one of the most powerful forms of assistance is a family guarantee. Most major banks offer a 'Family Pledge' or 'Family Guarantee' loan.

These loans allow a family member (usually a parent) to use the equity in their own home as additional security for a child's loan. This can help the child borrow a higher amount or, more commonly, avoid the significant cost of Lenders' Mortgage Insurance (LMI), which is usually charged on loans with a deposit of less than 20%.

While this can be a very effective strategy, it's vital that the guarantor understands they are taking on a real financial risk. If the borrower defaults on the loan and the property has to be sold for less than the outstanding debt, the bank can call on the guarantor to cover the shortfall up to the amount they have guaranteed.

This risk diminishes over time as the loan is paid down and the property increases in value. However, it's a commitment that should only be made with a full understanding of the potential consequences.

Utilising Interest Offset Accounts

An offset account is a transaction account linked to a home loan. The balance in the offset account is deducted from the loan balance before interest is calculated. For example, on a $500,000 loan, a $50,000 balance in an offset account means you only pay interest on $450,000, which can save a huge amount of interest and shorten the life of the loan.

Some lenders allow parents to link their savings account to their child's mortgage as an offset account. This allows the child to get the full benefit of the interest saving, while the parents retain complete control of and access to their own money. The family as a whole is much better off, as the interest saved on the child's non-deductible home loan (e.g., 6.0%) is far greater than the interest the parents would have earned on their savings (e.g., 2.5%, which is also taxable).

It's critical to note that for this to work, the offset account is typically in the same name as the loan holder (the child). To protect the parents' money, a simple legal agreement, such as a Declaration of Trust, should be drawn up. This document makes it clear that while the money is in an account in the child’s name, it is legally the property of the parents. This is essential for protecting the funds in the event of a relationship breakdown or other unforeseen circumstances.

Gifts or Soft Loans

The most direct way to help is to provide cash for a deposit. This can be a gift or a loan.

A gift means the money becomes the legal property of the child. If that child is in a relationship, the gift may become part of the relationship's assets and could be subject to division in a family law settlement.

A 'soft loan', on the other hand, remains the property of the parents. This is a loan where the terms are favourable – for example, it might be interest-free and only repayable when the property is sold. The fact that the money is a loan provides significant protection. It must be properly documented in a formal loan agreement, and for maximum protection, it can even be secured via a mortgage registered against the property's title.

The Importance of Written Agreements

While we may see our family as a single unit, the law does not. Any time significant sums of money are transferred between family members, the arrangement should be documented in a written legal agreement. This isn't about a lack of trust; it's about creating clarity and protecting everyone from unintended consequences down the line, particularly relating to tax, Centrelink, or potential relationship breakdowns.

Superannuation and the Family Home

Ultimately, a home must be bought with after-tax dollars. This means the tax you pay has a direct impact on how long it takes to save a deposit. The less tax you pay on your income, the less you need to earn to save the same amount.

The following table shows how much pre-tax income is required to save $50,000, depending on the tax rate applied.

(Note: Tax rates are indicative for the 2025-26 financial year, including the 2% Medicare Levy)

The 15% tax rate is what's paid on concessional superannuation contributions. As you can see, saving inside the low-tax super environment can dramatically reduce the amount of pre-tax income needed. Recognising this, the government created a specific mechanism to help people do just that.

The First Home Super Saver (FHSS) Scheme

The best strategy for most first-time savers is the FHSS scheme. This allows an individual to make voluntary contributions to their own superannuation fund to save for their first home.

You can contribute up to $15,000 per year.

The total amount you can contribute and withdraw is $50,000 (plus associated earnings).

Contributions can be made before-tax (like salary sacrifice) or after-tax. The pre-tax contributions are taxed at only 15% inside the fund, providing a significant tax saving for most people.

When you're ready to buy, you apply to the ATO to withdraw the funds. The withdrawn amount is taxed at your marginal rate, less a 30% tax offset, resulting in a favourable tax outcome.

Case Study: Chloe uses the FHSS Scheme

Chloe earns $90,000 a year and wants to save for a deposit. Her marginal tax rate is 32% (including Medicare). She decides to salary sacrifice $15,000 into her super fund for the FHSS scheme.

This only reduces her take-home pay by $10,200 for the year ($15,000 less her 32% tax saving).

Inside her super fund, the contribution is taxed at 15%, so $12,750 is added to her FHSS balance.

In just one year, she has turned $10,200 of take-home pay into $12,750 towards her deposit—a $2,550 boost from the tax saving alone.

If she does this for just over three years, she can reach her $50,000 cap and will be well on her way to a deposit, having saved far more quickly than if she had saved outside of super.

The FHSS scheme is the most powerful tool available for the younger generation to accelerate their savings, and it should always be the first port of call.

The decision of what to do with the family home is often the most significant and emotionally charged part of planning for a move into residential aged care.

At our practice, we recognise the family home as the cornerstone of most people’s wealth and a place filled with irreplaceable memories. For this reason, our starting point is that the home should be retained whenever possible, and we explore every avenue to make this happen if it aligns with your wishes.

That said, no two clients are the same. Each person's financial position, family situation, and personal preferences are unique, and the right choice depends entirely on these individual circumstances. In some cases, selling the home is clearly the most sensible and beneficial path forward.

