April 2019 | Investments

You may have seen a lot of press lately surrounding Labor’s proposed polices targeting franking credit refunds, negative gearing and pension thresholds.

We just wanted to let you know that AAG are across these issues, including some rather creative solutions from financial journalists. In particular, there was an article in the West Australian recently about buying a Porsche, going on expensive holidays and other ways to blow your money to meet Centrelink Rules.

Let’s just start out by saying that if you blow your retirement cash to buy a Porsche, so that you can qualify for a Centrelink pension, you probably won’t be able to afford to service it or buy a new set of tyres. Or if you take a luxe holiday, you may not have any spending money.

Don’t make any decisions until you have all the facts. Let’s just wait and see what actually happens.

Just to refresh you, please click on these links for our take on the proposed changes – Part 2 directly addresses shares:

We have attached a Table extracted from a Colonial First State paper on franking credits. You will note that those in the 0%-20% tax brackets will be the hardest hit, while those with tax rates above 32.5% never received a refund anyway. For the full article, click on this link:

Labor Dividend Imputation Announcement

Please contact us if you are uncertain (or terrified) of what might lie down the track, that’s what we are here for.

We will adapt and carry on – just like we did last year, just like we will do next year.

Important information and disclaimer

This publication has been prepared by AustAsia Group, including AustAsia Financial Planning Pty Ltd AFSL License No 229454.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

Information in this publication is accurate as at the date of writing, 8 April 2019. Some of the information has been been provided to us by third parties. Whilst it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.

Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility, for any errors or omissions in this document.

Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.

March 2019 | Investments

Picture this: you scrimp, you save, and finally the day you’ve been waiting for arrives. Today is the day you get your new car. What’s the first thing you do before you even drive it out of the dealership? Yes, you insure it. There’s no way you’d risk anything happening to it, would you?

Isn’t it interesting how most of us don’t think twice about insuring our possessions, but when it comes to ourselves, we hesitate? The irony is this: if something happened to you – an accident which stopped you working, for example – you’d lose all those possessions anyway. Not to mention the strain you and your family would undergo trying to afford medical expenses, mortgage repayments and simple things like grocery bills.

Personal Insurance is one of the best ways to ensure against problems like those listed above; it’s one of the best ways to protect your loved ones. Yet, as a nation we are seriously underinsured. Consider these statistics:

  • 6 out of 10 Australians with dependent children do not have sufficient Life Insurance cover to look after their loved ones for more than one year if they were to die.1
  • 96% of Australian families lack enough Life Insurance to protect their families for 10 years or more.2
  • Only 4% of Australian families are adequately insured.3
  • Australians are underinsured to the tune of $1,370 billion.4

However, we know Personal Insurance can seem confusing and complicated. That’s why we’ve created this simplified guide.

Life Insurance

Life Insurance is also known as ‘Term Life Insurance’, ‘Life Cover’ or ‘Death Cover’. It provides peace of mind by ensuring your loved ones are looked after in the unfortunate event of your death. In that situation, a lump sum or the equivalent amount in instalments would be paid to the policy owner, nominated beneficiaries or to your estate.

Why you need it

Life Insurance becomes necessary when you have dependants who rely on you financially, or if you have debts which need to be repaid upon your death. Immediate expenses to take into account include:

  • Medical or hospital costs
  • Funeral costs
  • Mortgage and/or other debts
  • Ongoing income for your dependents.

Is it necessary?

Only you can decide what is right for you, however please consider the following:

  • 90% of Australian adults have at least one modifiable risk factor for heart, stroke and vascular disease.5
  • Stroke is Australia’s second biggest killer. Nearly 500,000 Australians will suffer at least one stroke over the next 10 years.6
  • 1.1 million Australians are disabled long term by heart, stroke and vascular disease.5

Total and Permanent Disability Insurance (TPD)

Total and Permanent Disability Insurance (TPD) can be added to your Life Insurance policy. It provides a lump sum payment or equivalent instalments in the event that you become permanently disabled, as defined in the policy. Generally, a permanent disability means you can’t work in your current occupation or a job you have trained in, studied for, or previously worked in. It’s important to read the fine print because various definitions apply to TPD Insurance. Your financial adviser is the best person to help you decide which option is best for you.

Why you need TPD Insurance

TPD Insurance helps to eliminate debt, pay for treatment and maintain your lifestyle while you focus on adjusting to what may be a very different lifestyle. It’s especially relevant for people with dependants – particularly if only one spouse earns an income – and for people with mortgages and other significant debts which they couldn’t pay with savings alone.

The facts:

  • For each road death, there are about 13 serious road injuries – many with long-term impacts.7
  • Only 4% of 30-something Australians with children have adequate Insurance cover.1
  • 1.1 million Australians are disabled long term by heart, stroke and vascular disease.5

Trauma Insurance

Similarly, Trauma Insurance can be added to your Life Insurance policy. This Insurance provides a lump sum benefit or equivalent instalments if you’re diagnosed with a specific illness or injury covered by the policy (such as cancer, stroke, heart disease, blindness, severe burns, loss of speech or deafness). The benefit amount, chosen by you, can be used to reduce debts, pay for medical expenses and maintain your lifestyle while you recover.

Why you need Trauma Insurance

As with TPD Insurance, Trauma Insurance is especially relevant for people with dependants, particularly if only one spouse earns an income. Consider the consequences if that person became seriously ill and was unable to work. How would their family cover mortgage repayments and everyday expenses, not to mention medical costs for treatment and rehabilitation? Trauma Insurance protects you against this scenario. It may even allow you to make permanent lifestyle changes like returning to work part-time.

