In recent times many clients have been asking for alternative investments to be added to their investment portfolio – investments that offer the opportunity of good returns while behaving very differently to other types of investments. One of the investments identified is the export-driven agribusiness sector, an attractive alternative investment, particularly for high income earners.

A new asset class

Although a relatively new asset class in Australia, (the opportunity to invest in agribusiness has developed in Australia over the past thirty to forty years), the managed agribusiness investment sector is well-recognised and established in the United States. In the US, well over $2 billion is invested in this sector each year by individuals through mutual and pension funds.

Agri investments

Unfortunately Agri-investments are often overlooked because of perceptions of high risk and low returns. Studies by Australian Agribusiness Research Group demonstrate that reality is the opposite. In fact they found the top 25% of agri-investments can produce returns almost as good as the All Ordinaries returns with lower volatility.

In addition agri-investments are often negatively correlated to other assets classes and therefore as part of a diversified portfolio can increase returns while reducing overall risk.

MIS industry

Last year the MIS industry attracted in excess of $650 million of investment, with 80% of the funds directed to forestry projects. This year industry sources suggest $1billion will be invested and consequently projects that receive higher ratings from the independent research groups are again likely to sell out prior to 30 June.

The MIS industry has matured and is now highly regulated with many of the managers large ASX listed companies.

What are agri businesses?

Agribusiness is simply the business of growing crops for human consumption and use. For example the sale of almond, olive, citrus, table grape, mango and eucalyptus crops are all directed primarily at the export markets, bringing in valuable overseas revenue to Australia.

How do agri business investments work?

Investment costs (establishment and ongoing) are generally treated as expenses and are immediately tax-deductible against other income. Proceeds from the sale of the crop (upon harvest, either annually or upon maturity) are treated as assessable income, when received. Thus, these managed agribusiness investments offer potentially high after-tax returns and act quite differently to the fluctuations of the traded investment markets.

Investors in these projects do so for a number of reasons – to diversify their portfolios, increase their investment returns, to obtain an income stream and to make the best use of tax dollars.

Year End Tax Planning For Investments

Through managed investment schemes (MIS) small investors are able to participate in world-class agriculture projects with the additional benefit of being up to 100% tax deductible. ATO product rulings have also provided certainty on the tax deductions offered.

An agri-investment prior to 30 June can provide a range of wealth creation and taxation investment strategies. By deferring a current tax liability, it allows reinvestment of tax savings into:

• Reducing non-deductible debt
• Acquiring a share portfolio
• Increasing superannuation contributions
• Acquiring an investment property
• Reducing periodic PAYG payments
• Creating future income for a specific purpose (eg: private education fees, deposit for a house, superannuation contributions, lump sum mortgage payment)
• Repayment of Director/Shareholder division 7A loans
• Managing superannuation surcharge liabilities
• Providing an effective retirement income stream
• Sheltering capital gain or abnormal income.

Sound investment returns

If you are looking for an investment that offers sound commercial returns and you answer yes to one or more of these items, contact your adviser to arrange an appointment to learn more about how an agribusiness investment may assist you in building future wealth.

• I expect to earn more than $60,000 this financial year
• I am paying Superannuation Surcharge
• I have sold an investment property this year
• I have received an ETP payment
• I want to start a family within the next five years
• I want to provide for my children’s private education
• I want an environmentally friendly investment
• I want a tax-effective investment
• I have a Self-Managed Super Fund

Well managed agri-investments is a sensible choice when considering diversification of a portfolio and managing tax issues.

Disclaimer:

Please note: The advice contained herein is general securities advice only. It has not been prepared taking into account your particular investment objectives, financial situation and needs. You should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. You should do this before making an investment decision based on the general securities advice. You can either make the assessment yourself or seek the help of a professional adviser.

Source: Adrian Raftery Wawrzyniak Accounting 2007

To qualify for the age pension

To qualify for an age pension, veterans’ pension or social security allowance an applicant must pass two tests – the Assets Test and the Income Test. Whichever test reduces the pensioner’s entitlement the most is the one that applies.

