Dean Sammut win’s one of Australia’s top industry awards!

It is with great pleasure we are able to announce that Dean Sammut has won one of Australia’s top industry awards. Presented at a black tie event at the Sofitel Wentworth, Dean was presented with the Rising Star of the Year Award at the 2017 Australian Accounting Awards.

The awards were hosted by Accountants Daily, Australia’s top publication for the accounting industry and were judged by a panel of 21 business leaders across Australia. There were a record number of finalists and submissions for this year’s awards, and all judges commented on the “standout” quality of the entrants.

“We broadened the awards program this year to better recognise the breadth and depth of the talent in this industry. For those who have made it to the finalist stage, congratulations, you have secured your place amongst Australia’s leading accounting professionals,” said Terry Braithwaite, head of partnerships at Accountants Daily.

Dean, a Partner at MMT Accountants + Advisers said he was humbled by the award. “Our recognition for the excellent contribution to the Sydney small business scene reinforces the strength of our brand in connecting with the community and engaging with our customers,” He added.

Featured in a publication in Accountants Daily, Dean believes it’s the MMT team’s ability to explain complex accounting areas to clients as a key success for the firm. “Where we differentiate ourselves from our competitors, is the ability to provide value in explaining their numbers to allow them to make smart decisions”.

Dean has further called on Universities to help train students to develop these important soft skills. “Definitely at university is where it needs to start. I actually don’t think the current courses have really adapted to the changes that are happening in accounting, and it’s happening pretty quickly,” he said. You can read further about the article in Accountants Daily here

Rod, Matthew, Dean & Stephen at the awards night.
Rod, Matthew, Dean & Stephen at the awards night.

2017-2018 Federal Budget Update

We at MMT Accountants + Advisers are here to help you make smart financial decisions now so you can have a beautiful financial future. One way we do that is through careful tax planning! If you haven’t met with us yet, now is the time to contact us to arrange a tax planning meeting, so we can help you limit your tax payments, and grow your wealth.

In prior years, there were many changes to superannuation and small business taxation. This year’s Budget only had a few changes in these areas.

Here’s a brief summary of what the MMT team believes are the key changes that may affect many of our clients.

Taxation

Small business depreciation
The Government will extend by 12 months (to 30 June 2018) the ability for businesses with aggregated annual turnover less than $10 million to immediately deduct purchases of eligible assets costing less than $20,000, first used or installed ready for use by 30 June 2018. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the closing balance of the pool at 30 June 2018 is less than $20,000 (including existing pools). From 1 July 2018, the immediate deductibility threshold will reduce back to $1,000.

Increase in Medicare levy
From July 2019, the Medicare levy will increase by half a percentage point from 2.0 to 2.5 % of taxable income. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.

Lower threshold for HELP debt repayments
From 1 July 2018, a new minimum threshold of $42,000 will be established with a 1% repayment rate and a maximum threshold of $119,882 with a 10% repayment rate.

Disallow certain deductions for residential rental property
From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting maintaining or collecting rent for residential rental property. Also, plant and equipment depreciation deductions will be limited to outlays actually incurred by the investors in residential real estate properties. These changes will apply on the prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either investor no longer owns the asset, or the asset reaches the end of its effective life. Subsequent owners will no longer be able to claim deductions for plant and equipment purchased by its previous owner.

Capital gains tax changes for foreign investors
From 7:30PM (AEST) on 9 May 2017, Australia’s foreign resident capital gains tax (CGT) regime will be extended to deny foreign and temporary tax residents access to the CGT main residence exemption. However, existing properties held prior to this date will be grandfathered until 30 June 2019.
From 1 July 2017, there will be an increase in the CGT withholding rate foreign tax residents from 10% to 12.5%, and a reduction of the CGT withholding threshold from $2 million to $750,000.

Taxable payments reporting
From 1 July 2018, the courier and cleaning industries will join the building and construction industry in needing to complete taxable payments reporting each year. More red tape!

Cash economy crack-down
The ATO now have an additional $32 million to target the cash economy. Expect more ATO audits with the data matching capabilities. Cafés, restaurants and other businesses that accept cash should ensure their point of sale systems have proper audit trails that match their cash deposits.

GST on new residential property and sub-divisions
In an approach designed to crack down on some property developers failing to make GST payments to the ATO, property developers will no longer manage the GST on sales of newly constructed residential properties or new subdivisions. Instead, the Government will require purchasers to remit the GST directly to the ATO as part of the settlement process.

Superannuation

Contribute the proceeds of downsizing to superannuation for older Australians
From 1 July 2018, a person aged 65 or over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. These contributions will be in addition to those currently allowed under the existing rules and caps and will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.

* This measure will apply to sales of a principal residence owned for the past 10 or more years and both members of a couple will be able to take advantage for the qualifying home. *

First Home Super Save Scheme
To encourage home ownership, voluntary contributions to superannuation made by first home buyers from 1 July 2017 can be withdrawn for a first home deposit, along with associated deemed earnings. Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Under the measure, up to $15,000 per year and $30,000 in total can be contributed (within existing contribution caps). Contributions can be made from 1 July 2017. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home together.

Foreign Workers

There has been lots of news recently about the removal of the 457 visa program. Businesses that employ foreign workers on certain skilled visas will pay a levy that will be channelled into the Skilling Australians Fund. From 1 March 2018, Businesses with turnover of less than $10 million per year will make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme.

Book in your End of Financial Year Meeting with us Today!

This is just a general summary of how the Budget may affect you. If you haven’t met with us yet, now is the time to contact us to arrange an End of Financial Year meeting, so we can help you limit your tax payments,
discuss your goals and plans for the next year, and grow your wealth. Remember, we both need time to implement any appropriate tax savings strategies for you well before 30 June 2017.

General advice disclaimer
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

Dean Sammut is in the running to take out one of Australia’s top industry awards!

Dean Sammut has been shortlisted for the prestigious Australian Accounting Awards, partnered by Thomson Reuters.

Dean is in the running to take out one of Australia’s top industry awards and has been shortlisted as a finalist to win the Rising Star of the Year at the 2017 Australian Accounting Awards, hosted by Accountants Daily, Australia’s top publication for the accounting industry.

Now in its fourth consecutive year, the Australian Accounting Awards, which covers 26 categories, recognises individual excellence in accounting, from the profession’s most senior ranks to its rising stars.
Winners in the individual categories will automatically be shortlisted for the coveted Accountants Daily Excellence Award. In addition, Dean will be in the running for the Editor’s Choice Award, which recognises an individual’s outstanding contribution to the Accounting Industry.

“We broadened the awards program this year to better recognise the breadth and depth of the talent in this industry. For those who have made it to the finalist stage, congratulations, you have secured your place amongst Australia’s leading accounting professionals,” said Terry Braithwaite, head of partnerships at Accountants Daily.

“We are set for a superb evening when the awards are presented. The judges have a tough job on their hands this year and there no doubt will be huge excitement to hear their verdicts.”

Dean, a Partner at MMT Accountants + Advisers said he was humbled by the nomination. “Our recognition for the excellent contribution to the Sydney small business scene reinforces the strength of our brand in connecting with the community and engaging with our customers,” He added.

The winners will be announced at a black tie awards dinner on Friday, 26 May at the Sofitel Sydney Wentworth.

