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Finance Newsletter – July 2015
June 24, 2015 | 
Author Do you have the most suitable loan for your circumstances?
Do you have the best rate available?
If your interest rate is over 4.25% 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 4.25% variable home loans. Conditions apply. With no application fee, no valuation fee and only a $10 per monthly fee ongoing and free offset (comparison rate 4.38%) .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.
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.
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Tax Newsletter – July 2015
Small business company tax rate cut
Parliament has passed legislation which will implement a 2015 Budget measure to reduce the company tax rate from 30% to 28.5% for companies that are small business entities with an aggregated turnover of less than $2 million. The company tax rate for corporate unit trusts and public trading trusts that are small business entities will also be reduced to 28.5%. For all other companies that are not small business entities, the corporate tax rate will remain at 30%.
Importantly, and also announced in the Budget, the maximum franking credit that can be allocated to a frankable distribution will be unchanged, so the same rate of 30% will continue to apply to all companies.
The amendments will apply for the first income year beginning on or after 1 July 2015 and for subsequent income years.
Accelerated depreciation write-off for SMEs
Legislative amendments to implement a 2015 Budget measure to support small businesses have made their way through Parliament. The legislative amendments will allow a short-term accelerated depreciation write-off up to $20,000 (up from the $1,000 threshold) for assets acquired by small businesses. The increased threshold of $20,000 will apply only to assets first acquired at or after 7.30 pm, legal time in the ACT on 12 May 2015, and first used or installed ready for use on or before 30 June 2017. From 1 July 2017, the threshold will revert to the $1,000 threshold.
The rules around asset eligibility do not change. That is, if an asset was eligible for immediate deductibility under the $1,000 threshold it will continue to be deductible under the new $20,000 threshold.
The ATO has confirmed that both new and old/second-hand assets remain eligible.
If the entity is registered for GST, then the GST exclusive amount is taken to be the cost of the asset. Where the entity is not registered for GST, the GST inclusive amount is taken to be the cost of the asset.
An eligible small business can claim an immediate deduction for any software costing less than $20,000, purchased off the shelf, that is used exclusively in the business. An eligible small business can also claim an immediate deduction for the cost of developing software for use exclusively in its business, where that cost is less than $20,000. An exception applies if the entity has previously chosen to claim deductions for in-house software under the software development pool rules. In this case the costs need to continue to be allocated to that pool.
TIP: Remember to keep records of purchases to substantiate claims. The ATO will monitor the use of the accelerated depreciation. In this regard, the ATO has said, if “small businesses exhibit behaviours that indicate a high level of risk, they can expect a higher level of interaction from the ATO”.
The legislative amendments also allow primary producers to claim an immediate deduction for capital expenditure on water facilities and fencing assets, and to deduct capital expenditure on fodder storage assets over three years. The accelerated depreciation write-off for primary producers will apply to assets that an entity starts to hold, or to expenditure an entity incurs, at or after 7:30 pm, by legal time in the ACT, on 12 May 2015.
TIP: The ATO has confirmed that eligible farmers will be able to choose whichever rules benefit them the most, and that this can be decided on an asset-by-asset basis.
R&D tax incentive rate reduction back in spotlight
In the 2015 Budget, the Government reiterated its intention to change the rates of assistance under the R&D tax incentive to 43.5% (down from 45%) for eligible entities with a turnover under $20 million per annum and not controlled by a tax exempt entity, and to 38.5% (down from 40%) for all other eligible entities. This would apply from 1 July 2014. The Government has introduced legislation proposing to make the necessary changes.
Registration is a critical first step in accessing the R&D tax incentive. The deadline for lodging an application for registration is 10 months after the end of a company’s income year.
With effect from 1 July 2014, a $100 million threshold applies to the R&D expenditure for which companies can claim a concessional tax offset under the R&D Tax Incentive. For any R&D expenditure amounts above $100 million, companies will still be able to claim a tax offset at the company tax rate.
