$42 BILLION NATION BUILDING & JOBS PACKAGE

The Rudd government announced this plan on February 3, 2009 to support jobs and invest in future long term economic growth. The legislation was passed by the Senate on Friday 13 February, 2009 and was not supported by the Coalition.

Key features include:

• Small Business Tax Break will be available for businesses with a turnover of less than $2 million.

These businesses can claim an additional 30% tax deduction for eligible assets costing $1,000 or more that they acquire from December 13, 2008 to June 30, 2009 and install prior to June 30, 2010.

So a small business that buys a $2,000 computer before June 30, 2009 can claim an additional $600 deduction in its 2008/2009 tax return, or a small business that buys a $60,000 backhoe can claim an additional $18,000 deduction.

This additional 30% deduction falls to 10% for acquisitions made between July 1, 2009 and December 31, 2009.

Eligible assets for the allowance are generally depreciable or capital allowance assets and includes new expenditure on existing income producing assets.

Businesses with a turnover greater than $2 million receive the same deductions for eligible assets costing more than $10,000.

• $900 – $950 Cash Bonus will be paid as a one off payment to 5 different groups.

Working Australians who earned less than $100,000 in the 2007/2008 financial year who paid tax after all offsets and rebates.

The payment will be made automatically by the Australian Taxation Office and the amount decreases for those earning over $80,000 in the 2007/2008 financial year. Where taxable income is between $80,000 and $90,000 the payment is $600 and for those with an income between $90,000 and $100,000 the payment is $250.

Single Income Family Bonus of $900 will be paid to those who are eligible to receive Family Tax Benefit Part B.

Centrelink will automatically make payments to those eligible from March 11, 2009.

Those who claim Part B annually via their tax return will be paid after the lodgement of the 2008/2009 tax return. $950

Farmers Hardship Bonus will be paid to 21,500 drought affected farmers and farm dependant small business owners.

$950 Back to School Bonus will provide a one off, up-front bonus to be paid to families eligible for Family Tax Benefit Part A.

This measure is in addition to the Education Tax Refund.

The Training and Learning Bonus is also a one off payment of $950. Two categories exist:

a) Recipients of Youth Allowance (students and apprentices), Austudy and Abstudy as well as Sickness Allowance and Special Benefit recipients.

b) A temporary supplement (January 1, 2009 to June 30, 2010) to the Education Entry Payment (EdEP). The EdEP provides assistance to those on income support returning to study. There is also a temporary extension of EdEP to Youth Allowance and a relaxation of the requirement to be receiving social security from 12 months to 1 month.

In total about 440,000 students and people returning to study will be paid this one off bonus.

• Free Ceiling Insulation for 2.7million homes from July 1, 2009 owner-occupiers without ceiling insulation will be eligible for free product and installation of up to $1,600.

The program will run for 2½ years only and eligible owner occupiers who install ceiling insulation between February 3, 2009 and June 30, 2009 can apply to be reimbursed.

In addition to this measure the Energy Efficient Homes investment and Solar Hot Water Rebate will be increased from $1,000 to $1,600 from February 3, 2009. The Low Emissions Plan for Renters rebate will increase also from $500 to $1,000.

• 9,540 School Building’s Upgrade program will cost a total of $14.7 billion. A new building or large scale infrastructure work will be carried out in every primary school, special school or K-12 school in Australia.

Part of this program also includes an allowance of up to $200,000 for every school for maintenance and minor building works.

• 20,000 New Social and Defence Homes to be built from April 2009 through to March 2011. Areas where these will be built include Adelaide, Brisbane, Canberra, Darwin, Melbourne, Hobart, Townsville, The Hunter, Ipswich, Sale, Wagga Wagga, Wodonga, Nowra and Toowoomba.

• $890 million Black Spot, Boom Gate, Regional Roads and Community Infrastructure program will also be commenced.

This program should improve safety on our roads and rail crossings and improve local road networks.

OCTOBER 2008 ECONOMIC SECURITY PACKAGE

In response to the global credit crunch the Federal Government outlined last year a $10.4 billion economic stimulus package to provide support and growth to the Australian economy.

There were 5 essential elements to this package:

• Pensioners Christmas Bonus totaling $4.8 billion. Under this proposal a lump sum payment of $1,400 for single pensioners and $2,100 for pensioner couples was made to recipients of the following:

• Age Pensions;
• Disability Support Pensions;
• Carer Payments;
• Wife and Widow B Pensions, Partner, Widow and Bereavement Allowances;
• Veterans Affairs Service Pensions;
• Veterans Income Support Supplement;
• Veterans Affairs Gold Card holders eligible for Seniors Concession Allowance;
• Those of age pensioner age who receive Parenting Payment, Special Benefit, or Austudy; and – Eligible Self Funded retirees holding a Commonwealth Senior Health Card (CSHC).

The payments were made automatically through Centrelink and the Department of Veterans Affairs in the fortnight beginning 8 December 2008.

In addition to this people who are receiving a Carer Allowance also received $1,000 for each eligible person being cared for.

• Low and Middle Income Families received $3.9 billion in support payments.