Glenn Simpson Landscapes wins LNA 2016 Landscape Excellence Award!

We love hearing the success stories of our clients and with the passion and drive of the Glenn Simpson Landscapes team, it is no wonder they are doing so well.

Glenn Simpson Landscapes won the “COMMERCIAL & CIVIL CONSTRUCTION UP TO $3 MILLION” Silver Award at the LNA 2016 LANDSCAPE EXCELLENCE AWARDS for the Alice Lane, Newtown Bioretention Basin.

The Alice Lane, Newtown Bioretention Basin is an initiative undertaken by Inner West Council as part of its Waterevolution Living Lanes program. The program includes stormwater biofiltration systems, planting and revegetation, and cultural elements reflecting the nearby community, consequently applying sustainable urban water management principles to catchments.

Completed on behalf of Inner West Council, the Alice Lane, Newtown Bioretention Basin was an extremely rewarding and technically complex project, with the added satisfaction of enriching our environment!

“We are honoured and privileged to receive this esteemed Award as it was voted and awarded by a highly qualified and experienced LNA judging panel, among an outstanding number of quality entries.” said Glenn Simpson.

It has been dubbed, without a doubt, the most successful awards season yet with a greater variation of winners than ever before!

To read more about this project and their other fantastic work visit: http://glennsimpsonlandscapes.com.au/projects/ecosystem-protection-triumph

LNA website imagenew

Help combat depression and anxiety by buying a ticket

Hair & Beauty Australia are partnering with beyondblue for this luxury prize draw, valued at over $77,000 – all for charity!

You could be driving away in your brand new 5-door Hatch Mercedes-Benz A180, or wearing your beautiful new Diamond Tennis Bracelet, and most importantly supporting beyondblue.

Three million Australians are currently experiencing anxiety or depression. Every day, nearly eight people take their own lives – and beyondblue want to change that.

beyondblue provides information and support to help everyone in
Australia achieve their best possible mental health, whatever their age and wherever they live.

That’s why HABA are proud to donate all profits from this campaign to beyondblue, to help all Australians.

For tickets visit askhaba.com.au/beyond-blue-draw/

Pride & Prejudice: Top Four Predictions for 2017

The global economy is picking up and Australia is about to secure the global record for the longest period a country has gone without a recession. But with the focus on the political environment, there is an uneasiness in the market and with uneasiness comes a reticence to take risks.

The fortunes of Australians this year will have much to do with how you or your business is positioned and how you respond to challenges.

Here are our top predictions:

Trumponomics will impact on our region

Business is business – either an opportunity makes sense or it doesn’t. The biggest pressure from the new US President is unlikely to be the much discussed Trans-Pacific Partnership (Australia’s current Free Trade Agreement with the US (AUSFTA) has been in place since 2005), or President Trump’s controversial immigration policies, but the plan to cut the US Federal company tax rate from 35% to boost competitiveness. If the US drops its company tax rate below 30%, Australia will be the one of the most expensive countries in its region to do business and globally uncompetitive. The 2016-17 Federal Budget announcement to reduce Australia’s company tax rate progressively to 25% for all businesses has stalled in the Parliament with voter perception that it is a gift to ‘big business’ at the expense of more deserving elements of the community.

The US is Australia’s second largest two-way trading partner at around $69 billion and our third largest export market at $22 billion* (we import around $47 billion in US goods and services). Australia’s trade relationship with China however swamps this volume with $150 billion in two-way trade of which almost $86 billion is in exports. These trade statistics are important to remember when we look at the geopolitical landscape of the Asia-Pacific region and in particular the increasingly antagonistic relationship between the United States and China.

Australia is too small an economy to successfully survive on its domestic market alone. Strong regional alliances and competitiveness are critical.

For business: Innovate or Perish

Economists widely predict that residential construction and exports – the mainstay of Australia’s domestic economic growth – will slow in 2017. Part of this is the Chinese Government’s concern about investment outflows (Australia has been a significant beneficiary with Chinese Direct Foreign Investment growing by 72.5% over 2010-15). So, where is growth going to come from?

One of the most alarming statistics comes from the Boston Consulting Group Global Manufacturing Cost-Competitiveness Index.

Advances in technology in particular will make some operators unsustainable and give others the capacity to change the very nature of their sector either through production efficiencies or disruption. After all, tech company Uber started in 2009, spreading exponentially around the world well before it launched in Australia in 2014. Real Estate Agents may be next with companies like Purplebricks.

The bottom line is that you cannot rely on the stability of your business model to sustain over time.

For you: Superannuation knee-jerk reactions will disadvantage some

2017 will be a watershed year for superannuation in Australia. With many of the reforms coming into effect on 1 July 2017, there will be a temptation for many to ‘do something’ before the deadline.

The biggest impact of the reforms is likely to be on those with large super balances close to or exceeding $1.6 million. And, it’s not just the wealthy with large super balances. Many SME business operators utilise the business real property exception to hold their business premises inside their SMSF, which can significantly increase the asset value of the fund. For anyone close to or exceeding the $1.6m cap, it’s essential that you have current valuations for your assets to know exactly where you stand.

One of the key decision points for those with large balances is how Capital Gains Tax applies where assets supporting pension payments exceed the new $1.6m pension transfer limits and need to be moved back into accumulation phase.

Knee-jerk reactions to the management of your fund’s assets – like quickly selling assets pre 1 July – may result in your fund being in a much worse position. With the risk of sounding conflicted, good advice is essential.

International is still a dirty word

If you are an individual or a business that transfers money internationally, you will continue to be a target. For individuals, if you work overseas be careful of residency issues. The residency tests don’t necessarily work on ‘common sense’. Just because you work outside of Australia for a period of time does not mean you are not a resident for tax purposes. And, for those with international investments, it’s important to understand the tax status of earnings from those assets. Just because the asset and the earnings from those assets are overseas does not mean they are safe from Australian tax law, even if the cash stays outside Australia.

Innovation

The BCG analysis demonstrates that Australia was the least competitive of the top 25 global manufacturers between 2004-14 – Australia’s direct manufacturing costs, for example, were just under 30% higher than the US. Manufacturing wages grew 48% in Australia over this period while labour productivity fell 1%. While this was a period of abnormal events with the mining boom, the Australian dollar at parity with the US, and a GFC, it still creates a stark picture of why a focus on productivity is important.

Over the last two decades we have seen a global trend towards offshoring to reduce labour costs to achieve productivity gains. Now, gains are being achieved through innovation to reduce costs. This is an area where Government policy is there to support business. These incentives include:-

– Small business rollover relief that removes the tax impediments associated with changing your business structure.
– Tax incentives for investors in early stage innovation companies.
– Broadened tax incentives for early stage venture capital limited partnerships and venture capital limited partnerships.
– More generous employee share scheme arrangements particularly for high growth start-ups.
– Immediate deductions for start-up businesses.
– Reduced company tax rates for small businesses.
– Plus there is also the R&D incentives for innovative companies.

For survival, all business operators need to look at the trends in their industry.

For business, Government regulation is increasingly cynical about those using low taxing jurisdictions, paying large management fees between international entities, and parking large debts in Australian entities.