The following sections discuss the interplay between the family home and aged care planning. We will walk through the general themes, benefits, and drawbacks that need to be carefully considered when you are planning for this next stage of life.

There are many potential benefits of retaining a family home when moving into residential aged care. These include:

• Reducing your assessable assets for the means-tested care fee calculation, as the value of the home is capped for this purpose.
• Retaining an asset from an asset class that has, as we saw in the introduction, traditionally performed as well as or better than most other asset classes over the long term.
• Retaining the ability to borrow against the home (for example, through a reverse mortgage or equity release loan) to fund care costs.
• Keeping the option to derive rental income from the home to help cover expenses.
• Maintaining exposure to the property market and potential capital growth, which is particularly relevant for longer stays in care.
• Keeping your wealth in an investment that is generally free from Capital Gains Tax.
• The significant personal and emotional wellbeing that comes from knowing the family home has been kept.
• Ensuring the home remains available for inheritors, which may be an important part of your family's long-term plan.

There are also powerful potential benefits of selling a family home when moving into aged care. These include:

• Providing the cash to pay the Refundable Accommodation Deposit (RAD) as a lump sum, which is required by many people entering care.
• Achieving a high effective rate of return by paying the RAD. By paying the RAD, you avoid having to pay the Daily Accommodation Payment (DAP), which is calculated using the government-set Maximum Permississible Interest Rate (MPIR). As of the current quarter, this rate is 8.34% per annum. Paying the RAD is equivalent to investing your money for a guaranteed, tax-free return of 8.34%—a rate that is very difficult to achieve elsewhere with such low risk.
• Avoiding the potential complexities and costs of managing a tenancy or organising a reverse mortgage from within an aged care setting.
• Freeing up significant cash flow to be used for other lifestyle choices, such as paying for extra services, outings, or other comforts within the aged care facility.
• Simplifying your financial affairs, which can reduce stress for you and your family, especially where multiple people are involved in your financial decisions.

In determining what to do with your family home, there are a number of particular factors that should influence the decision. These are discussed in the following sections.

The Home is Usually the Major Asset

For most Australians, the family home is by far their most significant asset. By the time a person needs to move into aged care, any superannuation or other savings they had at retirement have often been drawn down to fund their life in the preceding years.

Recent data from the Australian Institute of Health and Welfare (AIHW) supports this. Their analysis shows that the vast majority of people entering permanent residential aged care receive some form of government support, with over 60% being on the full Age Pension. This tells us that most people have relatively few assets outside of the family home (which, as we know, is exempt from the Age Pension assets test).

Accordingly, the decision you make about your home will likely be the most important financial decision of your later life.

Frailty

A person contemplating a move into residential aged care is, by definition, frail. It is common and often necessary for at least one other person, usually a trusted family member, to be involved in their financial management.

This reliance on someone else requires a high degree of trust. It is not uncommon for children or grandchildren to begin seeing their older relative's assets as a future inheritance. While this is often unconscious, it can lead to conflicts of interest. The Office of the Public Advocate in Victoria provides clear guidance that family members do not have a right to an inheritance while their loved one is still living and that the older person's needs must always come first.

As professional advisers, our duty is clear. The law, and our own ethics, require us to act solely in the best interests of our client – the person moving into care. You can be sure that our advice will always represent our professional opinion on the best course of action for you.

Powers of Attorney

Ideally, an older person will have already appointed one or more trusted people to act for them under an Enduring Power of Attorney. This legal document empowers the nominated person (the 'attorney') to make financial and personal decisions on their behalf if they are no longer able to.

The key thing for any attorney to remember is that they have a strict fiduciary duty to act in the best interests of the person who appointed them. This means the older person’s financial security and wellbeing must take precedence over all other considerations, including the interests of future beneficiaries. You can find excellent, plain-English information on the responsibilities of an attorney on the website for your state's Public Advocate or Public Trustee.

The Length of Stay in an Aged Care Facility

One of the most challenging factors in this decision is that the length of stay in an aged care facility is unpredictable.

However, we can use data to make an informed estimate. According to the latest analysis from the AIHW, the average length of stay in permanent residential aged care for a person who enters and subsequently passes away in care is approximately 3 years.

Of course, this is just an average, and there is significant variation. The data shows:

• Around 25% of residents stay for less than 1 year.
• Over 20% of residents stay for more than 5 years.

Relatively long stays are common, and the system accounts for this. One key protection is the lifetime cap on the means-tested care fee. Once your payments reach this cap, you cannot be asked to pay any more of this specific fee for the rest of your life. As of 2025, this lifetime cap is around $85,000 (this figure is indexed annually).

The Presence of a ‘Protected Person’

The decision of whether to keep the home is often made for you if a 'protected person' will continue to live there after you move into care. A protected person generally falls into one of these categories:

1. Your spouse or partner.
2. A dependent child (under 16, or a full-time student under 25).
3. A carer who has lived in the home with you for at least the last two years and who is eligible for an Australian income support payment.
4. A close relative who has lived in the home with you for at least the last five years and who is eligible for an Australian income support payment.

If a protected person remains in the home, its value is completely exempt from all aged care means testing. In these situations, there is almost always a compelling financial and emotional reason to keep the family home.

The Absence of a Protected Person

Where there is no protected person living in the home, the decision becomes a purely financial and personal one. You and your adviser will need to carefully weigh the pros and cons discussed in the previous chapter to decide on the best path forward.

