Friday, 29 July 2011

Why Captain Compare won't save you

by Rob d'Apice
Some of you may have seen Captain Compare advertised on radio or on buses in Sydney.  Perhaps you've seen the (somewhat painful) advert they've thrown on a lot of the major TV networks.

"Go Captain! Go Captain!" ... Yep, I think they've really captured the zeitgeist of modern Australia.

In spite of these cringey branding decisions, we'd welcome with open arms any attempt to help improve competition between Australia's oligopolic consumer industries and empower consumers to more easily make better product decisions.

Unfortunately, Captain Compare isn't your guy. Why? Hold on tight; we'll fill you in.

1. It's owned by A&G Insurance (hint: they offer products in the very market they're comparing)

It's one of those things that, when you learn about it, you ask yourself: how did someone let that happen? Captain Compare is fully owned by A&G Insurance, who also own a wide range of insurance brands: Budget Direct, Australia Post, ibuyeco, Virgin Car Insurance, Cashback, 1st for Women, Retirease and Ozicare.

But hey, if they're comparing all products equally and fairly, then hopefully their obvious conflict of interest shouldn't affect their results, right?


2. They don't compare all products

I don't think our editorial can speak any stronger than their own 'About' page:
As the proud team behind Captain Compare and many of the car insurance brands on this website, A&G Insurance Services is excited to let consumers compare our own award winning car insurance brands [...], right next to other confident providers such as Real Insurance and AI Insurance. Captain Compare will continue to offer all insurers the opportunity to take part. We look forward to growing our list of providers and products in all of our comparison lines.

Yeah, I'm sure they're desperately looking forward to growing their list of direct competitors to their own product suite.

But hey, if they're offering a great comparison engine, then at least there's some utility for consumers there, right? Well, here's the coup de grace in this corrupt, incompetent trifecta:

3. It's not actually useful

Have a look at their credit card comparison tool. This is what we got from it:

  • It firsts asks you do select a category of card types ('low interest', 'reward cards', 'balance transfer').  But what if a consumer doesn't know which type is best for them?
  • It then presents a mysteriously unsorted list of cards fitting that category.  How do I know which of these cards is the best?  The top result?  Why?
  • I can re-sort the results by annual fee, interest rate, or reward points per dollar spent. But don't I want to find a card that has a good balance of these features depending on my situation?
  • I can enter the how much I spend or how often I pay back. But the inputs are completely relative ('a little', 'moderate', 'lots') - how the do I know if my 'lots' is the same as someone else's?

... We could go on and on. Ultimately, though, we just get the strong feeling they've pumped all their resources into expensive advertising campaigns instead of actually trying to solve a real consumer problem.

Our Philosophy

At Prosple, we're trying to pick up where sites like Captain Compare fall down. We're holding to the following principles very tightly:
  • It must empower consumers. That means providing information on how products work, what matters and what doesn't when you are comparing them, and how to make sure you get the most out of them (and don't get screwed).  If the answer for you is 'you shouldn't have a credit card', then we want to help you get there!
  • It must compare as much of the market as possible. If we want to drive more competition in Australia, we need to make sure we're covering everyone. Encouraging you, Australia's pro-active consumers, to switch to companies that offer better products at lower prices is the only way to drive innovation in our stuffy oligopolies.
  • Our business model mustn't compromise the above. We want to build a business that is sustainable: that means it must earn enough money to pay for its costs. But we want to make sure that this doesn't sideline consumers in anyway. We've got some ideas on how to do this, but we're definitely going to need your help to make it work.
We're so close to getting started with this new brand; we've got a lot of really exciting things in store!

So keep watching this space!

*     *     *

Have you used Captain Compare? Or have you tried other comparison engines? Let us know what you think of them - what you like and what you think they could do better!!

Tuesday, 19 July 2011

10 Tips for 2011 Tax time

by Rob d'Apice
As is likely no surprise to you, income taxation is fundamental to making our Australian society work. In fact, 43% of the Government's expected revenue in the 2011-12 financial year is derived from it.