Like every other tax authority, the Australian Tax Office wants its share of profits earned from Australian consumers. You can see this trend in the new GST rules (dubbed the ‘Netflix tax’) which come into effect on 1 July 2017 – although for many the requirement for foreign entities to charge GST on services and digital products provided to Australian consumers has already come into effect. On the other hand, changes to the GST treatment of international transactions that apply from 1 October 2016 are intended to make life easier for both Australian and overseas businesses, but these rules can become quite complex to apply in real life.

No one likes uncertainty and 2017 is shaping up to be a year where people feel unsettled. Take a breath, think strategically, look beyond your personal experience, and take advantage of the opportunities that are available to you.

 

*2015-16 figures Austrade Why Australia Benchmark Report 2017.

Business structures and restructures: Is your structure working against you?

Many business owners don’t realise that the business has outgrown its structure until something comes up – and this something is usually something negative.

Are your assets at risk?

Legal action by employees, customers and suppliers as well as divorce are the two primary risk issues for many business operators. If you have been operating as a sole trade or as a partner in a partnership or have simply been holding all business assets in a single entity, your structure may not provide sufficient asset protection. If any personal assets or valuable assets of the business are held in the same entity which carries on the trading operations of the business, those assets may be at risk. To protect your assets it is generally preferable to separate as many valuable assets as possible from the trading operations.

Can you introduce new business partners or investors?

If you want to provide key employees or investors with an equity interest in your business, your current business structure may not allow for this. For example, it is not generally possible to provide fixed entitlements to the profits of a business operated by a discretionary trust.

Entities such as companies and unit trusts are a much more effective vehicle to facilitate the introduction of new equity partners as they can provide a fixed interest in the income and capital gains generated by the business. New investors can also potentially claim interest deductions on funds borrowed to invest in the company or unit trust.

Reinvesting in growth

Reinvesting profits in your business is important if you have or expect a strong growth path. Some business structures however don’t readily facilitate profits being retained by the business. For example, it is generally more difficult for a trust to retain profits, as the trustee of a trust is taxed on these profits at penalty tax rates if they are not distributed to the beneficiaries of the trust each year. This is compared to private companies where profits are taxed at a maximum rate of 30% or 28.5% and can be retained in the company without the need to distribute these profits annually.

Can you take money out of the business?

When you first established your business, it’s hard to know what your profits are going to be and for many, there are a few lean years of losses to get things up and running. Your personal circumstances might have changed as well – marriage, children, a spouse, etc. These changes can drive the need for change. The structure of your business has a direct impact on how money flows through it to the investors. For example, one of the benefits of a discretionary trust is that the income of the trust can be distributed to any of the beneficiaries of the trust in any proportion, and that proportion can change annually.

Impeding international expansion

If you are contemplating expanding overseas this can significantly increase the complexity of your operations. All of a sudden you will be exposed to a new set of Australian tax rules in addition to the legal and regulatory requirements that will need to be considered in the foreign jurisdiction. On top of the complexity, control may also become an issue. The right business structure can limit your exposure to risk.

Access to tax incentives and concessions

Research & Development (R&D) concessions are only available to companies. If you have a significant level of R&D activity that could potentially qualify for the tax incentives, it’s worth exploring your options if you are not already in a company structure.

Can you exit your business?

The business lifecycle has shortened considerably with less business owners seeking to create empires but more opportunistic business models. The wrong structure will limit your ability to sell your business interests and may have a dramatic and detrimental impact on the amount of tax you pay on the sale proceeds. It’s important that you explore this issue well before you actually plan to sell or reduce your stake in the business.

Is your business structure working for you? Contact MMT Accountants + Advisers to discuss whether your structure is right for long term goals.

Trump wins the White House – what does this mean for investors?

In a spectacularly surprising result, and contrary to all the pollsters, Donald Trump was voted in as the next American President last night our time; the Republican Party also retained control of the House and the Senate, providing Donald trump a slim margin of support in Congress. Like Brexit, US citizens voted for change and got it; there will be much discussion over the catalyst for this change but rising inequality, stagnant wages, and a general disenchantment with establishment and mainstream politics have been blamed.

Stephen Caswell
Stephen Caswell

There will be much debate on the reasons in the weeks and months ahead but importantly we consider the economic and investment implications of the decision, and importantly how much of the policy rhetoric announced during the campaign as a sales pitch will be, compared with the pragmatic approach to governing. Donald Trump made much of the fact that he is not a politician but a businessman, in office a lot will be considered following the announcements of the politicians he will appoint to administer his term of office.

Generally speaking the Trump policies of fiscal stimulus with spending on defence and infrastructure and a reduction to non-defence discretionary spending; tax cuts in the top marginal tax rates from 39% to 33% and the company tax rate from as high as 39% to 15%; and reduced regulation, are beneficial in the short term but there is concern that they will lead to increased budget deficits, higher inflation, higher interest rates and a stronger $US in the long term. Foreign policy is the one area where the economic world will be watching to determine whether political pragmatism will out-weigh the rhetoric. What is obvious is that Donald trump wants to reposition alliances and review trade agreements to put America first, the degree to which this will be enacted and the resultant geopolitical and social tensions of his protectionist policies are yet to be determined.

From the markets perspective, much like Brexit, we saw an immediate and significant selloff on the first signs of a Trump victory however the markets recovered quickly finishing significantly positive during the following trading session. As with many significant geopolitical events we do expect continued short-term volatility. From an investment perspective we believe the first priority is to rationally evaluate your chosen investment strategy, consider it in light of the primary economic and market indicators, then stick to it and don’t get caught up with the crowd during the short term roller coaster of rising and falling markets; it is important to realise that in the short term markets are often moved by irrational and erratic investor behaviour.

As always clients are encouraged to call the office on 02 9930-6100 and speak to me if you have concerns or simply want to chat.

As with any investment decision one should seek advice from your professional adviser before investing!

Important note: While every care has been taken in the preparation of this article, MMT Financial Solutions (ABN 40 147 903 526, AFSL 458115) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

Growing to Death

 

Most people are not surprised when a start up business fails. But it’s not just start ups that grow to death; it’s also a common cause of business failure for mature businesses.

Start-up businesses often fail because they are undercapitalised. They grow until the money runs out and then they can’t afford to fund further growth. The banks refuse to lend to them as they have no history and no assets to leverage, and then they die. It’s an easy trap to fall into. The entrepreneurial spirit that drives people to start up a business is often the same spirit that keeps them focussed on a growth path. The mentality is that the faster you drive sales and bring in the cash, the more successful the business (and the entrepreneur) will be. However, this cycle of sales and profit is missing two key components; financial, and cash flow management. A successful and sustaining business has all of these elements.

For the more mature business, growing to death is often the result of unplanned growth opportunities. It’s ironic that seizing a major sales contract or a big new client can be your business’s ruin but it’s more common than you think. More often than not it’s an issue that business operators don’t identify until it is too late.

Many business operators are very good at what they do. Most have an excellent knowledge of the business they conduct and understand their products and services. Most also have an in-depth knowledge of sales performance and revenue. Few however have a high level of financial management expertise, so when a big new opportunity presents, critical financial questions are not asked. As a result, there can be a sudden and unintended impact on their financial position. A rush of sales might be a great thing but it is not always counterbalanced by a rush of income and profit. Free cash and liquidity are the victims.

