An important factor of financial planning is managing future risks.

This is achieved by establishing appropriate personal insurances.

When assessing your need for personal insurance you should ask yourself the following questions:

• If I were to die suddenly would my family be able to afford to live?
• If I had an accident at work and became permanently disabled would I need to modify my home and what would that cost?
• Would I have enough money to cover medical expenses in the event I suffered a serious illness or injury?
• If I was off work for an extended period of time, say 12 months, 5 years or never able to work again, would my family and I be able to pay the bills?

Would my family be able to pay for my funeral?

Personal insurances either provide lump sums or income streams to assist with costs upon your untimely death, the onset of a serious illness, or in the event you meet with accident. Costs to factor in include:

• Funeral expenses
• A sum of money that can be invested to generate and income stream for your family to replace lost income
• Medical expenses for serious illnesses i.e. chemotherapy
• Travel expenses to access better doctors and treatment facilities
• Home modification costs i.e. wheelchair ramps
• Costs to employ childcare and housekeeping professionals in the event a parent passes away

Calculating your level of personal insurance can be difficult, as most of us rarely put a value on our lives. However, if you cannot honestly say that you would at any time have sufficient liquid assets or cash reserves to fund the above expenses, can you afford not to be insured?

There are several types of personal insurance that may be relevant to your circumstances.

You should review each one and assess whether each is suitable for you:

1. Term Life
Term Life insurance provides a lump sum benefit to the policy owner upon the life insured’s death.

This lump sum benefit can be used to repay a mortgage or other debts, fund educational costs for children, be invested to provide an income stream for their spouse, children and/or grandchildren.

2. Total & Permanent Disablement (TPD)
TPD provides a lump sum benefit if the person insured suffers an injury or illness that prevents them from working again.

This payment can be used to provide for medical costs associated with your disability, be invested to generate lost income, and be used to modify your home to make access and living easier.

3. Critical Illness (Trauma)
Trauma insurance provides a lump sum benefit on diagnosis of a defined specific event.

It is designed to help people recover from a crisis or traumatic event such as heart attack, stroke, cancer or other life-threatening condition.

4. Income Protection
Income Protection insurance provides the insured person with an income stream if they are unable to work.

Income protection policies generally will cover 75% of the insured’s gross income and the benefit is payable to them up to a specified date from claim i.e. 2 years, 5 years or to age 65.

When you claim upon your income protection policy there is also a waiting period that you will need to serve. This is generally between 14 days and 180 days. The longer the waiting period, the cheaper your premium will be.

Longer waiting periods are suitable for people who have accumulated annual and long service leave benefits they can use before accessing their income protection.

Shorter waiting periods are most suitable for people without these accumulated leave benefits or for casual employees or contractors who are not entitled to leave benefits.

Premiums payable for the above personal insurances are not tax deductible with the exception of income protection. Where income protection premiums are tax deductible, any income protection benefit paid to you is taxed at your marginal tax rate.

You can possess personal insurance inside and outside of superannuation, however you must be mindful of the conditions of release associated with superannuation and ensure your insurance benefit can be accessed if required.

To find out more and assess your insurance needs or if you simply want to review whether your existing insurance is right for you please contact us.

[QUOTE] “Learn as if you were going to live forever. Live as if you were going to die tomorrow”.

MAHATMA GANDHI

Accessing The Confidence / Competence Loop

We all recognise that our success accelerates when we’re confident.

The reason is simple – without confidence we revert to fear, and when we are fearful we don’t take any action. We get tentative, we delay and we procrastinate. When you are able to let go of fear, you take action more quickly and easily. Discover how to access this powerful success factor for you and your team.

There are several basic areas of study that, as we study them, we can become more effective coaches and leaders. This long list includes both human behaviour and learning. The psychological concept I want to talk about today comes from the intersection of these two fields of study.

Don’t worry; I’m not going to go all academic on you (though I could, with a simple Internet search, find lots of scholarly work on what we are going to talk about). Here is the concept – the confidence / competence loop.

Again, when you are able to let go of fear, you take action more quickly and easily.

This is all well and good, but the practical question remains – how do I become more confident? The simplest answer is to become more competent. As we become more skilled at a task, our fear shrinks and our confidence grows. This is the crux of the confidence / competence loop. And as our confidence grows, we get better (more competent). So these two critical factors for our success at anything (including any skill at work), are forever joined in a chicken and egg sort of way…

The confidence / competence loop

Let’s take a task you likely all know how to do well – riding a bicycle. Are you afraid to ride a bike? Likely not – because you know how to do it. So if I give you a bicycle and invite you to ride, you likely will do it right away – there is no reason to delay, there is no real fear, you just ride. If I gave you a unicycle instead, for most people, fear would well up – and they wouldn’t even get on the seat.

So how do we get started? We put our butt in the seat. So Action overcomes fear. And with action, we have the starting point of competence, because we can’t get good at anything until we try it. You’ll remember the famous book from 20 years ago titled Feel the Fear and Do it Anyway. It’s a great title, but even better advice. If you want to start the confidence / competence loop you must get started.

And…

Once you start doing things with confidence that once scared you, your confidence increases. And once you try, you build skills. And once you see progress, you get more confident. And with more confidence, you get better.

And so on, and so on.

Whilst the research calls this a loop, I like to think of it as an upward spiral.

Confidence, competence, confidence, competence… and so on.

The application

Hopefully the application of this for us personally is obvious, but I want to talk about how we can inform, inspire and ignite the confidence / competence loop for those we lead. Here is a short course on how to do this as a leader and coach:

1. Believe that people can ultimately succeed – and let them know you believe in them
2. Urge them to try – and give them a safety net to reduce the fear factor
3. Encourage the effort – spurring confidence
4. Give people resources to speed competence – training, coaching and more
5. Help them see their budding skills – and encourage them to loop it again

This is a simple and powerful way to use the confidence / competence loop to create higher and higher levels of performance.

Try it for yourself and try it for your team.

The material above was produced by Kevin Eikenberry who is an expert in developing organisational and individual potential. You can visit his website at: www.kevineikenberry.com.

[Quote] “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” MARK TWAIN

A simple list of ideas for business success using your most important asset

12 Characteristics of a High Performance Team

So, you come into the office all fired and ready to go. But does your team share your enthusiasm?

A high performance business must have a high performance team. There are twelve outstanding characteristics that are directly related to a top performing business team.

Let’s break them down one by one.

1. Common goal

This is your purpose and your mission. It needs to inspire people. It has got to be very clear.

2. Winning culture

What is meant by a “winning culture”? This is your code of culture. People buy into values and what they represent. Culture will include excellence, enthusiasm and team work. You must eliminate those on your team who do not embrace your business’s culture. Many times your worst enemy is from within. That enemy is negativity. Having a winning culture fights against negativity.

3. Live the culture

Hypocrisy will work against you. What happens when you tell me about the winning culture but you don’t live it yourself?

4. 100% involvement from everyone

Picture the sporting match. It is Queensland vs. New South Wales State of Origin. You are playing for New South Wales. You turn up and you are about to run on. As you ready yourself to enter the grounds, you turn to the coach and say you are not going to give more than 60% today. Will coach let you play? Absolutely not! You are either on or off there is no in-between.

5. Grow and support your stars

Out in the world there is an insane business model, it must have come from socialism, and that model states that you must treat everyone on your team the same way. That is a load of baloney. If you do not look after your best, your best will leave. People who are brilliant, but who feel unloved and un-praised, will leave and the ones that you don’t want will be the ones who stay.

Everybody brings in a different value and you must reward people for their value. Reward them not in how much time they spend at work but on their value to your business.

6. Flat salaries breed flat performances

The greatest model that I’ve seen, and the one that works, is that you don’t pay people on movement, you pay them on achievement. Pay an employee a flat salary and they will only do as much as they need to do. There is no reason to go for the gold. There is nothing in it for them. They will only do enough to maintain their position.

7. Keep an incentive program simple

You need to develop an incentive program based around this simple philosophy – reward people for the things you want them to do and penalise them for the things you don’t want them to do. It is extremely important to keep your incentive programs simple. If people cannot understand it, if they cannot associate how much they will get from it, then they will not do it. Confusion and over complication is the enemy of business communication.

8. Support the people who take the risks

The risk takers – they are the ones who break the game aren’t they. Shane Warne is a risk taker. What is so brilliant about Shane Warne at cricket? He can open up the game. It’s the people who are inherent risk takers that need to be supported. But what do most organisations do? They try to destroy them. Once they make a mistake, what do they do? They berate them and say “never do that again!”. Then the leadership complain that their people are not taking any entrepreneurial risks anymore. Yes, correct people when they make a mistake, but do not destroy their self worth in the process.

9. Train your team in all areas

Sounds good, but then businesses say “what happens if after I train them they leave?” That is not a good question.

The good question is: “What happens if you don’t train them and they stay?”

Training is a matter of show and tell, of dogged determined role playing until we get it right. Don’t just hand them a manual and leave. They haven’t understood anything. They need to practise before they perform.

10. Give people clear job descriptions, roles and duties

In many organisations, people are trying to do their best,

but no one has told them what their best is. Business owners say “I hope Mary never leaves. She is a winner on our team.” But then you do not even know what Mary does. Be absolutely clear when you employ people. How can you measure performance if you cannot test it? It is the whole principle of testing and measuring that needs to be a permanent principle in any business.

11. Hire on attitude not on skill

The key to building a championship team is to hire people

that already have passion and heart, not just a good resume.

I hire on attitude and try not to hire on skill. What I am looking for is not your mind, but rather does your values and mind fall within the culture and values of this company?

If I can align your attitude with our culture, we will have an amazingly profitable marriage.

12. To attract the best, you must be attractive

In any business, in order to attract the best, you actually have to become attractive. Your attraction is not based on your size but your vision and your purpose. When you become attractive, you attract those people. It is a principle of life as well as a principle of business.

So, now you know the secret characteristics necessary to build a high performance team. Apply each of these suggestions, and watch your business go to new heights!

The material above was produced by Tony Gattari who built Harvey Norman’s computer business from $12 million to $565 million in 9 years.

[ Quote ] “It always seems impossible until it’s done.” NELSON MANDELA

Since January 1, 2012 the All Ordinaries index has increased by 5.22% from 4155 points to 4384 points as at April 4, 2012.

During the 2011 calendar year the All Ordinaries index hit a low on September 26, 2011 of 3927 points.

Accordingly since September 26, 2011 the market has rebounded a total of 10.42%. That is a pretty significant move in 6 months.

To put this into perspective we must remember that the market or All Ordinaries index peaked in November 2007 at 6800 points, thus we are still 35% below those lofty heights. So if the recent rally in the market doesn’t cheer you up I can understand why!

Nevertheless it is good news for now.

Interest Versus Dividends

We recently had a client ask us about the difference between interest rates on term deposits and dividend income from shares.

In light of the cash rate reducing over the last 6 months and economists making every suggestion that investors should be looking to the sharemarket for cheap buys, I thought it was high time to illustrate these differences.

Below is a snapshot of some high yielding Blue Chip Australian stocks.

Australian Bank Stocks

Non-Bank Stocks

You can see from the above that the big four banks are yielding 9-11% per annum compared to term deposit rates of 5-6% per annum.

Dividends vary greatly between companies, as illustrated above, with Woodside Petroleum yielding a low 4.21% while Telstra is currently yielding 11.90%.

* Whilst Tabcorp has projected a forecast yield of 16.10%, I believe this to be overly optimistic and would speculate that a more accurate yield to be around 9%.

By way of comparison I have outlined below term deposit interest rates on offer from various bank and non-bank institutions:

Bank Term Deposit Rates

Non-Bank Term Deposit Rates

Accelerate leadership effectiveness – by giving up

A leader is one who influences or leads others.

Think about how you would define yourself as a leader and all things that you do as a leader. Do you believe you have the potential to be a great leader?

Leadership has been described as “a process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task.

Think about what your common tasks are for your business and how your leadership makes this happen. How effective are your leadership principles in the accomplishment of tasks? Do you carry too much of the burden? Maybe it is time to surrender…

When you think about surrender, you don’t likely think of great leadership.

People who surrender, lose, right? But in order to lead effectively, whether on the shop floor, the cube farm or anywhere else, there are things the best leaders can – and do – surrender. And when you surrender these things, you accelerate your influence and effectiveness as a leader.

The dictionary tells us that surrender, as a verb, means things like:

• “To yield possession or power”
• “To give (oneself) up”
• “To give up, abandon or relinquish”

These are hardly the ideas that we connect with leaders we aspire to emulate…or is it?

Great leaders surrender…

1. The need to be right

The best leaders know that the goal is for the group to get the best result. It doesn’t have to be their idea, and in fact, even if it is, it will be more effective when the group feels they own it. They also know that an “I told you so”, is never a valuable part of a coaching session.

2. The need to speak first

The best leaders know they will, in many situations, achieve more and get better results if they shut up. They let their teams talk, discuss and explore. They know that when they start talking they might inhibit the ideas and input from the team. So they remain quiet and wait.