Total government revenue 2011-12.  Source

Paying income tax is the responsibility of all Australians such that we can get welfare to the less fortunate, public hospitals, free or low-cost education, critical infrastructure and really expensive, faulty, unused, unnecessary, Australian-made submarines.

It's important to know, though, that the government has designed a series of complex rules regarding the quantum of tax you should be liable to pay.  An oversimplification of these rules might suggest that they come from two different sources:
  1. The broad principle that any expenses incurred in the course of earning taxable income should be tax deductible; and
  2. A variety of tax incentives/penalties designed to encourage/discourage certain behaviour (eg charitable donations, private health cover for the rich, having lots of babies, etc.).
It's important that you understand these rules, at least to the extent that they impact you. Ignoring them can lead to two unfortunate results:
  1. You don't pay enough tax. The tax office has powers to review your tax return many years after its submission, meaning that you can still be liable for mistakes you have made many years in the past (they won't simply forgive the amount owing - you'll need to pay it all back).
  2. You pay too much tax. Ignoring the rules might mean you are paying tax on income that the government decided you shouldn't have to pay tax on (and your fellow taxpayers aren't paying tax on).  Finding $1,000 worth of deductions to which you are entitled could mean reducing your tax liability by several hundred dollars.
So, on that note, here's our 10 Tips for 2011 Tax Time!

Disclosure: we are not tax accountants or tax lawyers.  We can't guarantee the accuracy of this information.  When in doubt, consult a tax lawyer or the ATO.

1. Understand the Basics

Gross income.  Your whole income before any deductions and before any tax is applied (this amount will be bigger than your 'take-home' cash, that already has tax withheld from it).  Gross income includes regular PAYG income, bank interest, investment returns, government welfare, and services you may have charged for as a contractor (if you have your own ABN).  See Tip 3 for more.

Deductions.  Expenses you have incurred that are 'tax deductible'.  This means that the whole amount of the expense is deducted from your Gross income before tax is applied.  Conceptually, think of it as netting our the gains of your employment (Gross income) with the costs associated with your employment (deductions) to work out the net amount that you 'really' earned from your employment, in other words your...

...Taxable income. Gross income less deductions.

Medicare Levy. A levy charged to all Australians (1.5% of taxable income), unless you qualify for reduction or exemption.  You can qualify if you have a low income, are in medical hardship, are residing overseas or you are a temporary resident in Australia and are not entitled to Medicare.  E-tax will calculate your eligibility for exemption.

Medicare Levy Surcharge.  An additional 1% levy payable if your taxable income is greater than $77,000 (or $154,000 for couples/families) AND you do not have an adequate level of private health insurance.

Gross tax payable. The total amount of income tax (including medicare levy and surcharge) based on your taxable income.

Offsets. An entitlement that reduces your Gross tax payable by a specified amount.  For example, the (unnecessarily complicated) Low Income Tax Offset (best explained here, but you don't really need to know the details - E-tax does the grunt work for you).

Tax Refund / Tax Debt.  Your Gross Tax Payable, less Offsets, less total Taxes Withheld (the tax your employer has already paid for you).  If this number is negative, you've overpaid tax and the ATO will send you your money.  If it's positive, you owe more tax than you've paid and you have to send it to the ATO.

2. Get E-tax

If you've ever done your tax before, you've used it.  E-tax 2011 is an application built by ATO that helps you lodge your tax return. The interface is questionnaire-based, and there's plenty of (perhaps overly) detailed help along the way, so if your situation isn't too complicated it's the best way to DIY your taxes.

It's Windows only, though, friends.  You (we?) mac-lovers will have to head to your parents house to get it running. (The upside? The costs associated with your journey are tax-deductible! Yep, any costs associated with lodging your tax return are tax deductible.)

3. Declare all your income

If you're working, your employer(s) should give you a PAYG statement that will list your 'Gross Payments' (the total amount of money you earnt, inclusive of tax) and your 'Total Tax Withheld' (a portion of your Gross Payments that your employer didn't pay you, and instead forwarded to the ATO as a tax payment on your behalf).