Big one-off opportunities can also be dangerous because they are rare. For businesses without strong financial management and control, there is simply no way of understanding what impact the opportunity will have until they have experienced it. With no background history to rely on, the warning signs of impending financial crisis don’t appear.

Sudden growth comes at a cost. That cost can be at a profit or at a cash flow level. Profit and cash flow are not the same and where operators don’t have a lot of financial expertise they generally rely on profit analysis without considering the cash flow implications. You need to understand the cash cycle and its timing within your business.

The first step is to understand that sudden change creates a different dynamic and brings cost and cash flow implications with it. It’s essential not to embark on sudden change without identifying what these implications are.

Let’s look at an example: Jonathon runs a typical small business. Since taking over the established business a year ago growth has accelerated. The primary product of the business is brought in from overseas. The business is predicated on a budgeted turnover of $70,000 – $100,000 per month. The working capital in place accommodates the business operating at this level which is already a step up from where it was when he bought it.

Jonathon knows the business has a lot of potential and he’s been working hard to fulfil its promise. He’s ecstatic because he’s brought in five major sales all within the $50,000 – $200,000 range and all expect delivery within the coming 3 months. While the big sales required a dip in the gross profit margin, it’s still doable.

If all of the orders come through, the impact of the new sales will take his turnover from its current level of $100,000 per month to an average of $250,000 per month for the next 3 or 4 months. If you imagine yourself in Jonathon’s place, it would be hard not to be impressed with your efforts wouldn’t it? What a boost to the company.

Now add in another factor. The primary product is purchased from the supplier without trading terms so the outlay for any major sale is in advance. As a result, the cash flow implications of the time between each sale, the purchase of the product from the supplier, fulfilment and payment by the customer is critical to understand. For Jonathon, the highest risk is the major outlay of cash required to fulfil the sale. He cannot buy time.

When Jonathon had a cash flow analysis put in place to determine the impact of the new sales it revealed that he needed $200,000 to $300,000 more cash than he had. He knew it might be tight but didn’t realise the situation was that stark. As a result of the analysis, Jonathon was able to work with the customers to stage the orders and manage the cash flow requirements.

Had he fulfilled the sales without the analysis, he would have had a funding gap of approximately 60 days where he was exposed by $250,000 without the capital base to support him.

While the details might be different, situations like Jonathon’s are not uncommon. The problem is that unless you have strong security, the chance of any bank giving you an increase in funding is unlikely. Banks want to lend to businesses that have good financial management. If you approach them once a problem such as Jonathon’s has occurred, you have already proven the case in the negative and set yourself up for rejection.

In the example above, cash flow was the major issue. In others it is profit. Large customers with large orders may expect you to cut your margin. Or, they might ask you to discount if they ‘up the order’. The danger is that you, or your sales people, get carried away with the headline number and don’t look at the profit contribution. Some sales, even big sales are simply not worth it as you can’t trade below a certain profit level. For businesses with higher fixed costs your ability to negotiate your margin is less flexible than those with higher variable costs. The key is to know your break-even point before entering into any deals.

And, discounting can be its own trap. For example, if your margin is 40 per cent and you reduce your price by 10 per cent, you need a 33 per cent increase in sales volume to maintain your profit level!

The good news is we’re here to help and taking steps before these problems arise can help your business proposer.

Conservative investors struggle in this market…………

Over the past six months I have constantly made reference to the fact that we are in a low interest, low return, and volatile investment cycle; but what does this mean for investors, particularly those who see themselves as conservative?

Historically investors who deem themselves as conservative or those wishing to shield themselves from market volatility sort the ‘safe haven’ of bank deposits or treasury bonds, and prior to the GFC anyone could access a virtually risk free yield of 5% plus. In the wake of the GFC, in an effort to stimulate economic growth, central banks around the world have adopted a Zero or in some cases Negative Interest Rate Policy. How has this impacted investors…………………

If you were a retiree in the 90’s requiring $50,000 per annum, and you had accumulated retirement funds of a million dollars, bank or treasury deposits plus a small exposure to growth investments could achieve your income with a little growth to combat inflation, virtually risk free. If you were approaching retirement and Capital Preservation was a high priority you could wind back exposure to ‘riskier’ growth assets i.e. shares and property in favour of the safe haven of banks, and still grow your wealth even allowing for inflation. If you were concerned about the volatility in shares or property you could shift all or part of your portfolio to bank deposits to ride out the perceived storm.

What has changed? Central banks around the world have adopted a Zero or in some cases Negative Interest Rate Policy in order to stimulate economic growth, this on the surface has worked to halt economic decline and instigate economic growth. It has also allowed consumers and business’ to repair their balance sheets by paying down debt, and facilitated increased stock prices; the conundrum for the conservative investor is that it has set the foundation for persistently low and potentially below inflation, investment interest rates for the foreseeable future.

Traditionally a conservative portfolio consisted of 60% growth assets (shares & property) and 40% defensive assets (term deposits & bonds), this 60/40 portfolio was forecast to provide an overall return of 8% net of fees and charges with growth assets contributing 10% and defensive 5%; given our scenario above this return is capable of providing a retiree income to live and sufficient growth to combat inflation and maintain capital. If we now assume that the traditional portfolio returns will not be achieved in today’s environment and that returns might be closer to growth assets contributing 5% and defensive 2%; it is obvious for a retiree that the portfolio will not provide the required income and it will have to be supported with a drawdown of capital, which can have negative or disastrous consequences over the long term particularly as people are retiring earlier and living longer. For potential retirees it is important to review the level of income required, the estimated time in retirement, and a realistic portfolio return to determine the amount of capital which will be needed to retire.

For those who consider themselves as conservative investors it might be prudent to reflect on the components of your portfolio, for traditionally ‘safe haven’ investments may not be so safe if the returns struggle to beat inflation. A considered approach to portfolio construction taking into account your financial needs and objectives, available capital, surplus cash flow, and investment time frame is most likely to meet both your investment and risk-tolerance objectives.

As with any investment decision one should seek advice from your professional adviser before investing!

Important note: While every care has been taken in the preparation of this article, MMT Financial Solutions (ABN 40 147 903 526, AFSL 458115) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

What we all want to know is will the market be up for the rest of the year?

2016 global share markets have started on a very weak footing, continuing the falls we have seen since the high of May 2015. As mentioned in my previous article this panic in global share markets started with Chinese shares falling heavily in the early days of January, a plunging oil price, and a tightening monetary policy in the US. Global markets eased further in February, continuing the major slump in January, but then enjoyed a strong bounce after bottoming mid-month.

 

One of the concerns has been whether the US would fall into a recession however the fundamentals suggest that this is not likely, the population’s net wealth is high and debt service ratio low; consumer credit is rising increasing consumption; spending is still strong e.g. vehicle sales >17m; confidence is at very high levels; and corporate balance sheets healthier. On the negative side services activity is softening, inventory levels are high and a drag on growth, business spending is softer, and the strong USD is hurting trade. Whilst the US Fed commenced tightening monetary policy for the first time in nine years and suggested there could be four more rate rises this year, the general consensus is that four is unlikely. We still expect GDP growth of 2% driven by improved consumption – that represents around 70% of US GDP and it continues to grow; Retail sales were up 3.4% in January because Americans have more money in their pockets thanks to cheaper petrol and rising wages (up 2.5% recently); and, the US unemployment rate is now down to 4.9%. None of these numbers are usually associated with a weaker economy.

