Conventional wisdom that retired brokers can live off ongoing trails generated from their trail books may not be providing optimal results for both broker and client, one industry expert has said.
In an interview with
Australian Broker, Trail Homes managing director Nick Young warned of the flaws in this traditional retirement strategy where incomes can significantly decrease within a few years of retirement.
“The problem with trail books is that unless you are adding trails into them each year, they run off at about 20% per annum. Broadly, they halve every three years.”
This means that while a broker may retire with something that looks like a large trail book today, in a few years their retirement strategy can look “pretty sick,” Young said.
He suggested that brokers get in touch with their accountants or financial planners and ask about the tax breaks and super concessions available to small business owners. Those who qualify can potentially sell their trail book capital gains tax free, converting a stream of ongoing trail payments into a lump sum upfront payment.
“That upfront payment is arguably worth a lot more to them than locking into a stream of ongoing payments. When you do the numbers, it’s absolutely black and white.”
The benefits are especially clear for elite brokers who would otherwise be paying 48 cents on the dollar in tax, he said, with those eligible being able to deposit this lump sum payment into their super.
Qualification criteria depends on a variety of factors such as age, length of time in the industry and annual turnover, although Young stressed that it was essential to talk to an accountant or financial planner about this for more details.
While for elite brokers this was a “no brainer,” less successful brokers would not see the same benefits as they fall outside of that top tax bracket, he said.
There was a chance these concessions and tax breaks may soon be reined in due to increasing government deficits, Young added.
While there have already been recent changes to superannuation laws brought in by the Liberal government, Young said that Labor would take these further if it is elected.
“If they are in office, they will look at removing capital gains tax exemptions, further tightening the transfer of money into super, and the sorts of earnings that you can get.”
While the door is open today, it could literally close tomorrow, he said.
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