3. The need to decide

Yes, there is a time for leaders to make decisions, but it isn’t all the time. Often, when leaders let go of their need to decide, others will make the same decision, if not a better one.

4. The need for credit

This is related to the need to be right, but adds an additional component. Leaders who usurp all the credit for the success of their team won’t have the support of their team very long.

5. The need for control

Often people aspire to leadership roles precisely because they want to have control. Yet how many micro managers and control-mongers do you want to follow?

Do you notice how all these things are framed as needs? Because we see them as needs, surrendering them feels like such a loss. But are they truly needs, or just strong wants? And while you may want these things (a lot), you likely want some other things too.

Great leaders want…

1. Greater results

The best leaders lead because they know they can’t do it alone. They want their team to hit high targets, make progress and have success.

2. Greater influence

Different than power, influence is granted by others, when they choose to listen, to follow and to change.

3. Greater satisfaction

Who doesn’t want greater satisfaction form their work? Great leaders get great satisfaction from both the growth of their team members in both skills and confidence. They know they didn’t do it for them, but they get a deep satisfaction for their contribution.

4. Greater significance

Great leaders want to make a difference, leave a legacy and make things better. Few things feel better than knowing you have truly made a difference.

Great leaders want these things. Highly effective human beings want these things. And if you want the last four things, you must surrender the first five.

If you agree that the last four are more meaningful and important, it will be easier (though not necessarily easy) to let go of, abandon, or surrender the first five. Think of the last four as the reason to let go.

When you see this – you have a glimpse of the great leader you can become.

What will you let go of? What will you surrender today?

The material above was produced by Kevin Eikenberry who is an expert in developing organisational and individual potential. You can visit his website at: www.kevineikenberry.com.

[Quote] “He who is not courageous enough to take risks will accomplsh nothing in life” MUHAMMAD ALI

It’s tax time again!

Another financial year has passed and your 2012 income tax return is now due.

As with previous years, we have prepared this summary with the aim of making this annual event as efficient for you as possible. This summary should act as a checklist of items to consider before making an appointment to come in and see us. Whilst there have been no dramatic changes to our tax system from the previous year, there has been some tinkering.

Our 2012 fees are based on the amount of time it takes us to prepare your tax return. Our minimum standard fee will remain unchanged at $165 (including GST).

Income

PAYG Payment Summaries

Previously known as Group Certificates and issued by your employer. You should have a separate summary for each job you held during the year. These payment summaries should include any payments received in relation to the Paid Parental Leave (PPL) scheme which began on 1 January 2011.

Allowances, directors fees etc

Include consulting fees, short casual jobs where no tax was deducted, bonuses and allowances, income from income protection and sickness and accident insurance policies etc

Australian Government payments and allowances

Many Government payments are tax free though some will have tax implications including Newstart allowance, Austudy etc

Employment Termination Payments (ETPs), Pensions and lump sum payments

These are specific statements that will be issued by your employer on termination of employment or by your superfund

Interest

Include interest earned from all bank accounts you held during the year. You can usually find annual interest received on your June or July bank statement and/or your online banking facility.

Dividends

Include details of all dividends from public companies including dividends reinvested

Trust and partnership distributions

Include any distributions you may have received from managed funds, in particular the ‘annual tax summary’

Employee Share Schemes

Include details of any shares you received from the company you work for including the number, value and date of shares received. Also include copies of any tax advice provided by your employer when you received the shares.

Sale of investments

Did you sell any investments during the year? If so, please include details of the original purchase date, number of shares/units purchased, amount paid (including brokerage), additions to your investment i.e. dividends reinvested, and sale details. See section below for property investments

Foreign Income

Foreign income rules changed on 1 July 2009. Please include details of any income you received from overseas including investments, employment income, pensions etc.

Other income

Any other income received you think may be relevant. It is better to bring something you don’t need than have to drop it off later

Other items

Personal details changes

Please include any changes to your name, address, contact details marital status etc.

Private Health Insurance

You should receive an annual statement from your health insurance company (if applicable) which contains all relevant details for your return

HECS and HELP debts

You should receive an annual statement from the ATO detailing debts owing which we will need to include within your return

Superannuation

Please provide details of any extra superannuation contributions you made (or were made on your behalf) other than the standard 9% Super Guarantee by your employer.

Spouse Details

Tax rebates and governments benefits are now assessed on combined family income of you and your spouse. Please ensure we have all the relevant details of your spouses income when we complete your return.

Child Support

Please provide details of any child support you have paid during the year

Deductions

Motor vehicles

There are several methods for calculating motor vehicle deductions. By providing the following information, we can determine which is the best method for you:

• Details of actual expenses i.e. fuel, rego, insurance etc
• Details of work related trips i.e. frequency, distance travelled, where from and to, dates etc (please note, this should not include your daily commute to and from work)
• Make, model and purchase price and purchase date of your car
• Any log books you may have kept and/or or odometer readings taken during the year

Other travel

Include travel such as train fares, taxis, car hire, flights etc related to your work which you paid for (please note, this does not include the cost of your daily commute to and from work)

Clothing

Include details of the cost of any clothing with company logos, occupation specific clothing (e.g. nurses and chefs uniforms) and any protective clothing e.g. work boots, sun glasses, hard hats etc

Telephone & Internet

Include details of any work related use of your home phone, mobile phone and internet including any usage diaries

Self education

Include the cost of formal courses and qualifications from TAFE, university etc which are related to your work. Also include the cost of textbooks, stationery, computer, phone, internet and travel related to your education.

Tools and supplies

Include details of all tools, supplies and consumables you may think are relevant to your occupation which you have paid for personally. We can then decide which are deductible

Home office

If you work from home and have a dedicated office space, you may be able to claim a proportion of your household expenses such as heating, lighting etc as well as depreciation on home office furniture & equipment including computers

Donations

Include all donations of $2 or more to an approved organisation (your receipt will usually indicate whether or not you can claim a deduction).

Other items

Other common deductions you may wish to include union fees, subscriptions to professional or trade associations, seminars & conferences, reference material including books, magazines and journals, income protection insurance and tax agents fees (including travel to and from your tax agent’s office)

Tax Offsets

Education Tax Refund

As announced recently in the 2012/13 federal budget, The Education Tax Refund has been replaced by the School Kids Bonus. This new bonus will be automatically paid to eligible families through the family payments system and will no longer form part of your tax return. There is no need therefore to compile details and receipts for your children’s school expenses to complete your 2012 return.

Net medical expenses

Applicable if you incur out of pocket (i.e. after Medicare and/or health insurance reimbursement) medical expenses of more than $2,060 during the year.

Dependent based rebates

Various rebates are available which are based on your dependants i.e. spouse, children or people you care for i.e. your or your spouse’s parents or an invalid relative. In order to calculate if you are eligible, please include details of all dependants including dates of birth and any income your dependants earned during the year

Other tax offsets

Other tax offsets may be available in the following circumstances:

• You made super contributions on behalf of your spouse
• You live in a remote or isolated part of Australia
• You served as a member of the Australian Defence Force or a United Nations armed force

Rental Properties

Rental properties are a particular focus of the Australian Taxation Office and care must be taken to ensure all deductions are reported correctly. Our property experts can guide you through the various income and deductions you need to report if you can provide us with the following information:

Rent received and commissions paid

Include your annual rental summary from your real estate agent or property manager

Interest expenses

Include loan statements and/or online banking summaries showing total interest paid during the year

Council & water rates

Include statements issued annually or quarterly by local councils

Strata levies

Issued by the body corporate and may include annual levies and ‘sinking fund’ costs

Land tax

Issued annually by the Office of State Revenue on land holdings over a certain value

Repairs, maintenance, improvements

There are very specific tax rules related to repairs, maintenance, replacements, capital costs, renovations, improvements etc. The best approach is to provide as much detail as possible for each cost for which we can then determine the appropriate tax treatment

Travel

You can claim the cost of travel to your property for inspections and repairs

Property Purchases and sales

The most important information for property purchases are the sales contract and the settlement statement. Other information includes:

• Legal fees
• Inspection fees
• Sales commissions
• Advertising costs
• Stamp Duty

Important Note Important Note Tax Records Taxation legislation places the responsibility of keeping all records related to your income tax return with you the taxpayer. It is your responsibility to keep all receipts, statements and other records for a minimum of 5 years.

We trust that this checklist has been useful and we look forward to hearing from you soon. Please feel free to pass this summary onto your friends, family, colleagues and other people you think we may be able to assist.

Australia’s superannuation assets make up around $1.3 trillion today, however this figure is forecast to rise to around $7.7 trillion by 2032. If this holds true, our superannuation industry will grow dramatically from its current level of around the same size as Australia’s GDP to 3.5 times the size of the economy.

Superannuation is pegged to become a huge economic player, far bigger than the banks are now.

The tax paid by super funds is generally 15%, and already accounts for around 20% of each year’s Federal Budget.

In addition to tax, superannuation members pay around $17 billion in fees per year on their superannuation – but is this too much? High fees and low returns can have a significant impact on your balance in retirement. As with all long term investments, your super assets will likely experience the good returns, the bad returns and the ugly returns. Active management and regular reviews now can save you heartache later on, unless you like the idea of working until the age of 80!

The most common problem Australians face is the confusing and limited transparency super funds offer to members in regards to fees. Most of us put our super review in the “too hard basket” but what you really need to ask yourself is “can I afford to ignore this any longer?”

We will look at the types of funds you can possess and the fees associated with each as well as strategies you can adopt to maximise your super.

Types of Funds

There are five main types of superannuation funds:

1) Retail Superannuation Funds – these superannuation funds were developed by financial institutions and insurance companies to cater for people who were interested in investing and saving for their retirement.

It’s fair to say the initial focus of these funds were wealthier white collar customers typically in management positions. They offered investment expertise and personal service to their clients and charged a commission to provide that service. The funds were developed to generate revenue and profit for the financial institutions.

2) Industry Superannuation Funds – these superannuation funds are not for profit organisations.

When it comes to the products offered there can be considerable differences in the fees charged. Because industry funds are not for profit they generally charge lower fees. However, this is changing. Fees within industry funds are rising and at the same time their service levels are decreasing.

3) Corporate Superannuation Funds – these funds are generally only open to people working for a particular corporation. In some organisations membership is made available to ex-employees or relatives of existing employees.

By law, employers must offer a default super fund option for their employees as an alternative to exercising Choice of Fund rights for those who do not wish to choose their own super fund.

Corporate super funds can be set up through retail master trusts or in some cases, employers may choose to operate their own employer-sponsored super funds.

4) Public Sector Funds – these funds are only for public sector employees working in local government, the Commonwealth and State public services, public healthcare, and in Australia’s public universities.

5) Self Managed Superannuation Funds – these funds are also known as DIY super funds.

They can have up to four members and are generally established by an individual or a family and funded from their own superannuation savings.

Members of the fund must also be trustees, unless a corporate trustee is appointed, and are responsible for all the investment and compliance decisions of the fund, including administration, trusteeship and taxation.

Self Managed Superannuation Funds generally offer greater flexibility to its members than other types of superannuation funds. All investment decisions are made by the members of the fund, or their advisers, and members have access to a greater variety of products, transparency and strategies they can adopt.

The table below shows the average balance of each type of fund, and the current and forecast industry participation of each type of fund:

Self Managed Superannuation Funds are forecast to see the largest growth by 2032. These funds have become increasingly popular due to investors having greater control over their assets, the new borrowing rules within Self Managed Superannuation Funds which has enabled Funds to gear into property, and access to a wider range of strategies for retirement planning.

Types of Fees

The types of fees superannuation members are subject to are:

1) Establishment Fees – the fee to set up your super account. This can be anywhere between 0-5%.

2) Contribution/Entry Fees – these fees are charged on the money you contribute or rollover to the fund. When charged this fee can be as high as 5-7%.

3) Account Service Fees – these fees are charged by the super fund provider for asset administration, custody and trustee services, and so on. Usually charged around 1.5% for retail funds.

4) Member Fees – these are usually charged as flat dollar fees and known to be administration charges, policy fees, member fees and plan fees. These generally are around $1.50 per week ($78 pa).

5) Investment Fees – these fees are paid by the super fund to the investment providers and are usually around 0.7% for a balanced portfolio. These vary with the complexity of the asset.

6) Switching Fees – these are charged when you switch between investment options within your fund. These can be around $20-30 per switch.

7) Withdrawal Fees – charged when you want to withdraw or rollover your monies from your existing fund. These are usually a flat dollar fee around $50-100 per withdrawal but can also be a percentage of as high as 4-5%.

8) Adviser Service Fees – this is the fee charged by your financial adviser for the services they provide. These can be anywhere between 0.5-2% pa.

As you can see there are numerous fees payable for possessing a superannuation account. Most funds will have a combination of the above fees, if not all, and if you have more than one account you will be liable to pay fees on each and every account, as stipulated by the super fund manager.

No two funds are the same in their fee structure and transparency is hard to find. Most super fund members find it increasingly difficult to assess the actual fees they are paying per year and in most cases believe the level of service given does not warrant the fees charged.

