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Finance Newsletter – April 2016
March 29, 2016 | 
Author RATE CRASH!
Do you have the best rate available?
If your interest rate is over 3.98% variable then you may be able to save thousands per year by changing loans and or banks. I have access to a bank that is currently offering customers a 3.98% variable rate .This NOT a honeymoon rate, discount is for the life of the loan. Conditions apply – owner occupied homes, principal and interest payments, 80% LVR maximum – includes redraw facility. 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.
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.
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Tax Newsletter – April 2016
Deadline looming for SMSF collectables compliance
The ATO has reminded trustees of self managed super funds (SMSFs) that if they have investments in collectables or personal-use assets that were acquired before 1 July 2011, time is running out to ensure their SMSFs meet the requirements of the superannuation law for these assets. Assets considered collectables and personal-use assets include artwork, jewellery, antiques, vehicles, boats and wine.
From 1 July 2011, investments in collectables and personal-use assets have been subject to strict rules to ensure they are made for genuine retirement purposes and they do not provide any present day benefit. SMSFs with investments held before 1 July 2011 have until 1 July 2016 to comply with the rules.
The ATO says SMSF trustees have had since July 2011 to make arrangements, and it expects that they will take appropriate action to ensure the requirements are met before the deadline.
TIP: Appropriate actions may include reviewing current leasing agreements, making decisions about asset storage and arranging insurance cover.
Overseas student debts: repayment thresholds
From 1 July 2017, anyone with a Higher Education Loan Programme (HELP) or Trade Support Loans (TSL) debt who is living overseas and earning above the minimum repayment threshold will be required to make loan repayments to the Australian Government, just as they would if they were living in Australia. The HELP minimum repayment threshold for 2016–2017 is $54,869.
TIP: If you have a student loan debt and are planning to move overseas for longer than six months, you need to provide the ATO with your overseas contact details within seven days of leaving Australia. You should also factor in potentially having to make repayments from 1 July 2017.
ATO data-matching for insured “lifestyle” assets
In January 2016, the ATO advised it was working with insurance providers to identify policy owners on a wider range of asset classes, including marine vessels, aircraft, enthusiast motor vehicles, fine art and thoroughbred horses. The ATO has since formally announced the data-matching program that covers these “lifestyle” assets, and will acquire details of insurance policies for these assets where the value exceeds nominated thresholds for the 2013–2014 and 2014–2015 financial years.
The ATO said it will obtain policyholder identification details (including names, addresses, phone numbers and dates of birth) and insurance policy details (including policy numbers, policy start and end dates, details of assets insured and their physical locations). The data-matching program will provide the ATO with a more comprehensive view of taxpayers’ accumulated wealth, as well as assist in identifying possible tax compliance issues.
TIP: It is estimated that records of more than 100,000 insurance policies will be data-matched. The ATO has released a list of insurers involved with the data-matching program. Please contact our office for further information.
Market value of shares is not the selling price
The Administrative Appeals Tribunal (AAT) has ruled that the “market value” of a parcel of shares in a private company that a taxpayer sold in an arm’s-length transaction (together with the other two shareholders’ shares in the company) was not the proportion of the sale price he received from the sale of all the shares. Instead, the AAT agreed it was a discounted amount; the taxpayer was a “non-controlling” shareholder, so the market value was less than simply his one-third share of the sale price.
As a result of this AAT decision, the taxpayer passed the $6 million “maximum net asset value test”, allowing him to qualify for small business capital gains tax (CGT) concessions, where otherwise he would not have.
The Commissioner has appealed to the Federal Court against this AAT decision.
TIP: This decision demonstrates that the actual selling price of an asset may not always represent its “market value”. In this decision, the AAT agreed with the taxpayer’s valuer that “all other things being equal, the average price per share of a controlling shareholding will be higher than the average price per share of a non-controlling shareholding because of the value of control”.