The support was delivered to families through a one-off payment of $1,000 for each eligible child in their care. Those who received the support include:

– Families who receive Family Tax Benefit Part A; and

– Families with dependent children who receive Youth Allowance, Abstudy or a benefit from the Veterans’ Children’s Education Scheme payment.

In all, around 3.9 million Australian families receive a $1,000 one-off payment.

Most families received their full payment automatically in the fortnight beginning 8 December 2008 on each family’s regular family tax benefit payment day. These payments were completed by 19 December 2008.

Families who receive their family payments as a lump sum at the end of the financial year will receive their additional payment when they make their claim.

Payments will be tax exempt and not included for income-testing purposes.

If you believe your entitled to one of these payments but not yet received your funds please contact Centrelink or our office for assistance.

• The Federal Government’s First Home Owners Boost scheme to $1.5 billion to assist first home buyers purchase a home. First home buyers purchasing established homes will receive $14,000, the new grant will apply from 14 October 2008 and in order to qualify, the contract must be entered into before 30 June 2009.

First home buyers purchasing newly constructed homes that meet State energy efficiency and sustainability standards will still be eligible for the existing $7,000 grant.

Accordingly we can summarise the position as follows:

There are substantial penalties for knowingly making false or misleading statements in connection with an application for any of the above benefits.

Some concessions are still available for eligible purchasers where a property is purchased jointly and one party is ineligible for the concession.

This initiative together with the state government’s first home buyers stamp duty concessions for acquisitions up to $500,000 (representing a potential saving of $17,990) is envisaged to bring more home buyers into the market and boost economic activity generally.

• New Training Places will be created at a cost of $187 million.

This measure will double the Productivity Places Program numbers from 57,000 to 113,000.

• The Nation Building Program of the federal government will be fast tracked.

Key areas to be of focus include

• Education and Research
• Health and Hospitals
• Transport and Communications

THE NSW MINI BUDGET

On November 11, 2008 key changes to state government taxes and charges were announced as part of the NSW Mini Budget:

• Share transfer duty will now be abolished from July 1, 2012 instead of the previously announced January 1, 2009.

• Mortgage duty on business loans to be abolished from July 1, 2012 instead of the previously announced July 1, 2009.

• Transfer duty on business assets to be abolished on July 1, 2012 instead of the previously announced January 1, 2011.

• Land Tax will increase for the 2009 land tax year (in respect of land owned at December 31, 2008) to a new marginal rate of 2% for land owners with total taxable land holdings above $2.25million. Land below the premium threshold will continue to be taxed at 1.6% above the $368,000 threshold.

• Nominal duties will also increase from January 1, 2009. Duplicates and transfers will increase from $2 each to $10 each. Change of trustee from $10 to $50 each and initial settlement of trust deeds to increase from $200 to $500 each.

• Mining royalties to increase from January 1, 2009 as follows:

• From 7% to 8.2% for open cut mining.
• From 6% to 7.2% for underground mining.
• From 5% to 6.2% for deep underground mining.

Those of you with a memory will recall that most of these state taxes and charges were to be abolished with the introduction of the GST which was on July 1, 2000, almost a decade ago!

• State Payroll Tax Changes were recently announced. Currently payroll tax is levied at a rate of 6% on all salary wages and superannuation payments above the threshold of $50,000 per month or $600,000 annually. From January 1, 2009 the rate will drop to 5.75% and the annual threshold increased to $623,000.

• The Payroll Tax Incentive Scheme was introduced to assist new and existing businesses to establish and grow in locations where unemployment is above the state average.

The scheme provides a rebate to offset the payroll tax paid by eligible employers for employees working in eligible locations over a five year period.

The scheme assists

• start-up businesses in their first year of operation
• businesses relocating from interstate or overseas
• businesses expanding their payroll and becoming liable to pay payroll tax for the first time.

It is not available to an employer or group who was liable for payroll tax in pervious years.

OTHER TAX MATTERS

• The Henry Review was commissioned by the federal government to review the “root and branch” of the Australian Tax System. While this review is only the start of the process the Henry Review has highlighted that Australia has at least 125 taxes and only 10 of these make up 90% of revenues collected.

• Land Tax Assessments for the 2009 land tax year (based on land holdings and valuations as at December 31, 2008) will issue from the office of State Revenue (OSR) over the next few months. Given the state of the property market land holders should review the OSR valuation and consider objecting if the value is completely off the mark.

• Finance & Interest Rates should be reviewed in these tough times. While the banks have passed on the majority of the Reserve Bank of Australia’s cut in official rates to the residential property market sector the same can not be said for commercial or business finance sector.

A review of a client’s finances prior to Christmas showed a 2% gap on a commercial property facility when compared to the available commercial bill rate. That gap has since dropped to 1.6% but that saving on a $3 million facility is generating an annual interest saving of $48,000.

Advice

Should you or a friend or colleague require some advice on these or any other matter please feel free to make an appointment.