We think the fees charged by a lot of superannuation funds, and some advisers, are outrageous! In light of this, we have designed our fee structure to sit at the lower end of the scale. Our fees are transparent, always discussed with you before work is performed and regularly reviewed to ensure that you are getting your money’s worth.

What can you do?

Regardless of the type of fund you have there will be fees. However, you can choose which fund you want to invest with and there are ways you can minimise your fees:

1) Consolidate – if you have more than one fund you are paying more than one fee set. By possessing a single superannuation fund you can avoid paying the same types of fees for various accounts. Consolidating your super also makes it easier for you to keep track of your super monies and makes light work of reporting.

You should be aware that, if you choose to rollout of a super fund, any personal insurance cover held in the fund will be lost. You should ensure that you have sufficient insurance cover in place elsewhere or arrange for replacement cover before exiting the fund.

There may also be exit fees associated with the rollover and you should find out about these before you act.

2) Do Your Research – look into the fees you are paying currently and then look at other funds suitable for your needs. There is a huge volume of superannuation funds out there offering competitive fee rates.

You should be mindful of the returns offered by funds also. These are far more important that the actual fees charged as you need to ensure that your superannuation assets are appropriately invested and earning a decent net rate of return.

3) Contact Us – we can do the leg work for you. We understand the trips and traps of superannuation funds and the industry as a whole and can provide advice on the options suitable for you.

Importantly, our initial consultation is free.

It is unfortunate that we live in a world where we have to write an article about this – but it is better to be safe than sorry.

In light of the impending 2012 end of financial year, we want to remind our valued clients about the schemes and scams that could affect you, and to be extra diligent when receiving promotional material regarding ways you can save tax, unlock your superannuation or get rich quick.

Scammers know how to press your buttons and have gobsmacking finesse when it comes to extorting your hard earned dollars. Even the savviest individual can fall victim to a scam.

The Australian Competition and Consumer Commission (ACCC) is a good resource for the many and varied schemes and scams that you could be targeted for. In March 2012, the ACCC released their “Little Black Book of Scams”. This details information on common schemes and scams including:

• Advance fee fraud;
• Lottery, sweepstakes and competition scams;
• Dating and romance scams;
• Computer hacking;
• Online shopping, classifieds and auction scams;
• Banking, credit card and online account scams;
• Small business scams;
• Job and employment scams;
• Golden opportunity and gambling scams;
• Charity and medical scams.

If you would like a copy of the ACCC “Little Black Book of Scams” we have these available at our office to collect. Alternatively you can contact our office and we will post a copy to you.

At this pertinent time, we have put together a summary of the more common scams that target small businesses and individuals in regards to investing, tax and super.

Small Business Scams

False Billing

Scammers mostly target small businesses by sending false invoices for advertising, directory listings, domain names and office supplies. The scammers either send you invoices for goods you didn’t order and trick you into signing up for ongoing supplies or send you invoices looking very much like invoices you may already receive for advertising i.e. Yellow Pages.

Fax Back Schemes

Fax back schemes have also become increasingly popular for scammers. These schemes can offer anyone with a fax machine anything from diet pills to budget holidays to cheap stationery – all you have to do is fax the document back to the scheme operator, usually to a premium rate number (starting with 190). Premium rate faxes can be charged at more than $6.00 per minute. The scheme operators ensure that your fax will take several minutes; resulting in hefty, unnecessary phone bills (a simple fax could cost you $20 or $30).

Superannuation Fund Scams

Unlock Your Super Early

Superannuation scams are schemes which offer you early access to your preserved superannuation benefits, often via a self-managed superannuation fund and for a fee. The scammers tell you that you can ‘unlock’ your super to pay off debts or use the money for something you really want. People struggling with debt, unemployed people and non-English people are most vulnerable here.

As you all well know, you cannot gain access to your preserved superannuation before you attain your preservation age and satisfied a condition of release. If you do access your superannuation early for an illegal reason, you may be subject to legal action and hefty penalties (including tax).

These offers usually come from someone posing as a financial adviser and they promise that they can release your superannuation quick and easy.

The scammers make their money by deceiving your superannuation fund into paying out your superannuation benefits to the “adviser” in cash or by rolling your superannuation benefit into a self-managed superannuation fund they operate whereby you can then withdraw your monies.

However, once the scammer has your money, they disappear and leave you with nothing, or take very large fees before forwarding the remainder of your super monies.

Get Rich Quick Scams

Investment Scams

These scams can come to you via a phone call or email – it may even be an offer from someone you trust. The scammer will generally promise you high, quick returns with low or no risk.

The three main types of investment scams are:

• The investment offer is totally fictitious and does not exist;
• The investment offer exists but the money you give the scammer is not going towards the investment;
• The scammer says they are representing a well known company but they are lying.

In all cases the money you ‘invest’ goes straight into the scammer’s bank account and not towards any real investment.

Ponzi Schemes

Another type of investment scam to be aware of is a ponzi scheme. This type of scheme is targeted at groups of people such as churches, charities and clubs and usually will be introduced to you by someone you know.

The promoter convinces people to invest with their scheme. They then use the money deposited by early investors to pay the first ‘dividend’ until investors feel comfortable and decide to invest more. Some investors then encourage their family and friends to join. Eventually the scheme falls apart because the promoter starts to spend the money too quickly or the pool of investors dries up. In most cases, personal relationships are destroyed where you have encouraged others to join the scheme.

Agricultural Schemes

These schemes, although in most cases they are legitimate investments, have been remarkably unsuccessful in the past. Failed schemes include:

• Great Southern
• Timbercorp
• Willmott Forests
• Palandri Wines

Research into these schemes has reported that 20-40% of you invested capital is used for marketing/promotion of the scheme. This amount far exceeds any normal business model.

Think of this: you purchase a parcel of shares for $100,000 and you are charged $40,000 brokerage on the transaction. Your shares would have to perform remarkably well to recover this outlay of costs.

Householder & Individual Scams

Carbon Tax Compensation Payment Scams

These scams involve a scammer calling you out of the blue, claiming to be from the Australian Government or a Government department. They will offer you a compensation payment as part of the Australian Government’s Carbon Tax initiative.

You will be asked to provide your bank account details so that the scammer can make payment to you. However, once the scammer has your bank account details they gain access to your account and take your money and potentially your identity by accessing the personal details linked to your bank account.

The Australian Government will never call you to ask for your bank account of offer you carbon tax compensation. Never give your bank account or personal details to anyone you don’t know, especially a cold caller such as this.

Negative Marketing & Scare Tactics

Many publications will produce dramatic articles, filled with doom and gloom about financial markets and trends. These are designed to scare the bejesus out of you and get you hooked on their ‘news’ so that you continue to subscribe.

You should only source news from a reputable source and avoid subscribing to publications that use scare tactics and negative marketing.

In addition, financial advisers may well employ scare tactics to “win you over” by exaggerating risks or problems with your investment portfolio. Long term investing, which generally outperforms short term trading, does not mean you react and adjust portfolio settings based on sensationalised media commentary and front page headlines.

Avoiding Scams

Here are some simple tips for avoiding scams:

• First and foremost – trust your gut and use the ‘smell test’. If you feel you are being scammed or feel that the offer being presented to you is too good to be true it usually is.
• Check ASIC’s “Companies you should not deal with” list before investing money – any company found to be operating a scam or has had their licence revoked is on this list. You can search the list by going to: www.moneysmart.gov.au/scams/companies-you-should-not-deal-with.
• Never use the contact details provided to you by the person who contacted you via phone or email – look up the details of the company offering you the investment or service yourself. If the details don’t match or you simply can’t find them it is probably a scam. No reputable business or investment company will not be listed or not have a webpage.
• Never give your personal or financial details out over the phone unless you have made the phone call – even if you are contacted by a well known company, if they ask for your details tell them that you will call them back. Banks and service providers will understand your cautiousness here and will probably encourage it. Get the person’s name and a reference number then look up the contact details and call the company yourself. Never use the numbers provided by the caller as these may be fake.
• Check your invoices thoroughly and know your suppliers – small businesses have to be most diligent here. Limit the number of people in the business that are authorised to place advertisements and to pay accounts. Make sure you are only paying for services and products you have actually ordered from reputable suppliers. Not doing so could be a costly mistake and be a time consuming process to rectify.

If you have been a victim of a scam, you can report this to the ACCC on 1300 795 995.

For more information about the scams and schemes that could affect you go to www.scamwatch.gov.au or www.moneysmart.gov.au/scams.

How we can help

If you have been presented with an investment or strategy from a friend, colleague, company, or another professional adviser that you are unsure about, contact us for a second opinion. We can review the investment or strategy and provide you with further advice.

Having spent decades in the financial industry, our advisers know what to look for in assessing the value, profitability, structure and overall soundness of the investment or strategy you have been presented with.

It may be the most informative and productive hour of your life!

When looking at options for you to possess personal insurances such as term life, critical illness (trauma), total and permanent disablement (TPD) and/or income protection we need to assess whether these insurances are best held inside a superannuation fund or held by you personally.

The factors we consider are:

• The types of insurance required;
• Cashflow ability or constraints;
• Tax treatment & deductibility;
• Ownership structure;
• Estate planning implications.

We have compared the above features below.

Types of Insurance

• Term Life – this insurance provides a lump sum benefit to the policy owner upon the life insured’s death. This lump sum benefit can be used to repay a mortgage or other debts, fund educational costs for children, be invested to provide an income stream for their spouse, children and/or grandchildren.
• Total & Permanent Disablement (TPD) – this insurance provides a lump sum benefit if the person insured suffers an injury or illness that prevents them from working again.
• Critical Illness (Trauma) -this insurance provides a lump sum benefit on diagnosis of a defined specific event. It is designed to help people recover from a crisis or traumatic event such as heart attack, stroke, cancer or other life-threatening condition.
• Income Protection (IP) – this insurance provides the insured person with an income stream if they are unable to work. Income protection policies generally will cover 75% of the insured’s gross income and the benefit is payable to them up to a specified date from claim i.e. 2 years, 5 years or to age 65.

You can hold all of these insurances personally, however due to the access restrictions within superannuation and the need to meet a condition of release, such as retirement, it would generally not be advantageous to hold a trauma policy.

Cashflow

One of the biggest drivers for personal insurance decisions is the ability to pay the premiums. The premium you are required to pay for your insurance policy depends upon your age, medical history and lifestyle factors. You can opt for a cheap policy; however this may not be suitable for your needs.

This is where holding your insurance via superannuation may be your best option. Instead of having your premiums paid from your personal income, the premiums are deducted from your superannuation savings.

You would need to consider the impact of what drawing down on your superannuation balance will have for your retirement, however we can ensure that you have a sound strategy in place to meet your needs now and into the future.

Tax Treatment & Deductibility

You should be aware of the tax treatment of insurance proceeds upon claim. We have illustrated the tax treatment below:

Premiums are not always tax deductible. A summary of which premiums are tax deductible is below:

As illustrated above, most personal insurance premiums are deductible to the Fund when held via superannuation. This is great when you have a self-managed superannuation fund as you indirectly are able to take advantage of the deduction.

Ownership Structure

Care needs to be taken here and you need to ensure that whomever you wish to receive the insurance proceeds is in fact the recipient if the time comes to claim.

The parties to an insurance policy are generally:

• Life Insured – this is the person that the insurance is based on. If this person dies, suffers an illness or injury, or another defined event, a claim can be made to release the sum insured.
• Policy Owner – this is the person that has control over the policy and pays the premiums. This can be the life insured or another person. If no beneficiary is nominated, the policy owner is the recipient of the insurance proceeds upon claim.
• Beneficiary – this is the person or persons nominated to receive the insurance proceeds upon claim. This can be the policy owner, life insured or another person.

If an insurance policy is held via superannuation, the superannuation fund is the policy owner by default. If there is no binding death beneficiary nomination, the insurance proceeds upon receipt to the fund are paid out at the Fund’s trustees discretion. This may not be an ideal outcome for you and you should ensure you have the appropriate documentation in order.

Similarly, if the insurance policy is held outside of superannuation, you should ensure that the policy owner and beneficiaries are appropriate.

Estate Planning

When establishing an insurance policy, you should consider the estate planning implications to ensure tax effectiveness and that the monies are received by the intended recipient.

The taxation implications for each of the personal insurance have been detailed above.

More importantly, you should ensure that your nominated beneficiaries are in order, are appropriate going forward and that you have up to date and correct estate planning documentation, such as a Will.

The most recent budget has noted some important changes to the superannuation environment. We felt it was high time to encourage you to review your circumstances and be aware how the below changes may affect you.

Employer Reminders

In the current financial year the minimum rate of Superannuation Guarantee Contributions (SGC) you need to contribute on behalf of your eligible employees is 9%. This percentage begins to increase from 2013 (see article below).

SGC you make for your employees must be made on at least a quarterly basis. (see lodgement period table below).

Keep in mind that to claim a tax deduction for SGC in the last quarter (1st April to 30th June) in this financial year, the contributions must be received by the employee’s superannuation fund by 30th June 2012.