The facts:

  • One in three Australian males, and one in four females, can expect to be diagnosed with cancer before age 75.8
  • Death rates are falling for many of our leading health concerns, such as cancer, heart disease, strokes, injury and asthma. This means more and more people are having to live with ongoing illness and/or disability.9
  • On average, households (in NSW) can expect to incur approximately $47,200 in financial costs after a member of that household is diagnosed with cancer.10

Income Protection Insurance

As the name suggests, Income Protection Insurance is the best way to protect your current income if you are unable to work due to illness or injury. Income Protection Insurance pays up to 75% of your gross annual income, in monthly payments, to cover your living expenses. Income Protection Insurance has waiting and benefit periods that can be designed to suit your specific needs and the premiums are generally Tax Deductible.

Why you need Income Protection Insurance?

While we readily consider insuring our possessions like the house and car, we often neglect to consider the need to protect our ability to earn the income that is essential to meet our daily living expenses.

You should consider Income Protection Insurance if you have:

  • Debts, such as mortgage, credit cards or personal loans. If you were unable to work due to sickness or injury and your income stopped, how could you continue meeting your repayments?
  • The need for regular income to pay ongoing family expenses such as food, household bills, rates, school fees or running a motor vehicle.

The facts:

  • There are more than 2 million working age Australians with a disability.11
  • In 2014-15, almost 110,000 Australians were seriously injured at work.12
  • 690,000 Australians were injured at work in 2005-06, with 43% receiving no form of financial assistance.13

Business Insurance

Business Insurance, which offer includes Key Person Insurance, is designed to cover and protect key elements within a business. No matter what the size of the organisation, Business Insurance is important in the event of an unforeseen adverse situation as it helps to keep the business operating while decisions and changes are made.

Key Person Insurance, which may form a part of a Buy/Sell Agreement, provides funds to enable business owners/partners to buy out the financial interest of an ill, injured or deceased business owner/partner. It can also:

  • Replace lost business income
  • Replace potential lost profits
  • Repay a business debt
  • Maintain cash flow to cover the cost of replacing and training new key person/s.

Business Expenses Insurance

Business Expenses Insurance is available to certain self-employed persons who wish to cover their fixed business expenses should they be unable to work because of illness or injury. Business expenses that can typically be covered include essential fixed costs such as:

  • Rent
  • Loan repayments
  • Equipment leasing costs
  • Utility expenses.

For more information, please contact us on (08) 9227 6300 or

Sources

1 ‘Life and risk sales up’ IFSA April 2007

2 ‘Analysis of insurance needs’ Rice Walker Actuaries May 2005

3 ‘Australian mothers – undervalued and underinsured’ IFSA October 2005

4 ‘Fast Facts; A nation exposed’ IFSA August 2005

5 ‘Heart, stroke and vascular disease, Australian facts 2004’ Australian Institute of Health and Welfare 2004

6 ‘Walk in our shoes; Stroke survivors and carers report on support after stroke’ National Stroke Foundation 2007

7 ‘National Road Safety Action Plan 2007/08’ Australian Transport Council 2007

8 ‘Cancer in Australia; an overview 2006’ Australian Institute of Health and Welfare 2007

9 ‘Australian’s health 2008’ Australian Institute of Health and Welfare 2008

10 ‘Cost of Cancer in NSW’ Access Economics Report for the Cancer Council NSW April 2007

11 ‘Disability Facts and Statistics’ Diversity@work 2008

12 https://www.safeworkaustralia.gov.au/statistics-and-research/statistics/disease-and-injuries/disease-and-injury-statistics

13 ‘Australian social trends 2007’ Australian Bureau of Statistics August 2007

Important information and disclaimer

This publication has been prepared by AustAsia Financial Planning Pty Ltd AFSL 229454.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

Information in this publication is accurate as at the date of writing, 8 March 2019. Some of the information may have been provided to us by third parties. Whilst it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.

Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility, for any errors or omissions in this document.

Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.

February 2019 | Investments

Here’s a confronting question: what would you do if the main breadwinner in your household could no longer bring in an income? Do you have a Plan B? Most people don’t. That’s where insurance comes in.

Curveballs. They’re unexpected, often deceptive and it’s impossible to predict their trajectory. That’s why they’re so devastating – in sport and in life. There’s some interesting data available about the kind of curveballs that can impact your life, your finances and your retirement.

The headline figure is this: one in three Australians could be disabled for more than three months before turning 651. If you combine this with another startling fact – that 60% of Australian families with dependents will run out of money if the main breadwinner can no longer bring in an income – you can see the problem. Curveballs are pretty common, but so few people are prepared for them.

With the mortgage to pay, school fees to fund and day-to-day living expenses to meet, you could run down your savings very quickly and face financial difficulty.

The table below shows what’s at stake in terms of potential earnings to age 65. For example, if you are currently 45 and earn $80,000 per annum, you could earn around $2.15 million over the next 20 years. Isn’t that worth protecting?

Current Income (per annum) Age Now
25 35 45 55
$40,000 $3,020,000 $1,900,000 $1,070,000 $460,000
$60,000 $4,520,000 $2,850,000 $1,610,000 $690,000
$80,000 $6,030,000 $3,810,000 $2,150,000 $920,000
$100,000 $7,540,000 $4,760,000 $2,690,000 $1,150,000

Assumptions: Income increases by 3% per annum. No employment breaks. Figures rounded to nearest $10,000.

What kind of Plan B do you need?

