Category : Finance

Comfort for Australian Expats after decision from Full Federal Court.

  • Willard Lloyd
  • March 7, 2019

Australian expatriates have been offered some relief after a Full Federal Court decision against the ATO in a tax residency case clarified the definition of “permanent place of abode”.
Harding v Commissioner of Taxation, ruling that the taxpayer’s “temporary” apartment qualified as a “permanent place of abode” under the tax residency test and was not liable for tax in Australia.

Be in Control of your Financial Well-being- Is Money Holding back your Happiness?

The Commonwealth Bank and the Melbourne Institute: Applied Economic and Social Research at the University of Melbourne, released a new benchmark measure of financial wellbeing of it stating weighing on the minds of a large number of Australians is their challenges of managing personal finances and putting enough money aside to ensure their financial futures. 

What is the CBA-MI financial scale? 

The scale combines banking data and peoples’ perceptions about financial outcomes.  The unique concentration of the individuals perception with the banking data reveals the barriers, drivers and behaviours that are linked to positive financial well being across both ‘self-reported and ‘observed’ scales. 

The Australian Share Market Slumped to a Two-Year Low.

For around 12 months we have believed that Australian and Global equity markets have been extremely overpriced and riding on the strength of euphoria as we couldn’t find many opportunities for growth.

We had always been saying that the Australian and US equity markets have been overvalued and thus very early on had little exposure to both asset classes. Most Australian investors who aren’t our clients have a love affair with domestic and US shares thus seeing very large declines in their portfolios over the past 3 months {-12% to -22%}

Couples and the “F” word – Let’s make it less taboo

It turns out it is not just a taboo amongst Australians.  It has been revealed that people would rather speak about religion, politics and even sex, than they would about their finances, especially when talking to family and friends. 

Talking finances is seen as something the majority of Australians are uneasy with, a staggering 50% will never discuss their finances with family or friends, while a further 14% still consider the topic taboo.  Why do we find it so difficult to mention the ‘F’ word? Perhaps because money symbolizes different things to different people; power, control, security or ego. 

Money is seen as an emotive topic, more so than religion or politics.  Many people view their financial situation as a reflection of their personal success.   

The Traps of some Industry Super Funds – A Precautionary Tale 

As from November 19, the first sizable industry fund, Australian super, will be making some significant changes to their fund, that may cause some concern for investors, especially if they were coming close to retirement.  These changes come as amid fears of a potential property market plunge.  Amongst the changes, property funds will be frozen for up to two years in the event of a crisis. Furthermore, the fund will prevent members from investing more than 70% of their savings in its property portfolio option.  

According to Kofkin Bond and Co, one of the most challenging changes will be the rule that states that, for up to two years, the fund has the right to freeze any attempts at withdrawing savings from the property option, as well as prohibiting funds out of, as well as any new contributions into, the options.  

Capital Gains Tax Changes to Hit Expatriates

Capital Gains Tax changes will mean that Australian expats will be denied the capital gains tax (CGT) main residence concession if they sell their former main residence while living abroad.  To date, this stands to affect over 100,000 Australians who currently live and work overseas whilst owning property back home. 

The GST tax advisers acknowledge that the Senate committee believes the CGT exemption may provide improved housing outcomes for Australians. However, they believe that there may actually be a counterintuitive reaction from expats as they decide not to sell properties until they return to Australia, creating a ‘lock-in’ effect rather than improving the quantity of housing inventory for sale. In other words; to avoid losing their ‘retirement plan’ to taxes, they will hold onto their property, potentially not selling it for decades, contributing to a lack of housing stock for sale. 

In Hong Kong, expatriates have come together in an attempt to create a campaign that would influence the Senate Committee to overturn the proposal. They believe that such a policy will make it difficult for firms, both Australian and international, to employ Australians to work offshore if they have the potential to have life savings wiped as a result of selling their home while not residing in Australia. 

Choosing Your Retirement Lifestyle

Choosing retirement and the perception of a person’s lifestyle, either currently or how one wants it to develop over time, is subjective – luxury living for one person is a modest existence for another. In this article, we offer guidance on the amount of money you may require for retirement to cover your basic living costs and support your desired style of living.
 
Choosing a retirement lifestyle shouldn’t be any different to how you maintain your current lifestyle — you live the life you can afford. Living within your means today and thinking about what life after retirement will look like, helps to set you up for a comfortable future.
 
So, the big question is: how much money is enough for your retirement? Have you worked out the amount of superannuation, and other savings, you will require to finance your retirement?
Is $1 million enough to retire on? Although $1 million may sound a large sum, according to John Piggott, director of the Australian Institute for Population Ageing Research at the University of New South Wales, agrees: “$1 million will not do all that much for you. It will give you a very low [salary] replacement rate.”

Understanding Your Life Insurance Policy

Understanding your life insurance policy, and establishing from the beginning, that it is the right policy for you will save you time, money and potentially reduce the level of frustration when it comes to making a future claim. It has been reported that there is a 50% probability of a life event occurring, to any one person, that would result in the payment of a personal insurance claim whether it be life, total or disability insurance.

Consulting with a financial/insurance adviser will ensure that you haven’t wasted, or about to waste, money that could be put to better use, by contributing to a gifted policy by either employer or Superfund. Often there are circumstances where, in such policies, the claim may be reduced to almost nil payment.

There is a popular phrase thrown around by teenagers that also applies to investors: FOMO (fear of missing out)

Recently, we have been closely watching market valuations that have been indicating overpriced equity markets and it has us concerned. I liken the current state of the markets to that of the movie, The Big Short, which was based on   the GFC (Global Financial Crisis) (If you haven’t seen the movie and would like to know what’s happening in our current markets I urge ask you to watch it this weekend.)

Although we still have exposure to some growth assets including certain shares in both Australia and various regions, Having watched people’s wealth being destroyed during the GFC, has made us overly conservative has made us highly conservative for two reasons:

  1. Our job is to preserve our client’s wealth during both good and bad times
  2. If the bad times occur, we don’t want to be in a position where we simply must ride out the loss of capital. We strive to be in a position to be able to buy, great, however,  oversold, assets with cash.

Capital preservation should be paramount in investors’ minds.

There are moments in life where unnecessary risk is taken despite the warning signs. For example, swimming outside the flags at the beach when the surf looks exciting. The flags are there for a reason, they warn you about certain dangers like turbulent currents that could suck you out to sea. For the stock market, the warning flags are overvaluation and slowing growth and investors should take heed when they are waving.

The overvaluation flag has been waving in the wind for some time. For example, the Shiller Cyclically Adjusted Price Earnings index (S&P500 price-dividend by its trailing 10-year average EPS) has been flashing extreme valuation levels for the US stock market. Based on current US valuations, if you invested in the S&P 500 you could expect a ten-year return of -3.2%. The only time in history that the US market had higher valuations than today was just prior to the Tech Wreck.