Author Archive
Tax Newsletter – November/December 2017
November 3, 2017 | 
Author Consultation paper: combating phoenix activities
The Federal Government has released a consultation paper proposing company and tax law reforms to combat phoenix activities.
Phoenix activities involve stripping assets from a company that’s in debt and transferring them to another company to avoid paying the first company’s liabilities – that is, the new company “rises from the ashes” of the old one.
The government is considering a range of ways to combat this type of activity, including setting up a hotline for phoenix reporting, adding phoenixing to the offences specifically prohibited under the Corporations Act 2001, making directors personally liable for companies’ unpaid GST, and limiting the ability for sole directors to resign unless there is a replacement director or the company is wound up.
New passive income test for lower corporate tax rate
The Federal Government has recently introduced a Bill into Parliament to ensure that companies with more than 80% passive income will not qualify for the reduced company tax rate.
Under the Bill’s changes to the Income Tax Rates Act 1986, calculations of a business’s “passive income” would include:
- distributions by corporate tax entities (other than non-portfolio dividends);
- franking credits attached to such distributions;
- non-share dividends;
- interest;
- royalties;
- rent;
- gain on qualifying securities;
- net capital gains; and
- amounts included in the assessable income of partners in a partnership or beneficiaries of a trust estate that are referable to another base rate entity passive income amount.The lower company tax rate of 27.5% is available in 2017–2018 for small businesses and corporate base rate entities with turnover of less than $25 million.
- At the time of writing, the Bill is still before the Parliament. When passed, it will apply from the 2017–2018 income year.
tip: You must also “carry on a business” to be eligible for the lower corporate tax rate – read on to find out more about what this means for companies.
ATO guidance: what is “carrying on a business”?
The ATO has issued a draft taxation ruling to explain the factors it will consider when deciding whether a company (incorporated under the Corporations Act 2001) is “carrying on a business”. This is one of the tests companies and small businesses must pass to be eligible for the lower corporate tax rate.
It’s not possible to definitively state whether a company carries on a business, but the draft ruling says that ATO will consider a range of indicating factors. Specifically, a company is likely to be carrying on a business if it:
- is established and maintained to make a profit for its shareholders; and
- invests its assets in gainful activities that have both a purpose and prospect of profit.
tip: Wondering whether you can access the reduced corporate tax rate? Talk to us today to find out more about how the passive income and carrying on a business tests apply to your situation.
Total superannuation balances and pension transfer balance account reports
The concept of a person’s “total superannuation balance” is now being used to determine whether you are eligible for various super concessions, including the $1.6 million balance limit for non-concessional contributions, Federal Government co-contributions, the spouse contributions tax offset, carrying forward unused concessional contributions and self managed superannuation fund (SMSF) segregation.
The ATO has recently agreed to modify the reporting obligation for total superannuation balances, recognising that some funds are not in a position to correctly report their correct accumulation phase value for 30 June 2017.
The ATO has also set out when superannuation providers and life insurance companies must lodge transfer balance account reports. The ATO will use the reports to determine if individuals have exceeded their pension transfer balance cap.
An administrative concession will be provided for self managed superannuation funds (SMSFs), allowing later reporting to help the funds transition to event-based transfer balance cap reporting.
TIP: Super shouldn’t be a “set and forget” arrangement. It’s important to revisit your strategy and consider it carefully, especially in light of the wide range of super changes announced in this year’s Federal Budget.
Fringe benefits tax: should an Uber be treated as a taxi?
Earlier in 2017, the Federal Court ruled that UberX drivers must be registered for GST, because they supply “taxi travel”. There has been much discussion of this finding since, and the ATO is now examining whether Uber trips should be eligible for the “taxi travel” FBT exemption.
The FBT exemption, introduced in 1995, currently only applies to travel in a vehicle that is state or territory licensed to operate as a taxi. However, with the Federal Court’s decision on GST for Uber, and some recent state and territory moves towards licensing changes, the ATO has decided to review its interpretation of the definition of “taxi” in the FBT law.
TIP: Any benefit arising from taxi travel by an employee is exempt from FBT if the travel is a single trip that begins or ends at the employee’s workplace.
In a discussion paper open for comment until late October, the ATO has asked questions such as, “Should the FBT definition of ‘taxi’ be interpreted to include not just vehicles licensed to provide taxi services … [but also] ride-sourcing vehicles and other vehicles for hire?”
TIP: Any benefit arising from an employee’s taxi travel is also exempt from FBT if the travel is a result of the employee’s sickness or injury and the journey is between the employee’s workplace, residence and/or another place appropriate because of the sickness or injury.
Tax treatment of long-term construction contracts
In new Draft Taxation Ruling TR 2017/D8, the ATO explains the methods that taxpayers can use to return income derived and recognise expenses incurred in long-term construction projects. A construction project is considered long-term if it straddles two or more income years.