The last thing you need to worry about when you’re dealing with a curveball is your finances. That’s where insurance comes into its own. It’s a well-known saying that you only realise the value of insurance when you need it – and you don’t have it.

Taking out Income Protection insurance could provide you with a monthly benefit of up to 75% of your income to replace lost earnings while you recover from an illness or injury.

Most Income Protection policies offer a range of waiting periods before you start receiving the insurance benefit (with options normally between 14 days and two years). You can also choose from a range of benefit payment periods, with a maximum cover generally available up to age 65.

Other things to consider

  • Income Protection insurance premiums will generally be lower if you choose a longer waiting period and shorter benefit payment period.
  • If you don’t have sufficient cash flow to fund the Income Protection premiums, you may want to arrange the cover in superannuation, where the cost will be deducted from your account balance.
  • If you maintain Income Protection insurance outside of your superannuation, your premiums may be tax-deductible.
  • Other curveballs you may want to insure for include critical illness (such as cancer and stroke), total and permanent disability and death. These curveballs can be covered by different types of life insurance, which you may want to consider.

To find out more please contact us on (08) 9227 6300 or .

1 Calculations based on data from the Institute of Actuaries of Australia 2000. Interim Report of the Disability Committee. IA Aust: Sydney.

Important information and disclaimer

This publication has been prepared by AustAsia Group, including AustAsia Financial Planning Pty Ltd AFSL License No 229454.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

Information in this publication is accurate as at the date of writing, 15 February 2019. The information has been provided to us by a third party. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.

Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.

Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.

February 2019 | Investments

In years gone by, the greatest asset for many Australians was their family home. These days with compulsory and voluntary super contributions, your greatest asset could one day be your super.

There are currently no representatives in parliament specifically mandated to stand up for your superannuation dollars or to help protect that “nest egg”.

So, even if you don’t have a Self Managed Superannuation Fund (SMSF) you may be interested in the following information on The SMSF Party because in our opinion, the underlying issues are relevant to everyone with superannuation.


The SMSF Party

For those of you that have already become a member of The SMSF Party – Thank you. We have been inundated with support over the last few days and are now very close to being able to submit our official party registration with the Australian Electoral Commission. We hope to reach in excess of our target numbers over the weekend, but to do that, we need your help.

If you are not yet a member, you can register by clicking here or read on, let’s see if anything resonates.

There is no doubt that SMSFs are a big part of the economy and a favoured savings vehicle for those who seek to be self-funded in retirement. With $1 trillion expected to be in the sector by 2022 – SMSFs are now the third largest combined pension system in the world. But loud calls are being made by the Labor Party, Treasury, the ATO and many economists to have the tax concessions for super shaved and given a serious haircut.

For existing SMSF members and superannuants, retrospective and immediate changes like the Coalition government imposing a $1.6M Pension Transfer Balance on existing pension balances is unsettling and in short, extremely unfair. With a possible incoming Labor Government seeking to reduce non-concessional contributions to $75k, getting rid of the five-year concessional contribution averaging, knocking out refundable franking credits and a possible lowering of the pension transfer balance cap – there is a need for not only protection of existing superannuation benefits but a promise of not making further changes. Once retired, the last thing a retiree needs is a change to their retirement income stream, particularly self-funded retirees who have chosen to look after themselves rather than rely on the aged pension.

Well before the Labor Party proposals, which have created great furore, we did a lot of surveys and research of SMSF members. This is some of the real feedback:

“Please do not change current arrangements with respect to lump sum withdrawals without penalty. Respect the fact that many self-funded retirees have provided for themselves without being on above-average salaries/wages by being very frugal and undertaking often less than pleasant employment in order to maintain themselves and their families.”

“Do not make any changes to the current SMSF rulings that will disadvantage retired and those nearing retirement. We have worked hard over many years to contribute to our funds in order to be completely self-funded in retirement, thereby saving the government and community many thousands of dollars in pension payments. We appreciate the benefits the Howard government provided and this is how we repay that advantage.”

“The government and the opposition need to get together and create an independent commission to look after super. Plus future policies should only be made with bipartisan agreement. You cannot trust any one party with the vast wealth of the super industry.”

It was always considered that associations would be able to sway government votes. But that is clearly not the case. Sure, they make submissions but the power is always held in the government and more importantly, votes. Let’s be realistic, the Labor Party will always go out of its way to foster, grow and protect Industry Super Funds. Why do you think the refundable franking credit issue was put on the table with the stopper that if it is a concern, move to an Industry Super Fund.

I ask you when was the last time anyone in government really understood, let alone stood up for SMSFs?

My frustration is that of many and having sat on the outside of government with no effect, there is a need for an SMSF Party. I honestly wished that the Coalition stood up for SMSFs but with aged-based limits for over 50s of $107,000 a decade ago now diminished to a mere $25,000, the jig is up. And don’t think the pension TBC will remain at $1.6M. Look at the high-income earners surcharge on super contributions. It started at $300,000, then Morrison moved it to $250,000 and Labor has proposed it to go to $200,000.

But the SMSF Party is not just about saving tax concessions; it is also about using the financial and economic power of SMSFs to help the economy. Continuing to share this message is of absolute importance for the Party and it’s members – so if there is anyone that you think would like to get on board, please direct them to our member registration page here. Consider some of these ideas that could be put forward as potential platform issues for The SMSF Party:

Long Term Infrastructure

Drive around the cities and it is clear that there is a need for significant infrastructure spending and the governments are not committed to that spend in any meaningful way. On the other side, there is more than $200 billion sitting idly in SMSF cash. In a survey of SMSF Trustees we asked the following question:

If the government provided a long term bond – 10+ years, that was used to provide infrastructure investment across Australia, given the right terms and conditions would you invest?