If the superannuation fund receives the SGC contribution after this date, the tax deduction for these contributions cannot be claimed until the following financial year.

Important Note: Please be mindful when making employees contributions. By making 5 quarters of superannuation payments in one financial year you may cause your employee to exceed their contribution cap leading to excess contributions tax payable.

It is also worth mentioning that the payslips you provide to your employees need to detail which superannuation fund you are paying into and the total contribution made. Payslips should be given to your employees on their pay date.

SGC – Increase for Employers in 2013

It has been known for sometime that the Government intended to increase the Superannuation Guarantee Contributions (SGC) rate in increments over the next 7 years to 12%.

If you are an employer you should prepare yourselves for the 2013/2014 financial year where you will be required to increase your employee’s SGC to 9.25%. This is in increase of 0.25% from the current rate of 9.00%.

Good news for mature workers: from 1 July 2013 the maximum age limit for receiving SGC will also be abolished. Up until this date the current age limit of 70 will still apply.

The incremental SGC increases are as follows:

Over 50s – Concessional Cap Reduced to $25,000

After much debate and speculation about whether our Government would maintain the higher concessional contributions cap at $50,000 for people over age 50, as is currently the case, the Government has deferred this action for two financial years until 2014.

Therefore from 1 July 2012 the concessional contributions cap for all individuals will be $25,000, regardless of age.

If you are over 50 and have been taking advantage of the higher concessional contributions cap, you need to review your circumstances now to ensure you do not exceed this cap in the 2012/2013 financial year. Remember that this cap includes all employer contributions including Superannuation Guarantee and Salary Sacrifice Contributions.

There are hefty tax penalties for exceeding the concessional contributions cap and this is an outcome you should avoid.

Pension Payments – Drawdown Relief Extended

Pensioners can continue to breathe easy as the Government has extended the minimum pension drawdown relief for the 2012/2013 financial year. This relief will remain at 25%, with it forecast to be discontinued in the 2013/2014 financial year.

You should continue to review your pension income needs and ensure that you are drawing an appropriate amount. This is especially important for those of you that are members of a self managed superannuation fund.

Remember that the minimum pension drawdown is also dependant on your age and if you are moving into a higher age bracket that your minimum pension drawdown will increase. You should review this to ensure that you are drawing only what you need.

The minimum pension drawdown factors for the 2012/2013 financial year, in comparison to the base minimum, are shown below:

Individuals Earning Over $300,000

High income earners have suffered a blow from the recent budget, as from 1 July 2012 individuals who earn over $300,000 in a financial year will pay 30% tax on concessional contributions to superannuation. This is an additional 15%, with the current level being 15%.

Income for this purpose will be defined to include taxable income, concessional super contributions, adjusted fringe benefits, total net investment losses, foreign income and tax-free government pensions and benefits less child support payments.

This may reduce the tax effectiveness for some high income earners, although savings can still be achieved compared to marginal tax rates.

The tax effectiveness of superannuation in 2012/2013 for people at various income ranges is shown below:

Unlicensed Accountants Cannot Give Super Advice

From 1st July 2012, the ‘accountant’s exemption’, a rule that allows accountants to give self managed superannuation fund advice without holding an Australian Financial Services Licence, will be removed.

Self managed superannuation funds are a specialised area as we believe that receiving advice from an unlicensed person is unwise and could negatively impact the effectiveness of your retirement planning strategies. You would only seek the services of a licensed plumber so why should your superannuation be any different.

This new legislation does not affect our clients as we have licensed advisers that can provide you with sound self managed superannuation fund advice.

For those of you that have an accountant that does not hold an Australian Financial Services Licence and you have a self managed superannuation fund, we can provide advice going forward to assist you achieve your retirement goals. Contact us for more information.

The month of May has arrived again and with it comes another federal budget. This budget was heralded as the toughest yet to be delivered by Treasurer Wayne Swan and would finally deliver the return to surplus his government has been promising for several years.

We were told to expect harsh spending cuts and tough decisions in the lead up to this budget as the government sought to turn around last years $44 billion deficit to a surplus. What has resulted however is more of an exercise in creative accounting and the undoing of previous announcements rather than the doom and gloom threatened by the treasurer.

Normally, budgets set out the long term policy agenda of the sitting government and are used to deliver structural changes to the economy. The politics behind this budget however are so precarious that any large scale structural changes were never going to be handed down this May. The current government is crippled with near record levels of unpopularity, constant leadership rumblings and almost daily threats to its paper thin margin within parliament. The sole aim of this budget it would appear has been to get to a surplus by putting the fewest people offside as possible.

Whilst no major reforms have been announced, in amongst this year’s budget are some additional costs to high income earners, good and bad news for businesses, cash splashes for families and the inevitable tinkering around the edges of our tax system.

The following summary attempts to explain these changes and how they may affect you.

The Budget – A high level view

The 2012-13 federal budget is based on the following economic assumptions:

• Total revenues of $369 billion
• A cash surplus of $1.5 billion
• Predicted economic growth of 3.25%
• Unemployment 5.5%
• Consumer Price Index (Inflation) 3.25%

Small Business Tax Changes

• The proposed reduction in the company tax rate to 29% has been scrapped altogether. The current company tax rate will remain at 30% indefinitely.
• Loss Roll back provisions will be introduced from 1 July 2012 for small business. Currently, a business making a taxable loss can only offset that loss against future profits. This new scheme will now allow a current year loss of up to $1,000,000 to be applied backwards against prior year profits resulting in potential refunds of tax paid in prior years. Ultimately, this is a timing issue and will provide tax relief to small businesses within the year they make a loss (rather than waiting for a future profit). This carry-back will only be applied to companies, businesses operating within a trust, a partnership or as a Sole Trader will not be able to roll back losses.
• As announced previously, there are changes to the way the tax free threshold and low income rebate applies to minors receiving unearned income e.g. distributions from a discretionary family trust from 1 July 2012. Previously minors could receive up to $3,336 with no tax payable. This effective threshold will fall to $416.
• The previously announced changes to small business depreciation will proceed. From 1 July 2012 onward, small businesses (less than $2million annual turnover) will be able to immediately write off assets costing $6,500 or less. An additional $5,000 immediate deduction will also be available for the cost of a new vehicle (in addition to normal depreciation) from 1 July 2012.
• The government has continued its winding back of Living Away From Home (LAFH) benefits by limiting access to the tax concession to employees who maintain a home for their own use in Australia, that they are living away from for work; and providing the tax concession for a maximum period of 12 months in respect of an individual employee for any particular work location.

Superannuation Changes

• The planned higher cap for Concessional Contribution (i.e. those contributions for which you or your employer can claim a tax deduction) caps for individuals aged 50 and over with superannuation balances below $500,000 will be deferred from 1 July 2012 to 1 July 2014. This effectively means that all taxpayers, regardless of their age, will have a concessional cap for the 2012-13 tax year of $25,000 only. This measure will have significant effect for salary sacrifice arrangements, deductions for personal contributions, year end tax planning, transition to retirement pensions etc.
• From 1 July 2012, individuals with an income greater than $300,000 will be taxed at 30% on concessional superannuation contributions rather than the current rate of 15%. There are few details available at this stage as to how this system will work. Obvious complexities arise in the definition of ‘income’, the timing of payments and the treatment of defined benefit funds.

Personal Tax Changes

• The proposed 50% tax discount on interest income has been scrapped. Interest income will continue to be taxed as normal assessable income.
• The proposed simplification of Income Tax Returns by allowing standard deductions has been scrapped. Tax returns will continue in their current form for the foreseeable future.
• There was no change to the previously legislated personal income tax rates which from 1 July 2012 will move as follows:
  

  	2011-12		2012-13
  	Threshold	Rate	Threshold	Rate
  1st rate	$6,001	15.00%	$18,201	19.00%
  2nd rate	$37,001	30.00%	$37,001	32.50%
  3rd rate	$80,001	37.00%	$80,001	37.00%
  4th rate	$180,001	45.00%	$180,001	45.00%

• Higher tax rates will apply to non-residents from 1 July 2012 as follows:
  

  Taxable income $	Tax payable $
  0 – 80,000	32.5%
  80,001 – 180,000	37%
  180,001+	45%

• Non residents will also no longer be able to claim the 50% capital gains discount effective immediately.
• The Education Tax Rebate will be replaced by an automatic and ‘no strings’ offset called the Schoolkids Bonus. Previously, eligible parents were required to provide receipts for school related expenditure before they could receive the offset. Starting January 2013, payments of $410 for primary school students and $820 for secondary school student per year will be paid directly to families in two equal instalments (each January and July). No claims will need to be made through your tax return.
• Limits on tax concessions for ‘golden handshake’ payments. Previously, a tax offset applied to an eligible termination payments (ETP) which limited tax payable on the ETP to 30%, regardless of the individuals income and or tax rate. From 1 July 2012, only that portion of the ETP which brings the individuals annual income to $180,000 will be eligible for the offset. The balance will be taxed at marginal rates (46.5%).
• Several different dependant offsets (invalid spouse and carer spouse, housekeeper, child-housekeeper, invalid relative offset and parent/parent-in-law offset) will combined into a single offset.
• The Family Tax Benefit Part A will increase (though not until 1 July 2013) by $300 for families with one child and by $600 for families with 2 or more children.
• The mature age worker offset will begin phasing out from 1 July 2012 for taxpayers born on or after 1 July 1957. Access to this benefit will continue for workers aged 55 or older in 2011-2012.
• The net medical expenses offset will be means tested from 1 July 2012 onward. A rebate of 20% currently applies to out of pocket expenses over $2,000. For singles earning $84,000 and couples earning $168,000, this threshold will increase to $5,000 and only a 10% rebate will apply.

It is now possible to borrow monies within a SMSF to purchase assets, commonly property. Both residential and commercial properties can be purchased and used for investment purposes.

Structure of a Borrowing Arrangement inside SMSF

While substantially similar to borrowing personally, there are several notable differences when you borrow in your SMSF.

Firstly, the loan must be established on a limited recourse basis. Effectively, this means the lender’s recourse in the event of default is limited to the single asset acquired with the borrowed funds and not other assets of your SMSF.

Secondly, a separate ‘security trustee’ (e.g. a company) is established to hold the asset ‘on trust’ for your SMSF until the loan is repaid. Whilst the security trustee is the legal owner of the asset, your SMSF retains beneficial ownership during the loan period. When the loan is repaid in full, the legal title must be transferred to your SMSF.

Further, although the ‘security trustee’ is interposed between the asset and your SMSF, the role played by the security trustee is minimal. For example, all income and expenses related to the asset are deposited into, and paid directly from, your SMSFs bank account and not via the security trust.

Thirdly, you can only purchase a single acquirable asset with each borrowing arrangement. This means that if you purchased a block of land with borrowed monies this would be seen as a single acquirable asset. The construction of an investment property on the land, where again monies were borrowed, would be treated as a second single acquirable asset.

Because of this unique structure, standard loan products offered by financial institutions cannot be used by an SMSF. Bank lenders have developed special loans, specific for this purpose.

The borrowing structure for SMSFs is shown in the following diagram:

Financing Options

You also have three options with regard to financing:

• Borrow monies from a bank;
• Borrow monies from a related party
• A combination of both.

Borrow from a Bank

Once you established the SMSF, the security trustee, and have the equity available (i.e. rolled your member account balances into the SMSF) you can then approach a bank to arrange your borrowing arrangement.

As these borrowing arrangements are more complicated that simply borrowing personally, you may find this process takes up to a month to be finalised.

The main advantage of borrowing from a bank compared to borrowing from a related party is that you are not locking up excess cash/equity from other entities that may be needed elsewhere.

Borrow from a Related Party

Utilising a loan from a related party of the SMSF instead of obtaining a loan from a bank can provide the following advantages:

• Reduced upfront costs;
• Reduced ongoing costs;
• Flexible repayment terms;
• Interest is paid to a related party rather than banks with multi-billion dollar profits;
• Younger SMSF members can inject capital to purchase property without it being trapped until they retire;
• High value assets can be transferred to a SMSF without exceeding the contribution caps and tax deductible contributions can be spread over a number of years;
• Ability to correctly and legally develop property within a SMSF.

Combination of Bank and Related Party Loans

This option is quite beneficial in the event that the SMSF does not have the required capital to satisfy the lenders LVR.

Here the SMSF’s members or a related entity, such as a company where you are a director, can loan an amount to the SMSF, with the SMSF then borrowing a smaller amount from the bank.

Borrowing Capacity & Loan Servicing

In relation to SMSF property loans, the LVR, or percentage of a property’s value the bank will lend, is often lower at around 65%, compared to around 85% for loans held externally. You would need to check this with your bank.

The level of gearing you choose should suit your circumstances. In most cases, it is more effective to positively gear inside superannuation. This is due to the flat concessional tax rate of 15% inside superannuation.

Negative gearing suits high income earners where the losses generated by negative gearing can lower the individual’s marginal tax rate from as high as 46.5% to nil.