Two methods of accounting are available: the basic approach (essentially the accruals method) and the estimated profits approach.
Once a particular method is chosen, the ATO expects the taxpayer to apply it consistently for the entire contract. The same method should also be applied to all of the taxpayer’s similar contracts.
The draft ruling also deals with several accounting methods that the ATO does not consider acceptable for long-term construction contracts, including the completed contracts method (bringing profits and losses to account when the contract is completed).
Foreign equity distributions to corporate entities
Two recent taxation determinations from the ATO deal with how the foreign equity distribution rules in the Income Tax Assessment Act 1997 apply where the distribution recipient is a corporate partner in a partnership or a corporate beneficiary of a trust.
Under the rules, a foreign equity distribution is treated as non-assessable, non-exempt income if the recipient is an Australian corporate tax entity that holds a participation interest of at least 10% in the foreign company making the distribution.
The ATO’s view is that a partnership or trust can hold a direct control interest in a foreign company for the purposes of the rules, so that an Australian corporate tax entity can have an indirect participation interest in the foreign company via the partnership or trust.
Posted in 
Property Newsletter – October 2017
Lenders continue policy changes following APRA restrictions
Most property investors are aware of APRA’s recent clampdown on lending in the Australian residential mortgage market, however some have been caught unprepared for the implications. What are the actual changes that have been implemented and how do they affect investors?
The Australian Prudential Regulation Authority (APRA) is the national regulator for banks, credit unions, insurance companies and most of the superannuation fund industry. It is largely funded by the industry it regulates.
Essentially, APRA provides guidelines to the banks and other institutions to ensure they are not over-committing themselves. Failure to adhere to these guidelines will result in substantial fines to the institution.
APRA has been closely monitoring residential mortgage lending in recent years due to heightened activity and growth in the Sydney and Melbourne markets, and has imposed restrictions in a bid to cool off some of this activity.
Lenders have been ordered to reduce their mortgage exposure and reign in investment lending growth, with interest-only loans being targeted in particular.
As of March this year, limits were put in place for interest-only loans to amount to no more than 30% of new loans – or roughly 1 in every 3 loans – and rates increasing substantially on this type of loan.
Servicing rates have also changed, which are what the banks use to calculate the repayments on the loan you are applying for, and this is then used to determine how much you can borrow. Currently, banks are using a pre-determined interest rate to calculate your repayments, regardless of your actual rate.
Such substantial changes can have a significant impact to investors, as demonstrated in a recent webinar held by two of our mortgage specialists, Ashleigh and Scott. They uncovered some real-life examples of the effects of these changes, and the advice they’re giving to clients. You can catch the webinar here.
Deals and Don’ts – Bassendean, South Perth, Greenwood
Here we take a look at just some of the different properties on the market and explain why they’re either deals (that represent a good investment) or don’ts (that should be carefully avoided by investors).
Deals
Bassendean Purchase price: $530,000 Purchase date: August 2017 Block size: 878sqm corner block Specification: 3 bedroom, 1 bathroom, lock up carport, built in 1971, zoned R20.
Deal: This property represents a good deal because of its corner block location. Under the Bassendean local planning scheme, corner blocks receive a density bonus, increasing this property’s zoning from R20 to R25 and giving it good development potential. Approximately 90% of its value exists in the land component yet the property is still in good rentable condition.
South Perth Purchase price: $677,500 Purchase date: April 2017 Block size: 227sqm Specification: 3 bedroom, 2 bathroom, double garage, built in 1993, zoned R25/40.
Deal: This street-front townhouse in a small complex of three represents a deal because of its excellent location. Tucked away in a desirable pocket of a blue chip suburb, it is situated within 3km of the Perth CBD, and within walking distance to the South Perth foreshore and café strip. The townhouse is in good condition and will be easily leased at a yield close to 4%.
Greenwood Purchase price: $538,000 Purchase date: July 2017 Block size: 689sqm Specification: 4 bedroom, 2 bathroom, double car port, built in 1979, zoned R20/60
Deal: This green title home represents a deal because of its location within the suburb and its significant development potential. Situated in a quiet cul-de-sac the property is within 600m of the Greenwood Tran Station and just a short walk to a local park. Its zoning means the land can be developed into multiple lots in the future.
Don’ts
Huntingdale For sale price: Offers above $350,000 Block size: 716sqm Specification: 4 bedroom, 1 bathroom, single garage, built in 1977, zoned R17.5
Don’t: This property doesn’t represent a good investment because it’s located on the busy Warton Road and would frequently be disrupted by noise and traffic pollution. The house is in original condition with no major improvements, so attracting quality tenants would be difficult. It has been on the market for over a year proving there is little demand from buyers.