The tests are designed so people with some savings but not enough to be financially independent are entitled to welfare benefits to supplement their investment income.

However there are differences in the way investments are assessed under the tests so smart financial planning can increase pension eligibility considerably.

Age Pensions means test

There are very few exemptions from the pension means tests. A person’s home is exempt, and the surrounding living area. In practice this is accepted as being a maximum of five acres or two hectares. Land owned in excess of this is assessed as an asset.

Invalid aids are also exempt from the means tests. So too are medals for valour. Got a VC in the cupboard? It will be exempt. Not much else is excluded.

Home contents, personal possessions, cars, and anything else of value are assessable. Fortunately the amount that must be declared is the market or second hand value, not the insurance value or replacement cost.

Can you give all your assets away?

You can but the value will still be counted against you. Pensioners may gift a total of $30,000 over five years, with a maximum of $10,000 in any one year. Amounts gifted in excess of this are assessed as if they were still owned, for five years.

So what investments are treated concessionally in the pension means tests? Superannuation balances are exempt from both tests until age pension age. That is 65 for men and currently 63 for women.

Anyone under pension age can make new super contributions and they will be exempted, thereby increasing the person’s social security benefits.

The only completely means test exempt investment for people any age is a pre-paid funeral plan. A pensioner can invest up to $5,000 in a funeral bond and its account balance will always remain exempt from assessment. This could increase pension by $15 per fortnight or $390 per year.

Investments such as bank deposits, shares, property and managed funds are fully assessable under both Assets and Income Tests. Retirement income stream investments are the one major area that is assessed concessionally.

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strong>Annuities & allocated pensions

All annuities and allocated pensions are assessed more leniently under the Income Test than other investments. The purchase price is divided by the investors’ life expectancy and the resulting amount is exempt from the Income Test.

Only payments in excess of this are assessable. For most people this amount is small, at least in the early years. For example a 65 year old could receive $6,369 annual income from a $100,000 allocated pension account but only $720 of it would be assessed.

Long term annuities and the new Term Allocated Pensions (TAP’s) have another big advantage in that only half their value is assessed in the Assets Test. Half is excluded from the assessment.

This provides an excellent opportunity to greatly increase an age pension. Moving $100,000 of retirement savings to a TAP could see a person’s pension jump by $150 per fortnight or $3,900 per year.

Long term annuities are very restrictive and rarely pay a lump sum back. TAP’s are more user friendly but have restrictions on cashing them before death. Normal allocated pensions have fewer restrictions and Income Test advantages but lack the 50 per cent Assets Test exemption.

Many pensioners are affected by both the Assets and Income Tests. To maximise pension we must determine which test prevails, calculate the point of equal entitlement under both tests, and use suitable investments to reduce the assessment under the dominant test so both are equal.

Disclaimer

No investment advice provided to you. This web site is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs. You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser. 

MAXIMISING PENSION ELIGIBILITY

Written By Russell Tym, Authorised Representative of MoneyLink Financial Planning, AFSL No 247360

To qualify for an age pension, veterans’ pension or social security allowance an applicant must pass two tests – the Assets Test and the Income Test. Whichever test reduces the pensioner’s entitlement the most is the one that applies.

The tests are designed so people with some savings but not enough to be financially independent are entitled to welfare benefits to supplement their investment income.

However there are differences in the way investments are assessed under the tests so smart financial planning can increase pension eligibility considerably.

There are very few exemptions from the pension means tests. A person’s home is exempt, and the surrounding living area. In practice this is accepted as being a maximum of five acres or two hectares. Land owned in excess of this is assessed as an asset.

Invalid aids are also exempt from the means tests. So too are medals for valour. Got a VC in the cupboard? It will be exempt. Not much else is excluded.

Home contents, personal possessions, cars, and anything else of value are assessable. Fortunately the amount that must be declared is the market or second hand value, not the insurance value or replacement cost.