All your PAYG should obviously be entered into E-tax.  However, there are a few other key sources of income that young people should be aware of:

  • Youth Allowance / Newstart Allowance (or other centerlink payments).  Centrelink should send you a statement with your total payments, including any amounts of tax withheld. (Item 5)
  • Bank account interest. You should include any interest you earned from online savings accounts, transaction accounts or managed fund investments. Often net-banking interfaces will have a section for showing you this exact information. (Item 10)
  • Personal Services Income. If you have an ABN, and have used it to invoice a business as an independent contractor, you need to declare the amounts you were paid. (Item 14)

4. Deductions: know when you need written evidence

If your total work-related tax deductions are less than $300, you do not need to keep written evidence for these deductions (but you do need to be able to show how you worked it out, if requested).  

If you are claiming more than $300 in total work-related expenses, you'll need to keep written evidence.  It won't be submitted to the ATO, but the ATO can request for up to 7 years.

IMPORTANT: Written Evidence doesn't have to be receipts. Written evidence can include bank or credit card statements, email receipts or BPay receipts. All of this stuff is easily stored online, should the ATO request it. Additionally, many receipts, like internet and phone services, can be emailed to you instead of sent by paper.  This is not only good for the planet, it's great come tax time.

To qualify as Written Evidence, a document must have:
  • The name of the supplier
  • Amount of the expense
  • Nature of the goods or services (if not shown, you may write this on the document before you lodge your tax return)
  • Date the expense was incurred, and
  • Date of the document
A credit card or bank statement showing the relevant transactions can cover of all of these points.

Note that special 'written evidence' rules apply for car expenses, meal allowance, award transport payments allowance, and travel allowance expenses. E-tax will give you the details when you get to these questions.

5. Deductions: do you use your mobile phone or internet connection for work?

If you make calls on your mobile phone, or use your home internet connection for work, you can claim the expense as a tax deduction.  Your mobile phone statements, or your creditcard statements, can count as 'written evidence'.  Put this under Item D5 - Other Work-related expenses.

If you use a mobile phone or internet connection for both personal and work purposes, you need to attribute a percentage of the total cost to work-related expenses.  The written evidence required for this is an analysis of 4 weeks of usage - dividing up how much usage was work-related and how much was personal. The % split can then be used for the whole year's worth of expenses. The ATO suggests looking through a phone bill and working out the % of calls that were work-related vs personal, but it's somewhat ambiguous now that mobile phone plans include add-on services like data, SMS, etc - just make sure whatever approach you take is defensible if the ATO requests your documentation.

6. Deductions: Use computer hardware/software for work? Welcome to the whacky world of depreciation.

If you use your home laptop or desktop computer and peripherals for work, you can claim the cost of these goods as a tax deduction.  While depreciation is scary on the surface, this is a good example of something that is actually fairly simple being presented in a crazily complex way.

Firstly, you need to be able to divide the expenses based on personal/work usage.  This can be done using the sample 4 week sample ratio methodology as above. The ATO's website suggests keeping a diary of usage for 4 weeks then calculating the ratio based on time. Again, just make sure you could defend your approach.

If the total cost if less than $300, you can claim the total expense immediately as a full deduction in this financial year. Answer 'yes' for Item D5 - Other work-related expenses, and put the item in table at the top of the next page. No depreciation needed. Easy.

If the cost is greater than $300, you need to depreciate the expense over-time.  In simple terms, if you buy a $1,500 computer that will last 3 years, you can claim $500 this financial year AND $500 in the next two financial years.