TIP: The ATO is working closely with AusIndustry to identify taxpayers who may be involved in aggressive R&D tax arrangements. Taxpayers should make sure their claims are attributed to activities consistent with their AusIndustry registrations, and expenses (eg labour costs) were actually incurred on R&D activities.
Dependent spouse tax offset to be abolished
The Government has proposed legislative amendments to abolish the dependent spouse tax offset (DSTO) and expand the dependent (invalid and carer) tax offset (DICTO). Under the changes:
- a taxpayer who has a spouse who is genuinely unable to work due to invalidity or carer obligations is eligible for DICTO (worth up to $2,471 (indexed)) if the taxpayer contributes to the maintenance of their spouse and meets certain income tests and other eligibility criteria; and
- taxpayers eligible for the zone tax offset (ZTO), overseas forces tax offset (OFTO) or overseas civilians tax offset (OCTO) can receive a further entitlement of 50% or 20% of their DICTO entitlement as a component of ZTO, OFTO or OCTO, depending on where they reside.
The amendments are proposed to generally apply to the 2014–2015 income year and to all later income years.
Age Pension changes on the way
The Government has proposed legislation to give effect to several changes affecting the Age Pension. The assets test free areas will be increased to $250,000 for a single homeowner and $375,000 for a homeowner couple. The assets test threshold for non-homeowners will be increased to $200,000 more than homeowner pensioners, ie $450,000 (single) and $575,000 (couple). However, the assets test taper rate at which the Age Pension begins to phase out will be increased from $1.50 of pension per fortnight to $3.00 of pension for each $1,000 of assets over the relevant assets test threshold. Those whose pension is cancelled will automatically be issued with a Commonwealth Seniors Health Card (CSHC) or a Health Care Card. The changes are proposed to take effect from 1 January 2017.
Property Newsletter – June 2015
Lenders clamp down on investor loans
Property investors across Australia are facing tougher lending tests as the nation’s banking regulator moves to moves to rein in the booming Sydney market.
The Sydney property market had a strong start to 2015 as annualised house-price growth rebounded in the March quarter.
While extremely high, Sydney’s annualised growth rate of 12.4% in late 2014 had actually been slowing before increasing again to 13.9% at the end of the recent March quarter.
The rebound in annualised growth rates in Sydney can partly be attributed to the Reserve Bank of Australia’s (RBA) decision to cut the official cash rate to 2.25% in February.
Another cut, which was announced in May and reduced rates to just 2%, is likely to continue to spur property investor appetite, particularly in Sydney where there has been a large amount of investor activity.
Conscious of reining in an overheated property market, the finance lending regulator, the Australian Prudential Regulation Authority, has required that lenders apply tougher lending standards, specifically for investors.
This will apply across the board for all Australian property investors. Even if you’re a property investor living in Perth and wanting to purchase an investment property in Perth, you’ll still have to meet these stricter lending standards.
So what do these stricter standards include?
Most lenders have begun utilising more conservative figures when evaluating loan and refinancing applications, which in turn have reduced the borrowing capacity of some investors.
Lenders are also increasing their buffers, which test how applicants would cope with repayments when interest rates rise.
Some lenders have increased these buffers from about 180 basis points (1.8%) to 200 basis points (2%) or more.
For example, an investor applying for a loan with an interest rate of 5% would now have to prove they could make repayments if interest rates increase to 7%, rather than 6.8%.
Finally, lenders have also withdrawn discount offers and incentives for investor loans and are applying much more stringent loan-to-value ratios (LVR).
Bankwest, for example, has changed its LVR for investor loans from as much as 98% to just 80%, which means investors will require far bigger cash deposits or equity interests in their existing properties.
Because of these tougher lending standards, it’s important for property investors to engage mortgage brokers who specialise in investment finance to ensure finance and investment options are optimised.
5 reasons to buy an investment property in Perth in 2015
The current conditions in the Perth property market represent an opportune time for investors to start or build their portfolios.
Although Perth house prices are widely tipped to remain steady for the next 12 months, investors should take stock and capitalise on the softer market conditions.
Here are four reasons why it’s a good time to buy an investment property in Perth.
- Record-low interest rates mean investors can access extremely cheap finance to purchase property.
- Stock levels have risen by one-third over the past year to about 13,600 at the end of March, which provides buyers with a much wider range of choice.
- Those who decide to buy property in the softer conditions will encounter less competition as many investors will choose to delay purchases until market conditions improve.
- More ‘bang-for-buck’ as less competition means buyers can ‘upgrade’ and purchase larger properties or secure properties for less. The average vendor discount for houses has increased to more than 6% as of March.
- More control over contract negotiations as less competition allows buyers to weigh contract clauses in their favour.
Investors who take advantage of these favourable conditions and invest wisely in the next 12 months will be best placed to reap the rewards for the next upswing in the property market.
Established suburb with youthful population undertakes transformation
This well-established suburb with a young population is transforming into an active social hub.
Queens Park, sitting within the City of Cannington and just 11 kilometres from Perth CBD, has a population at 5,380 with a median age of 30 years.
The area encompasses Maniana Park and has well-established infrastructure including Queens Park Recreation Centre, sports grounds, Queens Village and schooling options.
Its neighbouring suburbs include Cannington and Welshpool.
The suburb has good accessibility to Welshpool Road, Seven Oaks Street, Railways Parade and Roe Highway, as well as buses down urban corridors and easy access to two main train stations – Cannington and Queens Park.
With 73.5% of dwellings listed as houses, the suburb is mostly low/medium density.
Queens Park is currently in a transformation stage as many of the medium-density lots are being developed into grouped dwellings.
Assisting this development is the recently drafted structure plan, which will help guide future developments within the area and improve streetscapes.
The structure plan for Carousel Shopping Centre, and the surrounding residential area, has outlined plans to develop additional amenities and increase housing densities to create a new Cannington City Centre, which will ultimately be a vibrant mixed-use hub.
School facilities include St Norbet College, Queens Park Primary School, St Joseph’s School and Gibbs Street Primary School.
Responsibilities beyond the walls
While the division of responsibilities between landlord and tenant for all ‘dwelling-related matters’ are commonly known, what about those of the land?
Gardens typically aren’t at the top of a tenant’s priority list when searching for a rental property.
Subsequently, if a tenant leases a house with a high-maintenance garden, the ongoing upkeep and care may fall by the wayside.
Given this, it’s important that all parties hold a comprehensive understanding of their responsibilities regarding garden maintenance – any good property manager will ensure this is the case.
Generally, unless the tenancy agreement states differently, tenants are responsible for the maintenance of lawn including mowing, edging, watering, weeding, and fertilising.
This is also the case for garden beds and bushes and shrubs, which are to be pruned by the tenant.
These tasks fall under the ‘general maintenance’ responsibilities, which usually require the tenant to ensure the garden is maintained to a standard set at the start of the tenancy.
On the other hand, landlords are generally responsible for providing some equipment, such as hoses and sprinklers.
In some tenancy agreements, though, it’s the responsibility of the tenant to replace broken sprinkler heads.
Landlords also typically need to maintain reticulation systems, clean gutters and lop overgrown trees.
While landlords are generally responsible for keeping gutters clean, it’s the tenant’s responsibility to advise the property manager of any potential blockages or water leaks.
If the tenant doesn’t report an obvious issue, they may be liable for any damages.
Given the divide of responsibilities, it can be easy for confusion or misunderstandings to occur, which is why landlords and tenants need to be aware of their garden-maintenance duties from the beginning.
Renovating to add equity to your investment property
Renovating can be a great way to increase equity in your investment properties – it can even help you achieve your next property purchase sooner.
Property investors primarily choose to renovate for two main reasons.
Firstly, so they can demand higher rent from tenants, or remain competitive within the market.
Secondly, to increase the value of their property – from which point they can use the added equity to purchase their next investment property sooner.
Utilising the right renovation strategies and techniques can help investors achieve great success.
Even in flat real estate markets when capital growth is sluggish, renovations can be a fast and cost-effective way to increase the value of your investment properties.
However, the wrong strategy can lead to budget blowouts or poor returns, which can be highly costly.
When renovating, investors must ensure any changes they make to a property are appropriate and fit the surrounding neighbourhood.
For example, there’s no point installing granite benchtops and premium kitchen appliances in a house that’s located in a low socio-economic area. Spending $50,000-plus on a new kitchen in a house that’s located in a ‘working-class’ suburb won’t necessarily be reflected in the value of your property.
Furthermore, the rent returns needed to recover the cost of such a renovation would likely be far higher than what you’re likely to receive.
So it’s important to avoid overspending and knowing the target market you’re renovating for.
Likewise, when renovating to increase equity in your property you must focus on the areas that will generate the best capital growth.
For example, completing major renovations on the backyard, such as adding a dining-alfresco area, isn’t likely to be the best option if the dwelling has an aging interior.
Typically, it’s best to focus on aging kitchens and bathrooms to reflect a more modern appearance.
If the budget allows, extensions can also be a great way to add equity to your property, particularly if you can add an extra bathroom, bedroom or living space.
When completing major renovations, it’s also important to remember the minor aspects as well.
A fresh coat of paint, new carpet and replacing dated blinds or light fixtures can go a long way to creating a complete transformation to your property.
Taking these factors into consideration can help save you thousands of dollars and may mean the difference between your project achieving major success or ending up a costly exercise.
Kick-start your property portfolio
If done right, property investment is a great way for anyone to build huge personal wealth.
However, given there is so much conflicting information, newcomers to property investment can easily become overwhelmed and discouraged.
To assist those considering purchasing their first investment property, Momentum Wealth is holding an informative seminar for beginner investors, ‘Introduction to Property Investing (Property Stripped Bare)’.
The seminar uses simple, jargon-free language to explain the essentials of property investment and how these can help anyone to significantly build their personal wealth.
The seminar will explain the fundamentals of property investment, how to identify the best investment locations, why property prices rise in some suburbs but not others and the key considerations for successful property investment, among other important issues.
Momentum Wealth managing director Damian Collins will present the seminar in Perth on Wednesday, June 17, and anyone considering property investment is encouraged to attend.
For more information or to book your ticket, click here.
The seminar will prove to be a highly-informative evening and a launching pad for beginner investors to build large property portfolios.
Finance Newsletter – June 2015
Do you have the most suitable loan for your circumstances?
Do you have the best rate available?
If your interest rate is over 4.25% 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 4.25% variable home loans. Conditions apply. With no application fee, no valuation fee and only a $10 per monthly fee ongoing and free offset (comparison rate 4.38%) .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.
If you have questions regarding any type of loan, call Dan Goodridge on 0414 423 340. Our service is free of charge to you the borrower and we have access to all the major lenders in WA.
Tax Newsletter – June 2015
Commissioner’s statutory remedial power on the way
Even though the Commissioner of Taxation endeavours to interpret the law to give effect to its purpose or object, there are instances where this is not possible. To address this, the Government has announced that it will provide the Commissioner with a statutory remedial power to allow for a more timely resolution of certain unforeseen or unintended outcomes in taxation and superannuation law.
In announcing the Government’s plan, the Assistant Treasurer Josh Frydenberg said the power will be appropriately limited in its application and will apply to the extent that it has a beneficial outcome for taxpayers. It will only be available where the modification is not inconsistent with the purpose or object of the law and has no more than a negligible revenue impact. The Commissioner will consult publicly prior to any exercise of the power.
ATO ramps up face-to-face contact with wealthy individuals
The ATO has released details of its new approach to wealthy individuals and their private groups. The ATO is focusing on a “prevention-before-correction” approach and is ramping up its face-to-face interaction with key taxpayers.
According to the ATO, about 30% of wealthy individuals and their private groups are considered “high risk”. Acting Second Commissioner Michael Cranston said that if taxpayers are open and transparent with the ATO, they can expect better services and faster turnaround of key decisions.
Mr Cranston also noted the ATO “will sign-off on the previous year’s tax returns of taxpayers who have been open and transparent” about their affairs, have good compliance records and are considered low-risk. He said this will provide certainty for about 30,000 privately owned and wealthy groups that they will not be subject to an audit for specific income years.
TIP: Some of the risk areas that attract the ATO’s attention include individuals with unreported foreign income or assets; certain types of remuneration arrangements used by members of professional firms; the egregious use of trusts; and mixing personal and company expenditure.
Sale of business earn-out arrangements – tax changes on the way
The Government is looking to provide clarity in relation to the capital gains tax (CGT) treatment of earn-out arrangements in connection with a sale or purchase of a business.
An earn-out arrangement is an arrangement whereby, as part of the sale of a business, the buyer and seller agree that subsequent financial benefits may be provided based on the future performance of the business. For example, two parties are negotiating the sale of the business where a significant part of the value of the business is tied to its customer base – that is its goodwill. There is considerable uncertainty about how the sale and other factors may impact upon this goodwill. The parties could agree to an earn-out arrangement under which part of the consideration for the sale is linked to the future economic performance of the business.
The proposed rules aim to provide “look-through” CGT treatment to earn-out arrangements. That is, under the changes, taxpayers may disregard capital gains or losses that arise in relation to the qualifying right to financial benefits. Instead, taxpayers must include financial benefits provided or received under or in relation to such rights in determining the capital proceeds of the disposal of the underlying asset (for the seller) or the cost base and reduced cost base of the underlying asset for the buyer.
It is proposed that the changes would apply from the exposure draft legislation release date (ie 23 April 2015).
ATO data-matching eBay sellers
The ATO is collecting data from eBay Australia & New Zealand Pty Ltd of sellers who had sold more than $10,000 worth of goods and services on the eBay online trading website during the 2013–2014 financial year.
The ATO said the data will be electronically matched with its records to identify possible non-compliance with the tax law.
The data-matching program is designed to enable the ATO to address the compliance behaviour of individuals and businesses selling goods and services via the online-selling site who may not be correctly meeting their taxation obligations, particularly those with undeclared income and incorrect lodgment and reporting for GST.
It is expected that records relating to between 15,000 and 25,000 individuals will be matched.
TIP: If you sell products or services online, you need to understand whether you are doing it as a hobby or carrying on a business. The ATO said the ongoing collection of online-selling data enables it to review online sellers who are transitioning from hobby status to potentially being “in business”. When selling online becomes a business, the income you earn from it is subject to tax. If this is the case, you may also be eligible for tax deductions.
Aggressive R&D claims under scrutiny
The ATO and AusIndustry are working closely with each other to identify taxpayers who may be involved in aggressive research and development (R&D) arrangements. In particular, the ATO and AusIndustry are seeking arrangements that are inconsistent with the requirements of the law, may have features of tax avoidance, and may be fraudulent.
In this regard, the ATO and AusIndustry have asked taxpayers to ensure that their claims for R&D expenditure are attributed to activities that are consistent with their AusIndustry registration – and, importantly, that expenses (eg labour costs) were actually incurred on R&D activities.
TIP: Companies should consider whether they have undertaken research and development (R&D) activities that may be eligible for the Government’s R&D Tax Incentive. Eligible R&D activities are experimental activities that are conducted in a scientific way for the purpose of generating new knowledge or information. To potentially claim the R&D Tax Incentive, the company’s R&D activities need to be registered with AusIndustry within 10 months of the end of the income year. Companies are required to maintain records to demonstrate, not only to AusIndustry, but also to the ATO, that the activities carried out are eligible R&D activities and that they incurred expenditure related to the activities.
No jab, no pay for child benefits – Government immunisation requirement
The Government will end the conscientious objector exemption on children’s vaccination for access to taxpayer-funded Child Care Benefits, the Child Care Rebate and the Family Tax Benefit Part A end-of-year supplement from 1 January 2016.
Immunisation requirements for the payment of the FTB Part A end-of-year supplement will also be extended to include children of all ages. Currently, vaccination status is only checked at 1, 2 and 5 years of age. The Government will also end the exemption on religious grounds, leaving only the existing exemption on medical grounds.