Can you give all your assets away? You can but the value will still be counted against you. Pensioners may gift a total of $30,000 over five years, with a maximum of $10,000 in any one year. Amounts gifted in excess of this are assessed as if they were still owned, for five years.

So what investments are treated concessionally in the pension means tests? Superannuation balances are exempt from both tests until age pension age. That is 65 for men and currently 63 for women.

Anyone under pension age can make new super contributions and they will be exempted, thereby increasing the person’s social security benefits.

The only completely means test exempt investment for people any age is a pre-paid funeral plan. A pensioner can invest up to $5,000 in a funeral bond and its account balance will always remain exempt from assessment. This could increase pension by $15 per fortnight or $390 per year.

Investments such as bank deposits, shares, property and managed funds are fully assessable under both Assets and Income Tests. Retirement income stream investments are the one major area that is assessed concessionally.

All annuities and allocated pensions are assessed more leniently under the Income Test than other investments. The purchase price is divided by the investors’ life expectancy and the resulting amount is exempt from the Income Test.

Only payments in excess of this are assessable. For most people this amount is small, at least in the early years. For example a 65 year old could receive $6,369 annual income from a $100,000 allocated pension account but only $720 of it would be assessed.

Long term annuities and the new Term Allocated Pensions (TAP’s) have another big advantage in that only half their value is assessed in the Assets Test. Half is excluded from the assessment.

This provides an excellent opportunity to greatly increase an age pension. Moving $100,000 of retirement savings to a TAP could see a person’s pension jump by $150 per fortnight or $3,900 per year.

Long term annuities are very restrictive and rarely pay a lump sum back. TAP’s are more user friendly but have restrictions on cashing them before death. Normal allocated pensions have fewer restrictions and Income Test advantages but lack the 50 per cent Assets Test exemption.

Many pensioners are affected by both the Assets and Income Tests. To maximise pension we must determine which test prevails, calculate the point of equal entitlement under both tests, and use suitable investments to reduce the assessment under the dominant test so both are equal.

Disclaimer

No investment advice provided to you. This web site is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs. You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser.

Source: MoneyLink Financial Planning

Carer Allowance is a Social Security payment paid by Centrelink to people who care for a “disabled adult”. In order for the carer to receive Carer Allowance, both the carer and the care receiver (the caree) must satisfy certain rules. There is no income test or assets test for Carer Allowance and the allowance is not taxable.

To qualify for Carer Allowance (adult) the caree must;

• be an Australian resident;
• be a family member of the person providing the care (in some cases a person other than a family member can qualify);
• receive care in their home;
• pass an Adult Disability Assessment Tool; and
• receive care and attention from the carer on a daily basis because of a disability.

The disability definition is wide ranging and can take many forms.

Rate of payment

The fortnightly rate of Carer Allowance is currently $92.40 per fortnight or $2,409 per annum.

Claiming Carer Allowance (adult)

To receive Carer Allowance (adult), the carer must complete a Centrelink claim form. The carer and the caree’s doctor or other health professional worker must complete the Adult Disability Assessment Tool questionnaire.

In most instances, the health professional is well aware of the caree’s condition and can complete the form in a few minutes.

In cases where the disability suffered by the caree is due to an “acute onset”, the claim for Carer Allowance can be backdated six months. In other cases payment starts from the date of claim. Applicants do not generally have to attend a Centrelink office to submit a claim for the allowance.

Disclaimer

No investment advice provided to you. This web site is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs. You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser.

Source: London Partner Vic Pty Ltd 2007

You can leave Australia while you are bankrupt but you must obtain your trustee’s written consent before you leave.

Your trustee will need to be satisfied that you have legitimate reasons for the proposed travel e.g.:

• as a condition of your employment
• for compassionate reasons.

Your trustee may impose written conditions when giving permission such as:

• the period or duration of travel
• the date you are required to return to Australia
• that you pay any contributions you have been assessed to pay.