 

Given the propensity for news outlets to paint a dour picture, we can reasonably expect more headlines with upcoming geopolitical events including the US presidential election, a vote on Brexit, the rise of populism in Europe, tensions in the South China Sea, tensions between Saudi Arabia and Iran, and an election in Australia – just to name a few. The bulk of these issues should turn out okay for investors, but it’s worth keeping a close eye on them.

 

There is no doubt that market psychology is negative, however the above issues are not systemic as we saw in 2008; coming from a low base and with all of the expansionary settings at present consumers should be the driving force behind both the global and Australian economies.

 

It is reasonable to assume that nominal growth will remain low with continued volatility, which is crucial to factor in when making investment decisions. In this scenario it is important to try to reduce risk in your portfolio’s, looking at investments and strategies which can grow earnings in this low growth environment.

As with any investment decision one should seek advice from your professional adviser before investing!

Important note: While every care has been taken in the preparation of this article, MMT Financial Solutions (ABN 40 147 903 526, AFSL 458115) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

Deadline looms for SMSFs and collectibles

Does your self-managed superannuation fund (SMSF) own a motor vehicle, artwork, wine, coins, jewellery, cars or other collectibles?

More stringent rules for how these collectible and personal use assets are managed come into effect for all funds from 30 June 2016. While it’s important for all SMSFs to ensure that they are compliant with the rules, funds with collectibles purchased before 1 July 2011 have had a grace period to get their house in order. This grace period ends on 30 June 2016.

There is around $407 million worth of these collectible and personal use assets sitting in SMSFs in Australia. The Tax Office’s main concern is that it’s really easy for fund members to forget that these assets – like artwork and cars – are owned by the fund and must be held for retirement purposes. That means members of the fund (or anyone related to them) can’t use or enjoy that asset.

If you have these assets in your fund (or are looking to acquire them), here’s what you need to ensure:

1. The asset must not be leased to a related party – a related party includes a member of the fund, their relatives, business partners, the spouse or child of these business partners), or any company or trust that the fund members control or influence.

2. The asset must not be stored in the private residence of the related party – this includes sheds and garages etc.

3. The trustees must keep a written record of where, how, and why the asset is to be stored.

4. The asset must be insured in the fund (trustees) name. If your SMSF is buying a collectible, insurance needs to be in place within the first seven days. If the fund already owns the asset it must be insured in the trustees name before 1 July 2016!

5. The asset must not be used by a related party. For example, if your fund owns a vintage car, you cannot drive it for any reason, not even to go to the mechanic.

6. If the asset is sold to a related party, the asset must be sold at a market price determined by a qualified and independent valuer.

A few issues come out of these requirements. Sometimes insurance is difficult or impossible to get for collectible assets. If you can’t secure insurance, the asset may need to be sold. If a collectible asset needs to be sold because the rules can’t be met, the sale process can sometimes be protracted – this could be an issue if you need to sell the asset pre 30 June.

Before your fund acquires a collectible asset, it’s also important to ensure that the fund Trust Deed allows for collectibles to be acquired, the Investment Strategy of the fund allows for the collectible to be acquired, and that the sole purpose of acquiring the collectible is to provide retirement benefits for members.

What is a collectible and personal use asset?

The definition of a collectible is quite broad and will often capture assets that many fund members don’t realise qualify as collectibles.

A common example is motor vehicles. The definition of a collectible includes motor vehicles such as utes, not just classic cars that are generally considered collectors items.

When the Tax Office talks about collectibles, they mean:

– artwork – including paintings, sculptures, drawings, engravings and photographs;
– jewellery;
– antiques;
– artefacts;
– coins, medallions or bank notes (coins and banknotes are collectables if their value exceeds their face value, and bullion coins are collectables if their – value exceeds their face value and they are traded at a price above the spot price of their metal content);
– postage stamps or first-day covers;
– rare folios, manuscripts or books;
– memorabilia;
– wine or spirits;
– motor vehicles and motorcycles;
– recreational boats; and,
– memberships of sporting or social clubs.

If you have any questions about the above please contact your MMT Adviser on 9930-6100.

Ups & Downs: Managing in uncertain times

 

How do you create certainty in uncertain times? Much of what we do personally to grow and protect our wealth, and commercially for the businesses we manage is subject to unpredictability and change.

The answer is that there are no certainties in life – sorry about that. But, this doesn’t mean that you can’t take charge and protect against uncertainty – you just need to know where and how to look at it.

Where we are at

Government spending will continue to be a focus this year with the interest on Government debt now running at $1 billion per month according to Treasury. There are only a few ways the Government has of dealing with the increasingly ominous debt trend; initiatives to lift productivity and growth to boost tax revenues, spending cuts, and increased taxes or a reduction in tax concessions. This year, for you personally, your SMSF, and your business, you should keep this in mind when trying to manage change as Government policy is likely to provide both opportunities and risks in the short and long term.

For you

Your wealth

In the last 9 months, we have seen a huge drop in the value of equity markets, especially here in Australia. The All Ordinaries Index sat at close to 5,955 points at the end of April 2015. As at 21 January 2016, the index was 4,896 points. A drop of over 1,000 points or close to 18%.

It’s a volatile market and difficult to know what to do beyond “don’t panic.” Most of the leading economists are predicting continued growth despite the market being easily spooked. It’s important to know your individual position and the likely impact of change on you – investing vs paying down the mortgage, different investment types, SMSF vs retail funds. Reacting with the crowd to change is never a good idea. If you haven’t already, talk to one of our advisers about your options.

Also bear in mind the impact of Government policy. Negative gearing currently costs more than Australia’s defence budget. It’s likely to be cut back or grandfathered out of existence at some point.

Got kids?

The reforms to social welfare in the last few Federal Budgets didn’t quite make it through the Senate in full. But, times have changed and Palmer United is no longer the Senate ‘king pin’ it once was – directing traffic on Government policy and social reform.

One change that did pass Parliament was the ‘no jab, no pay’ reforms. From 1 January 2016, if your kids are not immunised then your family is no longer eligible for subsidised childcare or the Family Tax Benefit Part A end of year supplement.

Extensive reforms introduced to Parliament pre-Christmas will change the structure of childcare subsidies to consolidate the current system of multiple subsidies to just one. The new subsidy will be income and activity tested. While these reforms will not take effect until 2017 (assuming they pass Parliament) it’s important to understand that change is coming and it’s impact on you.

In general, if you currently receive family tax benefits and your household income is getting towards the upper threshold limits, you should do a quick check and see if you can still cover your expenses if any benefit payments you currently receive were removed. Further reforms to refocus benefits on lower income families are likely.

Work in the not-for profit sector or for hospitals or ambulance services?

From 1 April 2016, changes to salary sacrificed meal entertainment and entertainment facility leasing benefits come into effect. A single grossed-up cap of $5,000 will apply to these benefits from this date. Many people in these sectors benefit from these concessions so it’s important to check the changes and the implications to you.

Living outside of Australia?

From 1 January 2016, Family Tax Benefit A will be reduced for people outside of Australia. Families will only be able to receive FTB A for 6 weeks in a 12 month period while they are overseas.

