Our attempt to assess the likelihood of a range of economic outcomes with a 3 year view.

If you enjoyed the Rudd Government $900 tax free payment and you thought the First Home Owners Grant (which peaked at $36,500) was generous, then how does a Government tax free payment of $109,228 sound?

Tax Offsets and Tax Free incentive payments estimated at $109,228 per property are now available through the National Rental Affordability Scheme (NRAS) to investors who purchase new investment properties. The incentives have previously been made available to large institutions but are now accessible to individual property investors.

NRAS is set to change the property investment landscape for at least the next 10 years. The incentives will turn many property investments from a negative cashflow position to positive cashflow. As such, there will be many people who will find property investment attractive for the first time, and many existing investors who will want to restructure their property investments.

When the NRAS incentives are combined with existing tax deductions the tax savings can be substantial. In one example we’ve seen a 79% tax saving was estimated for a young couple with two children buying their first investment property.

Under NRAS, the Australian Government aims to stimulate the supply of new affordable rental dwellings by up to 50,000 by June 2012 through providing incentives to:

• increase the supply of affordable rental dwellings;
• reduce rental costs for low to moderate income households; and
• encourage large scale investment and innovative delivery of affordable housing.

NRAS investors are eligible to receive a National Rental Incentive for each approved dwelling where it is rented to eligible low and moderate income households at 20% below market rates. According to the most recently available Australian Bureau Statistic figures the average household income of a tenant renting from a private landlord was $78,104. Households earning up to $125,960 are eligible to rent NRAS approved properties so an “average tenant” will most likely be eligible for an NRAS property.

For very many investors giving up the 20% rental income in exchange for tax free incentives will mean turning a negative cashflow investment into a positive cashflow investment. As a result many people who have been unable to enter the property investment market because of the negative cashflow demands of investment property will now become property investors for the first time.

The Scheme offers annual incentives for 10 years. The two key elements of the Incentive are:

• A Commonwealth Government Incentive indexed for 10 years and currently at $6,855 per dwelling per year as a refundable tax offset or payment; and
• A State or Territory Government Tax Free Incentive indexed for 10 years and currently at $2,285 per dwelling per year.

The incentive is indexed annually at the CPI rate for rent which has been an average of 3.9% over the last 10 years. The most recent CPI increase for rent was 5.4%.

The current incentive indexed at 3.9% gives a total 10 year incentive of $109,228.

It is important to note that the Australian Government incentive is a tax offset not a tax deduction. A tax offset is of greater benefit because it is a direct reduction in the tax payable whereas a tax deduction is a reduction in the taxable income which is then taxed. The State Government incentive is also tax free.

This is a genuine win, win, win situation. Investors get real and substantial financial benefits, tenants get more affordable rental properties and the Government achieves its social policy goals without doing the work themselves.

The NRAS package including an on-line choice of properties across many locations throughout Australia is available from Onyx (www.onyx.net.au). Onyx has been providing strategic property and finance advice to property investors across Australia for nearly a decade.

Important Notes

This information has been prepared by Onyx Domain Pty Ltd.  Neither Guidance Financial Services Pty Ltd or Financial Wisdom Ltd recommend or endorse Onyx Domain Pty Ltd and it is essential that any person, corporation or other entity, conducts their own research and due diligence before proceeding to engage their services.

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives and should NOT to be construed as legal, professional or financial product advice. You should obtain a Product Disclosure Statement and consider obtaining personal financial advice from an Australian Financial Services Licensee, or representative thereof before making the decision to acquire, vary or dispose of any financial product.

Whilst all reasonable efforts are made to ensure that the information contained herein is accurate and reliable the parties make no representation or warranty regarding the correctness or reliability of the information provided.

I was asked this question last week and the answer is yes.  The proviso however is that you can’t play it.

A recent report on the superannuation system by Jeremy Cooper proposed that SMSF’s should be banned from holding collectables such as art works.  However after considerable outcry from the the arts community, ministers Bowen and Garret (as minister for the Arts), announced that they would not be adopting the Cooper recommendations.

It is envisaged that there will be a tightening around how an SMSF will manage collectables.  The sole purpose test must always be kept in mind of course – which is why you could own a guitar in your SMSF, but you can’t strum it on a Saturday night for a bit of relaxation.  It is likely rules will be put in place regarding the storage of such items – temperature controlled and such.

As to whether collectible guitars are a sensible way to save for your retirement – well I have no idea.  But it’s interesting to see the broad scope of possibilities that exist within the SMSF environment.

CoreData-brandmanagement recently produced some fascinating research on Australian’s experiences and perceptions of financial planning professionals.  The study obtained surveys from 1,054 respondents.

