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Taxation Newsletter – July 2017
June 21, 2017 | 
Author Higher education HELP changes announced
The Government has announced a package of reforms to higher education – the Higher Education Reform Package – to take effect generally from 1 January 2018. Under the package the maximum student contribution will increase from 1 January 2018, but there will be no up-front fees and no deregulation of fees.
A new set of repayment thresholds will be introduced from 1 July 2018, affecting all current and future Higher Education Loan Program (HELP) debtors.
Maximum student contributions will also be increased, phasing in by 1.8% each year between 2018 and 2021 to cumulate in a 7.5% total increase.
TIP: Already have a HELP debt, or thinking about undertaking more study? Talk to us to find out how these changes may affect you.
Super reforms from 1 July 2017
Rolling back excess pension balances
If you are a member of a self managed super fund (an SMSF) you may need to take action before 1 July 2017 to avoid exceeding the new $1. 6 million transfer balance cap. You can do this by requesting that the trustee of your SMSF commutes some or all of your income streams, rolling the amount over as an accumulation interest within the SMSF or withdrawing it from the SMSF as a lump sum.
Capped life expectancy and market-linked pensions
The value of “capped defined benefit income streams” will count towards an individual’s pension transfer balance cap of $1.6 million from 1 July 2017. However, capped defined benefit income streams cannot, of themselves, result in an excess transfer balance. This is because they generally cannot be commuted and cashed as a lump sum. Modified rules that will apply to achieve an equivalent tax outcome for defined benefits.
If a pension or annuity from a life expectancy or market-linked income stream (MLIS) product is payable, a credit arises in the person’s transfer balance account equal to the “special value” of the superannuation interest that supports the income stream.
There will be additional income tax consequences for people with defined benefit pension income exceeding the defined benefit income cap ($100,000 for a financial year).
Death benefits
Where a deceased fund member’s superannuation interest is cashed to a dependant beneficiary as a death benefit income stream, a credit will arise in the dependant beneficiary’s transfer balance account. The amount and timing of the transfer balance credit will depend on whether the recipient is a reversionary or non-reversionary beneficiary.
Draft legislation: LRBA integrity measures for pension cap
New exposure draft legislation contains integrity measures for limited recourse borrowing arrangements (LRBAs) as part of the Government’s super reform legislation.
The exposure draft proposes to include LRBAs in fund members’ total superannuation balance and the $1.6 million pension transfer balance cap. The changes seek to address concerns about SMSF members’ ability to use LRBAs to circumvent contribution caps and effectively transfer accumulation growth to retirement phase that is not currently captured by the transfer balance cap regime. The amendments will only apply in relation to borrowings entered into on or after the Bill is enacted.
Deductions for super funds: major ruling update
The ATO has issued an important ruling to clarify its views on the deductions available for superannuation funds.
Superannuation funds are generally restricted to claiming deductions to the extent that they are incurred in producing assessable income. The new ruling sets out the acceptable methods for apportioning tax deductions for expenses incurred in partly gaining non-assessable income.
The ATO has also clarified its views on deductions for the costs of establishing a fund, managing the related tax affairs and amending trust deeds.
TIP: The ATO has extended the due date for lodgment of 2015–2016 SMSF annual returns from 15 May to 30 June 2017.
Bill to reduce corporate tax rate
The Treasury Laws Amendment (Enterprise Tax Plan No 2) Bill 2017 has been introduced to progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023–2024 income year. The corporate tax rate will then be cut for all corporate tax entities, phasing down to a 25% tax rate for the 2026–2027 and later income years.
Budget updates
Foreign owners of “ghost” property
The 2017–2018 Federal Budget announced that the Government will introduce a charge on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months per year. The charge will be levied annually and will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired by the foreign investor.
Tougher residency rules for pensioners
The Government has announced it will revise the residency requirements for claimants of the Age Pension and Disability Support Pension (DSP). From 1 July 2018, claimants will be required to have 15 years of continuous Australian residence before being eligible to receive the Age Pension or DSP, or meet other, more specific, time requirements.
Transfer pricing
Chevron: interest rate on borrowing not arm’s length
In a major transfer pricing judgment, the Full Federal Court has unanimously dismissed Chevron Australia’s appeal, finding that its loan arrangement with its related US company Chevron Texaco Funding Corporation was not at arm’s length and the Commissioner was justified in denying Chevron Australia’s interest deduction claims.