Also, if you have a Higher Education Loan and live overseas for 6 months or more, from 1 January 2016 you will be required to make repayments of your HELP debt if your worldwide income exceeds the minimum repayment threshold at the same repayment rates as debtors in Australia.

Stocktake debt

Every so often it’s important to review what you’re spending money on and why. Debt is a big issue for most as we accumulate debt in different forms over time – home loans, investments, credit cards, etc. If this sounds like you, it’s almost guaranteed you are paying too much. It’s time to take stock and see what debt you have and if there is a way of getting a better deal.

Your Business

Look at the trends and opportunities

Many of the ‘dramatic’ changes that impact on mature business models – online retail vs traditional retailers, the shift from paper publishing to online publishing, the demise of packaged electronic products on shelves to download delivery, or for example, the impact of Uber on taxi services – were reasonably predictable. There were recognisable indicators for each of these changes well before they had a direct impact on Australian businesses. Online retailing existed decades before denting bricks and mortar retail sales in any recognisable way, and as soon as faster internet speeds enabled quicker downloads the packaging and B2B sale of most electronic product became unnecessary. Tech company Uber started in 2009, spreading exponentially around the world well before it launched in Australia in 2014. If anything Uber proves that the foundation of any industry can be shaken dramatically in less than a few years.

In many cases, these ‘disruptive’ businesses offered something to consumers not reliably fulfilled by the existing market – efficiency, access, range, and importantly, greater consumer control not just acceptance of what is on offer.

As business operators, it’s important to constantly assess the impact of trends on our current business and product range and work toward the ‘what ifs’.

Trends also exist in Government policy and can have a positive or negative effect on your business. At present, the Government is firmly focussed on boosting business productivity and investment.

There are a wide range of incentives to stimulate spending and the entrepreneurial spirit:

  • Crowd funding – funding is difficult for entrepreneurial start-up businesses in Australia. New frameworks are currently being developed to formalise crowd and other funding sources to encourage investment opportunities beyond bank finance.
  • Employee share schemes (ESS) – new rules introduced last year bolster the tax benefits for employees of ESSs and provide special concessions for start-ups. Further changes should follow shortly.
  • Accelerated depreciation – small business and primary producers can access a range of concessions that enable them to offset expenses in the same year as the expense – rather than depreciating the expense over time.
  • Tax relief for restructures – changes to be introduced this year should allow small business to change their business structure without the risk of triggering CGT and other income tax implications. So, it is a good time to check whether your structure is right for your long-term business plans.
  • Your Superannuation

    There is almost no doubt that the current raft of concessions available to superannuation will change. To lock in your access to the current concessions, you should focus on maximising the tax-free component of your superannuation. If you haven’t already, come and see us to have a chat as there are different strategies that can be utilised depending on your situation.

    SMSF and related party loans

    The ATO is looking closely at related party loans in SMSFs. If your fund has borrowed money from a related party, for example a member of the fund, to acquire an asset and the terms of that loan are not at arms length or well documented, then you need to get the paperwork and the loan terms in order a.s.a.p. While the ATO have stated that they are not necessarily looking at arrangements before the 2014-15 income year (unless it comes up in audit), you can expect a much closer scrutiny from now on.

    Super and Social Security

    The social security income test tightened on 1 January 2016 for superannuants. If you receive defined benefit income from your superannuation, a larger portion of this income will now be taken into account when applying the relevant social security income tests – capping the proportion of income that can be excluded at 10%. This affects aged care fees, income support payments, the Low Income Health Care Card, etc.

    Global market volatility continues?

    Generally 2015 was forgettable for investors with returns and volatility influenced by a plunging oil price, nervousness created by a slowing Chinese economy plus concern over emerging markets generally, tightening monetary policy in the US but stimulatory settings in other major economies including Europe, China, and Japan (and Australia).

    2016 has continued where 2015 left off with indices being sold off due initially to a selloff in Chinese shares and falls in the value of the Renminbi (RMB); concerns over the strength of the Chinese economy flowed through to commodity price weakness and worries over the impact to emerging economies; softer than expected US manufacturing data; and geopolitical risk, specifically tensions between Saudi Arabia & Iran, and the North Korean nuclear tests – all this in just a few weeks!

    With all this happening it is easy to capitulate, however it is important to add some perspective to these issues;
    • The significant early volatility on Chinese markets were influenced by regulatory issues, specifically a scheduled ban on selling of shares by major shareholders (which has now been amended to a restrictive limit on the size of stakes which can be sold); the introduction of a circuit breaker to halt large index declines which only served to bring forward investor selling to beat the shutdown (the circuit breaker has now been suspended); plus a near 6% decline in the value of the Renminbi (RMB) since July, however there is evidence that the Peoples Bank of China has taken steps to stabilise it again.

    • Whilst some data coming out of the US is soft there is still sufficient evidence to show an underlying growth of around 2%.

    • We continue to see stimulatory global monetary policy settings particularly in Japan, Europe, and China; and US Federal Reserve tightening is likely to be modest.

    The first few weeks of this year have focussed on China (GDP and currency), and the falling oil price; the next thing investors will be focussed on is the upcoming US reporting season where analysts are expecting lower profits on average from American corporations due to the falling oil price impacting energy companies and the stronger US dollar hurting companies with foreign earnings.

    The worries outlined above will continue to drive volatility in the short term; however I refer back to previous articles in terms of fundamentals; share market corrections provide attractive valuations; a continued expectation of expansionary global monetary settings; and, sustained modest global economic growth.

    In summary we expect 2016 to provide another challenging year for investors but for global markets to recover from their lows as market fears of an impending global recession fade, providing modest positive equity returns globally for 2016 with higher levels of market volatility. For investors, we believe portfolio diversification and asset allocation is the key.

    As with any investment decision one should seek advice from your professional adviser before investing!

     

    Important note: While every care has been taken in the preparation of this article, MMT Financial Solutions (ABN 40 147 903 526, AFSL 458115) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

    Fed raises interest rate – good news?

    After continued delays the Fed has finally raised interest rates from 0.0-0.25% to 0.25 – 0.50%. This rise is in response to the continuing recovery in the US economy following the GFC. Whilst highly anticipated and prompted by the Fed for over a year, the decision was delayed in the June and September FOMC meetings citing weaker US data, worries about China, and financial market volatility.

    Whilst the Feds indecision in itself created market volatility, today’s decision seemed highly anticipated with the market pricing in the rate rise over recent weeks. Most analysts are predicting a ‘Dovish’ (subdued) approach to future rate rises, with Fed Reserve Chair Janet Yellen not wishing to put the brakes on the current economic expansion.

    Is the rate rise good news? Importantly it is an indication that the world’s largest economy is getting back on track with GDP growth rising, unemployment falling from around 10% in October 2009 to 5.1% in September 2015; consumer confidence is up, business investment is up, and housing starts are up, to name a few.

    From an investment perspective, historically the commencement of a rate rising cycle has corresponded with a growth trend in the US stock markets; an expansion of the world’s largest economy the US should provide demand to other global economies; many major economies including Europe, China, and Japan (and Australia) are continuing with stimulatory interest rate settings, which is positive for growth assets.