Capital Gains Tax (CGT)

One final factor worth remembering is that the CGT-free status of your family home is very generous. The principal place of residence exemption can continue for up to six years after you move out, provided you rent it out and do not claim another property as your main residence. If you do not rent it out, the exemption can continue indefinitely.

This means that for up to six years after you move into an aged care facility, the home can continue to grow in value without attracting any CGT. This valuable tax benefit should always be weighed against the alternative uses for the money if you were to sell the home.

There are three types of fees that will definitely apply to a homeowner moving into an aged care facility, and a fourth that may be optional. The three 'definites' are: the accommodation payment, the basic daily care fee, and the means-tested care fee.

The basic daily care fee is a standard amount paid by all residents (set at 85% of the single Age Pension) and is not affected by your assets, so we do not need to consider it here. This leaves two definite costs that will be directly affected by your decision about the family home.

The 'probable' fee is any 'extra' or 'additional' service fee charged by the facility for things like newspapers, special meals, or Foxtel. This is a separate arrangement with the provider.

In the section that follows, we will focus only on the two definite fees that are impacted by your decision to keep or sell the family home.

The Means-Tested Care Fee

This is a contribution towards the cost of your personal and clinical care, and it is determined by an assessment of your income and assets.

The family home is included in this assets test, but it receives special treatment. If there is no 'protected person' living in it, the value of the home included in the test is capped. As of today, that cap is $201,231.20. This figure is indexed twice a year.

This cap often creates a financial incentive to keep the home. While the home is kept, no more than $201,231.20 of its value is counted, no matter how much it is actually worth. If the home is sold, the entire net proceeds of the sale are counted in the assets test. For most properties, this significantly increases your assessable assets and, therefore, is likely to lead to a higher means-tested care fee.

Accommodation Costs

While the decision about the home may have a marginal impact on the means-tested care fee, its most fundamental impact is on how you pay for your accommodation.

Accommodation Costs – Deposit or Daily Payment?

Anyone who owns a home will almost certainly be asked to pay the full cost of their accommodation. These costs can be paid in two ways:

1. As a lump sum, called a Refundable Accommodation Deposit (RAD).
2. As a daily rental-style payment, called a Daily Accommodation Payment (DAP).

You can also choose to pay with a combination of both. The RAD is negotiated with the aged care provider, and the DAP is calculated directly from the RAD.

A Critical Figure – The Maximum Permissible Interest Rate (MPIR)

The DAP is calculated using an official interest rate set by the government, the MPIR. This is the single most critical figure in your decision. As of the current quarter (July-September 2025), the MPIR is 8.34% per annum.

A resident moving into care can either pay the RAD as a lump sum or pay a DAP equivalent to 8.34% of the outstanding RAD amount. For a room with a $500,000 RAD, the DAP would be $500,000 x 8.34% = $41,700 per year, or $114.25 per day.

Financially, the decision is simple: if your money is not earning more than 8.34% after tax, you are better off using it to pay down the RAD. As an effectively guaranteed, tax-free rate of return, 8.34% is incredibly hard to beat.

For example, a resident with $100,000 in a savings account earning 3.5% interest ($3,500 per year) would be far better off using it to pay part of their RAD. That $100,000 would save them $8,340 per year in DAP payments.

Therefore, any cash or other low-yielding assets should almost always be used to pay the RAD before other options are considered.

Paying a RAD While Keeping the Family Home

If you have other assets, you can keep the home and pay the RAD. The RAD can be funded in several ways:

• Using other assets: As above, any cash, term deposits, or conservative investments should generally be liquidated to pay the RAD, given the high effective return.
• Borrowing a lump sum: You could take out a loan, such as a reverse mortgage, to pay the RAD. This only makes sense if the interest rate on the loan is less than the MPIR of 8.34%. With borrowing rates also being high, the potential to profit from this 'arbitrage' is limited, but it can exist.
• Having someone else pay: A child or other family member could lend you the money to pay the RAD. This is an excellent strategy for the family as a whole, as it directs the family's cash towards the best available return. These arrangements must be documented in a formal loan agreement. This ensures the money is returned to the lender from your estate and is not considered a gift, which could have negative consequences for your means testing and for your estate plan.

Ways to Pay a DAP While Keeping the Family Home

If you keep the home and do not pay the RAD in full, you will need to fund the ongoing DAP. This requires a strong and reliable cash flow.

• Rent the family home: This is a common strategy. However, with rental yields averaging 3-4% in most cities, the income is often not enough to cover a DAP calculated at 8.34% of the property's value. The rental income would also be assessed under the income tests for both the Age Pension and the means-tested care fee, which could reduce your pension and increase your care fees.
• Borrow against the home: You can use a reverse mortgage or line of credit to meet the DAP payments. Essentially, the bank pays the DAP for you, and the debt against your home increases over time. This preserves the home but reduces the final equity available for your estate.
• Use cash flow from elsewhere: You might have a share portfolio with a strong dividend stream or income from another investment property. So long as those assets are expected to generate a total return (growth plus income) greater than 8.34%, it can make sense to keep them and use their income to pay the DAP. Alternatively, a family member who wishes to preserve the home might agree to pay the DAP on your behalf. Again, any such arrangement must be formally documented.