The Rudd/Swan Labor government handed down their second federal budget on May 12th, 2009 and we summarise the key points below:

• Budget Deficit at an all time record high of $58 Billion or 4.9% of Gross Domestic Product (GDP).
• Net Debt to reach a record $188 Billion by 2012-13. Remember Howard took over a $90 Billion deficit when he came to power. The Treasurer has forecast that this debt will be repaid by 2015-16.
• Unemployment of 8.5% or one million people by 2010-11.
• Concessional Superannuation Contribution Caps Reduced from July 1, 2009.

For individuals aged 50 and over the current limit of tax deductible contributions (or concessional) will be reduced from $100,000 to $50,000 per annum until 2011-12 and then to $25,000 per annum thereafter.

For individuals under age 50 the limit on tax deductible or concessional contributions will drop from July 1, 2009 from $50,000 per annum to $25,000 per annum.

• Non Concessional Superannuation Cap of $150,000 per annum or $450,000 in any 3 year period will remain as it is.

• Superannuation Contribution Splitting – where a contribution is made for one person and then “spilt” into their spouses account will be reduced from the current 80% of the amount of the contribution to a limit of the concessional superannuation contribution caps outlined above.

• Transition to Retirement Strategies have not been specifically altered however the changes to the contribution caps outlined above will make it less advantageous for the wealthy.

• Superannuation Government Co Contribution to be reduced from the current 150% to 100% for 3 years and then gradually increased back to 150% again.

So currently when you put $1,000 of your after tax income into super and your income is below the threshold the government tops up your account with $1,500.

That will change in the 2009/2010 financial year and only a $1,000 top up will apply until 2014-15.

• Minimum Pension Streams from Superannuation have been halved for those on existing pensions or those commencing a new pension during 2009-10.

• Personal Income Tax Rate reductions previously announced were confirmed and are outlined below:

• Private Health Insurance Rebate and Medicare Levy Surcharge changes will basically mean more people pay more.

The changes are outlined below:

• Low Income Medicare Care Levy Threshold will be increased.

For the 2009 financial year and beyond, singles earning $17,794 and families earning $30,025 will not pay the Medicare Levy.

These thresholds increase for every child or dependant student by $2,757. Similarly pensioners below the age pension age earning $25,299 or less will not incur the Medicare Levy.

• First Home Owners Grant Boost will be extended in its current form until September 30, 2009 and then halved until December 31, 2009.

Remember that on top of this “Boost” is the original First Home Owners Grant of $7,000 as well as NSW Government’s New Home Buyers Supplement of $3,000 as well as a stamp duty exemption worth up to $17,990.

• Small Business Tax Break previously announced for business with turnover of less than $2 million to be increased again.

Initially this initiative set a 10% bonus tax deduction for capital expenditure over $1,000 and then increased to 30% for assets acquired between December 13, 2008 to June 30, 2009.

Now the extra tax deduction is 50% of capital expenditure purchased between December 13, 2008 to December 31, 2009 and must be used or installed ready to use by December 31, 2010.

• Large Business Tax Break previously announced for capital expenditure over $10,000 for businesses with turnover over $2 million has also been amended and can be summarized as follows:

• Employee Share Scheme Entitlement changes will now mean that those with an adjusted taxable income above $60,000 will now pay tax on what was once a tax-free $1,000 discount on the shares.

• Foreign Income from Employment will no longer be tax exempt where the work is for 91 consecutive days or more.

Expats who are still residents for Australian taxation purposes will have to return their employment income in their Australian income tax return and receive a tax credit for any foreign employment tax paid. In many overseas countries the rate of tax is between 10-20% and hence a huge amount of additional tax will be payable.

• Non Commercial Business Loss rules on activities like a hobby farm that generates a tax loss will be tightened.

Taxpayers earning over $250,000 will have these losses quarantined to that particular business activity and not be able to be offset the loss against other income.

• Off-Shore Companies and Trusts which are used to accumulate investment income and either defer or avoid Australian tax will be targeted by amending current legislation.

• Aged Pension Age to Increase from 65 years to 67 years for both men and women from 2023. This measure will be phased in from 2017. The current qualifying age of 65 will increase by 6 months every 2 years from 2017.

• Paid Parental Leave will commence from January 1, 2011.

The primary carer will be paid at the adult federal minimum wage (currently $543.78 per week gross) for a period of up to 18 weeks.

The payments will be subject to tax, will effect family assistance payments but will not be counted as income for income support payments.

The government funded paid parental leave can be taken in conjunction with, or in addition to, employer provided leave.

Primary carers will be eligible if they:

• Earned less than $150,000 in the year prior to the birth or adoption.
• Have worked at least 330 hours over the 10 months preceding the birth or adoption.
• Worked continuously with one or more employers for at least 10 of the 13 months before the expected birth or adoption.

Paid parental leave will also be available to contractors, casual workers and the self employed.

Primary carers such as stay at home mums who do not qualify for the scheme will still have access to the Baby Bonus or Family Tax Benefit B where they meet the eligibility criteria.

Carers who chose to receive the paid parental leave will forgo for the 18 week period the following benefits:

• Family Tax Benefit B
• Dependant Spouse offset
• Child-housekeeper offset
• House keeper offset

Employers will be paid the parental leave who will then make the payments to the employees.