It may come as a surprise for many but SMSF Trustees crave for long-term secure cash flow and if targeted, genuinely to nation building. The response to this question was 74% positive and we are talking about actual investment not just whether it is a good idea.

Solving the Housing Affordability Crisis

The housing affordability crisis is one that is not going to go away. Government and councils are moving as fast as they can to get new stock but the entry level pricing in the major capital cities is frightening. There are many parents who either have their children living with them while they are trying to save for retirement or have to use non-super savings to help or provide a deposit for their child. With more than one child that is a significant financial burden.

I have proposed in the past that a parent’s SMSF may, with the appropriate regulatory and payment safeguards, be used to partially fund a first home purchase for a lineal descendent.

Sure, it will take a lot of work to implement but it solves one big problem.

The Next Survey: Regional Development

Many SMSFs are in regional Australia and their members have seen many towns being ravaged by urbanism as their children move off the land leaving generations-held farms in danger of leaving the family. It is important to safeguard our food bowl and that is an area where a regional development fund could step in and offer attractive bonds to SMSF investors.

These are just some big ideas and I am sure that if we put the power of SMSFs to work in a favourable government climate we can really make them the greatest show on earth.

And finally, it’s not just about retirees, or “The Grey’s” as we have heard being thrown around this week. During and post the GFC, we saw a new brigade of young members left their commercial and union funds to do their own SMSF. I’m proud of them and it will happen again despite Labors disastrous super policies.

Become a member of The SMSF Party, share and forward this message to anyone you think may be impacted, and lets work together to hit the government where it counts.

Register: www.thesmsfparty.com

Grant Abbott, Party Leader


Important information and disclaimer

This publication has been prepared by AustAsia Group, including AustAsia Financial Planning Pty Ltd AFSL License No 229454.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

Information in this publication is accurate as at the date of writing, 8 February 2019. The information has been provided to us by a third party. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.

Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, not accept any responsibility for errors or omissions in this document.

Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.

February 2019 | Investments

Given the financial demands of everyday life, planning your retirement may be a relatively low priority. You may also think that you have plenty of time to plan. But before you put off planning for your retirement any longer, here are some key facts you should consider.

Your retirement could last 30 years or more

A male currently aged 65 has a future life expectancy of 19 years and for females currently aged 65 it’s 22 years1. But these are just the averages and they are increasing steadily. As these trends continue, your retirement could stretch to three decades, or maybe even longer.

You shouldn’t rely on the age pension

The full single rate age pension only provides around 25% of average weekly earnings. Furthermore, qualifying for the age pension may become more difficult in the future, given our population is ageing. Relying on the Age Pension leaves you in the hands of federal Government legislation, and we all know that legislative change can limit what you might receive by way of an Age Pension. Besides which, you really need to be asking yourself if the Age Pension is sufficient to cover, or help cover, your living expenses in retirement.The current maximum Age Pension with supplements, for a couple owning their own home, is $690.70 per fortnight per person. Will this be enough to live the retirement you dream of?

You shouldn’t rely on an inheritance

Your parents may end up spending all their savings and may even need to downsize their home to help make ends meet. So, if you’re relying on an inheritance to fund your retirement, you could be disappointed.

You might not have enough super either

With some of your money going into super through compulsory employer contributions, you’re off to a good start. But, assume that those employer compulsory contributions alone will mean you have enough super to get you through your retirement and you could be in for a nasty surprise. Research conducted by Rice Warner Actuaries revealed that Australia has a shortfall in super of close to $1 trillion2, which means many Australians may not have enough super to fund their retirement.

Start planning now

Have you ever heard the saying, “prior preparation prevents poor performance”? Nothing is more true when looking toward preparing, or planning for your retirement.

Thankfully, with a bit of preparation, it’s possible to plan for a long and comfortable retirement. Strategies such as making personal deductible contributions, salary sacrificing into super, making lump sum contributions or using a transition to retirement strategy are all smart strategies to consider to boost your super, and some of them generally have tax benefits too. It’s also possible to use your super to start a pension that pays you a regular income. Some pensions even guarantee to pay you an income for the rest of your life, negating the risk of outliving your savings.

Talk to a retirement planning expert

The best way to see how your retirement savings are currently tracking, and find out what you could do now to increase your super for retirement, is to speak to an AustAsia financial adviser. We can help you set realistic goals and put a plan in place to achieve them.

To find out more please contact us on (08) 9227 6300 or .

1 Australian Bureau of Statistics, November 2013.

2 Rice Warner Savings Gap at 30 June 2014.

Important information and disclaimer

This publication has been prepared by AustAsia Group, including AustAsia Financial Planning Pty Ltd AFSL License No 229454.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

Information in this publication is accurate as at the date of writing, 7 November 2018. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.

Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, not accept any responsibility for errors or omissions in this document.

Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.

October 2018 | Investments

US markets have dropped over 5% in two days, should I sell?

The Dow Jones gave up another 500 points in overnight trading, on top of 800 points yesterday, and the broader S&P 500 and technology Nasdaq have given up more. Do I sell? Well, no, and here are the reasons why:

Firstly, this sell off is linked to ridiculous over-buying of the FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) and Microsoft, which at one stage this year were, as a group, responsible for most of the US stock market’s rise.

The FAANG gang accounted for 81% of the S&P 500 return this year. Adding Microsoft to the mix, you get six stocks (“FAMANG”) that account for the entire YTD return of the S&P 500.