Some of the results I found interesting were:

• When it comes to trust, specialist doctors were the most highly regarded with a rating of 8 out of 10.  Amongst those respondents who had a relationship with a financial planner, the average trust rating for financial planners was not far behind at 7.5.  Yet for those who don’t have a relationship with a financial planner, the score was only 4.5.  So those who engaged the services of a professional adviser seemingly found the adviser professional and trustworthy, yet those with no experience had a negative perception.  Where has this perception come from and why is the perception so different from the reality of those who use financial planners?

• One might expect that those who chose to use a professional financial planner might do so because they have little knowledge or understanding of financial matters such as superannuation or insurance, whilst those who elected not to engage a professional might do so because they have a good level of knowledge and so don’t need the help.  Yet the research found the opposite was true.  When it came to knowledge of superannuation, only 10.3% of respondents who have a financial planning relationship rated their knowledge as poor or very poor, whilst 28.6% of those without a planner rated themselves as having this low level of understanding.  It seems that a benefit of having a relationship with a financial planner was that the client gained knowledge of the investment landscape and the options available to them.

• Consideration of appropriate personal insurances is an area where financial planners often assist their clients.  One question in the survey asked “how important is ensuring you have sufficient insurance cover for the following”.  Interestingly, Comprehensive Car Insurance ranked around 8 out of 10 varying a little depending on the age of the respondent.  Yet Income Protection Insurance ranked around 6 out of 10 for those still in the work force.If your car was a complete write-off the financial loss might be $20,000 to $50,000 for most people.  Yet for most of us, one year off work would cost us far more than that.  And Income Protection doesn’t just cover for one year off work, but potentially would pay a benefit until you reached aged 65 (some even go to age 70), if you need it.  Think about how many more working years you have left and what you earn per year.  Is your car really more valuable than your earnings capacity?

Most Australians would benefit from having a relationship with a professional financial planner.  If you don’t currently have such a relationship, perhaps it’s time to change.

Paul Benson B.Bus, CFP, SSA

Principal – Guidance Financial Services Pty Ltd

At present we consider the range of market possibilities and their chance of occurring as follows:

· Global economic growth flourishes over the next 3 years, and as a result of low interest rates, significant money flows into share markets, causing prices to rise strongly.  Likelihood we will see this outcome 15-20%.

· Global growth occurs but is fairly anaemic and differs greatly between countries and regions.  Investment caution remains with share prices mirroring the modest profit growth.  Likelihood we will see this outcome 50-70%.

· A “Double Dip’ recession occurs, leading to profit declines and consequent falling share prices.  Likelihood we will see this outcome 5-15%.

· A country defaults on its debt leading to a financial meltdown.  Likelihood we will see this outcome 5%.

We are regularly asked by our clients where we see markets heading.  Our views change as new information is released, and the fact is we don’t have a crystal ball.  As such, the most useful answer we can provide is a range of possibilities, and what we see as the likelihood of them occurring.

The above represents our view as at 30 June 2010.

Paul Benson

Principal – Guidance Financial Services Pty Ltd

Important Notes

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives and should NOT to be construed as legal, professional or financial product advice. You should obtain a Product Disclosure Statement and consider obtaining personal financial advice from an Australian Financial Services Licensee, or representative thereof before making the decision to acquire, vary or dispose of any financial product.

Whilst all reasonable efforts are made to ensure that the information contained herein is accurate and reliable the parties make no representation or warranty regarding the correctness or reliability of the information provided.

© Guidance Financial Services Pty Ltd

Yesterday the Cooper Superannuation review released it’s report on the Self Managed Superannuation Fund (SMSF) sector.  The report recognised that the SMSF sector was performing well in it’s role of providing for its member’s retirement.  There were no recommended changes to the broad architecture of SMSF’s, rather some tweaks at the edges to improve the integrity of the system.  In summary the more significant of these recommended changes are:

• The ATO as regulator of SMSF’s should be able to issue penalties on a graduated scale.  At present the only penalty they have available to them is the “nuclear option” (the report actually uses this term) of making the fund non-compliant.  The report recommends giving the ATO the ability to impose less harsh penalties where appropriate.
• That the ATO be given the power to require trustees of SMSF’s to undertake mandatory education as to their obligations as a trustee of a superannuation fund where they identify problems in the running of the fund.
• That those providing advice in the SMSF sector have a higher level of qualification specific to the sector (such as the SMSF Specialist Advisor accreditation provided by the SMSF peak body SPAA, which the author holds).
• Greater independence for SMSF auditors.
• Borrowing by Self Managed Funds continue to be allowed through the Instalment Warrant process, however this area not be relaxed any further.  The panel indicated some unease with SMSF’s borrowing but felt change was not warranted at this point.
• The current rule allowing up to 5% of the fund’s investments to be in “In House Assets”, ie. assets associated with the members, be scrapped and where funds currently hold these investments, that they be unwound by 2020.  We see this as a sensible step, as In House Assets conflict with the key investment concept within SMSF’s of the Sole Purpose Test.
• Non-traditional/exotic investments such as art, wine, and collectables, not be permitted within SMSF’s.  Very few people hold such assets within a SMSF, and the potential for such assets to violate the Sole Purpose Test is significant.  Again, we see this as a sensible step.  Where funds already hold these assets they have until 2020 to dispose of them.