Contributions are sums of money that a bankrupt person is required to regularly pay to the trustee from their income.

More information is available in the pamphlet: Income Contributions

You are allowed to have a passport

however you must hand it over to your trustee on request.

Bankruptcy is a process where people who cannot pay their debts become bankrupt to receive the protection of the Bankruptcy Act and their estate is administered by a trustee. It allows for the fair distribution of property among creditors and the prosecution of dishonest debtors.

Your trustee can be either a registered trustee or ITSA.

Your trustee may refuse permission

if:

• you have not carried out all of your obligations under the Bankruptcy Act e.g. filing a Statement of Affairs

or

• you are required to assist your trustee in the administration of your bankruptcy e.g. to attend an interview, examination or a meeting of creditors.

If you don’t return to Australia when you said you would, or if your trustee has asked you to return and you do not, your trustee may lodge an objection to your discharge. If an objection is lodged your bankruptcy will be extended by 8 years from the date you return to Australia.

Warning:

If you leave, or try to leave Australia without the written consent of your trustee, you are committing an offence under the Bankruptcy Act, punishable by law. You may be prevented form leaving Australia at the airport or ship terminal.

Contravening a condition imposed by your trustee is also an offence under the Bankruptcy Act punishable by law.

How do I apply for permission?

Write to your trustee as soon as you become aware that you may need to leave Australia explaining:

• the reasons for the proposed trip
• the name of the countries you propose to visit
• the date you intend to leave Australia
• the date you intend to return to Australia
• the name of the person paying for the trip, and a confirming letter from that party (unless you propose paying for the trip yourself)
• an overseas address where your trustee could readily contact you
• your level of income in the current Contribution Assessment Period (CAP)

Your CAP will generally be the 12 month period beginning on the date of, or anniversary of, your bankruptcy. Ask you trustee if you do not know.

• proposed arrangements for paying any contribution liability whilst overseas.

Your trustee must have adequate time and information to consider your request. Your request must be in writing so that your trustee understands exactly what you are requesting.

You will be advised promptly of the trustee’s decision and any conditions placed on your travel.

If you are not satisfied with your trustee’s decision you may apply to the Federal Court or the Federal Magistrates Service for a review. You should seek legal advice before making an application.

Source: Insolvency and Trustee Services Australia 2007

What are assets?

Assets or property are anything you own when you become bankrupt or anything you buy or receive before the end of your bankruptcy. Income you earn during bankruptcy is not included but will be taken into account in your income contributions assessment.

More information is available in the pamphlet: Income Contributions

Going bankrupt will affect your assets.

Some assets are exempt, which means you may keep them.

Some assets are non-exempt or divisible, which means your trustee may sell them for the benefit of your creditors.

What assets may I keep?

The Bankruptcy Act sets out a list of exempt or protected assets, for example:

• most ordinary household or personal items, such as clothes, furniture, kitchen appliances and equipment, a TV, video recorder, stereo, washing machine, and items mainly for the use of children or students in the house

There are circumstances where some of these things would be sold, such as antique furniture, and electrical equipment of significant value.

• tools used to earn an income, up to a limit of $2,900 (indexed) – tools over this limit may be sold by your trustee

Indexed means the amount regularly changes in line with the Consumer Price index or the base pension rate

• vehicles (cars or motorbikes) used mainly for transport, up to a combined limit of $5,800 (indexed). The limit refers to your equity in the vehicles (the value of the car minus the sum owing under finance)
• superannuation and life assurance policies up to the pension Reasonable Benefit Limit (as worked out under the Income Tax Assessment Act 1936)
• compensation for a personal injury (eg from a car accident or workers compensation)
• assets bought with protected monies

Protected monies are monies that cannot be claimed by a trustee eg personal compensation money, certain government grants

• re-establishment grants to farmers, including grants under the Rural Adjustment Act 1992 or Farm Household Support Act 1992
• property protected under the Defence Service Homes Act 1918
• an asset held by you in trust for another person (eg a child’s bank account).