Individual not a share trader
The Administrative Appeals Tribunal (AAT) has found that a taxpayer (a childcare worker) was not carrying on a business of share trading, and accordingly was not entitled to claim a loss resulting from her share transactions. In the year in question, the taxpayer turned over approximately $600,000 in share transactions (including both purchases and sales).
In deciding that the taxpayer was a share investor and not a share trader, the AAT considered each of the key indicators established in case law. The AAT decided that a lack of regular and systematic trade, especially in the second half of the income year, when only 10 transactions were made, went against the taxpayer’s contention that she was conducting a share trading business.
TIP: The AAT weighs up all the relevant factors in cases like this. There have been cases where the AAT has found that a taxpayer was carrying on a business of share trading, and has therefore allowed them to claim a deduction for their losses.
Small business restructures made easier
The Government has made changes to the tax law to provide tax relief for small businesses that restructure. The tax law changes provide an optional rollover for small business owners who change the legal structure of their business on the transfer of business assets from one entity to another. The effect of the rollover is that the tax cost of the transferred assets is rolled over from the transferor to the transferee.
This optional rollover is in addition to existing rollovers available where an individual, trustee or partner transfers assets to, or creates assets in, a company in the course of incorporating their business.
The changes to the tax law will take effect on 1 July 2016.
TIP: You must meet strict eligibility requirements in order to access the rollover. Among other things, the rollover must be part of a genuine business restructure that does not change the ultimate economic ownership of the assets. There are also tax consequences you should be aware of.
Tax law changes to treatment of earnouts
The Government has recently amended the tax law concerning the capital gains tax (CGT) treatment of the sale and purchase of businesses involving certain earnout rights.
Specifically, the changes provide for a “look-through” treatment. Under the amended tax law, capital gains and losses that arise in respect of look-through earnout rights will be disregarded. Instead, payments received or paid under the earnout arrangements will affect the capital proceeds and cost base of the underlying assets to which the earnout arrangement relates when they are received or paid (as the case may be).
The changes apply from 24 April 2015.
TIP: These changes to the tax law do not apply for events that occurred before 24 April 2015. However, transitional protection is provided, subject to conditions, for taxpayers who have reasonably anticipated these changes to the tax law, which were originally announced by the former Government.
Finance Newsletter – March 2016
RATE CRASH!
Do you have the best rate available?
If your interest rate is over 3.98% variable then you may be able to save thousands per year by changing loans and or banks. I have access to a bank that is currently offering customers a 3.98% variable rate .This NOT a honeymoon rate, discount is for the life of the loan. Conditions apply – owner occupied homes, principal and interest payments, 80% LVR maximum – includes redraw facility. 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.
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.
Taxation Newsletter – March 2016
Tax relief for small businesses that restructure on the way
Small businesses are important to the Australian economy, as they facilitate growth and innovation. However, as a small business develops over time, its initial legal structure may no longer be suitable for the business. Where a business has to restructure to accommodate growth, the transfer of assets from one legal structure to another could give rise to unwanted tax liabilities, even though the underlying economic ownership remains the same.
With this in mind, the Government has proposed amendments to the law to provide tax relief for small businesses that restructure on a genuine basis. If the legislative amendments are enacted as proposed, the changes would apply for restructures occurring on or after 1 July 2016. In introducing the Bill, the Assistant Treasurer said that this legislation completes the Government’s $5.5 billion Growing Jobs and Small Business package. Ms O’Dwyer said the Bill will reduce risk and complexity, and will make it easier for businesses to grow.
Trusts’ ABNs to be cancelled if no longer carrying on business
The ATO has advised that the Registrar of the Australian Business Register (ABR) will begin cancelling the Australian Business Numbers (ABNs) of approximately 220,000 trusts, where there is evidence they are no longer carrying on an enterprise.
A trust’s ABN will be cancelled where available information indicates that the trust has not lodged business activity statements and/or trust income tax returns for the last two years. Exclusions to these ABN
cancellations apply for trusts that are registered with the Australian Charities and Not-for-profits Commission (ACNC) or are non-reporting members of a GST or income tax group.
The ATO said entities will receive a letter if their ABNs had been cancelled. This letter will include the reason for the cancellation, and a phone number to ring to have the ABN reinstated immediately if the entity does not agree with the decision.
Withholding tax for car allowances
Car expense deductions for individuals were simplified from 1 July 2015. Employers who pay their employees a car allowance need to withhold tax on the amount they pay over 66c per kilometre. If employers have not been doing this, the ATO notes they should start now to avoid their employees having a tax debt.
TIP: Employers should consider having a discussion with affected employees about whether to increase the withholding amount for the remainder of the financial year to cover the shortfall.
If you have any questions, please contact our office.
Travellers with student debts need to update contact details
Australians with a Higher Education Loan Programme (HELP) debt and/or a Trade Support Loans (TSL) debt who are moving overseas for longer than six months will need to provide the ATO with their overseas contact details within seven days of leaving the country. International contact details can be provided to the ATO using its online services (eg an ATO account linked to myGov).
From the 2016–2017 income year, anyone who has a HELP or TSL debt and earns above the minimum repayment threshold will be required to make repayments regardless of where they live.
TIP: Students’ debt will be indexed each year until it is paid off. You can make additional voluntary repayments at any time, including from overseas, to reduce the balance of your debt.
Small business tax concession refused as threshold test failed
The small business capital gains tax (CGT) concessions contained in the tax law allow eligible small businesses to access tax concessions on capital gains made from the sale of certain CGT assets.
There are threshold tests for accessing the concessions outlined in the tax law. Importantly, the taxpayer must be a small business entity, or a partner in a partnership that is a small business entity, or the taxpayer’s net assets, together with certain associated entities’, must not exceed $6 million. This is the Maximum Net Asset Value (MNAV) test.
A recent case before the Federal Court examined whether a taxpayer was entitled to the tax concessions. In particular, the Court looked at whether the taxpayer had correctly excluded a debt (a pre-1998 loan) from the MNAV test calculation. The taxpayer had not included the pre-1998 loan on the basis that it had no value, being “statute-barred” under the relevant state legislation, in this instance the Limitation of Actions Act 1936 (SA).
However, the Court dismissed the taxpayer’s appeal. The Court confirmed that the pre-1998 loan could not be regarded as having no value, and that the loan amount of $1.1 million should be included in the MNAV test calculation. The inclusion of the amount meant that the sum of the net values of the relevant CGT assets exceeded the $6 million MNAV threshold. As a result, the small business CGT concessions were not available to the taxpayer.
TIP: This case highlights the importance of satisfying the basic conditions to access the small business CGT concessions, in particular when an asset originally excluded from the MNAV test is subsequently included in the test calculation and results in the breach of the MNAV threshold.
“Wildly excessive” tax deduction claims refused
A professional sales commission agent has been largely unsuccessful before the Administrative Appeals Tribunal (AAT) in claiming tax deductions for work-
related expenses, including home office expenses, various grocery items and overtime meal allowances.
The case concerned the taxpayer’s deduction claims in his 2011 and 2012 tax returns. The taxpayer worked as a professional sales commission agent and his employer did not provide him with a dedicated office or workspace. His original claims (which changed throughout the course of the AAT proceeding) totalled over $63,000 for 2010–2011 and over $53,000 for 2011–12, representing at least 30% of his employment income. During the proceedings, the taxpayer abandoned a claim for a $5,388 payment to his seven-year-old son for his “secretarial assistance”.
The AAT found that the taxpayer’s home office claims were “wildly excessive”, and that the taxpayer and his representatives failed to critically analyse how these claims helped produce the taxpayer’s assessable income. The AAT rejected everything claimed under “staff and client amenities”, as it considered the products were overwhelmingly consumed by the taxpayer’s family, making the claims “outrageous and utterly unacceptable”. The claimed meal allowances were also rejected in their entirety. However, the AAT did not disturb heating and lighting expenses allowed by the Commissioner.
GST credits not available for payments on behalf of super funds
The ATO has issued GST Determination GSTD 2016/1, which provides the Commissioner’s view on whether employers can claim input tax credits for expenses paid on behalf of superannuation funds.
The Determination notes that employers may pay expenses on behalf of superannuation funds for administrative convenience. It provides that an employer is not entitled to an input tax credit if a superannuation fund makes an acquisition and the employer pays the expense on the fund’s behalf (eg the super fund obtains legal advice but the employer pays the legal adviser). This is because the advice is supplied to the fund and not to the employer. However, the Determination notes that the fund may be entitled to claim a reduced input tax credit under the financial supply rules (contained in the GST Act), provided the requirements of those rules are satisfied.
Property Newsletter – February 2016
Which way are rates heading in 2016?
After 18 consecutive months of leaving rates on hold, the Reserve Bank of Australia slashed the official cash rate twice in 2015. So what can we expect for the year ahead?
The two rate cuts that we saw in 2015, the first in February and the second in May, were largely expected for the year, it was just a matter of when.
At the time, there were two key reasons for the RBA to drop rates.
Firstly, the national economy had remained stuck in a sluggish mode despite the cash rate sitting at a record low of 2.5% for 18 consecutive months.
Another reason was the stubbornly-high Australian dollar, which was still trading above US$0.80 at the start of 2015.
Now that we’re 12 months on, and the official cash rate sits at 2%, what can we expect in 2016?
Following its December board meeting, the Reserve Bank of Australia said that it was happy to leave rates unchanged because the prospects for an improvement in economic conditions had firmed in recent months.
It also noted that the national economy continued to grow at a moderate pace, and that an improvement in business conditions had flowed through to stronger growth in employment.
This more upbeat outlook would suggest that, should the economic environment continue to improve, the RBA is likely to leave rates on hold for the short term.
This decision would also be supported by the lower Australian dollar, which has been trading just below US$0.70 for the majority of January.
However, the RBA also left the door open for a possible rate cut. During its December board meeting it said that it was comfortable with the current rate of inflation, which would allow it to drop rates if necessary.
By present indications, though, we’re likely to see rates remain on hold.
However, should growth begin to slow, or the RBA feels it necessary to give the national economy a shot in the arm, then we could be in for a drop in rates in 2016 – possibly to 1.75% or even 1.5%.
Either way, the current financial environment provides property investors with access to cheap finance, and presents an opportune time to build their portfolios.
Furthermore, it’s also a good time for property owners with established mortgages to consider refinancing to secure a better deal.
For more information or a review of your current mortgage, please contact out finance team today.
Don’t become another statistic in 2016
Although it’s widely known that building a large property portfolio can create significant personal wealth, a staggering 3 out of 4 investors only own 1 investment property.
Whatever your reasons for becoming a property investor, be it to retire earlier or provide a more financially secure future for your family, simply buying just 1 property will unlikely be enough to achieve your goals.
The truth is that investors will generally have to build a portfolio of at least 3 – 5 properties to generate sufficient wealth – that’s provided these are high-performing properties as well.
To some, this might sound like a big undertaking but with the correct strategy, financial structures and by acquiring the right properties, it’s within reach of most investors over the longer term.
Despite this, statistics from the Australian Taxation Office show that 72% of property investors own just 1 investment property.
The reasons why investors never go on to acquire successive properties vary significantly.
Some lose sight of the big picture, they might become distracted by particular life circumstances or they may choose to go on an overseas holiday or buy a new car instead of investing.
Others may even believe that they’ll be okay owning just 1 investment property because they’ll also have superannuation as well as the government pension to live off.
However, for many people superannuation alone will not provide them with the lifestyle they want.
Furthermore, your government pension starts reducing when you reach specific income or asset thresholds.
For singles, the pension will start reducing when your annual income is greater than $4,212, while couples can only earn $7,488 annually before their pension is affected.
Alternatively, your pension begins reducing when you have assets over $205,500 for singles, and $291,500 for couples.
Whichever test results in the lowest pension payable is the one that the government will apply.
In 2016, don’t become another statistic. If your property portfolio is still relatively small, start taking the necessary steps needed to build a larger property portfolio that will allow you to retire comfortably.
Property development: selling vs holding
It’s a question that’s hotly debated among property investors – should I sell or hold my residential property development? So what is the best strategy to take?
Unfortunately, the answer isn’t always straightforward. The decision whether to sell or hold a development is dependent on a number of factors, such as market conditions, type of development, your financial position as well as your goals.
Your goals for undertaking the development in the first place should play a big part in determining your decision.
Do you want to increase rental returns? Maybe you want to make a cash profit? Or perhaps you want to refinance the development and utilise the equity in the property?
It’s important to be clear on your goals from the outset as this can have a major influence on many aspects of the development.
In most cases in smaller developments, it’s best to hold some or all of the development, provided it’s financially feasible for you to do so and the development is in a good location with long-term growth fundamentals.
This is because when you sell a development, you automatically lose a large portion of the profits through sales agent fees, marketing, income tax (from the cash profit you’ve made) and GST.
Alternatively, investors may be able to develop and sell a portion of the project. For example, in a 6-unit development, the investor may sell 3 units and hold the other 3.
If you do decide to sell, it’s important to hold a good understanding of the market. Selling in a downturn may significantly reduce your profits and it might be better to hold the development until the next upswing in the cycle.
The number 1 rule for a successful leasing
Regardless of rental market conditions, all property investors should follow this 1 rule to ensure they can successfully lease their property.
When it comes time to finding a new tenant for your investment property, there are a number of jobs you and your property manager will need to take care of.
This includes creating a holistic marketing strategy, tending to any maintenance issues, ensuring you comply with the necessary legal requirements and presenting the property in an appealing manner, among others.
However, there is one rule that, if not followed, will make it difficult for you to lease your property – even if you engage the best property manager in Australia.
That is to be realistic about the weekly rental rate that your property can achieve.
While we would all like to receive more rental income, the reality is that your property will only achieve what the market is prepared to pay.
Before you set the rent, ask yourself the following questions:
1) What’s the level of demand for rental properties in the market at present? Is it high or low?
2) How much rental income are comparable properties in the area achieving?
3) What’s the vacancy rate in the area?
4) What’s the length of time that properties are remaining on the market?
A good property manager will complete this research for you to determine a realistic rental price.
Remember, if your asking price is too high, your property may sit vacant for an extended period of time and you’ll end up losing more money than if you’d initially set the rent at a more realistic price.
Riverside suburb boasts premium appeal
This tightly-held suburb borders the Swan River, is in close proximity to major employment hubs and will greatly benefit from a soon-to-be completed makeover of its local activity centre.
East Fremantle comprises a population of about 7,000 residents with a median age of 42 years.
73.1% of the properties in the suburb are fully owned or being purchased with just 24.2% of the stock available for rent, which is below the Perth average of 29.2%.
One of the suburb’s main drawcards is its large frontage on the Swan River and adjoining parks and facilities along the foreshore.
Its local activity centre, Richmond Quarter, has been undergoing a major redevelopment and will feature a new vibrant, mixed-use hub including residential apartments, office space and restaurants.
The state government recently announced that it planned to sell the Leeuwin Barracks site, which sits on the riverfront in East Fremantle.
The land is expected to fetch up to $100 million and be redeveloped by real estate developers for premium housing.
East Fremantle is also conveniently located just 2 kilometres from Fremantle and 17km from the Perth CBD.
With 71% of dwellings listed as houses, the suburb comprises a blend of property, from houses built in the early 1900s to modern new constructions.
The average house price sits at $1.2 million and the area is zoned mostly low density residential (R12.5 to R20) with higher zoning along Canning Highway.
37.1% of the population also identify as working professionals, which is almost twice the Perth average of 19.9%, and is reflective of the affluent residential population.
There are two primary schools in the suburb – Richmond Primary and East Fremantle Primary.
What are the top investment destinations for 2016?
Momentum Wealth kicks off its 2016 seminar series later this month with a look at what’s in store for property investors in the year ahead.
Our first seminar for the year, ‘National Property Market 2016’, will explain the best investment destinations, how to find an investment property that will outperform the market and the danger spots to avoid, among other investment strategies.
Following the seminar, attendees will also have the opportunity to speak with our consultants over drinks and canapes.
More than 180 property enthusiasts attended last year’s event and we’re expecting another big crowd in 2016.
The seminar comes at a time when a number of property markets around Australia are nearing significant turning points, with some coming off the boil while others are expected to experience an upswing.
In the midst of these shifting markets, it’s crucial for investors to stay informed and understand the various factors that will influence these markets in the year ahead.
To secure your seat for the evening, simply follow this link. Tickets are only $29 per person or $39 for a pair.
We look forward to seeing you there!
Property syndicates: Why join forces?
It might seem unusual to pool your money with a group of people you’ve never met, but there are a number of advantages to joining forces to invest in property.
Whether it be a residential property development or the acquisition of a commercial property, both investment vehicles can deliver great returns to investors.
However, both of these options also share a common problem – they’re both highly capital intensive.
The reality is that many investors simply don’t have the financial capacity to pursue these investment options by themselves.
For example, a good-quality commercial property would typically cost at least $2 million to purchase and usually require a loan-to-value ratio of 65-70%.
Likewise, while small-scale residential developments are typically feasible, most investors wouldn’t be able to finance a boutique apartment development, which could cost anywhere from $2 million – $7 million to complete.
However, a property syndicate is a practical option that allows investors to gain exposure to these larger assets but at a fraction of the cost.
The advantage of these larger assets, such as residential developments and commercial property, is that they typically provide investors with higher returns or profits and access to better quality investments than they could achieve on their own.
By investing in these assets via a syndicate, you’ll also have peace of mind that the investments are managed/developed by an experienced team, provided you engage a reputable company with a good track record.
When investing in a commercial property trust, another advantage for investors is that they’re generally not liable for the trusts’ loans and won’t be subject to commercial loan reviews or personal guarantees.
While property syndicates aren’t suited to every investor, they should be at least considered to determine if they fit into your property investment plan and are aligned with your investment goals.
Momentum Wealth regularly offers opportunities to investors to participate in property syndicates. Find out more by contacting our corporate property services team.
Are you suited to commercial investments?
Acquiring the right commercial property will prove to be a great investment asset, however what type of investors are suited to commercial and why?
Despite much of the media coverage focusing on the residential market, commercial property can play an important role in anyone’s property portfolio.
However, it’s typically only suited to investors who have reached a certain point in their investment journey.
So who are these investors?
To put it simply, commercial property is usually suited to investors who want more cash flow.
Generally, commercial property offers net yields of between 7-9%, compared to residential property of between 3-4%, and therefore provides investors with a handy stream of income.
Those about to retire should consider investing in commercial property as a means of substituting their salary once they’ve finished work.
However, you don’t necessarily need to be nearing retirement to consider commercial.
Investors who have already built a sizeable portfolio of residential properties should also consider commercial as a means of diversification.
As a general rule of thumb, investors should hold at least 4-5 residential properties before buying commercial assets. However, each investors’ situation is unique and advice should be taken from a reputable property investment advisor.
Investors considering investing in commercial property should also possess the following:
- Hold substantial equity as commercial property is a higher price point
- Understand the risks and returns as these are different from residential property
- Is comfortable with longer vacancy periods, which is typical in the commercial market
- Has the time to do significant research to find a good commercial property (or willing to appoint a buyer’s agent to do the work for them)
An alternative to direct investment is to consider investing via a syndicate or unit trust, where you own a smaller piece of the property but you have the ability to diversify and spread your risk through a wider number of properties.