Draft guideline on cross-border related-party financing
The ATO has released a Draft Practical Compliance Guideline that sets out its compliance approach to the taxation outcomes associated with a related-party financing arrangement. It makes no direct reference to the Chevron decision, but has clearly been produced as a risk assessment tool for entities that engage in broadly similar related-party financing arrangements.
The ATO assesses related-party financing arrangement risk using a framework of six risk zones, ranging from white zone (arrangements already reviewed and concluded by the ATO) and green zone (low risk) to red zone (very high risk).
If a related-party financing arrangement falls outside the low risk category, taxpayers can expect the ATO to monitor, test and/or verify the taxation outcomes of the arrangement.
Car expenses for transporting equipment disallowed
A taxpayer working as a stevedore has been denied a deduction for car expenses incurred in transporting equipment to and from work. The Administrative Appeals Tribunal (AAT) decided that it was not necessary for the taxpayer to take home her hard hat, safety glasses, hearing protection or headlight to clean them, and her overalls were laundered by the employer. Accordingly, she could only justify transporting her shirts, trousers and occasional wet weather gear, which were not bulky. The car expenses were therefore not deductible.
TIP: The ATO pays attention to unusual claims when it comes to work-related expenses. We can help you maximise your tax return while staying within the rules.
Draft legislation: financial complaints and dispute resolution
As part of the 2017–2018 Budget, the Government announced that it would create a new one-stop shop for financial disputes – the Australian Financial Complaints Authority (AFCA) – to be established by 1 July 2018. AFCA will replace the existing framework of the Financial Ombudsman Service (FOS), Credit and Investments Ombudsman (CIO) and Superannuation Complaints Tribunal (SCT). These existing bodies will continue to operate after 1 July 2018 to work through their existing complaints. Financial firms will be required to be members of AFCA, and its decisions will be binding on all firms.
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Finance Newsletter – June 2017
What’s going on with interest rates?
With the current changing market conditions how do you know if you have the best rates 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 3.79% 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 3.79% variable rate. This is NOT a honeymoon rate, discount is for the life of the loan. Conditions apply – owner occupied homes only, principal and interest payments, minimum loan is $250,000, 90% 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 $3105.00 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 – June 2017
Benefits of buying property counter cyclically
Given the cyclical nature of property markets what are the benefits of buying an investment property in a downturn?
While property markets are cyclical and experience ebbs and flows, many investors will only buy when the market is running hot and retreat or delay an acquisition during a slowdown.
However, is that the best strategy that property investors should utilise?
Although sentiment suffers during a property market slowdown, there are advantages to building your property portfolio when everyone else wants to sit on their hands and take an ‘I’ll-wait-and-see-what-happens’ approach.
So what are the benefits of buying an investment property in a market slowdown?
- Fewer buyers. During a downturn many buyers, including property investors and owner occupiers, retreat from the market and wait for a recovery. Those left in the market wanting to make an acquisition will therefore encounter fewer buyers and less competition.
- More choice. When property markets cool, the amount of housing stock available typically increases meaning buyers have more options to choose from and are more likely to find a property better suited to their needs.
- Better bang for buck. With fewer buyers in the market and more stock available for sale, sellers have to price their properties more competitively and are more likely to discount their asking price. Buyers have a better chance of securing a property for less or can even purchase a superior property that they otherwise couldn’t have been able to afford in a normal market.
- More control over contract negotiations. Given the market is weighed in buyer’s favour, buyers have more control over contract negotiations, whether that be for negotiating more favourable settlement periods, rent-back periods with owner-occupiers or early-entry clauses, among others.
- While it’s easy to become disheartened when residential property markets slow, there are definite advantages to buying property in a downturn.
- Regardless of market conditions, though, investors need to take a long-term view with their investment decisions, keep property investment fundamentals at the fore and buy when they are ready, rather than trying to time the market.
WA strata reforms back on the agenda
After being put on the back burner for more than a year, reforms to Western Australia’s strata titling system are again in the spotlight with the newly-elected state government supporting an overhaul of the existing arrangements.
One of the biggest changes will be the introduction of community titles, which will allow multiple strata schemes to be managed individually under one umbrella management structure.
This is particularly beneficial for mixed-used precincts and buildings that feature a combination residential and commercial space, whether that be office, retail or other, as it allows more efficient management of the area
For example, the community title will enable schemes to cover specific areas of a building or precinct. So one scheme can exist for the common areas that are used by all individuals, such as driveways and foyers, while a separate scheme can exist for an individual building, which may have a pool that not everyone can use.
Another major benefit is the ability to terminate old strata schemes. Currently, it requires 100% of landlords to agree to terminate a strata scheme but this will be dropped to 75%, which will allow for greater utilisation of sites through development.
Property buyers will also benefit from a more transparent system as sellers of strata-titled property will have to provide specific strata information prior to purchase.
There are more than 300,000 strata lots in Western Australia valued at more than $170 billion.
The strata reforms were first announced in January 2016 after a 2-year consultation period.
However the changes were put on the back burner in the lead up to the WA state election in early 2017 when the Labor party rose to power.
The reforms will be the first major shakeup of the strata legislation in 20 years and comes after significant growth in strata living with strata development making up 40-50% of current development.
Why every property investor needs a cash buffer
Cash buffers are essential when building a large property portfolio as they provide a safety net for investors. So how much money should you set aside for a cash buffer and when should it be used?
When building a large property portfolio, it’s important to set aside a sum of money that can be used for contingency situations.
Without an adequate cash buffer, you may find yourself in a financial bind if you suddenly need to pay some unexpected bills.
Typically, there are two income buffers that you should keep – a personal income buffer and an investment property buffer.
A personal income buffer is important in the event that you lose your job or need to take an extended period of time off work because of illness or another reason.
The aim of this buffer is to allow you to maintain loan repayments on your home loan and investment loans during the period that your salary is reduced or cut off.
The size of your personal income buffer should depend on your risk profile, stage in life and job security, among other factors, but it’s typically recommended to hold 2-4 months of your current income on hand.
The second type of buffer, the investment property buffer, is useful for repairs and vacancy periods.
The aim of this buffer is to ensure you have enough cash on hand should you need to complete maintenance works on an investment property, such a replacing a hot water system or fixing a leaking roof, or to maintain loan repayments during vacancy periods.
The size of the investment property buffer should vary on the age of the property (the older the property the more maintenance that is generally required), the vacancy rate in the area and likelihood of changes in the market. Typically, it’s best to hold 2-4 months of rental income on hand as an investment property buffer.
By failing to hold adequate cash buffers, investors can easily find themselves under financial pressure should they need to address urgent maintenance works or if their salary is suddenly reduced or cut off.
This can have significant consequences on investors’ property investment plans and goals and could even lead to forced sales.
However, by planning ahead and putting these cash buffers in place, investors can have peace of mind that they can continue to meet their financial obligations should repairs be required or there are disruptions to their income.
Retail and rail to benefit this suburb
This suburb is poised to benefit from a new train station under the state government’s Metronet plan in addition to a major redevelopment of a local shopping centre.
Embleton is located within the City of Bayswater about 7 kilometres north east of the Perth CBD.
The suburb is bound by Broun Avenue, which runs into Beaufort Street, in the north and west and Beechboro Road in the east. As well as these roads, it is also highly accessible via Tonkin Highway, Embleton Avenue and Collier Road.
Its neighbouring suburbs include Morley to the north, Bedford to the west and Bayswater to the east and south.
While Embleton doesn’t offer a train station, residents in the south of the suburb are in close proximity to the Bayswater train station. There are also bus services that run down Broun Avenue into the Perth CBD.
Development of the area dates primarily to the late 1950s when much of the land was resumed by the State Housing Commission, which subdivided and developed the residential lots still present today.
Embleton is predominantly low-density residential stock, with practically the entire suburb zoned R25. The suburb’s median house price stands at $502,500.
Of the existing stock, 85.4% are houses, 10.4% are semi-detached, row or terrace houses and townhouses and 4.2% are flats, units or apartments.
About 61% of properties are either owned outright or being purchased, while 35.4% of properties are being rented.
The suburb’s 2,737 residents have a median age of 38 years.
Of Embleton’s population, 20.3% identify as technician and trades workers, 13.7% as clerical and administration workers and 17.7% as professionals (WA average is 19.9%)
Features of the suburb include the Embleton Public Golf Course, Embleton Primary School, Bayswater Waves, Broun Park and McKenzie Reserve.
Nearby amenities include Morley Galleria (1km), Bayswater Train Station (1.5km) and the Beaufort Street Café Strip (3km).
The City of Bayswater has recently recommended planning approval for a proposed $350 million redevelopment of Morley Galleria, which would increase the size of the centre from 78,000sqm to 128,000sqm, including the establishment of a town square and an urban plaza.
This is set to add a significant amount of amenity to nearby Embleton, with works expected to commence in 2018.
Furthermore, the recently-elected Labor government’s Metronet public transport plan is set to greatly benefit Embleton with a station planned for Walter Road that would service the area.
The Walter Road station is expected to form part of the Ellenbrook train line, the North Circle line and the Wanneroo line.
The Ellenbrook train line is the first stage of Metronet with construction expected to start in 2019 before opening in 2022. This would include the Walter Road station that would service Embleton.
Deals and Don’ts – Wanneroo, Heathridge, Yokine Deals
Wanneroo
Purchase price: $375,000 Purchase date: April 2017 Block size: 792sqm Specification: 3 bedroom, 1 bathroom, house with double garage built in 1971 zoned R20/40
Deal: This property is a great buy because it’s located on a corner block with zoning of R20/40 meaning it has good development potential. Its location is also excellent being within 350m of Lake Joondalup and within 800m of the Wanneroo town centre. The streetscape is also highly desirable and it’s a short walk to Taywood Park.
Heathridge
Purchase price: $445,000 Purchase date: April 2017 Block size: 723sqm Specification: 3 bedroom, 1 bathroom house with double garage built in 1977 zoned R20/40
Deal: The main feature of this property is its subdivision potential and the fact that it is opposite a neighbourhood park. It’s also close to amenity with Belridge City Shopping Centre just 300m away.
Yokine
Purchase price: $486,000 Purchase date: March 2017 Block size 353sqm Specification: 3 bedroom, 2 bathroom house with enclosed double carport, built in 2002
Deal: The main features of this property are its proximity to the CBD, being just 7km away, and its relative affordability. It is in excellent condition making it easy to lease, and the fact that it is situated on a green title block means it has no common property with neighbours.
Don’ts
Spearwood
For sale price: $425,000 Block size: 721sqm Specification: 3 bedroom, 1 bathroom, house
Don’t: This doesn’t represent a good investment because it backs onto the freight railway line and it is located in close proximity to the busy Rockingham Road. The condition of the house would also make it difficult to lease and the irregular block shape will put constraints on any future development potential.
Finance Newsletter – May 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 3.79% 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 3.79% variable rate (3.83% comparison 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 $150 000, 80% LVR maximum – No application fee, monthly or annual fees. 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.
Tax Newsletter May/June 2017
Tax assistance for people affected by Cyclone Debbie
The ATO has said it will fast-track refunds for people affected by extreme weather and flooding associated with Tropical Cyclone Debbie and ex-Cyclone Debbie in Queensland and New South Wales, and will allow extra time for those taxpayers and their agents to lodge income tax returns and activity statements.
Tax Commissioner Chris Jordan said taxpayers do not need to apply for a deferral or a faster refund. “If your business or residential address is in one of the identified affected postcodes it will happen automatically”, Mr Jordan said. “We understand that for many people their tax affairs are the last thing on their minds right now. When people are ready, we will make sure they are supported in meeting their tax obligations.”
Automatic deferrals of one month apply for tax lodgment and payment dates for people in the affected postcodes. Employers still need to meet their ongoing super guarantee obligations for employees.
The ATO is offering a range of other support measures, and can help reconstruct tax records where documents have been damaged or destroyed.
TIP: If your personal or business affairs have been affected by Cyclone Debbie, contact us to find out what ATO measures and support you can access.
ATO adds value to developing financial literacy
The ATO is helping teachers add tax and super to their classes this year with dedicated educational resources.
In partnership with the Australian Curriculum, Assessment and Reporting Authority (ACARA) and the Australian Securities and Investment Commission (ASIC), the ATO has developed resources that align to the Australian Curriculum for students in years seven to 10.
“Understanding tax and super is an important skill for young Australians, and we are pleased it is now part of the Australian curriculum”, Assistant Commissioner Kath Anderson said.
The ATO says it wants to make it easy for teachers and students to access information, and now offers online learning and teaching resources, activities, videos and webinars through ACARA’s new Curriculum Connections. School visits can also be arranged to cover topics including tax file numbers, preparing for work and how to lodge a tax return.
Does your business import or export goods and services?
The ATO reminds business owners that if your business imports or exports goods or services in Australia, it is important to be aware of your GST responsibilities so you can get the information on your business activity statement (BAS) right.
Exports from Australia are generally GST-free, but special conditions apply in some situations. For example, if it takes longer than 60 days for you to receive payment for your exports, then GST could be charged.
When importing, you are generally required to pay GST (10% of the value of the taxable importation). This GST is usually paid to the Department of Immigration and Border Protection Service before the goods are released, unless you are part of the deferred GST (DGST) scheme.
Tip: Talk to us to find our more about your GST obligations. The ATO accepts voluntary disclosures about mistakes in GST reporting, and you may find your business is eligible for the DGST scheme.
Senate Committee holds corporate tax avoidance hearing
The Senate Economics References Committee is inquiring into tax avoidance and aggressive minimisation by corporations registered in Australia and multinational corporations operating in Australia, including looking at the adequacy of Australia’s current laws. The Committee held a public hearing in Perth on 28 April 2017, where it heard from representatives of Woodside Energy Limited, BHP Billiton, ExxonMobil Australia, Shell Australia, BP Australia, Chevron Australia, the ATO, the WA Department of Mines and WA Treasury. Discussion of the Petroleum Resource Rent Tax (PRRT) occupied much of the hearing. The Committee is due to report by 30 September 2017.
Higher education HELP changes: faster repayments and threshold changes
The Minister for Education and Training, Simon Birmingham, has announced a package of reforms to higher education – the Higher Education Reform Package – to take effect generally from 1 January 2018. The details announced will be confirmed in the 2017–2018 Federal Budget. They include:
- an increased maximum student contribution from 1 January 2018;
- no up-front fees or deregulation of fees;
- a new set of repayment thresholds from 1 July 2018, changing repayment timings and quantities for all current and future Higher Education Loan Program (HELP) debtors;
- a new minimum repayment threshold at $42,000 of income from 1 July 2018 with a lower 1% repayment rate, and a new maximum threshold of $119,882 of income with a repayment rate of 10%;
- phasing in increased maximum student contributions by 1.8% each year between 2018 and 2021, cumulating in a 7.5% increase; and
- from 1 July 2019, indexation of HELP repayment thresholds, currently linked to Average Weekly Earnings (AWE), will be changed to align to the Consumer Price Index (CPI).
The Minister said that taxpayer-funded student loans stand at more than $52 billion and, without changes to address this situation, around a quarter of that is expected to go unpaid.
Super guarantee non-compliance: Senate Committee report
On 2 May 2017, the Senate Economics References Committee released its report into Superannuation Guarantee (SG) non-payment, calling for the ATO to
take a more proactive stance in identifying and addressing SG non-compliance. As part of its inquiry, the committee heard that employers failed to pay $5.6 billion in SG contributions in 2013–2014, affecting 2.76 million employees who lost over $2,000 on average in a single year.
Other key recommendations include:
- requiring monthly contributions (instead of quarterly);
- removing the current $450 monthly threshold for SG eligibility;
- ensuring salary sacrificed contributions cannot count towards the employer’s compulsory SG obligation, and do not reduce the earnings base upon which SG is calculated;
- strengthening the ATO’s ability to recover SG liabilities through the director penalty notice (DPN) framework to stop directors undertaking fraudulent phoenix activity; and
- amending the Fair Work Regulations 2009 to require payslips to display further details about super contributions.
Illegal SMSF early access scheme leads to $6,000 fine
ASIC reports that a man from South Melbourne has pleaded guilty in the Melbourne Magistrates Court and been fined $6,000 for operating a financial services business without an Australian financial services (AFS) licence. ASIC’s investigation arose from ATO intelligence that raised concerns about the promoter’s conduct. The offence related to a scheme the man promoted and operated to facilitate illegal early release of his clients’ superannuation benefits through the creation of self managed superannuation funds (SMSFs).
Between 2010 and 2012, the man placed newspaper advertisements in Victoria and South Australia offering loans dependent upon future superannuation entitlements. A round-robin scheme was operated whereby the promoter’s clients transferred their superannuation funds into newly created SMSFs. The SMSFs lent funds to a company the promoter operated, and then an amount, less a fee, was loaned by either the company or personally back to the trustees of the SMSF in their personal capacity. The promoter has never been granted an AFS licence or a credit licence and has never been an authorised representative of a licensee. ASIC said the promoter exploited his clients’ trust through an illegal scheme that exposed them to potential legal and financial risk.
ASIC urges consumers to deal only with licensed representatives of the financial services and credit industries.