Awards of a sporting, cultural, military or academic nature made to you, such as medals or trophies but not cash or jewellery, and claimed as having sentimental value may be exempted by a vote of creditors.

If you are buying an exempt asset under finance, you will only be able to keep it if you continue to pay for it.

Warning:

There are penalties if you fail to:

• disclose assets on your Statement of Affairs
• disclose to your trustee in writing within 14 days any assets you acquire during bankruptcy.

What assets will my trustee deal with?

Your trustee will sell or distribute your non-exempt (divisible) assets and any assets that have a value over a specified limit.

Your assets include those you own when you become bankrupt, or any you acquire or receive before the end of your bankruptcy.

These assets may be in:

• Australia or overseas
• your possession or someone else’s.

Examples of divisible assets include:

• houses, apartments, land, farm and business premises (including leases)
• cars, trucks,vans, caravans, trailers, motorbikes, boats and aircraft
• shares and other investments (including shares held in your employer’s business)
• tax refunds for income earned before you became bankrupt
• money owed to you
• livestock and farming crops
• your right as a beneficiary in a deceased estate, even if the person dies during your bankruptcy
• antiques, collectables and jewellery
• business and business assets, including goodwill, stock, equipment, machinery, vehicles, fixtures and fittings and an interest in a partnership
• leaseholds, franchises, licences and patents
• a right to commence or continue legal proceedings/legal actions
• money with deposit taking organizations (eg banks, credit unions, licensed totalisator/betting agencies)
• lottery winnings and other competition prizes.

Warning:

You may be liable for Capital Gains Tax in some cases.

What about assets I own with another person?

If you have a share in a non-exempt asset, for example a house, your trustee can sell your share. If the co-owner is not also bankrupt, the trustee may agree to sell your share to them, but it would have to be for at least as much as the trustee could get from selling it on the open market.

If an agreement cannot be reached with the other owner, the trustee may apply to the Court for an order to sell the property.

What does my trustee do with the money obtained from my assets?

Your trustee’s aim is to pay your creditors and his or her own fees and expenses plus the government realisations charge.

Your trustee will sell an asset if there will be an expected surplus after selling costs and expenses and any debts owed to a secured creditor are taken out.

The balance (surplus) is kept by the trustee for the benefit of your other creditors.

Payments to creditors are called dividends.

Example:

House property                                     $190,000

            less secured creditors

                    council/shire rates                  4,000

                    bank mortgage                    145,000

            less costs of sale

                    legal costs                               1,000

                    advertising                              1,000

                    agent’s commission               6,000

Surplus                                                    $33,000

Trustee fees and expenses plus the government realisations charge will be paid out of the $33,000 and the balance distributed as dividends to creditors.

Can my creditors take my assets?

Secured creditors who hold a security over an asset may take and sell the asset if you fall behind in payments. Bankruptcy does not affect the rights of secured creditors.

Common examples of secured assets are:

• a house subject to a mortgage with a bank
• a motor vehicle subject to a bill of sale
• goods under hire purchase, chattel mortgage, lease or bill of sale with a finance company
• assets with creditors secured by government legislation over houses and land, such as council/shire rates and water rates.

If you are in doubt about whether one of your creditors is secured, you should first ask the creditor. If you are still doubtful, ask. a financial counsellor or your trustee.

    A list of financial counsellors and other advisors is available from ITSA offices (see rear cover) or from ITSAs website www.itsa.gov.au.

• If you wish to keep an exempt asset which is secured, you will need to keep paying for it or the creditor will take it back.
• A secured creditor cannot take an asset back just because you are bankrupt.
• Your trustee can sell a non-exempt (divisible) asset if it is of value, even if you are paying it off (eg a house).
• In some cases creditors retain ownership of items you have bought until their debt has been paid in full (eg retention of title, consignment and commission).

    More information is available in the pamphlet Debts and Creditors: What happens to them if go bankrupt?