3 questions to ask when investing in commercial property
When investing in commercial property, many investors seek out research and statistics to aid in their decision, only to discover the actual performance of the property is vastly different. Why does this happen and what should investors look for instead?
There is a myriad of statistics offered in property industry publications, such as rental yields, vacancy rates, capital growth, incentives, land value, and replacement value. The problem for many investors is they base their purchase decisions on these figures, only to find their commercial property performing very differently down the track.
It’s not that the statistics are necessarily incorrect – but they may often be incomplete or irrelevant if the investor simply takes them at face value. This data is only useful when you’re asking the right questions.
Here are 3 questions every commercial property investor should ask before their next purchase:
- Are the statistics relevant to the investment location? Large research houses will generally focus on locations with a higher concentration of property. This means that numbers for the office segment, for example, tend to be from the city centre. Industrial figures may be from one or several key industrial locations. But it’s important to keep in mind that commercial property vacancy rates and rental incomes can vary widely from one suburb to another – even when they are only a few kilometres apart. For instance, the Perth office market has rental vacancy rates ranging from 2% to well over 50% in different suburbs. If an investor has the CBD rental vacancy in mind but purchases a suburban office property, they may find this a poor indicator of the property’s performance.
- How important is the size of the property? Most investors will have a budget which will likely influence the size of property they consider for purchase. In some cases, a commercial investor will choose to buy several smaller properties instead of one large one because it may seem less risky. This would be a good strategy if the performance of different-sized properties was consistent. Unfortunately, the yield and vacancy of a commercial property can be significantly affected by the property size and grade. For example, a smaller property that works well for an owner-occupier may not be suitable for attracting quality, long-term tenants. Generally speaking, rental yields are lower for smaller properties and they typically fall vacant more often, which means less income and greater re-leasing costs over time. So is larger always better? Having a larger budget won’t necessarily result in a higher return, but it does provide more opportunities to source a quality property. For some, this could mean opting for a different location in order to obtain a higher-quality property. For others, they may decide their best option is to invest with others in a property trust, and own a smaller percentage of a high-performing portfolio instead of owning 100% of a smaller property.
- Are there any hidden factors influencing the rental yield? Commercial properties are often advertised with a passing yield percentage. Purely assessing this figure on face value might attract an investor to a property or make them dismiss it straight away. Unlike residential property transactions which are fairly transparent, there can often be factors influencing commercial leasing and sales listings which are not on record. For example:
- A vendor offers to lease back a property at an above-market rate, but a credit search shows the business is in trouble and may not be able to meet the terms of the lease long-term
- An office has a high rental yield, but there are several incentives built into the lease that will effectively lessen the yield over the next 2 years
- The yield for a retail property is below market, however it turns out that the supermarket tenancy is bringing on new managers which will have a positive impact on the performance and income of the centre
Without professional connections, it can be difficult for investors to access all of the relevant information on a property. Not having all the information can turn a commercial investment into a costly exercise, so it’s wise to seek professional advice before making any purchase decisions.
If you want to learn how to get started in commercial property, check out this useful guidebook from our sister company, Mair Property Funds.
Boom in Jobs as Resources Take Off
A new report revealed a 30% rise in job vacancies in the last year.
A jobs bonanza is about to be unleashed with thousands of construction and operational jobs forecast for at least 15 different mining projects.
Although the sector has been in the doldrums for several years, the Chamber of Minerals and Energy claims confidence has finally returned.
Analysis by The Weekend West of 15 mine projects that have been approved or are likely to go ahead within years shows about 10,000 new construction and operational jobs.
The list considers most of the major new projects due in WA within a few years but is not a comprehensive tally of all upcoming projects, expansions, extensions or upgrades.
Iron ore projects are leading the charge, after a resurgent spot price, which rose to $US75 a tonne last week from $US31.50 in January last year.
Lithium — a key ingredient in the batteries that power electric cars — is also responsible for thousands of jobs in WA, though gold producers claim they may have to cut positions if the State Government’s planned increase in the gold royalty goes ahead.
CME acting chief executive Nicole Roocke said most commodities — excluding gold — were in a strong position.
“The industry is a lot more optimistic now and is well-positioned for new growth opportunity and replacement mines,” she said. “There is a sense of stabilisation in the sector.
“We have to be careful about (calling it a) jobs bonanza, but there is an increase in job opportunities and advertisements, and with that we are seeing an impact on wage pressure as well.”
The DFP Resources job index out this week showed a 29.6 per cent rise in WA job vacancies in the year to August compared with the same period the previous year, in fields including geology, drilling, engineering, business support, operational managers and trades.
Pilbara Minerals managing director Ken Brinsden said lithium was an important new subset of WA’s resources economy.