As these companies cop an overdue recalculation of their worth, the market has to go down with them. But to keep this in perspective, a stock like Netflix yesterday was down 21% from its recent high, but was still up 70% for the year!

What’s going on now is the over exuberance taking a break, but these stocks won’t fall to nothing (like a lot of tech stocks in the dotcom crash) because they are real companies with huge revenues.

Keep in mind that the US keeps making new record highs, and so is due for a decent correction.

Secondly, after so much optimistic buying, there has to be a period where the sellers get to dominate. After the market slips 10% or so, and once overpriced stocks look like good value, rebuying starts.

A major correction in the asset markets has been building for a while. There have been 10 years of economic growth since the great financial crisis of 2008 and a bull market in stocks of pretty much the same length. That’s a long time in terms of economic cycles, and we were overdue for a “reversion to the mean,” as statisticians say.

It may feel like we’ve been thrown out of a moving car (it hurts), but that’s because the 3rd quarter was one of the least volatile quarters since 1963.

According to Peter Switzer we won’t see a quick rebound for a number of reasons:

  1. The trigger for this sell off was “how fast will interest rates rise and how much will the rise be?” President Trump blames the Fed chairman, his appointee – Jerome Powell.“It’s a correction that I think is caused by the Fed and interest rates,” Trump said from the Oval Office. “The dollar is very strong, very powerful – and it causes difficulty doing business.” (CNBC) His view is shared by the market that monetary policy looks like it might end up being tighter than expected.

    Even with his best or worst efforts (depending on your point of view), the Fed won’t delay rate rises and risk excessive inflation because that could eventually mean that bigger and faster rate rises would be necessary. There are no hard and fast rules when it comes to monetary policy, so it’s a ‘suck it and see’ thing when it comes to rate rises. The President could be wrong but he could be right!“It’s a correction that I think is caused by the Fed and interest rates,” Trump said from the Oval Office. “The dollar is very strong, very powerful – and it causes difficulty doing business.” (CNBC) His view is shared by the market that monetary policy looks like it might end up being tighter than expected.Even with his best or worst efforts (depending on your point of view), the Fed won’t delay rate rises and risk excessive inflation because that could eventually mean that bigger and faster rate rises would be necessary. There are no hard and fast rules when it comes to monetary policy, so it’s a ‘suck it and see’ thing when it comes to rate rises. The President could be wrong but he could be right!

  2. As the FAMANG story showed, a correction was on the cards. But should this turn into a crash? A 10% (or so) fall is a correction, when the market gets a dose of realism on stock prices. A crash signals that a bull market has surrendered to the bears and that starts when the market gives up 20% or more.
  3. If the US economy was slowing and company profits were under pressure, then he’d be keen to get out of stocks. But the opposite is the case. However, the China versus Trump trade war is starting to raise questions about profits of some companies being affected. The tariffs could also affect prices and then spark inflation, and the bigger US budget deficit is also suggesting that interest rates might have to go higher because of the President’s pro-growth policies.

Over the years of trying to interpret the collective mentality of the key drivers of stock prices, Switzer says he has learnt not to believe good sense will prevail in the short term.

Of course, as long-term investor, I’m hoping my analysis above is right and I’ll be able to pick up some great companies at very good prices. And one thing I must add (and I’ve referred to this before), I’ve never had to make predictions on stock markets with someone like Donald Trump running the world’s biggest economy.”

Let’s get some perspective

Today (at the time of writing) our market is down 5 points (0.1%) – a very mature reaction. We dropped 170 points yesterday (2.8%).

The wildcard is the worsening trade war between US and China which is, in fact, a worry for us all.

If you’re looking for someone to blame, here’s a list:

https://www.businessinsider.com.au/why-global-markets-are-collapsing-and-who-is-to-blame-2018-10?r=US&IR=T

What’s Next?

Friday, thankfully. But we are only in the first trimester of October and there is a midterm election coming up in the US in less than a month. That will add more volatility to the mix.

Ryan Detrick on midterms and markets:

  • Stocks tend to do very well after midterm elections. The average 12 month gain from the lows in a midterm election year is over 30%, and since 1946 the S&P 500 has never been down 12 months following midterm elections;
  • Pullbacks are normal. Even though stocks tend to average a 7-8% gain each year, they also tend to have three to four pullbacks each year (5-10% drops) and at least one 10-20% correction. We’ve had both earlier this year but history tells us we may get more.

In Conclusion

Keep in mind that we are investing for the long term, so market volatility and corrections are normal. If you are a long-term investor you have to be able to handle the dips and the rips.

For those on our Premium Investment Portfolio Service (PIPS), you will receive your full, detailed Quarterly Report and Review shortly, that will give further insight into these, and other, issues. If you’d like to know more about PIPS, please contact us.

In the meantime, if you’re looking for more material, here are some links:

https://www.livewiremarkets.com/wires/market-timing-why-it-s-in-our-too-hard-basket

https://www.livewiremarkets.com/wires/timing-is-everything

This White Paper is general in nature only and not intended as advice. All information and views expressed in this White Paper are correct at the time of publishing, 12 October 2018.

August 2018 | Investments

Following on from the Royal Commission, we have had many clients ask us what are the key differences between Shares, Exchange Traded Products (ETPs) and Traditional Managed Funds?

In a nutshell:

  1. Shares are listed and traded on the market;
  2. ETPs are listed baskets of shares or other assets & traded on the market; and
  3. Managed funds are unlisted baskets of shares or other assets managed internally by fund managers. The relevant fund manager buys or sells assets, usually on markets, and reports on the overall value of the investments.