E-tax will handle the calculation for you, but it's not as easy as the above example suggests.  Go to Item D5 - Other work-related expenses, then click the 'Decline in value' button under the table.  This opens up a worksheet that needs to be completed for each item that you are depreciating. Here's a run through of the key information you need to fill out (let me say again: it seems much more complex than it really is):
  • Description of the asset
  • Personal use percentage. As per the methods described above.
  • Date acquired
  • Cost
  • Asset type. Pick from the drop down list. Computer devices are 'Other than motor vehicles'.
  • Depreciation rate and method. You can choose whether to use Prime cost (aka Straight line) or Diminishing Value depreciation.  Diminishing Value will give you a bigger deduction in the year of purchase, but the deduction will decline over time.  Prime cost will give you the same deduction in each year.  We've generally chosen Diminishing Value to see a big deduction in the first year, but if you know that you're likely to have a much larger tax exposure in later years, it may make sense to choose Prime Cost.
  • Effective life in years.  You can make your own estimate of effective life of the asset (for computers, 3 or 4 years is good).  The commissioner has made a bunch of recommendations, too.
  • Have you self-assess the effective life for this asset?  Yes. Yes you have.
The remaining fields should be calculated for you. If you have more assets you want to list, click 'Create new worksheet' on the left.  Otherwise, click 'next'.

Bonus Tip: you can easily roll-over this information for next financial year, and E-tax will remember how much to depreciate in future years.  Just make sure you keep you .TAX file so you can import it (or 'roll-over') next year.

7. Deductions: Find your donation receipts

Given money to a charity? Have friends hit you up with their Movember/Dry July/Oxfam work campaigns?  Search through your inbox to find your donation receipts, as all these donations are tax deductible.  Chuck them into Item D9 - Gifts or donations.

8. Deductions: Work-related books, magazines or equipment?

You can claim the cost of work-related books, work-related journals and/or work-related magazine/newspaper subscriptions.

Do you have a work brief-case or workbag? Tools that you bought yourself for work? A travel suitcase you use for work? These can also be claimed (but remember you need to depreciate any equipment whose total cost is greater than $300, see Tip  6).

All of these expenses go in Item D5 - Other work-related expenses.

Work things you can't claim: 
  • Travel to and from work is generally not deductible - travel expenses are only claimable if it is incurred in the course of your employment, to move between two different jobs, OR if you need to use it to carry bulky tools or equipment that you can't leave at work. 
  • No, your work clothes (and laundry) aren't deductible! You can only claim a deduction for clothes and their laundry if they are 
    • compulsory work uniforms that are unique (designed and made only for the employer) or distinctive (the clothing has a logo on it and isn't available to the public), OR
    • occupation-specific clothing that is not 'everyday' in nature and would allow the public to easily recognise your occupation (eg chef's checked pants), OR
    • protective clothing, ie clothing you wear to protect yourself from the risk of illness or injury posed by your income-earning activities (using an expensive suit to protect yourself from humiliation does not count, sorry).

9. Deductions: Getting Austudy, ABSTUDY, or Youth Allowance?

If you are receiving Austudy, ABSTUDY or Youth Allowance to study, you can claim the cost of textbooks, stationery, student union and course fees, and the decline in value of the computer equipment you use for study. This is brand new policy as a result of a High Court challenge last year.

Put this stuff in Item D4 - Self-education expenses.

10. Complex situation?  Get help. 

Tax accountants do this for a living.  If you've got a complex situation (eg kids, investment properties, sole trader businesses...) then it's prudent to see a tax accountant. Not only can they generally pay for themselves in claiming deductions you didn't know you were entitled to, their fees (and all expenses incurred in engaging them) are a tax deduction.

You can also consult the ATO's fairly clumsy website. The help documents embedded in the E-tax software package are also quite useful for the nitty gritty issues that might pertain to you.

Done?  Now: Prosple needs you!

The Beta version of Prosple is live.  Prosple will assess your financial health, and give you a bunch of targeted recommendations on how you can make your money healthier. We want your feedback on our tools, and how we can make them even better.
Create your financial profile on Prosple now >

*    *    *

Need more info on some of the things we've talked about in this post? Got some tips you think we've missed? Please let us know in the comments below!!