Pilbara Minerals is investing $235 million in its Pilgangoora project, creating 400 construction jobs until mid next year.
It will create about 150 operational jobs thereafter.
“The lithium sector itself is the new kid on the block in terms of commodities that WA is investing in, but I am really optimistic about it being one for the future of WA,” he said.
“I think WA is going to be a really important global supplier to the global market.”
Mr Brinsden said the gold industry was partly responsible for buoying the WA resources sector last year by helping lift confidence. Changes in the global economy had also lifted it out of a slump.
“The market has definitely turned a corner, for sure,” he said. “We saw the bottom of the market about mid last year and in the period of time since there has been a general uptick in mining — in most commodities — and I think that is reflected in the level of activity.”
Northern Star Resources chairman Bill Beament said the State Government’s gold royalty hike could drastically undermine the sector that had been crucial in restoring WA’s resources confidence.
He said the royalty hike would affect coming decisions by WA’s three biggest gold mines over whether to extend mine life, which were due in the next six to 12 months.
“A lot of people made investment decisions based on a royalty scheme they were promised was never going to change,” he said. “So a 50 per cent increase is going to put a lot of people’s expansion’s and future extensions of life … into jeopardy.”
The Weekend West revealed last week the number of mineral exploration licence applications — known as the canary in the coal mine because the number indicates the amount of work in the pipeline — was up 45 per cent in the June quarter, at 669, compared with 460 in the June quarter the previous year.
The annual figure was up 29 per cent last financial year compared with 2015-16.
Mining tenure applications — usually the first step in setting up a mine project — rose 14 per cent from 3685 in 2015-16 to 4197 in 2016-17.
The demand for professionals involved in exploration has been so intense that skills shortages are starting to emerge in some fields, such as exploration geologists, drillers and underground engineers.
Mine projects that will definitely or most likely commence in the next few years in WA:
Rio Tinto – $US2.2 billion Koodaideri – 1600 construction jobs and a 600 operational staff if approved – 2017 to 2021
Rio Tinto – $US338 million Silvergrass – 500 construction jobs from early this year, operational job numbers not available
Rio Tinto — Yandicoogina mine – 470 construction jobs from this year, operational job numbers not available.
BHP Billiton – $US3.2 billion South Flank – several thousand jobs – 2017 to 2021
Newcrest — Jundee and Kalgoorlie mine expansions — 200-300 jobs (if gold royalty hike does not go ahead) — due late 2017/early 2018, operational numbers not available.
Pilbara Minerals – $235 million Pilgangoora project — 400 construction jobs and 150 operational jobs — construction until mid 2018.
Altura Resources – $139 million Pilgangoora project — hundreds of jobs — construction from March this year and operational from early next year.
Talison Lithium – $340 million Greenbushes expansion — 200 construction jobs from May 2017, 40-60 operational jobs from mid 2019.
Tianqi Lithium – $400 million Lithium Hydroxide plant and a possible $317 million expansion —500 construction jobs — phase one to finish late 2018 and the expansion would finish late 2019
Dacian Gold – $200 million Mt Morgans gold project — 330 construction jobs and 300 operational jobs — construction underway and due for completion early next year.
Gold Road Resources/Gold Fields – $532 million Gruyere gold project — about 500 construction jobs and 300 operational jobs — timing not available.
Gascoyne Resources – $100 million Dalgaranga gold project 180 construction from December until mid 2018, 250 operational jobs from March 2018.
Sheffield Resources — $350 million Thunderbird mineral sands project in the Kimberley — 200-300 construction jobs — commencing later this year
Iluka – $250 million – $275 million Cataby mineral sands project — 220 construction job, 120 operational jobs — construction likely to start next year.
Blackham Resources – $115 million Wiluna expansion — 100 construction jobs, 80-100 operational jobs — construction to commence mid 2018, operational from mid 2019.
Northern Minerals – Browns Range rare earth project Kimberley
Kidman Resources – Mt Holland lithium project
FMG – Eliwana or Nyidinghu replacement options for Firetail mine, both in feasibility stage.
FMG – Iron Bridge magnetite project, in feasibility stage.
WA Budget a Positive for Property Investing: Momentum Wealth
The WA Labour government’s first state budget is relatively positive as there are no direct increases to property costs for residents of Western Australia though foreign investors will face new taxes, according to property investment consultancy Momentum Wealth.
The government, recognising that the market was still recovering, decided to leave land tax, stamp duty exemptions and first home owner grants unchanged. Lobbying from key property industry bodies such as REIWA and Master Builders WA helped.
Momentum Wealth managing director Damian Collins said the fact that there were no major changes directly effecting domestic buyers was “important for the rebounding industry”.
A recent report by Momentum Wealth said that Perth’s property market had entered a recovery period amid tightening housing supply, with better affordability and a strengthening labour market being tipped to draw buyers back.