We attach a Summary Comparison Table outlining the main differences that we thought would interest you.

Summary Comparison Table

If you would like further information, please contact us.

February 2018 | Investments

It is with regret that we advise that Brett Catterall is leaving AustAsia Group (“AAG”).

We look forward to continuing our relationship with you and assure you of our ongoing service and support.

As you may be aware, AAG is an integrated Financial Services house, incorporating not only a full suite of Financial Planning services, but also accounting/taxation, finance broking, real estate and our own legal division, to ensure that we are across not just our clients’ current financial issues, but any matters that may ultimately affect their entire financial world.

Essentially, we are a one stop shop, striving to assist, guide and drive your financial objectives.

If you would like to call or make an appointment with Simon Chesson, Denise Locantro or another Team member, please call us on (08) 9227 6300 or contact our Client Services Team at to arrange a suitable time.

February 2018 | Investments

Markets are tumbling, what should I do?

First of all, we need to get some perspective. So, let’s turn down the noise and look what is happening, without emotion.

To appeal to most types of investors, we have divided this White Paper into three parts:

  1. A Dot Point Summary of the issues for those who just want us to get to the point without all the detail;
  2. All the Detail; and
  3. In Conclusion, with a link to Dr Shane Oliver’s Report on the “Correction Time for Shares?” (Dr Oliver is AMP Capital’s Head of Investment Strategy and Chief Economist).

Part 1 – Dot point summary

  • Global markets have been crunched, following US markets down.
  • US markets are overdue a decent correction.
  • In 2017, the world’s major economies grew in unison for the first time in about a decade.
  • The US is still the largest economy in the world and any ramifications will have a ripple effect around the globe, but global growth is still strong.
  • Healthy growth is forecast for the world’s four biggest economies – the US, China, Europe and Japan. The IMF has forecast global growth of 3.9% for 2018.
  • The fundamentals are sound, but it is difficult to “buy” when fear abounds, which is exactly the time that you should be buying.
  • Any short-term market movements are emotional roller coasters that create buying opportunities. Price matters at precisely two times – when you buy and when you sell.
  • At AAG we have an old saying:
    Turnover and sales are vanity, profit is sanity, but cashflow is always king.
    So buy good dividend paying stocks, the gift that just keeps giving.
  • Your long-term investment goals don’t change just because of short-term exaggerated market movements.

So don’t waste the downturn. Roll up your sleeves, put on your flak jacket and let’s get to work!

Part 2 – All the detail

Global market are tumbling following the US, not because of any inherent structural problems.

Following a decent leap in US wage growth last week, bond yields have lifted. In turn, last night’s plunge in the US has triggered a further sell down in global markets, pushing bond yields even higher as the flight to safety continues.

The rise in US wages growth, has fuelled inflationary fears in the US, not the world. And while US wage growth may well be lifting, it’s still coming from a low base.

According to Dr Shane Oliver, the US share market “is long overdue a decent correction. This now appears to be unfolding and may have further to go as higher inflation, a slightly more aggressive Fed and higher bond yields are factored in”.

In 2017, the world’s major economies experienced synchronised growth for the first time since 2007.

Global economic conditions have improved and the outlook for the global economy remains relatively strong. The IMF has revised the global growth forecast for 2018 to 3.9%, up from 3.7% in October. Healthy growth in GDP is forecast for the world’s four biggest economies – the US, China, Europe and Japan. Europe should continue to perform well as it absorbs the slack created during the GFC.

The European Central Bank (ECB) has indicated more confidence in the growth outlook, but is still waiting for “a sustained upward trend” in inflation. So the ECB is likely to remain supportive for Eurozone shares and negative for the Euro for some time to come.

Years of growth downgrades have given way to upgrades as the post-GFC hangover has given finally given way to more self-sustaining growth. Just as the growth downgrades were associated with falling inflation, ongoing monetary easing and falling bond yields, the upgrades are likely to eventually give way to rising inflation, gradual monetary tightening and further increases in bond yields.

Solid global growth should continue to underpin a recovery in corporate profits.

Overall US companies posted higher-than-expected earnings with solid growth and contained costs. Importantly, US companies are enjoying both strong top line (i.e. sales) and bottom line (i.e. earnings) results and earnings expectation for Q1 2018 are also being revised upwards. Internet giants recently surged on strong results as US stocks reached unprecedented heights.

After the US Congress slashed the corporate tax rate from 35% to 21%, another theme that may emerge in the US is “infrastructure spending” with President Trump expected to talk up big spending plans.

The US Federal Reserve (the Fed, who sets interest rates in the US – the equivalent of our RBA) is expected to lift interest rates several times this year. The next one is due next month as they have all but flagged. This is not new news!

Increasing interest rates historically have led to a to a sell-off in bonds, pushing yields up, and a higher currency.

“Overall, we are still not seeing the signs of excess, euphoria and exhaustion that typically come at cyclical economic and share market peaks ahead of recessions and deep bear markets” Oliver says.

Extended bear markets usually occur after extended periods of euphoria, but people you meet in the street have definitely NOT been euphoric.

“Risk off” has invaded markets as volatility (up and down price movements) has surged and emotions run high.

Just because market volatility has escalated, the potential to earn impressive, long-term capital gains and good dividend income (that historically always eclipse returns on term deposits and cash) still remains.

Corrections may provide a wonderful opportunity to purchase more quality shares at a discounted price, as volatility is the friend of the long-term investor.

How long will it last?

We don’t know how far or how long it will take but markets historically always have recovered, and when they do, the crucial buying opportunity will be gone – there will still be opportunities, but just not as good.

Market corrections are just that, corrections, not a time to move to Byron Bay as the world as we know it is ending (although any move to Byron Bay wouldn’t be all bad).

Focus on quality and cashflow, don’t speculate. While the price of a share will certainly fluctuate, the value of a company’s future cash flows is likely to be far less volatile. No matter what asset class you are invested in, price matters at precisely two times – when you buy and when you sell. The return on an investment depends on these prices and the income/cashflow you receive over the investment period.

That is not to say asset price volatility doesn’t matter. For example, self-funded retirees being forced into selling at a temporarily reduced price in order to fund their lifestyle isn’t an attractive proposition. For this reason, we emphasise the importance of maintaining and monitoring cashflow.

In conclusion

Markets are generally driven by fear and greed. To get ahead of the game, you must

  • “buy when nobody else wants to” = fear of the market;
  • “sell when nobody else wants to” = greed will fuel inexplicable buying.

At AAG, our investment philosophy has always been to source quality income paying investments that are sustainable in times of economic or political upheaval. Focusing on income allows an accumulation of funds to invest for your future. Please click on this link to access our White Paper on Investing (dated September 2016): us4.campaign-archive.com/?u=f4dc4151a2b3f61269dcd342c&id=72648695ec

So don’t waste the downturn, let’s get to work and rise above the headlines! Take a deep breath and remember:

  1. Skilled investors stick to their flight plan – stay the course and stay on target;
  2. Cashflow is king. Look for gifts that keep on giving in the shape of dividend income paying streams;
  3. Don’t waste any downturn – history has shown them to be only temporary;
  4. Opportunities are always there, sometimes they just require a closer look; and
  5. Have realistic market expectations.

Please contact us if you would like to discuss your investment options or if you would like further information or clarification via email at or call us on 08 9227 6300 and ask for the Investments Team.

Finally, as promised, please click on this link to access Dr Shane Oliver’s Report on the “Correction Time for Shares?”: www.ampcapital.com.au/article-detail?alias=/olivers-insights/february-2018/correction-time-for-shares&utm_medium=email&utm_source=ampc&utm_campaign=olivers-insights

This White Paper is general in nature only and not intended as advice. All information and views expressed in this White Paper are correct at the time of publishing, 6th February 2018.

January 2018 | Investments

With the increasing focus on Bitcoin and other crypto currencies, and a number of investors and clients who have been considering becoming Bitcoin Traders or Bitcoin Miners in order to supplement their income, or to give up their day jobs to concentrate on the investment activity, we thought it timely to provide some guidance to those thinking about doing the same from a tax point of view.

As cryptocurrencies gather momentum among investors, it is no surprise that both the public and the ATO are turning their thoughts towards those who invest in this digital asset.

A number of people have been advised, or are of the view that as Bitcoin is not easily traceable, that any gains are not taxable, and that the ATO is unable to track any income made. However, with the data matching and data sharing that the ATO has with banking institutions around the globe, and other international governments and tax agencies, the ATO is closing that gap.

It should also come as no surprise that tax is an afterthought for many seeking to jump on board, particularly given the sharp rise in popularity and value of cryptocurrencies.

Currently, there are over 1,200 different cryptocurrencies, with Bitcoin having the largest market capitalisation — in excess of USD$100b. While the task of addressing the tax treatment of each cryptocurrency is beyond the scope of this article, set out below is a summary of the tax treatment of Bitcoin and other crypto or digital currencies that have similar characteristics.

Like all other investment bubbles, we advise clients to consider their own situations before going into investment in Bitcoin or other investments, and make sure that they consider their risk profile and their reasons for investment.

The information provided below is of a general nature only, and as such, does not take into account your personal circumstances.

AustAsia Group, including all of our entities, disclaim any liability or responsibility for any losses incurred by any reader, as this article is only general in nature.

What is Bitcoin?

Bitcoin is one of many cryptocurrencies, with alternatives to Bitcoin often being referred to as Altcoins. On the Bitcoin blockchain, transactions take place between users directly (peer-to-peer) and are verified by a network. Transactions on the blockchain only become permanent once they are verified by the network.

The network is represented by a community of nodes (ie host computers) which run Bitcoin software. Through the use of computer-processing power, each member of the network is repeatedly updating and verifying transactions on its copy of the ledger, which helps to keep the blockchain consistent, complete and unalterable.

The verification service carried out by members of the network is called “mining”, and the reward for this service comes in the form of new Bitcoin and a share in transaction costs. Other blockchain-based cryptocurrencies may have different bases of providing rewards.

The Bitcoin blockchain maintains a record of ownership without the need for a central authority or government backing.

Are gains made on Bitcoin taxable?

In its online guidance, the ATO has stated its view that Bitcoin (and other crypto or digital currencies that have similar characteristics) are capital gains tax (CGT) assets.

Investment & personal transactions

Where a person or entity has purchased Bitcoin for investment and is not carrying on a business of Bitcoin investment, any profit from resale will generally be assessable as a capital gain and not on revenue account.

The threshold question is whether someone buying Bitcoin can evidence that it was purchased for investment purposes when there is no expectation of a periodic return, such as rent from an investment property or dividends from listed shares. In many cases, the ATO will consider that the buyer did so for a profit-making purpose and not for investment.

If Bitcoin has been held as an investment by certain individuals and trusts for more than 12 months, a 50% CGT discount may apply to reduce the taxable gain.