• Age Pension Increase to apply from September 20, 2009 as follows:

Pensioner Income Test to change from September 20, 2009.

Currently once a pensioner earns above the allowable fortnightly limit a 40¢ reduction in the pension applies for each dollar of income above the limit.

From September 20, 2009 this reduction will be 50¢ per dollar above the fortnightly limit.

• Pension Bonus Scheme to be scrapped from September 20, 2009 and replaced with a pensioner work bonus.

This bonus will allow pensioners to get a maximum of $125 per fortnight in additional pension payment by disregarding half of the first $500 per fortnight of employment income under the income test

• Commonwealth Seniors Health Card eligibility has been changed. The government initially announced earlier in the year that tax free pension income would be included in the income test for the Commonwealth Seniors Health Card from July 1, 2009. The government announced in the budget that this measure would not be introduced.

• Self Funded Retirees will from September 20, 2009 receive the “Senior Supplement”. The Supplement will be $790.40 per annum for singles and $1190.80 per annum for couples.

The payment will be made quarterly and will go to retirees eligible for:

• Commonwealth Seniors Health Card
• Department of Veterans Affairs Gold Card

• Advice – should you or a friend or colleague require some advice on these or any other matter please feel free to make an appointment.

Overcome your Customer’s Fear of Spending

One of the biggest complaints from sales people in a tight economy is the time it takes to achieve a sale. So, what can you do to speed up the sales process?

Stop product selling and start solution selling

Branding is wonderful but unless your brand is as mighty as Coca Cola, it’s unlikely people will purchase what you have on the basis of brand alone. It’s more important than ever to explain why your product or service is valuable to your client and if it is not unique, why they should be buying it from you.

Berlei bras demonstrated the art of solution selling back in 2000 with their sports bra campaign – “only the ball should bounce.” For anyone that has seen a sports bra you know that aesthetically, they are the ugly duckling of the lingerie world – highly functional but very unattractive. Berlei used science to show women how much damage exercising in anything but a sports bra could do (using television advertising, print, point of sale advertising, media etc).

You do not have to spend millions of dollars to achieve the same effect. The point is to understand what the most meaningful message is to send to your customer.

Sell the savings

Does your product offer your customer any form of efficiency gain or benefit beyond value over time? Can you justify it with real examples such as testimonials and worked examples? If it does, you need to ensure that you articulate this message. If there is a benefit, ensure you highlight it and emphasise the result. Try and stay away from long range forecasts. If it is going to take a few years to see the real value then this is not much of a selling point in the current market.

You are only as strong as the weakest link in your sales process chain

If your first point of contact is the weakest link in your sales chain, then you need to fix it. Help your team identify and capitalise on opportunities by giving them the training they need. They need to know what the benefits or your products are to be able to sell them effectively.

Package and Prosper

In tough economic times, it is common for the volume of products purchased by each customer to go down. You can overcome some of this reticence by packaging items together. Try the strategy used by many of the large retailers where they offer a discount on the second item purchased of the same type rather than offering an outright discount.

It has the advantage of encouraging sales volume. If you are going to package, make sure you are not packaging a lot of low margin products and then discounting them. Packaging works best for your business when you can package products with higher profit margins or where you boost the sales volume of slow moving stock by combining it with faster selling stock.

Creative Marketing

Marketing doesn’t have to be expensive to be effective. Great marketing campaigns are often the result of business operators having the foresight to compile relevant information on their customers and prospective customers (or purchasing in this information if they have to) and using it to their advantage.

Take viral marketing. Last year, Myers emailed a ‘staff and friends’ voucher that gave the person presenting it a discount on a certain night. You did not have to prove that you were a friend of a Myer staff member – the fact you had the voucher was enough. The email, once received by one person in their inbox, was often happily forwarded on to other friends so they also could benefit from the discount. The key to making offers to the market is to make sure you offer something that people will get excited about and time-limit the offer to create a sense of urgency.

The sale has not been achieved until the money is in the bank

Keep focussed. The old adage that “the sale has not been achieved until the money is in the bank” is truer than ever. It’s important not to celebrate the wins until the transaction is completed. A good feeling about a sale prospect is just a good feeling until the money is in the bank or the contract is signed.

The carrot with no stick approach Any business that has a subscription style product or service has the ability to bring forward sales by offering incentives such as a certain period free or an upgrade at no additional cost (commonly used by providers such as Foxtel). If you are using these strategies, make sure that your contracts clearly state what the customer is locked into once the free period is over and ensure you receive at least some of the payment before the free period begins.

Keep in contact

Just because a customer has not purchased from you does not mean they are not interested in what you have to offer. People get busy and you are not necessarily their first priority. Keep in contact through updates, offers and newsletters. The key is to ensure that you have something relevant to say. If you are just making contact for the sake of contact, then your time and money is wasted.

What’s ahead for the financial year?

New tax rates

PAYG payment instalment for SMES

Automatic reduction of PAYG instalments take effect for 2009/2010. Applies to quarterly payers who have their PAYG adjusted for GDP.

Tax equality for same sex couples

Same sex couples and families will be treated the same as married and defacto couples for tax purposes from 1 July onwards.

Education Tax Refund now Claimable

If you are eligible, you can now claim a refund for education expenses incurred by primary and secondary students from 1 July 2008. Don’t forget to keep your receipts.

Super changes

The reduction in the concessional superannuation contributions cap (from $50,000 to $25,000) and the reduction in the co-contribution rate (down to 100%) take effect from 1 July 2009.

Investment Allowance Spending Rush Slows Down

For those businesses selling products that qualified for the Investment Allowance, you can expect to see a slow down as the end of financial year rush is over. Sales will pick up again through the year for customers under the $2 million threshold as they can still access the higher Investment Allowance rate of 50% until 31 December 2009.

Boost your point of sale display

Almost all retailers are aware that people tend to buy what they see. It’s more important than ever to show your customers how your products can work for them. Fashion retailers use this strategy by dressing mannequins in a complete outfit with accessories. People want to see how they should be wearing the outfit not just the outfit by itself. Working this way boosts the number of products purchased by the customer. Take a look at where those small value-add products are located in your business – are they off to the side or are they right at the point of sale. There is a reason why supermarkets have magazines and sweets at the counters. Bunnings also demonstrate this with their smaller sale stock prominently located at the counter. This strategy is not just for retailers but for every business where your customers come to your premises. Are your customers looking at pretty pictures on the wall or are you demonstrating the value of what you offer?

Almost all business people reading this would be aware of these tips but the question is, how many of us put them into place?

If you need assistance identifying profit margins, product analysis, the impact of discounting or the best strategies for your business, call us today on 4227 6744.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

LAST CHANCE – INVESTMENT ALLOWANCE ENDS 31 DECEMBER

If you run a small business with a turnover below $2 million, you only have a few weeks left to take advantage of the Government’s 50% investment allowance. The same deadline also applies to the 10% investment allowance for businesses with turnover above $2 million.

As you no doubt already know, for small businesses the investment allowance gives you a 50% extra deduction on assets that cost more than $1,000 (GST ex) assuming the eligibility criteria are met. For other businesses, the investment allowance gives you a 10% extra deduction on assets that cost more than $10,000 (GST ex) assuming the eligibility criteria are met.

To take advantage of the investment allowance you need to:

• Make sure the asset is intended for use in a business in Australia
• Make a commitment to purchase or construct the asset before midnight on 31 December 2009. This commitment could be an order or the signing of a contract but BEWARE; if a hire purchase or certain chattel mortgages are used to finance the purchase or construction of the asset, these financing arrangements (as well as the order/contract) must be in place by midnight on 31 December 2009
• Use or install the asset ready for use before 31 December 2010
• Make sure the asset is a tangible, depreciable asset
• Make sure the asset is new – if the asset has been used previously, it can only be for a ‘reasonable’ trailing and testing. Not everything labelled as ‘demonstrator’ will pass this test.

You can purchase a huge range of items using the investment allowance such as business vehicles, computers, furniture, tools and equipment.

You can also use the investment allowance to upgrade an existing asset in certain circumstances (but not repairs). For example, if you want to make modifications to existing equipment or buy additional items for the equipment.

Plus, if you are looking to buy a series of items that are ‘identical’ or ‘substantially identical’, you can group the total cost of the assets to meet the threshold. Remember, the investment allowance is available for people and entities ‘carrying on a business’; it is not available for passive investments such as rental properties.

You can use the asset purchased for personal use and still claim the investment allowance as long as the purchase is principally for business purposes (over 50% of the use is in the business).

This is just a summary of what you need to be aware of to qualify for the investment allowance and does not cover every circumstance or all the criteria that might apply to you. If you are uncertain about the investment allowance, the impact of any investment on your cash flow, or how best to manage any intended investments, contact us today.

Business scruples

I’m feeling generous towards my employees but I don’t want to give the Tax Office a Christmas bonus. What’s the best way to manage Christmas parties and gifts?

You can do whatever you like but if you do it the wrong way, you will be hit with FBT (Fridge Benefits Tax), which can significantly elevate the costs of Christmas, or leave you unable to claim the festive expenses as a deduction. Not even Christmas escapes the Tax Office! Baah humbug.

The good news is that if you know the rules, with a bit of planning you should be able to avoid the tax pitfalls.

Christmas parties

The rules are different depending on whether the party is held on your business premises or externally.

If the party for employees is held on your business premises on a working day, the provision of food and drink to employees is classified as an ‘exempt property benefit’, so it is not counted for FBT purposes.

This rule does not apply to family members, so FBT will be triggered if they attend but your business should be entitled to deductions and GST credits for part of the cost.

If you hold the party at a restaurant or somewhere away from the business premises then you are inside the FBT net but you still may be able to avoid any liability. Under the minor benefits exemption, provided the total cost per person is less than $300 then the benefit will not be counted for FBT purposes. If your staff are bringing partners or family to the party this exemption extends to them.

The bad news is that if you avoid paying FBT on the Christmas party, you cannot claim GST credits or a deduction for the expense.

If your party costs more than $300 per person then you will be caught by FBT but you can at least claim GST credits and a deduction.

The cost of providing a Christmas party for clients is not deductible (and not subject to FBT).

Gifts for your team

If you are really taken with the Christmas spirit and decide to provide your staff with a gift then the minor benefit exemption also applies to this gift. So, if you give your team a gift with a value of less than $300 this would generally be exempt from FBT. Gifts of $300 or more will generally be subject to FBT in the hands of the employer. The $300 threshold for gifts applies in full even if the gift is provided at a Christmas party.

Employers can generally claim deductions and GST credits for the cost of gifts that are provided to employees. The main exception is where the gift relates to entertainment (e.g., theatre or sporting tickets, holiday accommodation etc). If the gift relates to entertainment, the business can only claim deductions and GST credits if the gift is subject to FBT.

Gifts to clients Gifts

Gifts to clients should be deductible and should give rise to GST credits if the business expects that:

• The gift will promote the business and create goodwill, leading to further business being generated in future; or
• The gift will motivate the client to refer the business to others.

Businesses cannot claim deductions or GST credits if the gifts relate to entertainment. Gifts to clients should not be subject to FBT.

To avoid any FBT liability simply plan your Christmas celebrations around these minor benefit numbers and, as with all things, make sure you keep the paperwork to support your calculations. This should include details of the cost of the party plus a list of attendees so you know the total number you can apply the minor benefit exemption to. Armed with this information, Scrooge, in the form of the Tax Commissioner, will not spoil your party.

Quote of the month

“Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want – and their kids pay for it.”

Richard Lamm

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The times they are a changing…

Economic Stimulus Package

The Australian economy seems to have weathered the storm with regard the Global Financial Crisis (GFC). Early months of the crisis saw a constant stream of bad news from business politicians and economists alike.

These days things seem a bit more upbeat with a mixture of good and bad news but it would appear the world will not come to an end as some had previously predicted.

Australia seems to have weathered the storm better than most and for good reason.

A) Firstly we entered this GFC in much better shape with our federal government having generated an annual budget surplus of approximately $20 billion per year during the past several years. Many countries in contrast ran a massive deficit and were in a worse position from the onset of the GFC.

B) Fiscal stimulus packages announced around the world by governments all vary in size but Australia’s is large.

The following table illustrates the percentage of Gross Domestic Product (GDP) that each respective government has announced as its Economic Stimulus Package over the 2009 and 2010 fiscal years.

Source: Bill Evans, Managing Director Economics & Research Westpac (March 09)

As you can see Australia is right up there with the U.S announcing spending initiatives totaling 2.25% in 2009 and 1.75% in 2010 totaling 4% of GDP in total.

C) China has a significant impact on Australia’s economic prosperity. China’s economic stimulus package is a massive 14.5% of GDP over the 2009 and 2010 fiscal years.

China’s massive stimulus package is designed to replace export demand from around the world with increased domestic demand. Accordingly raw material demand and hence demand for Australia’s raw materials has increased and this has begun to penetrate the Australian economy generating renewed optimism.

The potential for a double dip recession or ‘W’ shaped recession appears to be easing but asset price bubbles in China caused by their huge stimulus package and an easing of credit policies could cause more than a little consternation world wide and in Australia particularly, if world wide demand does not improve.

Whether the size of Australia’s economic stimulus package is appropriate will only be known in years to come when we see how long it takes to repay the debt and how high our interest rates rise.

“Australia’s Biggest Scam Comes Crashing Down”

This is how the Sydney Morning Herald described the collapse of failed agribusiness operations Timbercorp and Great Southern Plantations.

Great Southern has 40,000 investors, is the biggest managed investment scheme in Australia with 180,000 hectares of plantations, a half share in a woodchip mill as well as projects in almonds, beef cattle, flowers, olives, poultry and grapes.

Shares in Great Southern were halted from trading at 12c having fallen from a high of $5.

Similarly Timbercorp has 18,500 investors, 120,000 hectares of forest and horticultural assets.

So you can see a lot of people have lost a lot of money.

Investments in these agribusiness products essentially allowed you to acquire a “lot” of timber for say $100,000.

You get to claim as a tax deduction the full cost of the investment being $100,000.

Each year you would then pay management fees for your timber to be managed, and interest if you borrowed money to make the investment.

The managers in turn would pay the owners of the land rent.

Anyway the wash up really comes down to the facts about many if not all agribusiness investments:

A) Between 20-50% of your investment amount doesn’t get invested. Typically 20% plus is paid to advisers and promoters.

So imagine spending $100,000 to buy BHP Shares and paying over $20,000 in brokerage and ending up with only $80,000 worth of shares. Or imagine buying an investment property for $300,000 and having to pay stamp duty or agent fees of $100,000.

Doesn’t sound too flash as an investment does it?

B) If all the rural land was so good at yielding terrific timber, grape almond or olive crops why are the owners of the land renting it to you the investor? Why don’t they grow these crops themselves?

Possibly they prefer the steady reliable nature of rental income as opposed to the obvious risks with agricultural products such as timber, grapes, almonds or olives. Such crops are subject to weather conditions for example.

Did you notice we are in a drought? A long one!

C) Some of these crops take 5-15 years to “mature” and hence some of the so-called investment projects lasted up to 23 years!

Well you can buy or sell shares any day of the week, you can buy or sell property over a couple of months but to buy something as an investment which is to “mature” so far out seems risky to me.

D) “Adviser” commissions were up to 10%.

If advisers need to be bribed to recommend something with a large juicy 10% commission one should always take a closer look. A lot closer look!

Anyone who invests in anything where the adviser is getting 10% is not receiving advice.

They are being sold a product. There is a big difference.

An adviser makes investment recommendations which are in the best interest of the client. Salesmen sell products to generate income for themselves.

As a firm we have never recommended any client invest in an agribusiness project. Never have, never will!

Stick To Your Knitting!

Investor nerves have been sorely tested over the past 2 years. If you saw the crash coming, and few people did, and you switched to cash beforehand you would be on a winner.

But if the crash has occurred already real caution is what is required.

Despite investors generally acknowledging that investment and superannuation is a long term business, many feared the worst and switched out of their investments into cash at the worst of times.

For example if your superannuation was invested in a ‘growth’ option with significant exposure to the share market and in March 2009 you switched to cash you would have done some significant damage to your retirement savings.

Why you ask? Well the ASX200 Index which measures the Australian Share Market hit a low of 3150 in March 2009.

This was after it peaked in November 2007 at 6800.

The market has rallied very strongly since March 2009 and currently sits at 4735 at the time of going to press.

So if you had superannuation of $300,000 in March and you got nervous and switched to cash you would have cost yourself $150,000 or 50% in value. That’s the effect of the market rally from 3150 to 4735.

Remember if you stay in cash and the market continues to rally the damage will increase significantly more.

For those who have weathered the storm and your portfolio and/or superannuation is recovering, stick to your knitting – that is, stick to your long term plan.

Sure reassess your investment selections, reassess your superannuation provider but just remember that switching to cash at the wrong time is not the most conservative thing to do, often it is a very risky thing to do.

If your not sure what to do with your investments or superannuation, feel free to come in and ask one of our advisers.

Listed Property Trust – Is It Time Yet?

Talk of Recession, Depression and Armageddon were abound over the past 2 years.

This occurred as both the share market and the property market were both in decline simultaneously.

That’s what causes a Recession.

From the table below you can see the returns of the listed property trust sector.

From the table you can see that generally speaking this sector has done worse than the equities market, and the pain has been coming for over 5 years. So are things about to turn?

We think so and while we think there is no rush we intend to increase our property trust exposure over the coming 12 months.

Self Managed Superannuation Funds

We have advised on Self Managed Superannuation Funds (SMSF’s) or D.I.Y. funds since 1994. People tend to be attracted to this type of superannuation structure when they want a little more control over their retirement nest egg. People set these structures up to actively manage their own investments but the majority enlist the help of an adviser.

For our clients we run a model portfolio with the help of UBS which is based on quality blue chip shares. We take a long term view and we do not trade the portfolio unnecessarily. A typical portfolio may look like this:

Portfolio’s range in size from $200,000 to several million dollars. Major advantages of a SMSF include:

Control – of underlying investments

Transparency – you can see exactly where your money is invested

Costs – can be clearly identified as there are no hidden commissions

Flexibility of Investment Choice – you can invest 100% of your money in a term deposit or 100% in a property or you can have a balanced or diversified portfolio as illustrated above.

Portability – you can change adviser should you wish to without having to transfer your funds onto a new master fund platform or wrap account

Exit – there are no exit fees should you wish to sell and withdraw your funds (brokerage may apply)

Managed Funds – can be avoided as can their associated costs

Personal – your portfolio can be tailored to your own individual circumstances. It is not one size fits all.

Taxation – can be managed and minimised based on your own circumstances. For example a decision to sell an investment which has appreciated significantly could be delayed until a pension is commenced and hence avoid the incidence of capital gains tax within the Fund.

Estate Planning – if there are two members of the fund and one passes away a death benefit pension can be paid to the surviving spouse tax effectively.

Gearing – It is now possible to borrow within a superannuation fund and so if you had a fund balance of say $150,000 you could borrow $300,000 and purchase a rental property whether residential or commercial.

Partnerships – A SMSF could enter into a partnership with the members of the fund. For example Mr & Mrs Smith’s SMSF could own 40% of a property while Mr & Mrs Smith own the other 60%. Mr & Mrs Smith’s interest could be geared should they have alternative security available separate to the jointly held investment property. It is not uncommon for two families with an SMSF to enter into a partnership and invest in a property jointly.

Growth – There are currently 403,000 SMSF’s in Australia and some 2,000-2,500 being set up per month. It is the fastest growing sector of the superannuation market.

Platinum Name – Platinum Result!

Platinum Asset Management commenced operations in February 1994. The team at Platinum previously had operated the International Managed Fund for Bankers Trust (BT) for a decade with outstanding success.

But in 1994 they thought they would start their own organisation.

Platinum do not invest in Australia. They take funds from investors and invest them overseas.

The returns of their flagship fund the Platinum International Fund are below:

The table illustrates that Platinum returned an extraordinary 18.2% for the year to June 30, 2009.