This final chapter shows that there is no single 'right' answer, only the answer that is right for you. The decision rests on a careful analysis of your assets, your family's goals, your health, and your personal wishes.

Broadly speaking, there are five types of life insurance:

• Life cover (this is sometimes called death cover);
• Income protection cover;
• Total and permanent disability cover (TPD);
• Trauma cover; and
• Business cover (for either business expenses or a key person in the business).

We will look at each of these in turn. But before we do, let’s look at a few general concepts that apply to all or most forms of life insurance.

Insurance is like a bet… and we hope you lose it!

In many respects, the concept of insurance can be likened to a wager, albeit one with a unique and perhaps counterintuitive objective: the hope that the insured event will not occur. The fundamental principle of insurance involves the policyholder paying a relatively modest sum, known as the premium, on a regular basis. This premium represents the 'bet'. Should the 'insured event' transpire, the insurer then provides a payment to the policyholder or their designated beneficiaries. This payment is intended to mitigate the financial repercussions associated with the insured event.

Consider, for instance, life cover. This type of insurance policy is designed to provide a financial benefit upon the death of the insured individual. It is commonly sought by individuals who have financial responsibilities towards others, such as parents raising families. In the unfortunate event of a parent's death, the household would face a significant loss of income, potentially jeopardizing the financial well-being of the children. To address this potential vulnerability, parents pay a regular premium to an insurer. If the 'insured event' – the death of the parent – occurs, the insurer pays the agreed-upon sum to the beneficiaries of the policy, thereby providing a measure of financial support to the surviving family members. The premium paid is the 'bet', and the preferred outcome is to 'lose' this bet, signifying that the insured individual has not passed away. However, should the insured event occur, the financial security of their loved ones is at least partially assured.

The Premium

The premium is the payment made by the policyholder to the insurer in exchange for the insurance coverage. There are two primary structures for premium payments: stepped premiums and level premiums. It is important to note that the terminology used to describe these premium types has been updated within the Australian life insurance industry. By December 31, 2024, new retail life insurance policies are required to use the terms "variable age-stepped" for what was previously known as stepped premium, and "variable" for what was previously known as level premium ¹.

A variable age-stepped premium is one that typically increases each year. The amount of the premium is adjusted annually to reflect the changing probability of the insured event occurring. For example, with life cover, the likelihood of death generally increases with age. Consequently, a variable age-stepped premium for life cover will usually rise each year as the insured individual gets older. The insurer requires a higher premium to account for the increased risk of having to pay out on the policy ¹.

The other main type of premium is a variable premium. As the name suggests, with this structure, the amount paid each year generally remains constant and does not increase due to the policyholder's age ¹. While the premium amount might be higher in the initial years of the policy compared to a variable age-stepped premium, it offers the advantage of predictability. Over time, a variable premium often becomes more cost-effective than a variable age-stepped premium, as the latter continues to increase with age. The new term "variable" acknowledges that while these premiums don't increase due to age, they can still change due to other factors such as insurer repricing, indexation, or broader economic conditions ².

The decision of whether to opt for a variable age-stepped or a variable premium is a matter best discussed with a financial advisor. Variable age-stepped premiums generally offer lower initial costs, which can be appealing for individuals who prioritize immediate affordability and wish to allocate funds to other needs like mortgage payments or children's education. However, variable premiums provide certainty regarding future costs, allowing for better long-term financial planning. They can also prove to be more economical in the long run. Individuals who anticipate rising living costs may find the stability of a variable premium particularly attractive. The change in terminology aims to better reflect how premiums change over time, making the decision-making process clearer for customers ¹.

Table 1.1: Premium Terminology Update

Underwriting

When an individual applies for a life insurance policy, the insurance company conducts a process known as underwriting. Essentially, underwriting involves evaluating the risk associated with insuring the applicant. The primary goal of this process is to determine the likelihood of the 'insured event' occurring.

For life cover, the underwriting process assesses the probability of the applicant dying during the policy's term. To achieve this, the underwriter considers various factors related to the applicant's lifestyle (for instance, participation in high-risk recreational activities), health history, age, and other pertinent details. While insurers operate based on probabilities and cannot predict future events with absolute certainty, they can establish a reasonable assessment of the likelihood of a claim.

Based on the underwriting assessment, the insurer may take one of four courses of action.

Firstly, they may accept the policy without any modifications. In this scenario, the policyholder simply pays the premium, and the insurer is obligated to provide the agreed-upon benefit if the insured event occurs.

Secondly, the insurer might accept the policy but impose an exclusion. This means that the policy will not pay out in specific circumstances deemed to be of higher risk. For example, if an applicant engages in activities like skydiving, the insurer might exclude death or injury resulting from skydiving. However, the policy would still provide coverage for death or injury due to other causes.

Thirdly, the insurer may accept the policy but increase the premium to reflect a higher likelihood of a claim. This is known as a loading. The principle is straightforward: the applicant is required to pay a higher premium to compensate for the elevated risk they present.

Fourthly, in cases where the underwriter determines that the probability of the insured event occurring is excessively high, the insurer may decline to offer insurance altogether. An example of this might be an individual with a terminal illness applying for life insurance, where the insurer would almost certainly face a claim.

Factors that affect under-writing and the premium

Several factors influence the underwriting process and the premium charged.