    More information on trustee fees is available in the pamphlet: ITSA Statutory Fees & Charges

What about assets I used to own?

Trustees will investigate assets you owned in the 5 years before bankruptcy. If they find that you have given away or sold assets for less than their true value, they may recover these assets.

Your trustee may also recover any assets that have been transferred for the purpose of defrauding your creditors (including assets transferred more than 5 years before bankruptcy).

What happens to my assets when I am discharged from bankruptcy?

Your trustee keeps any non-exempt assets which have not been sold before your discharge (end of bankruptcy). Your trustee may have been unable to sell your assets straight away; it may take some years.

In limited circumstances, your trustee has a time limit of 6 years after your discharge to deal with assets (other than cash). The 6 year limit only applies to:

• assets disclosed in your statement of affairs, and
• assets acquired by you during bankruptcy, where you disclosed them in writing to your trustee within 14 days of you becoming aware of them.

The 6 years do not begin until at least the date of your discharge from bankruptcy.

Your trustee is able to extend this 6 year time limit by giving you written notice.

If all your creditors and trustee’s fees and expenses have been paid in full, any remaining assets will be returned to you.

Source: Insolvency and Trustee Services Australia 2007

What is an annulment?

Annulment is the cancellation of bankruptcy before the end of the normal 3 year period.

Bankruptcies are usually annulled:

• if the creditors’ debts and trustee’s expenses and fees have been paid in full, or
• if creditors have accepted an offer of something less than payment in full (a composition or arrangement), or
• by application to the Court, in some limited circumstances.

Effects of an annulment

• your annulment is recorded on the National Personal Insolvency Index (NPII) database and is available to the public. Your name will appear on the NPII forever.

More information is available in the pamphlet: Searching the Public Record

• you will need to contact commercial credit reference agencies to record the annulment.
• assets not needed by your trustee to pay your creditors or expenses and fees may be returned to you.

More information is available in the pamphlet: Assets: What happens to my assets if I go bankrupt?

Annulment does not release you from:

• maintenance orders
• debts incurred by fraud
• prosecution for bankruptcy offences.

Annulment by payment in full

• your bankruptcy may be annulled if:
• your creditors, and
• any interest payable on debts to creditors, and
• realisations charge, and
• your trustee’s expenses and fees have all been paid in full

The money required for payment in full usually comes from the sale of assets by your trustee or from a source not otherwise available to the trustee, such as money provided by a relative.

Your trustee will be able to advise you of the approximate sum required for payment in full. The exact sum will not be known however until all creditor’s claims, including interest, are resolved and your trustee’s fees and expensed are paid.

Your bankruptcy will be annulled on the date the final payment is made from your bankruptcy.

An asset is anything a person owns before going bankrupt, or buys or receives during bankruptcy

A bankruptcy offence occurs when the bankrupt does not carry out an obligation under the Bankruptcy Act. They may be prosecuted and fined or imprisoned

Realisations charge is a Commonwealth Government levy on all bankruptcies, compositions or arrangements. It is taken out before expenses, fees and dividends

Your trustee is the person who administers your bankruptcy or Personal Insolvency Agreement; wither a registered trustee or ITSA

See the Prescribed information booklet for definitions of other bankruptcy terms

Annulment by a composition or arrangement during bankruptcy

Compositions and arrangements are offers made by bankrupts through their trustees to finalise their debts. The creditors vote on whether to accept such offers.

An offer:

• may involve assets already in the bankruptcy and
• needs to include other money or assets that would not normally be available to creditors, such as money provided by a relative.

These offers benefit creditors as they receive a dividend that would not otherwise be available. All creditors will receive an equal rate of dividend unless your offer provides otherwise.

Your written and signed offer must:

• set out the terms
• be lodged with the trustee
• provide for payment of the trustee’s fees and expenses.

Before finalising your offer and asking your trustee to call a creditor’s meeting to formally consider the offer, you should:

• discuss with your trustee if there are any legislative requirements that may affect your offer
• discuss any proposed offer with major creditors to find out if it is acceptable.

Your trustee may:

• refuse to call a meeting if the proposal does not provide for payment of trustee’s fees that have been approved by creditors but are unable to be taken out of the estate
• require a deposit to cover the expenses and fees of the meeting.

Any money component of the offer will be held in trust until your offer is accepted by creditors.

Creditor’s meeting

Your trustee may call a meeting of creditors to consider and vote on your offer.

The trustee will advertise this meeting and certain debtor information in a national and a regional newspaper

Each creditor will be sent:

• a notice and agenda of the meeting
• a copy of your offer
• your trustee’s report

Your trustee will be able to give you more information on how meetings are conducted.

You must attend the meeting if requested by your trustee.

As an alternative to holding a meeting the trustee may invite creditors to vote on the offer in writing if:

• the offer is straightforward and not expected to be varied or subject to further negotiation, and
• no creditor objects

Trustee’s report

The report to creditors must state whether they will benefit if the offer is accepted and tell them:

• who is providing the funds
• the expected dividend
• the trustee’s fees and expenses
• details of assets, realisations and dividends
• details of your conduct and financial dealings.

A dividend is an amount paid to a creditor by a trustee to settle a debt. It is usually less than the amount originally owed to the creditor

Creditor’s acceptance

For your proposal to be accepted your trustee must receive ‘yes’ votes from:

• a majority in number of the creditors who vote

and

• at least 75% in $ value of the creditors who vote.

If your offer is accepted

Your bankruptcy will be annulled immediately on acceptance of the offer by your creditors.

Your trustee’s fees, the government realizations charge and the creditors will be paid according to the terms of your composition or arrangement.

Details of your annulment are recorded on the NPII and are available to the public.

All creditors with debts that can be claimed in your bankruptcy are then bound by the terms of the offer.

More information is available in the pamphlet: Debts and Creditors

If your offer is rejected

If your offer is rejected your bankruptcy will continue.

Your trustee will:

• keep funds covering the expenses and fees of calling the meeting from any deposit
• refund any money provided for the offer.

Enforcement of the composition or arrangement

The provisions of the offer may be enforced by the Federal Court or the Federal Magistrates Court on an application by an interested person. Disobedience of an order of the Court is contempt and is punishable accordingly.

How is a composition or arrangement varied?

Creditors, with your written consent, can vary the terms by passing a special resolution. If you wish to vary the terms you can make a written request to your trustee. The trustee sends notice to the creditors and, if there is no objection in writing, he or she can vary the terms. If a creditor objects, a creditors’ meeting can be called to consider the proposed amendment. For the proposed variation to be accepted, it must be passed by a special resolution of creditors.

Special resolution – A majority in number of the creditors who vote and at least 75% in $value of the creditors who vote

Setting aside a composition or arrangement

Only the Court can set aside a composition or arrangement where:

• it is unreasonable
• it does not comply with the Bankruptcy Act or Regulations
• false or misleading information has been provided
• there is any other reason that the Court sees fit.

In these cases the composition or arrangement is set aside on the basis that it should not have been accepted initially.

The Court may also make you bankrupt.

Court – The Federal Court or the Federal Magistrates Court

Termination of a composition or arrangement

The Court can terminate a composition or arrangement on application from you, a creditor or the trustee where:

• there is a likely injustice or delay to creditors
• you fail to carry out its terms and termination would be in the interests of creditors
• there is any other reason that the Court sees fit and termination would be in the interests of creditors.

The Court may also make you bankrupt.

If the trustee is satisfied that you are in default, a composition or arrangement can be terminated:

• without holding a creditors’ meeting if all creditors do not object to the trustee’s notice of the proposed termination
• by creditors, by ordinary resolution at a special meeting called to consider the termination.

A composition or arrangement can also be terminated by an event specified in the agreement as causing termination

Ordinary resolution – A majority in number of the creditors who vote

Application to the Court

If you think that you should not have been made bankrupt or should not have lodged your Debtor’s Petition, you may apply to the Court to have your bankruptcy annulled. These applications are rare and you should seek legal advice before making such an application.

Source: Insolvency & Trustee Services Australia 2007

INCOME PROTECTION INSURANCE

Income protection insurance is where the insurer will pay you a specified amount of money if you become disabled and unable to work.

How Income Protection Insurance Works

Income Protection Insurance policies involve the transferring of risk from yourself to the insurer. Instead of you paying for the loss yourself the insurer agrees to compensate you for any losses that arise. When applying for an insurance policy the insurer will complete an assessment on the information you provide and will decide whether to accept the risk (and on what terms). You will then have to decide whether the terms the insurer offers meet your requirements. Be sure to read the product disclosure statement and any terms and condition statements.

Important steps in completing your income protection insurance policy contract

1. Understand exactly what the policy does and doesn’t cover before you sign it. Far too many people read it after it has been signed which is often too late.
2. “Duty of disclosure” Is whereby you are responsible for answering all questions the insurer asks you as accurately and completely as possible. If you do not answer them completely, you may have misled the insurer about the risk they are accepting. And as a result, the insurer may be entitled to refuse to pay any claims.
3. The insurer is required by law to clearly inform you of any restrictions in the insurance policy before you enter into the contract. If they fail to do this the insurer may be penalised.
4. The insurer is also responsible to tell you in writing whether or not they are prepared to enter into a new insurance contract with you before your current policy expires. The law stats that your insurance continues with the insurer if, they have not sent you a letter telling you that your policy is expiring and you have not already arranged other insurance cover.

Be sure to keep your policy documents in a safe place so you can easily find them if you ever need to check your cover or make a claim.

Choosing the right income protection insurance quotes

Before you decide to find the right policy, check to see whether you already have disability insurance through any superannuation fund you contribute to. If you have this you need to find out what it does and does not cover including the payment terms of the policy. This type of insurance is provided under a contract between the trustee of the superannuation fund and the insurer, which covers the members of the fund. This type of insurance is generally known as a group policy and can be cheaper than other income protection policy’s you take out yourself.

Establishing the best income protection insurance cover you want

Once you have decided to go ahead, you need to decide how comprehensive you want the cover to be. The more comprehensive the cover the higher the premiums will be.

These are some of the key decisions you will need to make.

1. Do you want to receive payment for a disability that was the result of an accident, sickness or both?
2. Do you want to receive payment for a partial or total disability
3. Do you want to receive payment for a permanent or temporary disability
4. You will need to understand what disabled means in your policy. Some policies will consider you disabled if you are unable to do your usual occupation or any occupation you have studied and, or trained for or any occupation at all.
5. Will your policy cover you for pre-existing illnesses or sickness
6. How long do you want to receive payments for?
7. You will need to decide on whether or not you wish to receive payments if you are already receiving money from another source such as workers compensation or Centrelink disability payments. Some policies will not make payments if this occurs or they could reduce the payment by the amount you are receiving.
8. You also need to find out if your are covered by the policy even if you weren’t working or unemployed at the time the disability occurred.

What will your income protection insurance benefits be?

This is normally calculated based on your income when you took out the policy or on your income over a number of previous years. If there is not one attached ask the insurer for a schedule to see how much you will receive. Once again the insurer may not have checked you stated income when you complete the income protection insurance policy, but once you make a claim they certainly will so insure you can produce supporting evidence such as tax returns and other supporting documentation.

Completing the application form for your policy.

Ensure you answer all the questions fully and completely as possible, if you need make the agent or broker clarify any area’s you don’t understand. Be sure to complete all the details requested on the form.

There are a large amount of insurance companies which offer this cover and many different types of income protection policies which have different levels of cover and terms and conditions it is best to get financial advice from a financial planner ensuring you receive the best cover for your personal situation.

Disclaimer

This document is for information purposes only, and must not be relied upon as a substitute for professional financial advice or legal advice.

Source: David Reed Financial