This compares with the weighted average of the world’s share market or MCSI World Index of a negative 16.1%.

That is an extraordinary return of 34.3% above the relevant index. So what you may say? Well have a look at Platinum’s peers and judge for yourself.

The moral to this story is simple. Fund managers are not all the same. Interestingly, we have been recommending Platinum since 1994 as we followed the team across from BT. More interestingly, is that Platinum has not and does not pay trail commission to financial advisers.

And if your thinking these guys just got lucky have a look at some of their other Funds’ performance:

Adviser Commissions – Hot Topic

A lot has been said in the press about adviser commissions of late.

Given the global financial crisis (GFC) as well as the demise of many companies and investment products questions need to be asked understandably.

Here at Level One we generally do not receive commissions. Over 80% of all of our income comes from fees we charge our clients directly.

That is, a product provider does not send us a cheque in the post. This is very important. It is important because when a member of the public seeks some financial advice they need to understand how the person they approach for help is being remunerated and how that remuneration structure may differ within the industry.

Remuneration Structure A

Typically in the industry, funds are invested and managed via a masterfund (or wrap account).

A masterfund is like a big funnel which allows many investors to invest in a large variety of managed funds.

The masterfund software platform manages the name and address of each client the amount invested in each underlying managed fund and the income attributable thereto.

The masterfund also pays a commission from each managed fund to the adviser. Each managed fund allows different commission levels.

So when you go and see a financial planner who recommends a masterfund (or wrap account) he will receive an ongoing commission from each underlying fund manager.

If the financial planner is employed by or related to the masterfund provider or underlying managed funds the remuneration received can often be increased by recommending ‘in-house’ products.

For example a Colonial financial planner will recommend his client use the Colonial masterfund and no doubt will select the underlying Colonial managed funds.

This will maximise the financial adviser’s remuneration and keep the boss (Colonial) happy.

In addition the remuneration is usually taken out of the investment returns and while it should be legally disclosed it is often difficult for the investor to identify clearly.

Remuneration Structure B

The financial planner is not tied, employed or related to a masterfund or managed fund provider.

The financial planner invests client monies in whatever products or investments they deem appropriate for the client and charge the client accordingly.

So if the planner recommends product A or product B the level of income is the same to the adviser and the adviser is not swayed by employment or financial relationships.

The remuneration to the adviser is transparent because you pay the adviser direct.

So you can see from this simple analysis that if you seek advice from a financial planner you have a lot better chance of receiving “independent” advice from an adviser utilising the “B” remuneration structure.

Of course there is no guarantee that because the advice is independent that it is better, but it is a start.

If you are not sure about your financial adviser’s remuneration structure, we suggest you ask.

You will be glad to know that a government enquiry is currently looking into how advisers are remunerated and we suspect that there will be some definite changes. At Level One we try to avoid the receipt of commissions wherever possible and charge our clients direct. Unfortunately it is not always possible.

Either way, full disclosure is of paramount importance to us.

Margin Lending and Storm Financial Crisis

Storm Financial started operations in Townsville as a two adviser operation.

They collapsed having offices all over the country and some 13,000 clients with $4.6 Billion of funds under management.

Storm were into margin lending.

A typical client would be encouraged to borrow against their house. If the house was worth $600,000 they would suggest a loan of $400,000.

Then a “margin lending loan of $600,000” was recommended. The $600,000 would be secured by the $1,000,000 investment portfolio they now had.

Then as the market rallied and the portfolio grew so did the margin lending.

When the portfolio grew to $1.3 million in value while the share market soared an additional margin lending loan of $180,000 (60%) was recommended.

This process continued year in year out.

Remember that the 4 years to June 2007 the share market grew by over 20% each and every year.

Clients obviously thought this was great – they were making money.

But two important factors were never fully considered.

Factor 1: Clients were inexperienced in this type of investing and they were not told that these types of returns were absolutely extraordinary and not typical if you look over the past 50 years.

Accordingly they were not warned of the dangers of market corrections or crashes or the size that those corrections or crashes can be.

If they had been told they would have been alerted to the massive risks they were taking with their entire financial position and future. Imagine the devastation when the market crashes 53% and you still owe all the debt?

Factor 2: The fees Storm were charging were also by all accounts very nice indeed.

Reports of 5-8% upfront and 1-2% per annum ongoing.

So on our above example the advisor got lets say only 5% upfront.

That is $50,000. What a nice little earner that is!

Ongoing fees of say $15,000 per annum if we assume 1.5% per annum.

Then on each and every top up of say $180,000 there is another $9,000 upfront and an additional $2,700 per annum in ongoing fees.

Over a relatively short space of time the adviser gets about $100,000 in fees from just one client.

Its good work if you can get it. You just need no morals or ethics and have no concern for the massive risk associated there with.

It is organisations like Storm that give the industry a bad name and why the government is so red hot on trying to clean up certain sectors of the industry.

Borrowing money to invest whether in property or shares is best commenced when the markets are down. Not when the markets are booming.

After all now is the time in the cycle – when things are down – that you can invest for the long term with minimal risk.

That’s what we like – investments with minimal risk.

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