However, there will be a four per cent foreign owner duty surcharge introduced on purchases of residential property by foreign individuals and entities from 1 January 2019, which aims to increase state revenue by $48 million by 2020/21.
“While there could be a slight impact from this, foreign investment only represents a small proportion of the WA property market, instead, the billions of dollars’ worth of key transport infrastructure spending will put the property market in a strong position to continue its steady recovery,” Collins said.
“It is also encouraging to see such positive estimates for the economy which supports our view on the recovery of the residential property market as well,” Collins said.
He added competition was already increasing along with confidence.
Road and rail infrastructure has been the main focus of the budget with billions of dollars put aside to increase the networks, including 20 road projects totalling $2.7 billion.
The budget announcement also included the identification of the first stage of funding for Labour’s ‘Metronet Plan’ with a total of $1.34 billion over the next four years of the project.
“Property owners will also welcome the investment in infrastructure, in particular public transport infrastructure, as it adds to the amenity of the nearby residential areas and is a strong driver for property price growth as well,” said Collins.
The infrastructure improvements in the first stage include:
– $535.8 million for the construction of the Thornlie to Cockburn line with new stations at Nicholson Rd and Ranford Rd. – $520.2 million for the construction of a 13.8 kilometre rail extension from Butler to Yanchep which includes new stations at Alkimos and Eglinton. – Continual planning and detailed design for the next stages including the Morley-Ellenbrook Extension, the Midland Station Project and the Byford Rail Extension.
Vacant Perth rental properties drop below 10,000
For the first time since January 2016, the number of vacant rental properties in Western Australia’s capital have fallen below 10,000, which may be indicative of future rent rises.
Data from the Real Estate Institute of Western Australia shows the fall of vacant Perth properties to 9,990.
Shane Kempton, chief operations officer of Professionals Real Estate Group, said this fall is significant and attributes it to an increase of investment in the resource sector and improvement in WA’s state economy.
In comparison to this time last year, there were 10,924 vacant rental properties.
“Over the past two years, there has been a surge in vacant rental properties in Perth due to weak population growth and a boom in new home construction. The number of vacant rental properties in Perth peaked well over 11,000 earlier this year and has been on a steady decline since,” Mr Kempton said.
“With the number of vacant rental properties on a downward trajectory, Professionals is predicting that by mid next year landlords in Perth will be able to review their rents upwards once the rental vacancy rate falls below 3.5 per cent.”
Over the last two years, Mr Kempton said landlords in Perth have cut rents, discouraging new investors entering Perth, but now expects to see an increase of investor levels with the decrease of vacancies.
“Once rents start to rise, we should see an influx in property investors into the Perth market particularly as property prices in Perth are so competitive,” he said.
“For example, the median price of a home in Perth is around half that of Sydney and substantially below that of Melbourne.
“Now is a great time to buy an investment property in Perth, especially in the more affordable areas of Perth where there a still a plentiful supply of homes for under $400,000.”
Of note is the south-eastern corridor of Perth from Kenwick to Armadale Armadale, WAArmadale, VIC, to which Mr Kempton stated: “is very established with a high level of social infrastructure including a rail link to Perth as well as schools and shopping [areas] which appeal to renters”.
Kenwick in particular, Mr Kempton said, offers a median price for a home of $340,000, located 15 kilometres away from Perth’s CBD, and is in proximity to a train station and has access to the Albany and Roe highways.
Tax Newsletter – October 2017
Bill to increase Medicare levy
The Medicare Levy Amendment (National Disability Insurance Scheme Funding) Bill 2017 has been introduced to implement the Government’s 2017–2018 Budget announcement to increase the Medicare levy by 0.5% to 2.5% from 1 July 2019 in order to help finance the National Disability Insurance Scheme (NDIS). Nine other Bills have been introduced to increase the following rates that are linked to the top personal tax rate.
TIP: Think you may be affected by personal tax rate changes? Contact us to find out more.
Budget changes to foreign resident CGT: draft legislation
Draft legislation has been released to implement 2017–2018 Federal Budget measures relating to the CGT liability of foreign residents. The measures, which applied from 9 May 2017:
- remove the entitlement to the CGT main residence exemption (MRE) for foreign residents that have dwellings that qualify as their main residence; and
- ensure that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property (TARP), the principal asset test is applied on an associate inclusive basis.
Foreign resident CGT withholding: early recognition of tax credit
The Commissioner has made a determination to modify the time at which the vendor is entitled to a tax credit in respect of an amount withheld under the foreign resident CGT withholding rules.
The modification, applicable for transactions entered into on or after 1 July 2016, ensures that, where a settlement period for a transaction covers more than one income year for the vendor, the credit entitlement will be available in the same year as that in which the transaction giving rise to the payment to the ATO is recognised for tax purposes for the vendor.