Age is a significant factor; generally, younger individuals pay lower premiums for life insurance. The exception to this trend can sometimes be very young men, who may face higher premiums due to statistical data related to risky driving behaviours. The rationale is that younger people tend to experience fewer health issues and have a lower mortality rate compared to older individuals, thus representing a lower risk to the insurer.

Gender also plays a role, as women, on average, have a longer life expectancy than men, which often translates to lower premiums for women.

Health is another crucial determinant; healthier individuals are typically offered lower premiums due to their reduced risk of illness or injury leading to a claim.

Smoking is a well-established risk factor, and smokers invariably pay higher life insurance premiums due to the increased likelihood of health problems and premature death. This highlights an additional financial benefit of quitting smoking.

While most occupations do not significantly impact premiums, certain professions deemed to be inherently more dangerous may attract higher premiums or even lead to a refusal of coverage. For instance, individuals in extremely high-risk occupations might face challenges in obtaining life insurance. Neil Armstrong, for example, could not get life insurance before he flew to the moon.

Recent regulatory changes and market trends have also impacted underwriting practices. Notably, the Australian government implemented a ban on the use of adverse genetic test results in life insurance underwriting, effective from September 2024 ³. This reform aims to encourage individuals to undergo health-related genetic testing without the fear that negative results will negatively affect their ability to obtain life insurance coverage, including life cover, TPD, trauma, and income protection ³. This ban formalises a previous industry moratorium on genetic testing ⁵.

Furthermore, underwriting guidelines have been updated in response to the COVID-19 pandemic. As of June 2022, for life and trauma cover, individuals with asymptomatic, mild, or moderate COVID-19 infections who have fully recovered are generally accepted at standard rates, and the previous one-month deferral period has been removed ⁶.

There is also a discernible trend towards streamlining the underwriting process. For example, TAL introduced changes in October 2024 to reduce the reliance on mandatory medical tests for younger applicants seeking life, TPD, and income protection insurance, aiming to provide faster access to coverage ⁴. This suggests a broader industry move towards leveraging data and technology to make the application process more efficient ⁷.

Your Duty of Disclosure

A fundamental principle of insurance contracts is the duty of utmost good faith, which requires individuals applying for insurance cover to disclose all relevant information to the insurer.

Most insurance policies stipulate that the contract may be voided by the insurer if the insured person fails to disclose any information that is considered 'material' to the underwriting decision. Information is deemed 'material' if its disclosure could have influenced the insurer's decision regarding whether to offer coverage or on what terms.

Therefore, it is crucial for applicants to provide honest and complete answers to all questions asked by the insurer. Failure to do so can undermine the very purpose of having insurance, as it could lead to the insurer refusing to pay a claim.

Affordability

For many individuals, the primary consideration when it comes to life insurance is affordability. Insurance premiums can represent a significant expense, and allocating funds to a product that one hopes never to use can sometimes seem like a low priority.

Consequently, ensuring that life insurance is as affordable as possible is paramount. Several strategies can help make insurance more accessible from a cost perspective.

One approach is to utilise superannuation benefits to pay for certain types of insurance available within super funds, typically including life cover, TPD, and a limited amount of income protection. While this does not necessarily reduce the overall cost, it can alleviate the impact on day-to-day cash flow by using funds that are not readily accessible anyway.

Another avenue for reducing the financial burden of insurance is to claim tax deductions where applicable. Premiums for some life insurance types, particularly income protection, are often tax-deductible. Additionally, some life cover and TPD premiums, especially for self-employed individuals, can be effectively tax-deductible through superannuation contributions that reduce taxable income.

Accepting a degree of under-insurance can also make premiums more manageable. Under-insurance refers to having a level of coverage that is lower than what might typically be recommended based on one's financial situation and responsibilities. While it is generally advisable to have an appropriate level of insurance, obtaining some coverage, even if it is less than ideal, is often better than having no insurance at all if affordability is a significant constraint.

Another way to lower premiums is by accepting a portion of the risk yourself. For instance, with income protection, choosing a policy with a longer waiting period (the time one must be unable to work before benefits commence) can substantially reduce premiums. If an individual believes they could manage financially for a certain period, such as a year, if they became unwell, opting for a one-year waiting period could make the policy much more affordable compared to a policy with a shorter waiting period.

Finally, it is always prudent to obtain multiple quotes from different insurers and to avoid being overly loyal to a single provider. Significant savings can often be achieved by comparing policies and selecting the one that offers the best value for money.

Financial advisers can assist in this process and are knowledgeable about other strategies to ensure premiums are as affordable as possible, making affordability a key factor in their advice.

Continuity

When considering switching insurance providers, it is essential to ensure that coverage seamlessly continues from the old policy to the new one. Financial advisers can provide valuable assistance in this transition. The aim is to avoid any gaps in coverage, as the occurrence of an insured event during such a gap could leave the individual without financial protection.

Tell people you have the policy

Upon taking out a life insurance policy, it is crucial to inform trusted individuals about its existence. This should include, at a minimum, the executor of one's estate, as well as one's partner and close friends or relatives. The reason is simple: if an insurance policy exists but no one is aware of it, and the insured event occurs preventing the policyholder from communicating this information, a claim might never be made. This is particularly relevant for life cover, where, after death, the insured individual cannot inform anyone about the policy.

The same principle applies to other important documents such as wills and mortgage papers. Ensuring that loved ones and the executor (if appointed) know the location of these documents is vital. Storing digital copies can be effective, especially for individuals who move frequently, although original signed copies of legal documents like wills are still necessary for the executor.

As previously mentioned, life cover is an insurance policy that provides a financial payment to designated beneficiaries upon the death of the insured person.

The most prevalent form of life cover is term life insurance. This type of policy pays an agreed-upon benefit if the insured person dies or is diagnosed with a terminal illness. The maximum age at which insurers will continue to provide coverage varies, but it typically extends up to ages ranging from 70 to 79, with some policies offering cover until age 80 or even 85 ⁹.

Most term life policies include a terminal illness benefit, which allows for a payout if the insured individual is diagnosed with a terminal condition and has a life expectancy of less than 12 months ¹⁰. Some policies may offer a partial benefit payment in such circumstances, while others allow for the entire benefit amount to be paid out.

The word 'term' in 'term life insurance' signifies that the policy is in effect for a specific duration, known as the 'term' of the policy. This term is often one year, and for the policy to remain active beyond this period, the client typically needs to renew it annually.

Renewing the policy

Traditionally, most risk insurance policies, including term life insurance, are guaranteed renewable ¹⁴. This means that the insurer is obligated to renew the policy each year, irrespective of any changes in the policyholder's health, employment status, or personal circumstances that may have occurred since the policy was initially taken out. This feature is particularly important in cases of ill health that develop after the policy's inception. Due to guaranteed renewability, even if an insured person's health deteriorates, the insurer must continue to renew the policy as long as the health changes occurred after the policy commenced.

Who gets the benefit?

Most term life policies allow the policyholder to nominate the individual or individuals who should receive the benefit payment in the event of their death. If no beneficiary is formally nominated, the insurer typically has the discretion to decide who should receive the payment. In most cases, the insurer will pay the benefit to the deceased's estate, and the executor of the estate will then be responsible for distributing the funds according to the deceased's will.

Who uses Life Cover?

Individuals who should typically consider taking out life cover include:

• Parents who are still raising their children.
• Prospective parents who are trying to conceive or who are already pregnant.
• Husbands or wives (whether married or in a de facto relationship) whose partner relies on their income.
• Anyone else who has financial dependants.

How to hold your life cover

Life cover can be held either personally or through a superannuation fund. If held personally, the premium is generally not tax-deductible. However, when held within superannuation, the premium is often effectively tax-deductible. When paying for life cover through superannuation, one can either use existing superannuation balances or, if permissible, make contributions to a specific fund for the purpose of purchasing the life cover.

When using superannuation to fund life cover, it is essential to ensure that a binding death benefit nomination is lodged with the superannuation fund. This informs the fund trustees about the policyholder's wishes regarding who should receive the benefit upon their death. It is also important to remember that using superannuation to pay for life cover will reduce the overall superannuation balance, unless this reduction is offset by increased contributions. However, if using superannuation allows for the premiums to be effectively tax-deductible, the total amount paid for the cover will be reduced, which means the decrease in the superannuation balance will likely be more than compensated for by the increased wealth available outside of superannuation due to the tax savings. If these tax savings are reinvested, the individual will ultimately have more overall wealth.

More information

To learn more about Life Cover, please visit the ASIC website here.

Income protection insurance, as its name suggests, is designed to protect an individual's personal income in the event that they become unable to work due to illness or injury.

The fundamental idea is that if a person becomes sick or injured and cannot perform their job, any resulting loss of income can be compensated for by the insurance policy.

What income can I insure?

Insurers typically only allow individuals to insure income that is directly derived from their labour, often referred to as 'personal exertion' income. This is the income that would cease if the insured person were unable to work. 'Passive' income, such as income generated from assets that do not require active management (e.g., shares or investment properties), is generally not insurable. However, this is usually not a concern, as passive income typically continues even if the individual cannot work.

Income protection insurance can be complex, primarily because of the wide variety of features offered by different providers. Furthermore, the same insurer may offer varying terms to individuals with different income structures. It is advisable to discuss specific income protection needs with a financial advisor, who can help arrange cover that is appropriate for an individual's unique circumstances.

How long are benefits paid for?

One of the key ways in which income protection policies differ is the benefit period, which is the duration for which the insurer will pay income protection benefits. Common benefit periods include one year, two years, five years, or until the insured person reaches a specified age, such as 60 or 65. Generally, policies with shorter benefit periods have lower premiums.

Waiting period

Income protection policies often offer the option to adjust the waiting period, which is the initial period after becoming unable to work during which no benefits are paid. For example, an individual might choose a policy with a 30-day waiting period. If they are unable to work for less than 30 days, no benefit is paid. However, if the period of inability to work extends beyond 30 days, benefits typically commence from the 31st day.

Choosing a longer waiting period generally results in lower premiums because it reduces the likelihood that a benefit will be paid. People are statistically less likely to be out of work for extended periods, so insurers are less likely to make a payment on a policy with a longer waiting period.

Limits on benefits paid

Income protection benefits are typically capped at a maximum of 75% of the individual's pre-disability income. Many insurers calculate this pre-disability income based on the average income earned over the two years preceding the illness or injury. They will then pay up to 75% of this average amount.

