17
Dec

Setting An Investment Structure

In a world driven by the availability of information, seldom does a day go by when we do not question where we are at, not only with our investments but in our life choices generally. So be it in the brave new world.  From an investment perspective overtime we have found that it is best to establish an investment structure based on your acceptance of risk and the purpose of your investments and then to review the investment on an on-going proactive basis and don’t celebrate or panic due to short term fluctuations.

We have found it is often best to stick to your investment structure. The temptation to invest in last year’s winner or to “panic” during times of volatility is always there.

Understanding your investment objectives, diversification and have a pre-determined investment structure that you are confident enough to stick to is important to assist in preserving and / or achieving long term wealth as well as short term security.  This understanding should take away the stress that comes with information overload.

Important Information:  The information in this document is of a general nature only. Before you make an investment decision you should assess for yourself or obtain professional advice on whether the information is appropriate for your particular investment objectives, financial situation and particular needs.

17
Dec

Inheriting Assets and Capital Gains Tax

Have you ever wondered what the Capital Gains Tax (CGT) implications would be for assets that you have or will inherit should you decide to sell them ?

Needless to say CGT like all taxation legislation is complex and depending on dates and a range of other factors the implications will vary.  In general terms CGT is calculated based on the difference between the sale proceeds and the costs that have been incurred when acquiring an asset.  It is this gain (which may be eligible for a 50% discount if held more than twelve months) that is subject to tax.

Any gain is included with all income that an individual earns in a Financial Year and tax is paid at marginal taxation rates.  It is important to note that most assets held are subject to this tax when sold with some exceptions, notably the family home which is ordinarily an exempt asset under the capital gains tax legislation.  There are a range of factors to consider when assets are inherited and it would not be possible to cover all of these in this article.  I have set out some of the features of inheriting assets that I think are useful to be aware of nonetheless.

Was the Asset originally purchased by the deceased before or after 20th September 1985?

The 20th September 1985 is a key date after which any asset purchased is subject to the capital gains tax rules.  I have noted some rules that affect the cost base of assets that are inherited depending on when the deceased first acquired them.

Asset originally acquired Pre-CGT: (20th September 1985)

For pre-CGT assets the cost base becomes the market value at the date of the deceased death. Inherited assets must be held twelve months minimum to be eligible for the 50% discount on capital gains.

Asset originally acquired Post-CGT (After 20th September 1985)

The cost base is rolled over or inherited from the deceased to those inheriting and the holding period for the purpose of CGT discount began at time deceased acquired the asset.

Inheriting a Property

In many instances property is often inherited by one generation from another and the rules that govern the capital gains tax treatment vary depending on a range of factors and as mentioned can be quite complex.  There are no capital gains taxes to pay at the time of inheritance, however CGT may apply when you subsequently sell the home.

Below is a matrix that shows where a property sale of an inherited property will be CGT exempt subject to a range of factors including when the property was originally purchased, what time frame the property was held and whether it produced income at different times.

Capital Gains Tax Table

Important Information:  The information in this document is of a general nature only. Before you make an investment decision you should assess for yourself or obtain professional advice on whether the information is appropriate for your particular investment objectives, financial situation and particular needs.

16
Dec

Oil Price Fall – What does it mean?

If you have picked up a paper, turned on the radio or watched TV recently you are likely to have heard something about the dramatic decline in oil prices.  It is fair to say that what has happened to oil is getting some attention in the media but also in equity markets where from one day to the next we are seeing volatility as the latest news is digested.

Since June, the crude oil price has dropped approximately 40%.  If we consider this from the perspective of Australia’s economy, it is worth noting that as a nation we are a net importer of crude oil and until the recent drop in oil prices, households had been spending $30 billion on fuel per annum with funds going offshore to foreign oil producers.  A fall of 40% in fuel costs translates to a $12 billion dollar boost to the Australian economy in the form of reduced cost for households which are otherwise free to save or direct these funds to spend in the local economy.  Unlike a reduction in interest rates where only those with mortgages benefit, when the fuel price drops all of us share in the gain, and in my view this has a far greater potential to flow through to the economy as stimulus.

To give you an idea of how significant this boost is, I read recently that a 0.25% basis point rate cut applied to the average mortgage would provide the equivalent of a $2 billion benefit in reduced costs to households, or in other words six times less effective than the oil price reduction that we have seen.

In recent times, commodity prices generally have continued to weaken along with the Australian dollar.  As Australia is a net exporter of commodities (made up of coal, iron ore and largely gas) there is obviously some impact to those companies in this sector, and an impact to government revenues given they source their tax revenue from these exports.  We need to bear in mind though, that despite the hype you hear in the media, that these revenues continue to be reasonably robust and that in any case the impact on tax revenue is much less than you would expect given that by the time tax is paid it is much less than the corporate tax rate, not to mention that governments raise the majority of their taxes (75%) from households anyway.

Notwithstanding the challenges in the mining sector that we have all heard about, the flow on benefits from oil price reductions are likely to significantly mitigate these challenges and their impact on tax revenues given the flow on stimulatory effect for the economy as all Australians fill up and pay less at the bowser.  As well it is likely that interest rates will remain low as inflation is also low and while the reserve bank governor Glenn Stevens remains coy it would not be inconceivable that interest rates will be cut further next year.

Economic Outlook

Notwithstanding the current volatility the medium term economic outlook in Australia and Internationally looks positive and I have provided below for your reference a recently published chart from Commsec which outlines their view of leading indicators for the forthcoming year.

Economic Forecast Table

Important Information:  The information in this document is of a general nature only. Before you make an investment decision you should assess for yourself or obtain professional advice on whether the information is appropriate for your particular investment objectives, financial situation and particular needs.