Further guidance for tax losses via a new “similar business” test
The ATO has released a draft guideline on how they will apply the new “similar business test” to supplement the existing “same business test” used for testing whether a company can utilise an earlier year tax loss.
The draft guideline says the similar business test will operate in a way that is comparable to the same business test, and that the overall business of a company must satisfy the similar business test to access losses. The focus remains on the identity of a business, as well as continuity of business activities to generate assessable income.
ATO increases its scrutiny on work-related expenses
Despite wide publicity on the issue, the ATO has reminded taxpayers that it is increasing its scrutiny on work-related expenses. Last year over 6.3 million people made a work-related expense claim for clothing and laundry expenses, totalling almost $1.8 billion. Common mistakes the ATO has seen include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.
Tip: Unsure about what you can claim as work-related expenses? Talk to us to avoid making a mistake.
Activity statements can now be lodged in advance
The ATO says nil activity statements can be generated early in some cases. Under normal bulk processes, activity statements generally issue from the ATO by the end of the month.
However, the ATO says there may be a specific reason for a business to access its activity statements early, such as: if you are a short-term visitor (for example, you are an entertainer or sports person and will be leaving during the relevant period); or know that you will be travelling when an activity statement is due.
Tip: Activity statements can be generated for up to six months in advance.
New downsizing cap available
If you are aged 65 or over, your home is your main residence for CGT purposes and you have owned it for a minimum of ten years, you could benefit from new draft legislation. You will be able to make additional non-concessional contributions, up to $300,000, from the proceeds of selling your home from 1 July 2018.
The downsizer contribution cap of $300,000 will be in addition to existing caps; the capital must come from the proceeds of the sale price and application must be made within 90 days after the home changes ownership. There will also be exemption from the contribution rules for people aged 65 and above, and the restrictions on non-concessional contributions for people with total super balances above $1.6 million.
Tip: Thinking of downsizing? Speak to us about what this could mean for you in terms of tax concessions.
GST: simplified accounting for food retailers
The ATO has released a draft determination on the choice available to you, if you are a food retailer, to use a simplified accounting method (SAM) to help you to work out your net amount by estimating your GST-free sales and GST-free acquisitions of trading stock.
The Draft SAM is substantially the same as the previous determination it replaces. If you were eligible to use a particular SAM specified in the previous determination, you will continue to be eligible to use that SAM under the draft determination.
Tip: Are you a food retailer? We can help you to use the simplified accounting method for your business.
Super system reforms
Australian Prudential Registration Authority (APRA) has written to RSE licensees setting out its approach to the Government’s super system reforms aimed at enhancing APRA’s prudential powers to improve member outcomes. Under the proposed reforms, the current “scale test” will be replaced with an “outcomes test” requiring MySuper trustees to attest to outcomes promoting the financial interests of members on a broader range of indicators.
Segregated current pension assets
A warning has been issued from the Actuaries Institute that tens of thousands of self-managed super funds (SMSFs) could be at risk of incorrectly claiming exempt current pension income (ECPI) under the ATO’s approach to segregated current pension assets.
First Home Super Saver Scheme – draft legislation
Treasury has released draft legislation to implement the 2017–2018 Federal Budget superannuation measures aimed at improving housing affordability by the establishment of the First Home Super Saver Scheme (FHSSS).
The FHSSS will allow voluntary superannuation contributions made from 1 July 2017 to be withdrawn for a first home deposit starting from 1 July 2018. The scheme provides for up to $15,000 per year (and $30,000 in total) to be withdrawn from superannuation.
Tip: To be eligible to use the FHSSS, a person must be 18 years or over, have not used the scheme before and never have owned property before in Australia.
Super assets total $2.3 trillion at June 2017
APRA has released its Quarterly Superannuation Performance publication and the Quarterly MySuper Statistics report for the June quarter 2017. As at 30 June 2017, superannuation assets totalled $2.324 trillion (up 10% from $2.113 trillion in June 2016).
Total assets in MySuper products amounted to $595 billion (up 25.5% from $474 billion in June 2016). Self-managed super fund (SMSF) assets totalled $697 billion (up 9.8% from $635 billion in June 2016) held in over 596,000 SMSFs, representing 30% of all super assets.
Finance Newsletter – August/September 2017
What’s going on with interest rates?
With the current changing market conditions how do you know if you have the best rate available for your home and investment loans?
You may have noticed a Difference between home loan and investment loan rates? You might be able to save thousands per year in interest by reassessing your current loans. It costs nothing to find out.
If your interest rate is over 3.74% variable then you may be able to save by changing loans and or banks. I have access to a major bank that is currently offering customers a 3.74% variable rate. This NOT a honeymoon rate, discount is for the life of the loan. Conditions apply – owner occupied homes only, principal and interest payments, minimum loan $400 000, 80% LVR maximum – No application fee. If you are interested in saving thousands per year call Mercia finance to see if we can show you how to benefit from a better rate. We can also show you some great fixed rates and investment loan discounts. An example of what the above may mean to you – an average mortgage of $450 000 at the average big bank discounted rate of 4.4% = an annual interest saving of $3 105 per year. I may cost you little or nothing to get this rate for your mortgage – find out today.
Investors will have read that most banks are increasing the rate on investment loans. This includes current investment loans. If you are a property investor check your rates and find out if these increases apply to you. If you are not sure, ask Mercia finance for an obligation free loan check. Some institutions are not increasing the rates for investors. So this is a good time to make sure you have the best loan for your circumstances.
If you have questions regarding any type of loan, call Dan Goodridge on 04144 233 40. Our service is free of charge to you the borrower and we have access to all the major lenders in WA. Call us anytime. After hours is OK.
Property Newsletter – September 2017
MPF secures 2 commercial properties in $20m deal
Momentum Wealth’s sister company Mair Property Funds has entered into agreements to acquire two commercial properties in Melbourne for $20.3 million in two off-market deals.
The properties are located in Ravenhall and Altona North in Melbourne’s west, and will form part of MPF’s Diversified Property Trust, which already holds commercial assets in Western Australia, Queensland and Victoria.
The Ravenhall property is a modern industrial facility constructed in 2010 and is located 22 kilometres west of Melbourne CBD. The building is 100% occupied with a 15-year lease until 2031, and there is the potential for future expansion on a vacant part of land.
The property in Altona North is an industrial warehouse built in 2008 and located 13 kilometres south west of Melbourne CBD. The building is also 100% occupied with a recently agreed 8-year lease that expires in 2025.
Upon completion of the acquisition, the properties will be included in MPF’s Diversified Property Trust, which already holds four commercial assets in three states.
These include a retail premise in Maroochydore (Queensland), a medical facility in Ellenbrook (Western Australia), an industrial premise in Henderson (Western Australia) and a retail industrial premise in Lynbrook (Victoria).
The trust was established to offer investors a sustainable income with the potential of future growth, and has targeted commercial properties in high profile locations with strong lease covenants.
Previous capital raisings for the acquisition of the existing properties in the trust were strongly supported by investors and closed oversubscribed.
The acquisition of the Ravenhall and Altona North assets takes the value of properties under management by MPF to $208 million as the company continues to grow its funds to meet investor appetite.
MPF are continually searching for and assessing new investments. If you are interested in being notified of their next opportunity, simply follow this link.
Buying a tenanted property – what you need to know
At first thought, buying a tenanted property may appear to be an advantage. However, acquiring an investment property that’s already tenanted can pose a number of problems. So what do investors need to be aware of?
There are a number of benefits to having tenants in place. Firstly, you’ll likely save money from having to pay letting fees if you use a professional property manager. You’ll also save on advertising costs associated with finding a tenant.
If you decide to manage the property yourself (which we advise clients against) you’ll save yourself time – no need to vet applications and choose a tenant.
One of the biggest advantages though is that you’ll start to receive rental income immediately, as your property won’t be sitting vacant. This is helpful when you’ve first acquired a property, as cash flow can be constricted with additional associated costs such as insurances and rates.
However, while these aspects are beneficial, there are also a number of potential drawbacks that investors need to consider.
- Are they good tenants?
It’s important to ask the selling agent or property manager about the tenant’s history:
- Who is living in the house?
- What do they do for work?
- Do they have a good track record of paying the rent on time?
- Do they take care of the property?
If the tenants are sub-standard, they may consistently miss rental repayments and may fail to maintain the property, or worse, they could trash it.
- What’s in the lease agreement?
The terms of the lease agreement may be highly favourable to the tenants, so it’s important you know:
- The amount of bond held
- How much the tenant pays in rent each week (it may be under-priced)
- How often inspections are scheduled
- The length of the lease
Review the lease agreement to ensure there are no surprises after you’ve bought the property.
- Are there likely to be any immediate maintenance requests?
With a new owner, the tenant may see an opportunity to lodge their list of maintenance requests, leading to unexpected costs for you. Speak to the selling agent or the property manager to determine if there are any pending or potential maintenance requests in the near term.
- What are your intentions with the property?
If you’re planning to develop the property, or want to undertake renovations, you may have to wait for the existing lease agreement to expire. This could cause complications with your plans, particularly if the tenant is on a long-term lease.
Before you buy your next investment property, ensure you review all relevant documentation, including existing lease agreements, thoroughly.
This will help ensure risks are mitigated and give you a comprehensive understanding of the associated contracts, and how these might impact your investment strategy.
$1b upgrades set to benefit this NOR suburb
The redevelopment of Scarborough Beach and Karrinyup and Innaloo Shopping Centres, with a combined cost of more than $1 billion, are set to significantly increase amenity for this neighbouring suburb.
Doubleview is located in the City of Stirling, approximately 9 kilometres north west of the Perth CBD, with a population of 8,404 and a median age of 35.
The suburb is bound by Newborough Street in the north, Wau Lane in the west, Huntriss Road in the east and Williamstown Road in the south.
The main arterial roads of Scarborough Beach Road, Sackville Terrace and Ewen Street provide Transperth bus services to Glendalough Train Station or straight through to the CBD.
Doubleview is in good company with neighbouring suburbs including Scarborough to the west, Karrinyup to the north, Innaloo to the east and Wembley Downs to the south.
It is an established residential suburb, named due to its views of both the Indian Ocean to the west and the Darling Range to the east.
Original subdivision of the area dates back to the early 1900s, however blocks were slow to sell. Significant development didn’t occur until post World War II when the government begun providing returned soldiers housing in the suburb, hence why much of the housing still consists of post-war, original timber-framed dwellings.
Doubleview is made up of medium and low density residential housing, with the majority of the suburb zoned R30 or R40. A special control area along Scarborough Beach Road was recently gazetted by the state government, encouraging mixed-use and higher density residential development along the activity corridor.
While not within the suburb, the redevelopment of Scarborough Beach and upgrades to Karrinyup and Innaloo Shopping Centres, which are in close proximity, will help boost amenity in Doubleview.
The $500 million upgrade to Karrinyup will near double the size of the centre and include additional retail space as well as a new cinema and office and residential components.
Similarly, the $600 million upgrade to Innaloo Westfield will also double the size of the existing centre and include public open spaces, more retail and food and beverage offerings as well as a cinema.
Furthermore, the $100 million-plus redevelopment of Scarborough beach will include a public pool, upgraded main square and parkland as well as a redeveloped surf lifesaving club. Further private investment will also follow, such as cafes, restaurants and hotels, which will transform the area into a major tourist destination.
Approximately 72.7% of dwellings in Doubleview are houses, 24.9% semi-detached, row or terrace houses and townhouses and 2.1% flat, unit or apartments. The median house price is $732,000.
About 64% of properties are either owned outright or being purchased while 33% of properties are being rented.
13.5% of the population identify as technician and trades workers, 13.4% clerical and admin and 32.5% professionals, which is above the WA and national average at 19.9% and 21.3%, respectively.
Features of the suburb include Doubleview Primary School, John K Lyons Oval and Munro Reserve.
Perth’s 10 cheapest suburbs near the CBD
Nollamara, Cloverdale, and Belmont are among Perth’s 10 cheapest suburbs in terms of median house price within 10km of the CBD, according to the latest data from the Real Estate Institute of Western Australia (REIWA).
“Buyers in Perth really are in an enviable position. It’s unheard of in other parts of Australia, particularly in Sydney and Melbourne, for buyers to be able to purchase a house close to the city for less than $530,000,” said Hayden Groves, president of REIWA.
“We are very lucky in Western Australia that there are still great bargains to be had in and around the CBD. It won’t always be this way, so I advise buyers to act sooner rather than later if they are wanting to secure an affordable house close to the city.”
Nollamara was the most affordable suburb on REIWA’s list, with a median price of $410,000, and a lower quartile price of $375,000.
“Buyers only have to look 10 kilometres north of the Perth CBD to find great value. Nollamara is currently undergoing a lot of change, with infill redevelopment rejuvenating the well-established suburb and attracting a lot of first-home buyers to the area,” Groves said.
Of the 10 suburbs on the list, seven were situated east of Perth.
Groves said that the eastern corridor of Perth’s inner-city area held a lot of opportunity for homebuyers and property investors.
“The median house price in suburbs like Cloverdale, Belmont and Redcliffe is hovering around the $450,000 mark, which is notably lower than the Perth median house price. First home buyers in particular will find good opportunity here, especially if they look to these suburbs’ lower quartile prices, which are even more affordable,” Groves said.
“With the Perth Stadium and surrounding infrastructure nearing completion, the opportunity is there for savvy buyers and investors to purchase in a fast growing area at an affordable price.”
SUBURB MEDIAN HOUSE PRICE LOWER QUARTILE PRICE
- Nollamara $410,000 $375,000
- Cloverdale $443,500 $408,750
- Belmont $450,000 $408,000
- Redcliffe $452,000 $395,000
- Bentley $480,000 $430,000
- Embleton $490,000 $450,000
- Osborne Park $490,000 $450,250
- Kewdale $497,500 $390,000
- Morley $500,000 $450,000
- Carlisle $525,750 $445,000