Additionally, most insurers impose an 'absolute' upper limit on the monthly benefit payable. For instance, if a policy has an absolute limit of $12,000 per month, this is the maximum amount an individual can receive, regardless of their pre-disability income.

Agreed value or indemnity

Historically, income protection policies were available as either agreed value or indemnity policies. An agreed value policy allowed the insured amount to be established at the time the policy was taken out. These policies were often favoured by individuals with variable incomes, such as consultants or casual workers, whose earnings might fluctuate. When an agreed value policy was initiated, the individual had to demonstrate that the insured amount was realistic based on their current income. Once established, this amount would be paid out in the event of a valid claim, even if the individual's income had decreased during the policy period, provided the change in income was considered 'normal'.

However, as of March 2020, agreed value income protection policies are no longer available for new policies ¹⁵. This change was driven by concerns from the Australian Prudential Regulation Authority (APRA) regarding the sustainability of these policies due to substantial and ongoing losses experienced by insurers ¹⁵. APRA also raised concerns about the potential for moral hazard, where individuals might have less incentive to return to work, and the deviation from the fundamental principle of insurance, which is to indemnify against loss ¹⁶.

Currently, all new income protection policies are indemnity policies. If an individual holds an agreed value policy established before March 2020, it remains valid, and the terms under which it was purchased still apply. However, it is no longer possible to purchase a new agreed value income protection policy. Under an indemnity policy, the benefit paid is linked to the actual income earned in the period (typically 12 months) prior to the illness or injury occurring. Generally, the insurer will pay out between 70% and 75% of this lost income ¹⁸.

If an individual holds an indemnity policy and their income situation changes (e.g., they change or lose their job), it is crucial to inform their financial advisor immediately. This will help ensure that they are not paying excessive premiums for a sum insured that exceeds what the insurer would actually pay in the event of a claim. In addition to the discontinuation of agreed value policies, other significant changes have been implemented in the income protection market, including a maximum policy contract term of five years for new policies sold on or after September 27, 2021 ¹⁸. This means that at the end of the five-year term, policyholders will be offered the income protection products available at that time.

Renewing income protection policy

It is important to note a change specifically related to income protection policies.

As of October 2021, new income protection policies have a limited guaranteed renewability period of five years. Within this five-year period, the insurer must renew the policy annually, provided the insured person pays the premium. After the initial five years, the insurer can consider changes in the individual's income or personal circumstances when issuing a new policy, which will also have a maximum term of five years ¹⁵.

It is crucial to remember that even with these changes in income protection renewability, the insurer is not permitted to factor in changes to the insured person's health status when conducting the five-year review. Therefore, if an illness or injury develops that could potentially lead to a claim, the insurer cannot refuse to issue a new policy based on this change in health. The insurer can only adjust aspects of the policy related to other circumstances, such as age or income.

Who needs income protection cover?

Any individual whose financial circumstances would be negatively impacted by a loss of income should consider taking out income protection cover. This includes people with financial dependants, such as parents, as well as those with financial commitments like mortgages and other debts.

Essentially, most people should consider income protection cover.

To learn more about Income Protection Cover, please visit the ASIC website here.

Superannuation and income protection

Many superannuation funds offer a small amount of 'default' income protection cover to their members without requiring a formal application. Members often have the option to increase this level of cover by applying to do so.

The availability of income protection within superannuation can make it more accessible from an affordability perspective, not necessarily because the insurance is cheaper within super, but because the premiums are paid from pre-tax superannuation contributions, thus easing the strain on day-to-day cash flow.

However, it is important to note that if income protection premiums are paid by a super fund, they are not tax-deductible to the insured person. Therefore, there are both advantages and disadvantages to using superannuation for income protection, and the best approach depends on an individual's specific financial situation. Financial advisers can help clients determine whether using superannuation is the most suitable way to access this type of insurance.

Total and permanent disability (TPD) cover provides insurance protection in the event that a person becomes physically or mentally unable to work and earn an income. This type of cover is frequently offered as part of the same policy as life cover, as the financial consequences of becoming totally and permanently disabled can be similar to those of death, particularly for individuals with financial responsibilities. For example, if a parent with dependent children becomes disabled and cannot work, the family faces a loss of income, similar to the situation following the death of a parent.

What does total and permanent disability mean?

The definition of total and permanent disability can vary slightly between different insurers ²³. However, the core concept revolves around the insured person's inability to ever work again due to illness or injury ²⁵. For instance, Aware Super defines TPD cover as providing a benefit if a member becomes totally and permanently disabled due to illness or injury and is unlikely ever to work again ²⁵.

Own occupation versus any occupation

TPD insurance can provide cover based on two main definitions: 'own occupation' or 'any occupation' ²⁸.

'Own occupation' cover typically means that the insured person is unable to work in their specific occupation due to disability ²⁷. For example, if a plumber becomes paralysed and can no longer stand, they would likely be unable to continue their occupation as a plumber, even if they might be capable of performing other types of work ²⁸. It is important to note that the definition of 'occupation' is broader than just the immediate job tasks and considers the individual's qualifications, experience, and work history ³². 'Own occupation' cover generally offers a higher chance of claim approval but tends to have higher premiums and is typically available outside of superannuation ²⁸.

'Any occupation' cover, on the other hand, has a slightly more stringent definition. It typically means that the insured person is unable to engage in any work for which they are reasonably suited by their education, training, or experience ²⁸. For instance, in the previous example, if the paralysed plumber could still perform a desk job related to the plumbing industry, they might not meet the definition of 'any occupation' TPD ²⁸. 'Any occupation' cover generally has lower premiums but may be more challenging to claim on as the criteria are broader ²⁸. This type of cover is commonly offered through superannuation funds ³¹. Besides these two primary definitions, some policies may also offer cover based on the inability to perform 'home duties' or 'activities of daily living' ²⁴.

Under-writing

The underwriting process for TPD insurance is similar to that for life cover. Insurers assess the likelihood of the applicant becoming disabled in the future by considering similar risk factors as those used for life cover, such as participation in risky activities.

As with life cover, most insurers do not provide coverage for disabilities resulting from pre-existing conditions. Therefore, applicants are usually required to undergo medical tests and complete detailed questionnaires before TPD cover is provided.

Similarly, most TPD policies exclude disabilities that are self-inflicted. Insurers also tend to be cautious about offering TPD policies where the insured person might be financially better off being disabled, as this could create a potential for fraudulent claims. Consequently, most insurers verify an applicant's income before offering TPD cover, and if the income is low, the amount of TPD cover offered may also be limited.

Certain occupations known to have a higher risk of injuries may also attract higher premiums for TPD cover.

Who needs TPD cover?

Individuals who require life cover generally also have a need for TPD cover, as the financial implications of becoming disabled and unable to work can often be more severe than those following a death. Furthermore, individuals who are personally dependent on their continued good health for their livelihood should strongly consider TPD cover.

Trauma insurance, also sometimes referred to as critical illness insurance or recovery insurance, provides a lump sum payment if the insured person suffers a specified illness or experiences a specified event, regardless of the long-term consequences of that event ¹⁴. For instance, if an individual has a heart attack that does not result in death or total and permanent disability, they would not receive a payout from a standard life cover or TPD policy. Trauma cover addresses this gap by providing a benefit upon the occurrence of a defined traumatic event, helping to cover potential loss of income and significant expenses such as medical treatment and rehabilitation ¹⁹.

The list of illnesses and events covered by trauma insurance varies from policy to policy, but typically includes conditions like heart attack, stroke, and cancer ¹⁹. To receive a benefit, the insured person only needs to prove that the specified illness or event occurred; they do not need to demonstrate that it had severe long-term consequences like permanent disability ³⁶. Upon a successful claim, a lump sum amount, which is usually specified in the policy, is paid out. Most trauma policies include a survival period clause, typically requiring the insured person to live for a designated period, often 14 days, after the traumatic event ¹⁹. This means that if a person dies shortly after suffering a heart attack, a trauma benefit might not be payable to their estate, although a death benefit might be payable if the individual also held a life cover policy. Trauma insurance can often be combined with term life insurance and/or TPD insurance within the same policy ¹⁹.

Recent updates to trauma cover include improvements to the definitions of certain conditions. For example, Zurich Wealth Protection updated its Angioplasty (triple vessel) definition to cover angioplasty of all arteries and their branches, and removed an exclusion for certain thyroid cancers within its Cancer (excluding early-stage cancers) definition, effective from February 2025 ³⁸. These changes aim to provide broader and more relevant coverage to policyholders.

Who uses trauma cover?

Trauma cover tends to be less popular than life cover or income protection. This is partly because many individuals also have health insurance that covers some or all of the costs associated with illness, or income protection that provides financial support in case of income loss due to illness or injury. Nevertheless, there are situations where trauma cover is particularly beneficial.

For example, individuals who are not working may not be eligible for income protection, or those working part-time may not be able to obtain a significant level of income protection. This might include stay-at-home parents or those taking a break from paid employment. In such cases, trauma cover can provide a financial benefit to cover medical expenses and other costs if a traumatic event occurs. It is advisable to discuss the need for trauma cover with a financial advisor to determine if it is appropriate for one's specific circumstances.

To learn more about Trauma Cover, please visit the ASIC website here.

Businesses should consider two primary forms of life insurance: key person insurance and business expense insurance.

Key person insurance

Key person insurance is a policy taken out by a business to cover the financial impact of the death or disability of a key individual within the organization ¹⁹. Essentially, it functions as life and/or TPD cover where the business is the beneficiary. This type of insurance is often purchased by business partners. The purpose is that if one of the partners dies or becomes disabled, the business will receive a sum of money that can be used to buy out the deceased or injured partner's share of the business. This allows the remaining partners to continue operating the business without facing severe financial strain.

The amount of coverage is typically determined based on the potential financial loss the business would incur due to the absence of the key person. This will vary depending on the specific circumstances of the business, making it essential to discuss key person insurance needs with a financial advisor to understand its potential benefits.

Business expense insurance

Business expense insurance is often utilized by smaller businesses where the operational expenses would continue even if the principal is unable to work due to illness or injury. A common example is a self-employed tradesperson, such as a builder, who might become injured or ill and unable to generate income. However, the business's fixed costs, such as office rent, vehicle expenses, insurance premiums, and staff salaries, would still need to be paid. Business expense insurance helps cover these ongoing costs during the period the business owner is unable to work, ensuring the business can remain viable until they recover.

The specific amount and type of business expense insurance required will depend on the unique characteristics of the business, which is why it is recommended to discuss these needs with a financial adviser.

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