To achieve positive gearing, you should ensure that your superannuation contributions are repaying both the principal and interest as well as servicing any costs associated with the property.

You have probably heard the term FOFA, but may be unsure exactly what FOFA actually is and what impact it will have on us as your adviser and you.

FOFA stands for Future of Financial Advice and is designed to bring all financial planners inline with a fair and reasonable advice framework, in order to encourage more people to seek financial advice. These measures, introduced by the Australian Government, are in response to our ageing population, the trillion of dollars pouring into superannuation, and an increasing strain on our social security system.

FOFA is designed to help you make wise financial choices now and into retirement.

What are the new laws governing financial advice?

Below we summarise the changes for you in a simple table. We also explain how we, as members of the Financial Planning Association, have additional standards to meet above and beyond the law which give you extra peace of mind when getting advice from an FPA member.

Not all financial planners are the same

• Genuine professionals go above and beyond the law. Level One advisers as members of the FPA also have professional obligations to look after you in the following ways:
• Explain any limitations in the advice we can give you, either in product types (e.g. insurance or investments) or in product providers (e.g. products from a limited range of companies);
• Not to misrepresent to you our skills, competency, experience, expertise, capacity or benefits we might receive;
• Clearly explain our professional services to you and to document the professional relationship you agree to, including the specific services we will provide;
• Before we provide any professional services, how we will charge you and the costs you will bear if you decide to go ahead;
• Explain the product and administration costs associated with our recommendation to you.

As always, Level One’s culture and values are:

• Integrity – to know what is the ‘right thing to do’, to be honest and truthful with ourselves and with our clients at all times.
• Courage – to make sure we act upon our integrity, even when it may be difficult or unpopular to do so.
• Trust – to act in a way that builds our client’s trust in us and to trust ourselves and our abilities when dealing with our clients.
• Enjoyment – to create an environment where our people grow and enjoy coming to work each day and our clients enjoy dealing with us.

Most of us plan for our retirement. We budget for our income requirements when we give up employment by ensuring that we save enough in superannuation to provide for this. We aim to repay our mortgages before we retire and may even downsize the family home in an effort to reduce our living costs.

However many of us do not think about the costs of the next stage – moving into an aged care facility or getting in-home help.

Let’s look at the facts:

• Over the next 20 years, the amount of people aged over 70 is expected to double to 4 million.
• Approximately 10% of people will require residential aged care.
• Of the 10% of people requiring care, 36% with need high care.

In preparation for our aging population we are seeing ample advertising for over 50’s villages, over 60’s villages, lavish hostels and nursing homes, and pre-paid funerals.

We too have our finger on the pulse.

Our advisers understand that every life stage has its needs and we won’t put you out in the cold the day after you retire. We want to make sure that you are aware of all of your options for your mature future, including what to expect if and when the time comes that you need assistance.

Putting an aged care plan into place early – regardless of whether it is ever initiated – is the sensible thing to do. This way you retain your independence, your dignity and you get to choose where you want to live.

Your Aged Care Plan

An aged care plan takes into account where you want to go, how you will pay for it and who gets involved. Our advisers step you through this process and provide advice and options regarding:

1. Estate Planning;
2. Deciding where you want to live;
3. Paying for your aged care;
4. Making your plan known.

Estate Planning

This is not just planning for what happens after death. This includes documenting your wishes for who you want to act on your behalf in the event you are unable to do so.

A Power of Attorney gives power to someone you trust to act in financial matters, such as your bank accounts, your liabilities and your investments.

An Enduring Guardianship gives power to someone you trust to act in lifestyle matters, such as where you live and what treatment you receive.

A Health Directive gives your medical providers, your carers and your family instructions as to what treatment you want or don’t want to receive. This includes instructions for resuscitation and life support.

Where you do not have the above in place, decisions can be hard on your family, or the State in some cases, and may not be what you actually intended.

Don’t let the opportunity to be heard pass you by. We can prepare a brief to be issued to your solicitor today to have these documents prepared and your Will reviewed if necessary.

Deciding Where You Want to Live

Do you want to stay in your own home at all costs (and there will be many) or are you comfortable with the idea of moving into a care facility? Which location do you want to be in? If you initially required low care then needed extra assistance would you be happy to move to a high care facility elsewhere or do you want to stay put?

Aged care facilities have come a long way from just white walls, white coats and fluorescent lights. In preparing your aged care plan it is a good idea to visit a few places and see what they are all about. Most new facilities are more like resorts or up market hotels.

Some aged care facilities offer “ageing in place”. This means that the facility has both low and high care options available so you don’t have to move locations if you need to transfer from one level of care to the next.

Home care can also be arranged if you only require a low level of care and really want to remain in your own surroundings.

Paying for Your Aged Care

Whether you remain at home or you need to move into an aged care facility, it is going to include substantial costs.

Depending upon your age, most of us can access the Centrelink Age Pension around age 65. Other than superannuation pensions, this is the most common source of retirement income.

The fees you pay for aged care are ‘means’ tested in very much the same way as your Centrelink Age Pension. Centrelink assesses your level of income and assets against their set thresholds to determine your fortnightly entitlement.

Aged care facilities must leave you with a certain level of assets and income, however the fees can add up. The following table illustrates some of the common aged care fees that may apply to you:

If you were to remain in your home you may have costs such as:

• Modification costs – widening doorways and building ramps for a wheelchair, the addition of hand rails in bathrooms,
• Medical equipment rental fees – dialysis machines, C-Pap machines, hospital bedding;
• Carer and home help fees – these are set by the care provider and can range from 17.5% of the basic Age Pension rate to 50% of any other income above the maximum Age Pension rate that you may receive. In the event you do require a level of care (and you may not know just yet), it doesn’t seem wise to “spend the kids inheritance” just yet. You may need the capital to provide for your lifestyle.

If you were asked how you would pay the accommodation bond and ongoing fees, the most common answer is “sell the family home”. But you should know that this is not your only option.

The decision to sell your home in order to pay the accommodation bond is usually made prior to people seeking our advice. This is an area where planning can be of great benefit.

Every scenario is different and it is hard to provide a worked example, however please find following some key points in relation to your residential home:

• Your home remains an exempt asset if your spouse continues to reside there.
• If your home is retained and you have been in care for less than 2 years you will remain a homeowner for Centrelink purposes and the home will not be an assessable asset if the property is rented out. The rental income will be assessable income however.
• If your home is retained and you have been in care for more than 2 years you will be classified as a non-homeowner for Centrelink purposes and accordingly the value of the property will be subject to the assets test, as it essentially becomes an investment property. The rental income will also be assessable.
• If your home is retained, rented and a periodic payment or annual accommodation charge is arranged with the aged care facility, you will be classified as a homeowner for Centrelink purposes. This means that your home will remain an exempt asset and the rental income you receive will also be exempt.

Making Your Plan Known

Once you’ve decided upon your plan, you’ve got the documents in place for others to step in when required, and you’re comfortable that you will be able to pay for the services you require, you have to inform the people who need to know about it.

We can help you put your plan into a concise brief that will explain your wishes to your family and/or future carers. We can also meet with you and your family to ensure that this process is smooth and everyone is comfortable with your plan. Our advisers are knowledgeable in this area and can answer any questions that may arise with confidence.

Get Prepared

Now you’ve got an idea about the types of aged care that you may need in time, talk to us about getting organised with your plan. We can ensure that you never have to worry about the security of your future needs.

We also encourage you to keep in mind that your family, friends and neighbours may from time to time require a helping hand in preparing aged care plans. Or the time is upon them to act quickly. In any circumstance we are able to step you through the process and ensure you make the right decisions.

In Case of Emergency

We understand that you live busy lives and sometimes, planning for aged care may not be possible. You may have a situation where a parent has an urgent need to move into a care facility and you don’t have time to go through the planning steps above.

No need to worry – just call us. We can help you straighten things out quickly and calmly to ensure peace of mind for all involved.

How To Avoid Sending Mixed Messages

As leaders, we know to be sensitive about mixing our messages.

When our staff receive mixed messages, the negative emotion naturally dominates, and becomes – in the minds of our staff – associated with the memory of the event.

Discover how to avoid sending mixed signals to communicate more effectively.

We humans make sense of our world by classifying our experiences, conversations and other people. Our classifications are binary in nature; they are an either/or category. The most common is good or bad. Other common classifications are them and us, like me or not like me, happy or sad. We make our classifying decisions based on the emotion we experience – our feelings – at that moment.

Confusing or mixing messages occurs when the receiver of the message thought that the message was going one way (“good”) but it turns out that it was going down the other way (“bad”) or vice versa. Emotions are conflicted.

By allowing your emotional detectors to guide you, you’ll become more aware of any mixing of your own messages, and can also learn by observing others. Here are some common examples:

1. A CEO is hosting an end-of-year celebration event to thank the staff for a successful year. In his speech the CEO thanks the troops and then can’t help himself – he preaches that “we need to maintain our focus in the year ahead to maintain sales”.

Mixed message received

The message is now mixed and the staff wonder if it was really a “thank you” event or a “kick off” event for next year. It alters their feelings associated with the event.

2. A manager calls one of their staff who works in another location. The manager’s intention when calling was just to say hello and to check if the person needs anything (a good thing to do). During the call however, the manager remembers a task that they need to talk to the person about. They raise the task.

Mixed message received

Suddenly the receiver who had categorised the call as a “nice check-in” thinks, “Oh, my boss really wanted to get me to do something”.

3. A manager calls a candidate for a job to let them know that they have been unsuccessful. Rather than just let the person know they were unsuccessful and explain why, the manager gushes about what a good candidate they were and how well they interviewed.

Mixed message received

The person categorises the call as “insincere”, given that they missed out on the job.

4. A manager recently appointed to the leadership role meets with their new direct reports in individual meetings (a good thing). But the manager confuses the purpose of the meeting by not making it just a get-to-know-you meeting, by also raising their performance expectations.

Mixed message received

The staff member, who thought that it was an introductory meeting suddenly feels like they’re put on the spot.

5. A manager gives a staff member negative feedback, but confuses the message by starting with praise (as per the unhelpful “feedback sandwich” approach).

Mixed message received

The receiver initially thought they were being acknowledged for their good work, to suddenly find the big BUT shifting the conversation to what they are doing wrong.

Mixing emotions

When we mix our messages, we are confusing the emotional response – the feelings – we trigger in the receiver. In the first part of our message we are leading the person down the path of either good or bad, for example, and then we confuse the message – the person’s emotional detectors – by diverting them down the other path.

Given our hardwired instinct for loss aversion, when we mix our messages, the negative one dominates. The negative emotion becomes the memory of the event.

Tips for leaders

The remedy to avoid mixing messages is simple – stick to one emotion associated with each event. When there are two objectives to cover, it becomes necessary to separate the events, so that the emotions attached to each don’t mix. Using the examples above:

1. The CEO who is driven by anxieties about next year’s results should celebrate this year’s results and find another occasion to talk about the new year.

2. The manager who is calling for the purpose of checking-in, and who suddenly remembers a task item, should generally leave the task for another call, perhaps the next day.

3. Calling an unsuccessful candidate means letting them know they have been unsuccessful – without the sugar coating that will likely be received as insincere.

4. The manager who is meeting people for the first time should decide if the purpose of this meeting is to be a relaxed and “positive” one and leave the performance target discussion to a second meeting. It doesn’t all have to be covered the first time.

5. Giving negative feedback means covering the topic and generally leaving any praise for another time.

Our guide is the receiver’s emotional detector. If our message is intended to be “positive”, then make that the message and don’t confuse the issue by mixing with a “negative” one.

Leaders should avoid trying to squeeze too much into any one interaction, and thereby will achieve greater clarity in their communications with staff.

The material above was produced by Andrew O’Keeffe who assists business leaders design and implement people strategies based on human instincts. You can visit his website at: www.hardwiredhumans.com.

[Quote] “We are what we repeatedly do; excellence, then, is not an act but a habit” ARISTOTLE

The big four banks have reported over $23 billion in profits for the full-year to 30 September 2012. The individual earnings are:

• NAB reported $4.08 billion – down 22% due to rising bad debts in its UK businesses;
• CBA reported $7.09 billion – the largest result by a non-mining company in Australia;
• ANZ reported $5.66 billion – record earnings;
• Westpac reported $6.60 billion – WBC being the second largest mortgage lender.

These strong profits are keeping their dividends high for investors.

When you think of the sharemarket two things come to mind – volatility and dividends. Volatility is the share price we see moving up and down, usually on a daily basis; and dividends are the income we receive for taking the risk and investing into the listed companies.

Looking at a sample of the blue-chip Australian stocks we recommend for our clients below, you can see the dividend growth over the last 10 years has been relatively steady. For the post-GFC years 2009 to 2011 there was an evident fluctuation in the dividends paid for some stocks, however 2012 has seen the dividend rate recover and grow further in a lot of cases.

The progress of dividends for the companies above has been welcoming, especially considering that some of the share prices dipped as low as 40% over the same 10 year period. This can be seen as evidence that volatility does not necessarily mean dividend levels suffer if the share price falls.

Of course capital growth is important when investing for the long term, but the purpose here is to illustrate that the Australian sharemarket does indeed have its short-term benefits in the dividends paid by high quality stocks.

The Reserve Bank of Australian on 4th September 2012 decided to leave the cash rate unchanged at 3.50%.

Glenn Stevens, Governor made comments regarding the RBA’s monetary policy decisions that, due to inflation expected to be consistent with the target and growth close to trend, the stance of their policy remained appropriate.

Mr Stevens has reported that financial markets have responded positively over the past couple of months to signs of progress in addressing Europe’s financial problems, but expectations for further progress are high. Low appetite for risk has seen long-term interest rates faced by highly rated sovereigns, including Australia, remain at exceptionally low levels. Nonetheless, capital markets remain open to corporations and well-rated banks, and Australian banks have had no difficulty accessing funding, including on an unsecured basis. Share markets have generally risen over the past couple of months, on very light volumes.

As a result of the sequence of earlier decisions, interest rates for borrowers are a little below their medium-term averages. The impact of those changes is still working its way through the economy, but dwelling prices have firmed a little and business credit has picked up this year. The exchange rate has declined over the past month or two, though it has remained higher than might have been expected, given the observed decline in export prices and the weaker global outlook.

The next RBA meeting is 2nd October 2012.

Over the last few weeks we have seen much debate over the advantages and pitfalls of both bonds and equities; specifically with regard to the associated investment and market risks.

Some people believe that adopting a “risk-free” strategy by investing heavily into bonds, with little exposure to equities, is a sound idea. On the contrary, some believe that the yield premium of around 6-7% equities has over bonds is worth the risk.

We tend to agree with the latter. We also believe that bond strategies carry their fair share of risk as well and this should not be ignored.

We have included two articles from the Australian Financial Review that provide insight into the matter.

Yes, Bonds are a Risky Investment Too – Kevin Davis

Christopher Joye argues that the investment strategies of Australian super funds, with their heavy weighting towards equity, have been built on shaky foundations.

In particular, he takes aim at the conventional wisdom that the expected return on equities provides a significant premium over the risk-free rate on bonds.

If that is not the case, the higher risk of equities (volatility of returns) has been taken by super funds without sufficient benefits in the form of higher expected returns.

And if that is the case, members should (if they could) be voting out the trustees and management of their super funds for implementing bad strategies.

With the benefit of hindsight, that wonderful analytical tool, we would all have adopted different investment strategies over recent years. Shifting from equities to bonds could have given a double-whammy to overall returns under some trading strategies.

Not only have equity returns been abysmal in some years, but long-term government bond rates have been on a downtrend for 30 years. Good returns were there if an investor had been smart enough to buy 10-year bonds, sell them a year later when interest rates had fallen, and then reinvest in 10-year bonds and keep repeating the strategy. The reason for the good returns is that as interest rates fall, the price of existing long-term bonds increases, giving capital gains upon sale.

Of course this is a risky strategy – interest rates might subsequently go in the other direction.

Consequently, good returns on the “bond rollover” strategy were accompanied by relatively high risk, as Christopher Joye finds. Not as much risk, nor quite as high a return as investing in equities though. And on those numbers, the question can be raised of whether the game played by our super funds was worth the candle?

But they were not, and should not have been, playing the alternative bond rollover strategy game. Super funds should be long-term investors.

A “bond rollover” strategy involves taking the capital gains when rates fall, and reinvesting in now lower-yield bonds. That might turn out to be good if rates fall further but if they don’t, there is now a lower annual yield than if the original bond had been held.

In hindsight, the alternative risky “bond rollover” game was worth the candle – and perhaps smart investors should have seen the downward trend in long-term government rates. But that is a completely separate issue from what is the expected return on risky equities relative to passively investing in risk-free assets.

That equity (or market risk) premium (over the 10-year government bond rate) has been calculated, using long-term historical data, to be around the 6 per cent per annum mark. But those calculations compare the annual return on equities with the yield to maturity on 10-year bonds (at the start of the corresponding year).

That does not necessarily provide good information on a suitable investment strategy. It tells us (if we believe historical information is relevant) how much the expected return on an equity investment exceeds the current 10-year bond yield to maturity.

It is indeed an apples and oranges comparison that does not include possible capital gains or losses on bonds that are not held to maturity.

That worked well over the past three decades (in hindsight) because of the downtrend in interest rates.

But the market (or equity) risk premium is meant to give the expected differential between a risky (equity) investment and a risk-free investment (holding a bond to maturity). A more interesting calculation is to ask what would be the expected difference in returns from investing in equities rather than from adopting a “risk-free” investment strategy. Ideally this would involve comparing the annual return on equities with the yield to maturity on a one-year government bond.

We don’t have readily available data on one-year bond yields, although calculations of the annual returns from investing in a sequence of 90-day Treasury notes or bank bills, from 1980 to 2010, again shows a premium in equity returns very close to 6 per cent.

With hindsight, the bond trading strategy may have done very well on a risk adjusted basis relative to investing in equities. But without hindsight a strategy of investing in a “risk-free” manner in government bonds would have underperformed equities quite substantially.

If Australian super funds had invested heavily in corporate bonds or other structured “fixed interest” products, the blowout in credit (default) spreads (and resulting plummeting in prices) might have led to even worse returns.

And if they all were competing for the scarce supply of Australian government bonds, even 3 per cent might start to look high!

Super Shares Bias Makes Sense – Sam Wylie

For all the changes in superannuation over the past 10 years, one salient feature of super funds remains the same – the proportion invested in equities.

In 2002, a little less than 60 per cent of super fund assets were in Australian and global equities and the same is true in 2012. Self-managed funds allocate less value to equities and industry funds allocate more, but the overall allocation to equities by super funds has been a little under 60 per cent for a long time.

The fact that Australian super funds have higher equity allocations than their counterparts in some other countries is well known to Australian fund trustees and advisers.

However, most of these trustees see the relatively high allocation as matching Australia’s circumstances in terms of tax law (dividend imputation), fund structure (defined contribution) and investment opportunities (small fixed income market).

Those equity allocations have recently been criticised by senior figures, including former Treasury boss Ken Henry and superannuation system review chairman Jeremy Cooper, who have said super funds that are heavily exposed to equities should reweight their asset allocation towards bonds.

Those statements have not yet been accompanied by a compelling argument for changing the current levels of super fund equity investment. Instead, the need for change has been asserted as if it were obvious.

The lack of a compelling argument is not surprising because any such argument would face a lot of opposing data and inconvenient questions.

Reasonable records of Australian stock and bond returns exist back to Federation and show that since then, stocks have on average outperformed bonds by about 5.8 per cent per year.

To get to a lengthy period in which bond returns match stock returns, we must ignore 80 years of valid data and focus only on the period of the “great bond rally” that started in the early 1980s when then United States Federal Reserve chairman Paul Volcker began his crusade against inflation.

Christopher Joye’s piece, “Super funds miss mark in bias to equities” (AFR, August 14), was an example of the selective amnesia often exhibited by bond proponents. In arguing that super funds over-allocate to equities because they overestimate how much stock returns exceed bond returns in the long run, he uses only data from 1982, the very start of the great bond rally. He then regally declares all data before 1982 to be invalidated by survivorship bias, which of course it is not.

Never mind that investors in Australian government bonds earned a negative average real return over the first 82 years after Federation.

Advocates of higher bond allocations by super funds must also ignore that the high bond returns of the past 30 years cannot be replicated in the next 30 years: 1982 was the high water mark for government bond yields, with 10-year bond yields reaching 16.4 per cent. Today they yield 3.5 per cent. It was that 13 percentage point fall in bond yields that delivered high capital gains to bond investors over the past 30 years.

How can any investor in super reasonably expect a similar decline in bond yields of 13 percentage points to minus 9.5 per cent a year over the next 30 years? No, it is likely that yields will rise in the long term and bond investors will experience a capital loss.

Critics of super fund equity allocations must also ask: who will bear the risk of owning shares if not households through their super funds? The deeper the layer of equity to absorb bad outcomes, the more innovative and risk taking companies can be.

The finances of households plug into companies at two levels. Households are both employees and shareholders of companies. As employees, households are undiversified – they have just one job, so they demand their employment claim on the company has seniority to banks, bondholders and shareholders.

But as shareholders in a company through their superannuation, they are highly diversified – the super fund holds a large number of shares and exposure to any one firm is low. They have a low-priority, high-risk, high-return claim on the company.

No compelling argument for super funds to make a major reallocation to bonds has been made. The advocates of bonds over equities need to make their case, stop being selective in the use of historical data, explain why investing in bonds at the top of the cycle makes sense, and explain who will absorb the riskiness of investments made by local companies if not households saving for retirement by holding equities.

First time buyers of new property in NSW may receive grants and stamp duty exemptions worth up to $35,000 from 1 October 2012; thus providing an opportunity to enter the property market.

With a cash grant of $15,000 and stamp duty exemption of up to $20,000 it is currently possible for first time buyers with a modest deposit savings to become property owners.

There are two components to the concessions:

First Home Owner Grant (FHOG)

From 1 October 2012, first home buyers purchasing new residential property below $650,000 are eligible to receive a Government grant of $15,000 upon settlement.

First home buyers purchasing second hand properties are no longer eligible to receive a grant of any amount.

The FHOG will decrease to $10,000 from 1 January 2016.

What is a new home?

A new home is:

• A home that has not been previously occupied, including occupation by the builder, a tenant or other occupant.
• A home that has not been previously sold as a residence. Where the home is being purchased, it must be the first sale of that home
• A home that has been substantially renovated and a home built to replace demolished premises.

Am I eligible?

To be eligible for the $15,000 grant:

• The contract date must be on or after 1 October 2012;
• The home is a brand new home;
• You are over 18;
• You or your spouse (including de facto spouse) have never held a relevant interest in any residential property in Australia prior to 1 July 2000. However, you may be eligible if you or your spouse, including de facto spouse, have only had a relevant interest in any residential property in Australia on or after 1 July 2000 and you have not resided in that property for a continuous period of at least 6 months;
• The value of the property must not exceed the First Home Owner Grant Cap of $650,000;
• You have not received a first home owners grant in any State or Territory, unless subsequently repaid;
• You need to live in the home for a continuous period of at least 6 months;
• At least one applicant is a permanent resident or Australian citizen;
• Each applicant must be a natural person and not a company or trust.

First Home Stamp Duty Exemption

From 1 October 2012 first home buyers purchasing new property below $550,000 or vacant land below $350,000 will be exempt from paying stamp duty.

First home buyers purchasing new property from $550,000 to $650,000 or vacant land from $350,000 to $450,000 will be eligible to receive discounts on stamp duty.

* Stamp duty discounts are calculated based on purchase price. For each additional $1,000 in cost above the stamp duty exemption threshold the full exemption will be reduced by 1%. Example: a new home purchased for $560,000 ($10,000 above threshold) would receive a 90% discount on the applicable stamp duty.

If you are looking to become a first home owner and want some clear and unbiased advice about your options here contact us.

There have been several alarming newspaper articles recently and we thought it was high time to bring the central issue to your attention – property investment.

Property investment can be a tax effective strategy as part of a well-balanced and diversified portfolio; however this type of investment can be high risk, highly illiquid and can bring people financially to their knees if all the facts are not known.

The article titled Property Racket Burns Battlers: Investors Lose Millions, seen on the front page of the Sun Herald dated 28 October 2012, tells of a property marketeering racket, disguised as ‘independent financial advice’ that has cost investors millions of dollars. The scheme targeted naïve investors to which predatory lending tactics were adopted, resulting in loans people could not service. This coupled with the investors paying a premium for more than 400 poor quality Queensland properties has seen people bankrupt or being left with debts of more than $150,000.

The mastermind behind this scheme is Faye Kotsis, a discharged bankrupt who first plied her trade with a discredited property marketeer, who was later found to have breached the Trade Practices Act. Upon investigation by the Sun Herald, it was discovered that the ‘financial adviser’, the property vendor, the financier, the property caretaker and the letting agent of the scheme are all linked. This reeks of conflict of interest and can be blamed as the primary reason investors were led astray.

It’s not only listed property that has been a hot topic of conversation; unlisted property fund managers like LM Investment Management have also let their investors down.

The Sydney Morning Herald article dated 28 October 2012 and titled Investors See Red Over Frozen Funds, reports that of the eight investment funds LM manages, four are frozen and distributions have not been paid for years.

The article reports that a retired Queensland cane farmer, who requires an operation on his knee, has his life savings of $220,000 locked up in the LM First Mortgage Income Fund and is unable to pay the medical gap. This investor can’t access Centrelink income support either as Centrelink assess his investment in LM as an “asset”. He does not receive distributions from his investment and has been unable to access any of the capital since 2009. This is a prime example of the heartache LM’s ‘frozen funds’ has caused investors.

In present times, it is reported that one of LM’s open investment funds, the LM Managed Performance Fund, has 60% of the Fund (approximately $217 million of the $370 million of investors monies) being a single loan to a Queensland property development named Maddison Estate. Maddison Estate is owned by Coomera Ridge Pty Ltd and has a sole director, Mr Peter Charles Drake. Interestingly Mr Peter Drake is also the sole director and shareholder of LM Investment Management.

It gets worse. The second mortgagee of Maddison Estate is a company called Coomera Pty Ltd (renamed Maddison Estate Pty Ltd) which also has one director – Peter Drake – and one shareholder – LMIM Asset Management Pty Ltd. LMIM Asset Management Pty Ltd has a sole director also…Peter Drake. Quoted from the article “With this labyrinthine arrangement, Peter Drake the lender must talk to Peter Drake the borrower to establish if the loan is performing, or in default – and agree on terms.” Again the conflict of interest here is astounding.

The resounding warning here is CHECK YOUR FACTS. Ask who is involved in your investment and don’t get caught up in the hype – that’s what they want. Read the documents they ask you to sign and issue to you. Research if there are any conflicts of interest that could be detrimental to you.

And as always – if it seems too good to be true, it probably is.

Remember we are here to help you make wise decisions. Don’t hesitate to call.

ASIC warned investors this month about setting up self-managed superannuation funds simply as a vehicle of investing in “dodgy” property. Similarly ASIC has stated that it will be undertaking “limited surveillance” of financial advisers and accountants for spruiking this strategy.

“We don’t want SMSFs to be the preferred vehicle for dodgy property spruikers,” says ASIC commissioner Peter Kell.

Kell says being encouraged to set up a SMSF “solely to invest in direct property” should be a “warning sign” for consumers.

Investing in property through a SMSF holds significant tax advantages with the maximum rate of tax paid on rental income being 15% and falling to 0% if the SMSF is in the pension phase.

This compares with personally held property where rental income is taxed at a marginal tax rate, which in some cases can be as high as 46.5%.

However investors must understand the risks pertaining to this type of investment, as well as property investment in general, and take into account their full personal and financial circumstances before jumping into action.

“ASIC has concerns that people are being encouraged to set up SMSFs in situations where they don’t have the resources, experience and understanding to ensure they actually generate the expected benefits,” says Kell.

Kell says the resourcing issue is not just about money but having the time to properly manage your SMSF.

Another issue these investors face are the unscrupulous financial advisers that “hide” large commissions by forming alliances with developers to push this strategy.

As always it is best to get independent advice and/or a second opinion.

One of the most commonly quoted “facts” that you’ll see when you’re looking at setting up a self-managed superannuation fund (SMSF) is that you need to have around $200,000 to make it worthwhile.

Is this fact or is it a myth? Let’s have a look.

The main reason $200,000 is often quoted as a minimum requirement is based on the general view of the average fees that many trustees will pay for the ongoing administration of the fund, and how this compares as a percentage to many retail or industry super funds.

It is often quoted that the average fee a SMSF pays for annual admin and audit is around the $2,000 to $2,500 mark. This is probably about right when it comes to using a personal accountant, and assuming you don’t have an excessive level of transactions.

So if you divide $2,000 into $200,000, you get 1% pa.

Now what if you also use a financial adviser for investment and strategy advice, and say that’s another $2,000 pa (or 1%pa). Then you are up to $4,000 pa altogether and its 2% pa.

So what do we compare this to? I’m looking at a very well-known retail super fund PDS right now, and the fee for the Balanced option is 1.88% pa. A typical industry fund will be cheaper than this at 1% or under.

So on the surface of it, the $200,000 minimum is looking about right (even a bit low in fact).

Hang on a minute…….

But here’s the thing. There are two big factors that can make a huge difference to this equation:

1. There is an enormous variation in fees for annual admin and audit services. For example, there are “online” annual admin and audit services priced at $1,000 pa or under. In this scenario, if you only had $75,000, then the ongoing fees are around 1.3%. That is far from excessive.
2. Not everyone wants to use an adviser. There is a reason why they are called “DIY” funds. In fact, the stats around this suggest only around 2 out of 5 trustees use a financial adviser for their SMSF. So including these fees into the equation for an average SMSF is probably not that indicative of the average at all.

The Bottom Line

Quoting an across the board minimum for a SMSF is misleading given the large variations that are involved, so this myth is busted.

For trustees who want to use a full service personal accountant and adviser, then the higher minimum balance of say $200K is appropriate given the higher ongoing fees applicable – which is totally fine.

However if your strategic situation is straightforward, you are doing your own investing, and you are using a low cost annual admin/audit provider, then a much lower minimum account balance like our $75,000 example above can be quite easily justified. Do the sums and if your annual expenses come in under 2%pa of the value of your fund (hopefully closer to 1% or under), then you are in the ballpark.

NOTE: be sensible about this. Setting up a SMSF with small amounts like only $20,000 or $30,000 is never cost effective, and should be discouraged. Plus it will get you firmly on the radar of the ATO as they will consider you at high risk of non-compliance. That is not our opinion – it comes from the very top of the ATO themselves.

This article was written by the SMSF Review on 17^th September 2012.

We are well aware that our recent posts about the risks of property investment via self-managed superannuation funds (SMSF) may seem a little humbug, but we remind you that it is our job to stop you from making bad investment moves.

That’s what we are here for and we don’t apologise for it.

A new SMSF ruling has been released by the Australian Taxation Office (ATO) recently with the purpose to educate people with regard to common issues the ATO has witnessed here.

There are many ways people are misusing or misconstruing the SMSF borrowing legislation and we intend to discuss the more common issues below.

1. Loan Contract & Property Title in the SMSF Members Personal Names

This is common where SMSF members jump the gun and purchase the property prior to the SMSF establishment or people do not have adequately qualified solicitors read their property documentation thoroughly.

This could be seen as the SMSF providing financial assistance to the SMSF members by funding the loan. This could also be seen as the SMSF providing lump sum superannuation payments to fund members without satisfying a condition of release.

This results in a breach of the “sole purpose test” under superannuation law and carries hefty penalties.

2. Property Title in the Name of the SMSF

SMSF borrowing arrangements are complex and special. Superannuation law prohibits funds from possessing loans, hence SMSF borrowing arrangements require the property acquired under the loan to be held on trust by a “security trustee” for the duration of the loan term.

Subsequently, one of the primary criterions is that the property title be in the name of the security trustee NOT the name of the SMSF.

This could result in the SMSF breaching superannuation law and require a forced sale of the property at potentially a substantial monetary loss to the fund.

3. The Purchase of Residential Property from a Fund Member

SMSFs cannot acquire assets from fund members or other related parties to the fund. Related parties include family members, business partners and associated entities. It may sound good to purchase a property from yourselves and put it into the SMSF to take advantage of the tax concessions, but it is flat out illegal.

This breaches the in-house asset test rules of the superannuation law and carries hefty penalties. Again, this could see the fund forced to sell the property at a loss.

4. The Purchase of Land and Subsequent Construction of a Property

If the SMSF decides to purchase a block of land under a borrowing arrangement and then decides to use borrowed monies to construct a residential property on the acquired land, it will be in breach of the borrowing rules. This is seen as “improving” the property and changing the characteristics of the property whilst using borrowing funds.

The asset held on trust is land and by constructing a property on the land you are changing the asset to a residential property.

A breach of this rule can also see a forced sale with a loss to the fund.

5. The Purchase of Two Adjacent Blocks of Land

The SMSF finds two blocks of land that a vendor is only willing to sell together. The fund enters into a borrowing arrangement to purchase the two blocks.

The SMSF has breached the borrowing rules as, although the vendor will only sell them together, the two blocks are separate assets and only a “single acquirable asset” can be purchased under a borrowing arrangement.

If the SMSF wanted to they could establish two borrowing arrangements and purchase each of the blocks of land under separate borrowing arrangements, however the SMSF would need to be in an appropriate position to do this and be aware of the costs to do this.

The law here is complex and you should not be misled that this SMSF borrowing arrangements are appropriate for everyone. Contact us to discuss your circumstances.

We have recently issued warnings to our clients with regard to the high risks associated with property investment and hybrid products, such as bonds and debentures.

Following the $660 million collapse of Banksia Financial Group last month, investors are again being reminded of the basic lesson of swapping quality and security to go chasing abnormally high returns. The higher the return, the higher the risk.

In a nutshell, Banksia offered investors a high interest return on debentures (unsecured bonds) and then lent the investor’s money out as mortgages and property loans to third parties.

Sounds simple. So what went wrong you ask?

For starters, Banksia didn’t have a banking licence. It wasn’t a bank or even another form of Approved Deposit Taking Institution (ADI). This means the group was not regulated by the Australian Prudential Regulation Authority (APRA), or anyone else, hence investors were not protected by the Government guarantee (that you enjoy from a proper bank) for deposits up to $250,000.

Secondly, a large amount of the mortgages and loans were made for commercial properties and new developments. This means higher-risk property and a much greater likelihood of default.

Thirdly was their balance sheet. As of June 2012, Banksia’s core capital was only $24 million. This modest sum was supporting a whopping $662 million of borrowings to finance a total of $691 million in loans and other assets. When you crunch the numbers, it would take only 4% of the underlying assets to fail and completely wipe out 100% of the capital. And that’s what happened.

Although the collapse occurred in October, warning signs of trouble were already apparent in June. At the balance date, around $24 million of Banksia’s loans were not paying interest and had been classed as “impaired” – or in laymen’s: up the creek. A further $67 million were late on paying interest repayments. These were due to be stamped “impaired”.

The collapse of Banksia is a harsh reminder of other failed financial groups such as Westpoint and Storm. With every one of these failed groups, the same base principle can be seen – there was high-risk property investment involved.

We remind you all that chasing high returns without understanding where your money is, and how it will be invested, is a dangerous game, with dire consequences.

Tips for safeguarding your savings:

• Invest with a properly regulated bank or ADI – make sure your money is protected by the Government guarantee;
• Don’t put all your eggs in one basket – if you are investing large sums of cash it can often be wise to break the amount up into smaller deposits. Further diversification can be achieved by investing with more than one bank or ADI;
• Don’t trust everyone – just because the guy at your local branch “is a good bloke”, don’t take all he has to say as gospel. Check the facts and if in doubt get independent advice;
• Trust your gut – if it seems too good to be true, it probably is.

Level One Financial Planning has been accredited as a Professional Practice of the Financial Planning Association in recognition of our business’ high professional and ethical standards.

Currently there are only around 30 FPA Professional Practices nationally.

To qualify, we needed to prove to the FPA that we had high quality business practices in place, that our advisers were of the highest standard, and that we abide by the FPA Code of Conduct which requires us to put our client’s needs first.

We are delighted that our application for this designation was accepted and would like to reiterate to our clients that we are always working to better our service to you.

The Financial Planning Association (FPA) is Australia’s peak professional body for financial planners. Its Professional Practice accreditation recognises practices of the highest caliber.

Melbourne Cup Day saw the last meeting of the RBA. Punters were surprised by the RBA’s decision to hold the cash rate at 3.25% – just above the all-time low of 3.00% we saw at the height of the GFC.

RBA Governor Glenn Stevens has also stated that “Interest rates for borrowers have declined to be clearly below their medium-term averages and savers are facing increased incentives to look for assets with higher returns.”

Mr Stevens’ statement implies that the RBA has been feeling the pressure of being criticised by investors in term deposits for the severely low rates offered by the banks, and subsequent erosion of returns, and poses the suggestion that better value can be found in the share market.

We take this opportunity to reiterate our position on investing into blue chip Australian shares. The strong dividend yield of around 8-10% being paid by the banking and telecommunications sector at present, coupled with steady capital growth expected over the next 12 to 18 months, is especially appealing. The resource sector, in our opinion, has been oversold; hence share prices are cheap for large mining companies such as BHP and Rio Tinto. This provides excellent buying opportunities.

With another rate cut expected in December, we believe it is high time to take advantage of the value and income shares can provide for the medium to long term investor. Talk to us about improving your position or establishing a new portfolio today.

Dividend imputation was introduced into Australia in 1987, one of a number of tax reforms by the Hawke/Keating Government. Prior to dividend imputation, a company would pay company tax at the rate of 30% on its profits, and if it then paid a dividend to a shareholder, that dividend was taxed again as income for the shareholder, resulting in double taxation.

The present operation of dividend imputation is, where a company makes $1.00 of profit (profit for tax purposes) it pays 30% or $0.30 as income tax to the Australian Taxation Office (ATO) and then records the $0.30 in a franking account as a record of what tax was paid to the ATO.

When the company pays a dividend to a shareholder, either in the same year or later, it may attach a franking credit from its franking account, in proportion to the tax rate. So each $0.70 of dividend may have $0.30 of franking credit attached, resulting in a fully franked dividend of $1.00. The franking amount is again just a record, thus only $0.70 of cash is paid to the shareholder.

An eligible shareholder receiving a franked dividend declares the cash amount of $0.70 plus the franking credit of $0.30 as income; that is $1.00 to the ATO. The shareholder then pays their marginal tax rate of tax on this $1.00 less the $0.30 franking credit. The shareholder is also then able to use the franking credit of $0.30 to offset their final tax bill.

Dividends may still be paid by a company when it has no franking credits (perhaps because it has been making tax losses); this is called an unfranked dividend. Or it may pay a franked portion and an unfranked portion, known as partly franked. An unfranked dividend (or the unfranked portion) is ordinary income in the hands of the shareholder.

Dividend imputation can be an effective method in reducing income tax. Shareholders should be aware however that there may be “top-up” tax payable on dividends received. The amount of top-up tax payable is dependent upon the level of income of the shareholder has for the relevant financial year and what type of shareholder receives the dividend i.e. individual, another company, trust or self-managed superannuation fund (SMSF).

We have provided examples of the top-up tax applicable for varying income levels and shareholder structures below.

Let’s assume that a company wishes to pay a fully franked dividend of $100,000 to a shareholder. The company’s position is as follows:

The shareholder position in receiving the fully franked dividend now is:

As above, a shareholder can be an individual, another company, a trust or a SMSF. Each of these shareholders has a different taxation treatment which may result in top-up tax being applied. We have illustrated below how this is calculated for a cash dividend paid of $70,000.

In this example we have assumed that there is no other income attributed to each shareholder:

* Trusts do not have a marginal tax rate themselves; instead this is the marginal tax rate applicable to the beneficiaries of the trust. We have assumed that the beneficiary of the trust is an individual.

^ This is calculated by dividing the tax payable by the cash dividend ($2,500 / $70,000 = 3.6%).

You can see that in the event the shareholder is an individual or a trust with individual beneficiaries that top-up tax is payable.

We will now look at the top-up tax rates when varying levels of dividend income are paid to individual shareholders. Again we have assumed that no other income is attributed to the individual:

As illustrated above, top-up tax applies to shareholders when their marginal tax rate exceeds the company tax rate of 30%. In essence, top-up tax applies when the taxable income of an individual exceeds $37,000.

For more information with regard to dividend imputation talk to your tax consultant or financial planner at Level One.

There has been a lot of hype about Self-Managed Superannuation Funds (SMSFs) now being able to borrow to invest in assets, typically property. We thought it high time to provide more information to our clients and explain the benefits as well as the risks with SMSF borrowing arrangements.

SMSFs are normally prohibited from borrowing monies. However, there are some important exceptions to this rule, with one such exception being that the Fund can implement a “SMSF limited recourse borrowing arrangement”. This arrangement gets its name because the rights of the lender against the SMSF trustee are limited if the SMSF defaults on the loan.

While it is true, used in the right circumstances, this strategy can assist members to grow their retirement savings; there are many risks and issues that should be considered before embarking on this strategy.

For example, careful planning is needed to ensure superannuation contributions and the fund’s investment income is sufficient to meet the loan repayments and other existing and prospective liabilities of the SMSF as they fall due. There may also be additional costs associated with acquiring an asset under a limited recourse borrowing arrangement that otherwise do not apply.

SMSF limited recourse borrowing arrangements that do not comply with the law can cause considerable problems for SMSFs and some trustees may not be aware of the serious consequences. Some of these arrangements, if structured incorrectly, cannot simply be restructured or rectified and can result in the SMSF needing to sell the property at a substantial loss.

We have outlined the key benefits and risks with limited recourse borrowing arrangements below.

What is an SMSF limited recourse borrowing arrangement?

An SMSF limited recourse borrowing arrangement typically involves an SMSF taking out a loan from a third party lender, such as a bank, or from a related party, such as a member of the fund. The SMSF then uses the loan, together with its own available funds, to purchase a single asset (normally a residential or commercial property) that is held in a separate trust.

The SMSF trustee acquires a beneficial interest in the asset with the trustee of the separate trust being the legal owner of the asset. The SMSF trustee has a right to acquire legal ownership of the asset by making one or more payments. Any investment income received from the asset goes to the SMSF and if the SMSF defaults on the loan, the lender’s rights are limited to the asset held in the separate trust. This means there is no recourse to the other assets held in the SMSF.

What are the key benefits?

Leverage your superannuation savings – An SMSF limited recourse borrowing arrangement allows your SMSF to borrow for investment purposes. Borrowing to invest or “gearing” your superannuation savings in this manner enables your fund to acquire a beneficiary interest in an asset that your fund may not otherwise be able to afford (it could be a business premise you own or operate your business from). Although your SMSF is not the legal owner of the asset, your SMSF acquires a beneficial interest in the purchased asset, meaning your fund is entitled to receive all of the income (such as rental income) derived from the asset. Your SMSF is also entitled to receive any capital gains when the asset is sold.

Tax concessions – Investment income received by your SMSF, including any income received because your fund holds a beneficial interest in an asset acquired under a limited recourse borrowing arrangement, is taxed at the concessional superannuation rates. If your fund is in the accumulation phase, this means the income received from the asset will be subject to no more than 15% tax. This could result in your fund paying considerable lower rates of tax on the income received compared with owning the asset in your own name or under a company or trust structure. Furthermore, if the income received from the acquired asset is being used to support the payment of one or more superannuation pensions from your fund, the income, including realised capital gains, is exempt from tax in your fund.

Asset protection – Generally superannuation assets are protected against creditors in the event of bankruptcy. This protection extends to assets that the superannuation fund has acquired a beneficial interest in. Therefore, structuring the acquisition of an asset under a limited recourse borrowing arrangement may provide greater asset protection benefits than may otherwise be the case.

What are the key risks?

Only certain assets can be acquired – Only assets that the SMSF trustee is not otherwise prohibited from acquiring can be purchased under a limited recourse borrowing arrangement. Generally, this means assets that you or a related party to the Fund currently own cannot be acquired under a limited recourse borrowing arrangement. However, some exceptions do apply to business premises and listed securities. It is also a requirement that the asset acquired under a limited recourse borrowing arrangement is a single asset. This generally means shares in a single company that have identical legal rights, such as a parcel of BHP shares, or a property that has been constructed on a single legal title. In some situations properties constructed across one or more legal titles can still be considered a single asset under a limited recourse borrowing arrangement but only if there is a physical object (such as a building), or there is a State or Territory Law that prevents the separate legal tiles from being sold separately. If an SMSF acquires an asset that does not meet the above rules, the SMSF trustees may be required to sell the asset at a substantial loss to the SMSF. The SMSF trustees may also be subject to monetary penalties and other sanctions for breaching the superannuation borrowing rules.

Property alterations and funding improvement costs – Assets acquired under a limited recourse borrowing arrangement cannot generally be replaced with a different asset. In a practical sense this means, during the life of the loan, alterations to a property acquired under a limited recourse borrowing arrangement cannot be made if it fundamentally changes the character of the asset. For example, property alterations that have the effect of changing the character of a property from a residential to a commercial property during the life of the loan are not permitted. However, alterations or improvements to the property that have the effect of improving the functional efficiency of the asset, but do not change the character of the asset, are permitted provided they are not funded by borrowed funds. Maintenance and repair costs associated with the acquired asset can be funded from borrowed funds, including a drawdown from the loan used to acquire the asset. SMSF trustees may be subject to monetary penalties and other sanctions if the replacement asset rules are breached.

Cost – There may be additional costs associated with acquiring an asset under a limited recourse borrowing arrangement that otherwise do not apply to an SMSF. For example, an SMSF limited recourse borrowing arrangement requires a separate trust to be established and the drafting of separate legal instruments such as trust deeds and company constitutions (if the trustee of the separate trust is a corporate trustee). Financial institutions may also charge for vetting your fund’s trust deed, and the limited recourse nature of the loan can mean a higher rate of interest.

Liquidity – Loan repayments are required to be deducted from your fund. That means your fund must always have sufficient liquidity to meet the loan repayments. Careful planning is needed to ensure contributions and the fund’s investment income is sufficient to meet the loan repayments and other existing and prospective liabilities as they fall due. This is particularly important if the property is not able to be leased for any period of time, or one or more members are in the pension phase (due to the requirement for the fund to also meet minimum pension payment requirements). Even for members in the accumulation phase, the contribution caps impose limits on the contributions that can be made on a tax concessional basis. This may limit the tax effectiveness of the limited recourse borrowing arrangement if non-concessional contributions are required to fund the loan repayments because the member’s concessional contribution cap has been utilised already. It is also important for SMSF trustees to consider the need for life insurance should one or more contributing members of the fund die. Careful drafting of the fund’s trust deed is required to ensure the proceeds of a life insurance policy, in this scenario, can be used by the SMSF trustee to repay the loan. If the SMSF trustee defaults on the loan, the lender may take possession of the asset and sell the asset with the SMSF trustees receiving the sale proceeds less the outstanding loan amount. If there is a shortfall between the outstanding loan amount and the sale proceeds received, the lender will not have recourse to any other assets of the SMSF. However, a guarantor (if there is one) may be called on to make up the shortfall.

Loan documentation and purchase contract – The Australian Taxation Office has become aware that certain limited recourse borrowing arrangements entered into by SMSF trustees have not been structured correctly. Some of these arrangements cannot simply be restructured or rectified and unwinding the arrangement could require that the property be sold, causing a substantial loss to the fund. To comply with the rules, the asset purchased under the limited recourse borrowing arrangement must be acquired in the name of the Security Trust with the SMSF trustee acquiring a beneficial interest in the asset pursuant to the terms of the Security Trust Deed. The terms of the loan must be on a limited recourse basis with the lender having no access to assets of the Fund if the SMSF trustee defaults on the loan.

Tax losses and capital gains – Any tax losses which may arise because the after-tax cost of the property exceeds the income derived from the property are quarantined in the Fund. This means the tax losses cannot be used to offset your taxable income derived outside the Fund. Similarly, the value of a property acquired under a limited recourse borrowing arrangement cannot be used as security for other loans, meaning the value of the property, including the equity built up over time, cannot be used to purchase further properties outside the Fund.

Governing rules and other matters – Trustees should always consider the quality of the investment they are making and whether entering into a limited recourse borrowing arrangement is consistent with the investment strategy of the fund. The governing rules of an SMSF must allow the trustee of the fund to borrow before any limited recourse borrowing arrangement can be entered into. Investments that are not consistent with the fund’s investment strategy, or are not permitted by the fund’s governing rules, could result in an action for recovery of loss or damage suffered by a person with a beneficial interest in the fund.

As illustrated above, the law here is complex and should not be taken lightly.

If you would like to learn more about SMSF limited recourse borrowing arrangements, and the benefits and risks specific to your circumstances, please contact us.

At its meeting today the Reserve Bank of Australia (RBA) decided to cut the cash rate by 0.25%. This brings the cash rate to 3.00% – the lowest the cash rate has ever been and on par with the GFC rate back in April 2009.

The RBA’s decision rides on the back of modest economic growth and a decline in commodity prices. Governor Glenn Steven’s stated that “the board judged at today’s meeting that a further easing in the stance of monetary policy was appropriate now”.

“This will help to foster sustainable growth in demand and inflation outcomes consistent with the target over time”.

The majority of economists were not surprised by the rate reduction.

Now all eyes are on the banks to see if they will pass on at least some of the cut.

Despite the reduction today, Australia’s rates are still some of the highest in the developed world. The USA and the UK have rates nearly at zero and subsequently have resorted to emergency steps to stimulate their economy such as buying large sums of government debt.

More rate cuts are tipped but its anyone’s guess. We will keep you updated.

Investor Daily

ASIC unveils new investment research guidance Samantha Hodge

Tue 11 Dec 2012

ASIC has released updated policy guidance to improve the quality and reliability of research reports.

The updated Regulatory Guide 79 ‘Research report providers: Improving the quality of investment research’ (RG 79) aims to help research providers better comply with their legal obligations under the Future of Financial Advice (FOFA) reforms.

ASIC will conduct targeted surveillance of research report providers to assess compliance with the updated guidance, measuring both broad compliance as well as discrete issues such as conflict of interest management.

The guidance applies to research analysts, securities analysts or research houses and other research providers for investment products.

It aims to tackle issues surrounding managing conflict of interest; quality, transparency and robustness of the research process; and the ability of users to form a view about the research’s quality and reliability.

“In recent times, there have been serious concerns about the quality of research issued by research providers, particularly in light of various investments failures that had been rated highly,” ASIC commissioner Peter Kell said.

“Research report providers are important gatekeepers in the financial services industry, standing between product issuers and the investors who purchase investment products either directly, through advisers or through their super fund.

“It is particularly important for research providers to manage conflicts of interest that may affect the ultimate research rating.

“We have undertaken extensive consultation with the industry and broader investment community to produce guidance that will facilitate credible and reliable research but also makes clearer its limitations to the user,” Mr Kell said.

RG 79 also sets out ASIC’s expectations that research providers effectively manage conflicts of interest so as to limit their impact on the integrity of investment research.

In some cases, conflicts can be managed with robust processes and controls while in others, the conflict is so significant that it cannot be managed. In such circumstances, ASIC expects the conflict to be avoided entirely.

“If standards do not improve, ASIC will revisit the regulation of research report providers and consider whether specific law reform is needed,” Mr Kell said.