Monday, 4 July 2011

The free perks that come with your card

by Rob d'Apice
Many premium credit cards come with a couple of really valuable extras: complimentary travel insurance (when you purchase return airfares with your card), extended manufacturer warranties, loss/theft insurance on purchased goods and free concierge services.

Now, before you say "Shut your mouth, Prosple! Cards with those services are only for the filthy rich!", many of these freebies can actually be worth much more than the additional annual fee cost that is usually associated with these cards. Let's go through each of the premium benefits one-by-one so you can understand just what you can get (and how much it can be worth to you).

1. Travel insurance

Many cards include complimentary travel insurance spanning anywhere from 3 to 12 months, if return airfares are purchased with your credit card. This is possibly the biggest benefit from premium cards depending on how much you travel.

For example, our dear friend Hugo is travelling to the americas for 6 weeks, spending most of his time in the US. Travel insurance with Covermore would cost Hugo $302, with an excess* of $250. However, if Hugo had the Westpac Earth Gold card, and paid for his flights with that card, he'd get a very similar level of insurance coverage free of charge, with an excess of $200. The annual fee for the Westpac Earth Gold is only $125, meaning he's saving $175 - PLUS Hugo will earn Qantas Frequent Flyer points on all purchases on the card (including the flights he just bought).

*For the less insurance-literate of us, an excess is an amount payable by you in the event of a claim. For example, if you lose a laptop during your trip worth $2,000 and need to claim back the amount on travel insurance, you will receive $2,000 LESS the excess of $250.

2. Extended Warranty

We're fairly public about our love for Apple products. One big annoyance, though, is the limited and expensive insurance available with the product - Apple Care for a Macbook can cost more than 20% of the laptop cost itself.

Hugo just told us that he has cancelled his overseas trip (and luckily hasn't lost any money on the insurance, since he got it for free from his card anyway), and has decided to spend that money on a Macbook for use with Uni studies.

He buys the $2,099 Macbook Pro, then ponders over the option to bundle in 'Apple Care' for $449. This will extend his warranty from 1 year to 3 years, and will provide him with technical support by phone for those three years too. His other option is to buy the laptop using his Westpac Gold card (annual fee $125), which will automatically extend the manufacturers warranty by 12 months.

Hugo does some more investigation and decides to upgrade his credit card to the Westpac Earth Platinum (annual fee $250) - this card provides an additional 24 months manufacturers warranty. So he's now receiving the same warranty as apple care for $199 less (PLUS he's earning even more Qantas points and can now get upto 6 months of travel insurance, instead of 3...)

Note that the extended warranty applies to all purchases with a warranty - it also covers the bed, fridge and TV that Hugo buys for his college room that year.

3. Purchase Protection

In his first week at college, Hugo gets uncharacteristically inebriated and his Macbook mysteriously vanishes. Unfortunately for him, theft is of course not covered by the manufacturer warranty.

But his Westpac card saves him thrice - the card comes with four months of free theft, loss or accidental damage protection (up to $125,000 of total claims covered per annum). This means Westpac insurance will replace his laptop at no cost.

Wait a minute, are you in bed with Westpac?

Nope. We've just highlighted it as an example here; in terms of insurance, however, it is one of the best value for money cards on the market (no other card has 24 months extended warranty, for example). Commonwealth Bank actually has the longest complimentary travel insurance policies on its platinum cards - up to 12 months.

So what's the best card for premium services? It depends a lot on you. Fortunately, our credit card comparison tool is well on the way: it allows you to filter cards based on these premium services. You can use the tool to find the card that saves you the most money, but that has at least 2 months travel insurance and 12 months extended warranty, for example.

Interested in being involved in our beta testing? Let us know now! We're currently building our beta testing database. NB: if you've already emailed - don't worry! You're on our list.

Anything else I should know?

Two important things to keep in mind:

  • Always compare the actual insurance policies available on each card. Claim limits and excesses can vary substantially between policies.
  • Always keep the receipt for your significant purchases. All insurance policies require that you have proof of purchase.

Have you ever used insurance or extended warranties that come free with your credit card? Let us know in the comments below!