    Notwithstanding the above risks still remain; global growth is still fragile; geo-political issues may arise; concern surrounding China’s growth prospects; and, resource prices and the strong $US are causing difficulties for emerging economies. We believe that the positives outweigh the negatives and our outlook remains the same as described in the November issue, being that we are likely to see an extended period of growth in share markets, although with higher than normal volatility.

    As with any investment decision one should seek advice from your professional adviser before investing!

     

    Important note: While every care has been taken in the preparation of this article, MMT Financial Solutions (ABN 40 147 903 526, AFSL 458115) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

    Naughty or nice? Xmas tax checklist

    It’s that time of year again – what to do for the Christmas party for the team, customer gifts, gifts of appreciation for your favourite accountant (just kidding), etc., etc. Here are our top tips for a generous and tax effective Christmas season:

    For your business

    What to do for customers?

    The most effective way of sharing the Christmas joy with customers is not necessarily the most tax effective. If, for example, you take your client out or entertain them in any way, it’s not tax deductible and you can’t claim back the GST. There are specific rules designed to prevent deductions and GST credits from being claimed when the expenses relate to entertainment, regardless of whether there is an expectation of generating goodwill and increased business sales. Restaurants, a show, golf, and corporate race days all fall into the ‘entertainment’ category.

    However, if you send your customer a gift, then the gift is tax deductible as long as there is an expectation that the business will benefit (assuming the gift does not amount to entertainment). Even better, why don’t you deliver the gift yourself for your best customers and personally wish them a Merry Christmas. It will have a much bigger impact even if they are not available and the receptionist tells them you delivered the gift.

    From a marketing perspective, if your budget is tight, it’s better to focus on the customers you believe deliver the most value to your business than spending a small amount on every customer regardless of value. If you are going to invest in Christmas gifts then make it something people remember and appropriate to your business.

    You could also make a donation on behalf of your customers (where your business takes the tax deduction) or for your customers (where they receive the tax deduction). Donations to deductible gift recipients (DGRs) above $2 are tax deductible and can make an active difference to a cause (see For you below).

     

    What to do for your team?

    Christmas is expensive. Some businesses simply can’t afford to do much because cashflow is too tight. Expectations are high so if you are doing something then its best not to exacerbate cashflow problems and take advantage of any tax benefits or concessions you can. Let’s have a look at the impact of your options.

     

    Christmas parties
    If you really want to avoid tax on your work Christmas party then host it in the office on a workday. This way, Fringe Benefits Tax (FBT) is unlikely to apply regardless of how much you spend per person. Also, taxi travel that starts or finishes at an employee’s place of work is exempt from FBT. So, if you have a few team members that need to be loaded into a taxi after over indulging in Christmas cheer, the ride home is exempt from FBT.

    If your work Christmas party is out of the office, keep the cost of your celebrations below $300 per person. This way, you won’t pay FBT because anything below $300 per person is a minor benefit and exempt. Be careful though as the $300 includes all the costs of the event so meals, drinks, entertainment, etc.

    If the party is held somewhere other than your business premises then the taxi travel is taken to be a separate benefit from the party itself and any Christmas gifts you have provided. In theory, this means that if the cost of each item per person is below $300 then the gift, party and taxi travel can all be FBT-free. However, the total cost of all benefits provided to employees needs to be taken into account in determining whether the benefits are minor across the FBT year.

    Just remember that if entertainment is provided to employees and an FBT exemption applies, you will not be able to claim tax deductions or GST credits for the expenses.

    If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction for the cost of the event. Just bear in mind that deductions are only useful to offset against tax. So, if the business is paying no or limited amounts of tax, a tax deduction is not going to help offset the cost of the party.

     


    Christmas gifts for staff

    $300 is the minor benefit threshold for FBT so anything at or above this level will mean that your Christmas generosity will result in a gift to the Tax Office as well at a rate of 49%. To qualify as a minor benefit, gifts also have to be ad hoc – no monthly gym memberships or giving the one person multiple gift vouchers amounting to $300 or more.

    Gifts of cash from the business are treated as salary and wages – PAYG withholding is triggered and the amount is subject to the superannuation guarantee.

    Aside from the tax issues, think about what will be of value to your team. The most appreciated gift is the one that means something to the individual. Giving a bottle of wine to someone who doesn’t drink, chocolates to a health fanatic, or time off to someone with excess leave, isn’t going to garner much in the way of goodwill. A sincere personal message will often have a greater impact than a uniform gift.

     

    For you

    Spread the joy with charitable gifts

    I have a relative who doesn’t need or want anything material and who is very socially aware. This Christmas I am gifting her a well in a third world country. And, to make sure there is something to open at Christmas, I plan on packaging the donation in a drinking bottle. Assuming the gift is made through a deductible gift recipient (DGRs), then the donation of the well will be tax deductible – either for me or her – as it is the money equivalent of a well for projects of this type, not an actual well.

    If I had made a donation and received something for that donation like a toy or raffle ticket, then it would not be tax deductible.

    MMT Accountants + Advisers wishes you all a happy and safe Christmas and a prosperous 2016.

    Investing isn’t easy…………….

    Interest rates are likely to remain low; Average returns on Growth assets are likely to be constrained; in the absence of an external shock Share markets should continue their long term upward trend, albeit at a more modest pace.

    We are now in an extended period of slow economic growth, with the IMF Global GDP growth forecast at around 3.5%. This will make it more difficult in identifying investment opportunities, with subdued returns across all asset classes.

    There have been a number of factors contributing to this muted growth, most stemming from the GFC (Global Financial Crisis);

    • Loss of confidence – consumers are paying down debt, and saving instead of spending; businesses are less likely to undertake capital investments, seeking more productivity from existing assets.

    • Put another way, the increase in consumer debt has slowed resulting in a slower growth in consumer spending. Growth in Business debt is also slowing as businesses strengthen their balance sheets; reducing capital spending impedes productivity growth.

    • Reduced capital spending also inhibits employment growth leading to persistently higher unemployment rates.

    • Plus, a series of economic and natural disasters followed by the recent uncertainty over the China growth story, falling resource prices, and the US interest rate decision have all served to exacerbate the above loss of confidence.

    What can we expect as a result of slower economic growth?

    Low inflation as constrained spending keeps prices low; Low interest rates which are required to boost growth and use up spare economic capacity; and, a low risk of a global economic downturn.

    The positive, from an investment perspective, is that we are likely to see an extended period of growth in share markets, although with higher than normal volatility. As mentioned in the September article “For a Bear (extended falling) market to occur there has to be a fundamental reason typically when countries, in particular the U.S., fall into recession. Some but not exclusive pre-cursors to recession are over-valued asset prices, high employment, high inflation, followed by significant monetary tightening (Central Banks increasing interest rates). As discussed above none of these pre-cursors are currently evident.

    Source: JP Morgan
    Source: JP Morgan

    The problem for investors in this market is that they inherently gravitate to traditional ‘safe havens’, whether it is cash and bonds where currently returns are low with the chance of capital loss as interest rates eventually start to rise; chase ‘blue chip’ stocks bidding them up beyond fair value; or ‘bricks and mortar’ where returns are highly reliant on robust research, as mentioned in last month’s article.

    In investing there are no easy picks or sure things, as with every important decision, research; a sound strategy; and commitment, are the key factors. As investors we subscribe to a broadly diversified portfolio containing all of the major asset classes, in a low growth/return environment the allocation to each asset class is fundamental.