These are only panel recommendations, what is ultimately legislated may be quite different, however the recommendations put seem quite sensible and will serve to further strengthen the integrity of the SMSF sector, which will help ensure it remains the most popular avenue for Australians to save for their retirement.

Interested in exploring whether a SMSF is for you?  Or perhaps you have a SMSF and are looking for some assistance in making the most of the strategy options available to you.  Contact us on 03 9870 6544 or via email here.

Like all insurances, arranging Key Person insurance is about buying peace of mind.  Take a moment to consider how your business would fare if you need to be out for 6 months undergoing Chemo therapy.  Would a lump sum cash payment be useful?

Key person insurance provides financial security for a business owner.  It is usually taken out over the business owner, but can also be taken out over a key staff member.

We structure the policy to suit your business needs.  Typically, a payout will occur if the key person suffers a serious medical condition (such as cancer or heart attack), dies, or becomes Totally & Permanently Disabled.  In some cases the amount paid out can vary across these different payout conditions, so for instance we may structure your policy so that $100,000 is paid to your business if you were to suffer a heart attack or be diagnosed with cancer.  This amount would be sufficient to keep the business going in your absence and replace a drop in income associated with your absence.  Were you to pass away a payment of perhaps $1mill might be required to clear all debts and staff entitlements.  As you can see, it’s a horses for courses situation.

Guidance Financial Services specialise in the financial planning needs of business owners and the self employed.  Give us a call to discuss how we might be able to work together.

As a provider of high quality financial planning advice to Australian’s, Guidance Financial Services welcomes the government’s moves to improve the professionalism of our industry.  Most financial planners provide quality service for their clients.  A small proportion however do the wrong thing, and that has caused our profession to be tarnished.  Commissions have no doubt been a contributor to these unconscionable practices.  The sooner shoddy product salesmen are removed from our industry, the better it will be for Australian consumers, and those in the profession who put their clients interests first.

Good financial planning advice can be of enormous benefit.  We know that divorce and depression are often associated with financial strain.  Let’s hope that through these changes, it becomes common place for Australian’s to have a relationship with a professional financial planner, who works for them, to improve their lives.

As a fast growing business, we are always looking to develop relationships with people who can introduce our services to suitable clients.  Find out about our affiliate program here.

Whether you run a business with numerous staff, are a self employed “lone wolf”, or an entrepreneur with an idea so strong it will barely let you sleep, one essential ingredient we all need is inspiration.  The business owner needs to keep his staff motivated and focused on the company’s vision, the lone wolf needs to overcome the challenge of isolation and demonstrate enthusiasm and energy to her clients and those around her, and the entrepreneur needs to be able to take failures in their stride, recalibrate, and find a new way forward.

So how do you find inspiration?  Having recently had a couple of weeks off over Christmas with the family, I have certainly returned with more energy and determination to reach our goals.  Your kids can certainly inspire you with their enjoyment of life fresh perspective on the world.

Biographies can be great.  Sir Edmund Hillary’s biography View From the Summit is one I would recommend.  Certainly a life lived to the full.  Many people tell me Richard Branson’s biography is a great read.  A great web site for business biographies is Evan Carmichael’s.  This site has an enormous catalogue of articles on successful business people (with admittedly an American bias).  A 20 minute flick through this web site is sure to get you off and running again.

A site I have recently discovered is TED – Ideas worth spreading.  This is a site of filmed speeches – from Steve Jobs of Apple, to Martin Luther King Jr.  They seem to usually run for 10 to 20 minutes, so easily something you could watch will having your lunch.  The site looks a little confusing when you first view it, but give yourself 3 minutes and you will realise how clever it is.  Pick a subject area you are interested, then how you would like the options filtered – newest, most comments, most emailed, etc.  The larger the icon of the speech, the more highly ranked it is.

I have mentioned Mixergy in a past posting.  This site has interviews with mainly IT entrepreneurs.  The interviews are typically around an hour in length, so this one requires a bit more commitment, but the interviewer is able to really dig deep and there is always some nugget of an idea that you can run with.

Other business owners are another great source of inspiration.  In my role, I speak to business owners every day of the week.  Just hearing how they picked up a new contract, had their best month ever, or won a new award, inspires me to strive that bit harder.  Similarly, I catch up for lunch with a couple of groups of business owners, one group is specifically within my industry, and the other is a group of business owners from entirely different industries (a condition for entry was that your business did not compete with any of the existing participants).  Again, hearing about other peoples successes, and the innovative techniques they’ve used to achieve those results, never fails to refill my energy reserves.

Don’t under estimate the importance of inspiration.  You need it, and to really succeed, you need to be giving it to others.