As Altcoins are commonly purchased using Bitcoin, and not cash, it may be difficult to access the 50% CGT discount unless the original Bitcoin has been held for 12 months. In any event, subject to market movement there may be little gain or loss where Bitcoin is purchased and disposed of in a short period of time to purchase Altcoin.

The ATO is clear in its view that Bitcoin is neither money nor a foreign currency. However, in such circumstances, the CGT rules or the profit-making scheme rules may operate similarly to the foreign currency tax rules in calculating the gain or loss on conversion from Bitcoin to Altcoin.

If the intention in purchasing Bitcoin is to use it to buy goods or services for personal consumption (ie retail goods, home utility services or food and beverages), then any profit from resale will be assessable as a capital gain and the 50% discount may apply. Where the original cost of purchase was under $10,000, any gain made will be tax free as it is a “personal use asset”. Following is an example of how this could work.

Example

Sarah bought $4,000 of Bitcoin on 1 January 2013 with the intention that, once it became more widely accepted, it would be used to buy goods or services for personal consumption.

Sarah has not yet disposed of her original Bitcoin, as popular uptake has been slow, and her original Bitcoin are now worth $20,000.

Over the course of 2017, Sarah spends her Bitcoin on coffee, food, drink and a gym membership.

Sarah will pay no tax on the gain that she made of $16,000.

It is important to remember that, each time Bitcoin is used to purchase goods or services for personal consumption, or Altcoin, it will be considered as a disposal for tax purposes.

Traders and speculators

For traders, speculators and those who buy Bitcoin with a profit-making purpose, any profit from resale will be assessable income (ie revenue income and not treated on capital account) unless such activity can be classified as a hobby. Expenses incurred in purchasing Bitcoin will be fully deductible for traders/speculators.

A profit-making purpose is likely to prevail in the majority of circumstances, as ownership of Bitcoin does not (at this point in time) entitle the holder to rent or a periodic return as may be the case with assets such as property or shares. Even if Bitcoin is held for a significant period of time, it may still be considered to have been purchased for a profit-making purpose, particularly in light of the absence of a periodic return.

However, as more businesses in Australia and around the world begin to accept Bitcoin as payment, there is an increasing case for the argument that Bitcoin was purchased for a purpose other than speculation or profit making.

Bitcoin in business

Where Bitcoin is received in return for goods or services provided through a business, its Australian dollar value will need to be included in the ordinary income of the business. Similarly, if carrying on a business there will be an entitlement to a deduction for goods or services purchased using Bitcoin. The easiest way to determine the Australian dollar value of Bitcoin is through a reputable Bitcoin exchange.

The law on the GST treatment of digital currencies has undergone changes, which result in some digital currencies being treated like “money”.

Bitcoin exchanges

Where a taxpayer is carrying on a business of buying and selling Bitcoin as an exchange service, the Bitcoin held will be considered trading stock. All proceeds will be included in assessable income, and the taxpayer will be required to bring to account any Bitcoin on hand at the end of each income year. Any expenses incurred, including in the purchase of Bitcoin, will be deductible.

Mining

Although the ATO has not released any specific guidance, it is likely that if a taxpayer is mining Bitcoin they will be considered to be carrying on a business of Bitcoin mining. As such, the Australian dollar value of Bitcoin rewards from mining, and any gains made from the sale of mined Bitcoin, will be included in assessable income. Expenses incurred in mining activities should be deductible.

Tax reporting and record-keeping obligations

Taxpayers have an obligation to report their assessable income each income year and to keep appropriate records to support their income tax return disclosures.

Given the decentralised and unobservable nature of cryptocurrency, it is likely that the ATO and other government agencies will not be able to track all transactions and trades — at least for the time being. However, if a taxpayer is living beyond their means, and reported income, they may nevertheless face an ATO review or audit. A decline in bank account activity could also be a trigger for ATO review or audit.

If the ATO conducts a review or audit and has reason to believe that a taxpayer has not reported all of their assessable income, it may issue them with an amended income tax assessment. If the taxpayer refuses to cooperate with the ATO, they may issue them with a default income tax assessment where they will estimate the taxpayer’s actual assessable income based on what they consider to be reasonable grounds.

Those investors/speculators who make a loss need to consider whether that loss is deductible (only if a profit-making purpose existed) or a capital loss on investment is available (only where acquisition costs are more than $10,000).

If a taxpayer has been issued with an amended or default assessment, they will have the onus of objecting to the assessment and proving that it is excessive.

Regardless of individual circumstances, if a taxpayer is transacting in Bitcoin they should keep a record of all of their trades and activity. In this regard, many exchanges will allow users to access and download their transaction history.

Finally, if a taxpayer is purchasing Bitcoins for both personal use and speculation, it is particularly important that they keep clear records. This is because it will be up to the taxpayer to show the intention behind each purchase and transaction.

The important messages to take away are:

  • given the recent sustained upward movement in value of Bitcoin, don’t assume that the profit on Bitcoin transactions is not taxable or not subject to CGT. Even if gains from Bitcoin transactions are not reported, the ATO may issue amended or default assessments if they believe a taxpayer is living beyond their means
  • those who invested in very recent times where the value of Bitcoin has fallen may make losses that are deductible if there was a profit-making intention on acquisition, and
  • clear records of transactions, activities and the intentions behind them must be kept, particularly if Bitcoin is purchased both for personal use and for speculative gain.

Anyone considering investing in Bitcoin or other currencies, or requiring assistance in dealing with the tax implications of Bitcoin can contact us for more information.

* Reference has been made to various articles and information from CCH Australia and other technical materials.

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