    As with any investment decision one should seek advice from your professional adviser before investing!

     

    Important note: While every care has been taken in the preparation of this article, MMT Financial Solutions (ABN 40 147 903 526, AFSL 458115) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

    Glenn Simpson Landscapes wins the LNA People’s Choice Award

    MMT Accountants + Advisers are pleased to see one of our valued clients doing so well.

    Glenn Simpson Landscapes recently won the People’s Choice Award for Commercial projects at the LNA Master Landscapers Association’s 2015 Excellence Awards!

    Glenn Simpson receives Award

    Sandstone work at Bateau Bay
    Sandstone work at Bateau Bay

    The Award was given for their outstanding job for the construction of the Shelly Beach Surf Life Saving Club Forecourt, Bateau Bay for Wyong Council.

    The Award was voted live on the night against a multitude of state wide entries and was selected by industry peers.

    “We are thrilled, humbled and honoured to have received this prestigious Award. Being selected by our industry peers made the Award even more meaningful for us.” – Glenn Simpson.

    The project comprised of bulk excavation and trimming, drainage works and storm water connections, sandstone log installation, concrete works for vehicle and pedestrian access, concrete walls and step installation, porous paving, beach showers, planting and turf installation, installation of solar lighting across three separated Areas and traffic control.

    Congratulations to Glenn and the team at Glenn Simpson Landscapes!

    Project Overview

    China: Opportunities, investment & appetite

    There has been a lot of discussion about China lately – Free Trade Agreements, financial stability and growth and the impact on the Australian economy, and Chinese investment in Australia. With the help of our international contacts, we explore the impact of China on Australia and give some context to the debate.

    According to Austrade, one in every three Australian export dollars earned is from sales of goods and services to China. On top of that, 80 per cent of the value of Australia’s export growth in 2013-14 was from trade with China. It’s not surprising then that we have a fixation with the welfare and continued consumption of Australian goods and services by China and China’s rising influence on the Australian economy.

    Chinese growth – an insider’s view

    China’s economic growth has been spectacular: until recently growing at around 10 per cent per annum from a low economic base to arguably the leading global economy. While construction and infrastructure projects were the primary drivers of growth, the opening of the Chinese economy to foreign investment in the late 1970s saw it become the ‘factory of the world.’

    The fuel to drive this growth was a massive growth in Chinese consumption of resources – steel, iron ore, copper – you name it China needed it. You can see this consumption growth reflected in Australia’s export statistics.

    With an increase in wealth came an increase in consumerism with a growing middle class. And, with a growing middle class came a property boom with many Chinese able to afford better housing.

    Demand for housing escalated and development after development was launched, many snapped up within hours of launching. The cost of this success was a rapid increase in the cost of living, high property prices fuelled by speculators, and corruption.

    With the global financial crisis, demand for China’s goods started to decline creating excess capacity, factory and company closures, and staff lay-offs. Banks were then asked to reduce their loan exposure and Government projects scaled back. Starved of funds some companies sought funding from underground banks – shadow funding – paying extreme rates of interest that further aggravated the slow down and excess capacity.

    Looking forward

    The People’s Bank of China recently reported that it expects economic growth to be 6 – 7 per cent over the next three to five years – although businesses on the ground will tell you it’s lower than this at about 5.8 per cent. Interest rates were cut for the sixth time in 12 months in late October to try and hit growth targets.

    To maintain growth, the Government is embarking on transformation programs focussed on austerity and knowledge technology and transfer.
    We can see some of the fruits of this commitment to knowledge transfer with China now our largest export market for services representing 13 per cent of our global services exports.

    On top of this investment program, China has eased restrictions on foreign owned investment firms, no longer requiring them to partner with local managers.

    In terms of outbound investment, China’s State Council recently bolstered its offshore investment program – the Qualified Domestic Individual Investor program. Currently limited to a pilot program with the Shanghai Free Trade Zone, the program allows for an expanded range of offshore investments in greenfield and joint venture projects, real estate, and shares, bonds, insurance products, etc. You can expect to see the effects of this in Australian development projects.

    Free Trade with China

    The Free Trade Agreement with China is set to pass Parliament with the Labor Party negotiating a series of reforms to protect workers rights. The amendments put in place minimum wage safeguards for temporary skilled migration, new 457 visa conditions linked to relevant trade licenses, and the capacity to impose a ceiling on the number of new work agreements for 457 visa workers.

    Australian expansion into Asia is increasing for businesses of all sizes. In a recent survey, the ANZ recently reported that the majority of Australian businesses that have expanded into Asia have experienced a substantial lift in profits, with almost 40 per cent of small businesses making a return on investment within 12 months. If your business is not already looking at its international potential, is it time to review the opportunities?

    Is Australia in a housing bubble and will it burst?

    Over the past couple of months I have spoken about the drivers of volatility in Global share markets and our view that we should continue to expect higher volatility and more modest gains than have been achieved over the past three years. Whilst those drivers are still there, market concerns over China’s GDP growth and the timing of the Fed’s rate increase seem to be moderating, with markets generally increasing from their lows of late September. Our view is that broad based economic improvements across major economies will continue to support indices, whilst concerns over emerging market growth and resource prices are risks.

    When share markets are volatile Australian investors’ minds inevitably turn to property, generally residential; so this month I thought that I would spend a little time discussing the question “Is the bubble about to burst in Australian Residential Property?”

    Firstly it is important to look at what drives residential property prices and this is simply Supply v’s Demand; Supply is determined by existing stock, less demolitions, plus dwelling construction and Demand is determined by population growth, births, deaths, and net migration. This Supply Demand equation is referred to as the property cycle paradigm and/or the seven (not literally) year cycle.

    Generally speaking Australian house prices are expensive, arguably overpriced; according to the 2015 Demographia Housing Affordability Survey the median multiple of house prices to household income is 6.4 times in Australia versus 3.6 in the US and 4.7 in the UK. Affordability is difficult and household debt is high in Australia with household debt as a (%) percentage of household disposable income increasing from around 50% in 1990 to around 160% in 2015 (source ABS, RBA, AMP Capital).

    It is important to note that Australian property is not one amorphous market but rather it is made up of a range of markets geographically; over the past three years we have seen a surge in prices in Sydney and Melbourne (approx. 17% and 13% respectively) whilst prices in the bulk of the rest of the country have been subdued. Where to from now? Slowing growth is likely to occur in Sydney and Melbourne due to affordability; reduced lending to property investors; and falling consumer sentiment, where we are already seeing auction clearances reduce from around 80% to 60%. Opportunities may continue to exist in other centres however, Perth and Darwin are likely to continue to suffer as a result of the winding back of mining investment.

    The above is simply a broad overview, what it does indicate is that when considering an acquisition considerable research is required into the demographics of not only the city but also the suburb in which the person is considering a property purchase.

    Long term, residential property and Australian shares have produced similar returns and so there is a place for both in a portfolio; from an investment perspective we subscribe to a broadly diversified portfolio not only in Australian but also Global assets, so we caution clients against having too much exposure to any single asset class. As with any investment decision one should seek advice from your professional adviser before investing!

     

    Important note: While every care has been taken in the preparation of this article, MMT Financial Solutions (ABN 40 147 903 526, AFSL 458115) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional