Punitive excess contributions tax removed

SMSF-ValuationThe bill to remove punitive tax rates on access non-concessional contributions made to superannuation funds has passed through the Senate.

Asst. Treasurer Josh Frydenberg has said the Tax and Superannuation Laws Amended (2014 Measures No.7) Bill will make the ” taxation of excess after tax superannuation contributions fairer.”

Under the former regime, taxpayers could pay up to 94% on excess non-concessional contributions.  The new legislation allows superannuation fund members to withdraw the non-concessional contributions that exceed the non-concessional cap from their superannuation.

Investment earnings associated with a fund members excess non-concessional contribution will be included in their assessable income and taxed at their marginal tax rate.

The investment earnings are calculated through a proxy earnings rate by applying the ATO’s General Interest Charge rate to the access non-concessional contribution.  At 15% tax offset is then passed on to the superannuation fund member as compensation for tax paid on the investment earnings.

SMSF Assoc. Chief executive and managing director Andrea Slattery was among the first to welcome the result, describing it as an important victory for SMSF members.

Slattery said the Senate vote ends a “draconian” system that “severely punished” trustees for infractions that were rarely intentional.

— Mark Smith via the FINANCIAL STANDARD

SMSF growth driven by investor satisfaction

e5a04b4b0a0d02b701b0bf9ae24a6631The relative level of satisfaction with self managed super fund (SMSF) performance is a likely drive up for SMSF’s continued growth and significant market share, according to Roy Morgan Research.

Roy Morgan’s findings are based on a survey of 15,084 superannuation holders conducted in the half year to January 2015.

Satisfaction with super performance was measured across retail, industry and self managed funds. SMSF’s scored the highest with a satisfaction rating of 77.3%; industry and retail funds scored 59% and 56.3% respectively.

Overall satisfaction has increased by 4.5% to 58%.

Although the report notes that performance satisfaction generally increases with balance, SMSF’s steel have the highest satisfaction rating for all balances over $5000 in fact, at balances over $700,000, SMSF’s lead on industry and retail funds narrows to 3.2% and 6.3% respectively.

It is not difficult to see why SMSF’s have been so successful in achieving such rapid growth over the last decade or more,” said Roy Morgan Research industry Communications Dir Norman Morris.

“With satisfaction levels higher than Industry and Retail funds since 2002, they continue to pose a major threat to them, particularly for the higher balance members where a disproportionate level of superannuation balances are held.”

— Alex Burke via the FINANCIAL STANDARD

Economic growth to slow significantly

E071D108048541A4A4924248176C9FF9.ashxThe Intergenerational Report (IGR) has projected that the growth rate of the economy over the next 40 years will be significantly lower than the last 40.

In introducing the report Treasurer Joe Hockey said:

“it is fantastic that Australians are living longer and healthier lives but we need to address these demographic changes. If we don’t do something, we risk reducing our available workforce, impacting negatively on growth and prosperity, and our income will come under increasing pressure.”

Released today, the report projected average economic growth of 2.8% per annum over the next 40 years with annual growth per person of 1.5%. This would see the annual income of the average Australian rise from $66,400 today to $117,300 by 2055.

This growth rate is expected to be slower than the 3.15% per annum, or 1.7% per person, achieved over the past 40 years due to an ageing population and gradual decline in the participation rate.

“To achieve this level of growth going forward, we must take steps to build jobs and opportunity. We also need to make choices today to prepare for the future”, the report said.

We have a responsibility to plan and budget not only for today, but that tomorrow.  But we are currently living beyond our means.

The Australian government’s spending over $110 million per day more than it collects and his borrowing to meet the shortfall resulting in $40 million being spent per day on interest repayments.

However, the report said that if the government’s policies are fully implemented it projects the underlying ash balance to improve to a surplus of 1.4% of GDP in 2039 – 40, and then moderate to a surplus of around 0.5% of GDP in 2054 – 55. Net debt is projected to be fully paid off by around 2031 – 32.

The government is open to alternative measures to bring the budget back to surplus. The policies proposed by the government, if fully implemented, will improve Australia’s capacity to respond to the challenges and opportunities outlined in the Intergenerational Report.

Male life expectancy is projected to increase from 91.5 years today  to 95.1 years in 2055.  The number of Australians aged 65 and over is projected to more than double by 2055 compared with today.

The number of people aged between 15 and 64 for every person aged 65 and over has fallen from 7.3 people in 1975 to an estimated 4.5 people today. By 2055, this is projected to nearly halve again to 2.7 people.


 — Mark Smith via the FINANCIAL STANDARD

AMP posts 32% increase in profit

More Australians to invest in China

fin_std_logoAustralian investors are expected to take advantage of China’s liberalising capital markets following Australia’s inclusion in the Renminbi (RMB) Qualified Foreign Institutional Investor (RFQII) scheme.

The RFQII gives foreign institutional investors access to China A shares, securities in growth sectors (such as healthcare, Tech, multimedia, and consumer) not currently listed outside China, and Chinese fixed-income products.

According to BNP Paribas Securities Services Australasia head of trading, markets and financing Natalie Floate, “both local and institutional retail investors structurally underweight the second- largest economy in the world, and [RFQII] provides an easy way to reweight.”

The big four banks along with Macquarie, AMP Capital and First State Investments, are predicted initial candidates for RFQII quotas. The People’s Bank of China (PBOC) and the RBA have also agreed to create a Sydney based RMB clearing bank to facilitate RMB-dominated trade settlement.

This news reflects the growing sentiment that China’s wider economic and financial reforms will enable it to overcome its present economic challenges. Alliance Bernstein director Asia Pacific fixed income Hayden Briscoe argued that these reforms, along with opening capital markets, could see 50% of its global trade settled in RMB in the next few years.

Briscoe added that giving foreign investors access to its capital markets will help China reduce the political ramifications of holding a significant amount of its nearly $4 trillion in foreign exchange reserves in US government bonds. To mitigate this, he said, more of China’s claims on the US should be denominated in RMB, and “one way for China to encourage foreigners to borrow in RMB is by liberalising the country’s capital markets.”


Alex Burke
27 January 2015 Article

Platinum backs Internet stocks and Asian infrastructure

fin_std_logoStar manager Kerr Neilson’s listed investment company Platinum Capital is backing out-of-favour big-name US technology companies as well as infrastructure plays in China and India.

In a quarterly update to shareholders the billionaire investor said he was surprised that Internet stocks like Oracle, Cisco and Intel had become neglected by the wider market.

“Each has its own threats regarding substitution but, on careful analysis, these companies revealed unusually following business characteristics,” he said.

“While it may seem improbable that well-known brands like these should be misunderstood, we can mount a strong argument why they should both grow and remain decidedly more profitable than the typical company in the S & P 500 index.”

The top-performing manager has also picked up new infrastructure focused investments in the largest of the emerging market economies India and China.

“The companies themselves are fine, but out-of-favour because they are seen as dull. As you would have read in these reports on countless occasions, dull is delightful if the price is right. Here we can buy electricity generating or gas transmission capacity for little more than book value with the prospect of significant growth in demand reaching out into the distant future,” Neilson said.

“The portfolio has been progressively tilting towards Asia. We can still find shares to buy in the West, but within the reform-minded countries of Asia there are bargains.”


Mark Smith
27 January 2015 Article

Reasons to cheer amid gloomy predictions

fin_std_logoDespite the gloomy outlook, Australian Investors have reasons to feel optimistic. With the domestic housing boom reaching its peak, construction is set to see “a record year,” Bank of America Merrill Lynch chief economist Saul Eslake told the Financial Standard

Perpetual head of market research Matt Sherwood said that “companies exposed to housing and infrastructure operating in the east will do well.”

According to financial services Council chief economist James Bond, the retail sector will be the next to benefit from construction growth, as people first by a house, and then they buy the furniture white goods to put in it. Falling oil prices are also likely to have a positive impact on the sector.

However, Australia will go through what Bond calls “the two-speed economy in reverse.”  This means that “Western Australia and Queensland will be heavily affected by the slow of the mining boom”, while New South Wales and Victoria are expected to do better thanks to their large manufacture sectors and infrastructure investment.  In NSW, infrastructure construction “seems to be going fast enough that it will have an impact on the economy this year.”

Eslake made a distinction between gross domestic product (GDP) and gross domestic income (GDI), an indicator that measures income and purchasing power.  In the September quarter, GDP increased by 0.3%, but GDI fell by 0.4%, according to the Australian Bureau of statistics.  “This is an important reason for the ongoing weakness in household income and consumer spending,” Eslake said, and concluded that “domestically-oriented companies will struggle.” Lower oil prices “will provide some support, but we are looking at a fairly sluggish year.”

While Australia’s financial institutions have benefited from investors search for yield, Sherwood predicted that “they will underperform the rest of the market, but will deliver attractive yield in the low return environment.”

Looking abroad will be another key trend in 2015.  Lower valuations in the European Union and Japan are likely to attract long-term focused investors, while “any stock exposed to the United States economy will do well,” Sherwood added.

Unhedged portfolios exposed to global assets can benefit from falling Australian dollar, which means “this is a good time to rebalance get more exposure to industries such as healthcare, IT and biotechnology, which are not that strong in Australia.”

PM Capital Chief Investment officer Paul Moore considered stellar returns in global equity funds last year unlikely to be repeated in 2015, but limited opportunities in other asset classes make global equities look like a good option.

The options are to have some cash around so if we do get a little disruption it can be put to work in the equity market or own off-shore businesses, where we can continue to get 6% – 8% return. If you add the currency in there we might end up into below double-digit which would be a solid outcome.

– Laura Millan
27 January 2015 Article