Create a financial roadmap for 2015

As we bounce back after the Christmas break it’s timely to spend a few moments to think about how we can make sure 2015 is more financially rewarding than this year.

Everyone’s individual circumstances will be different and our goals will be affected by our particular life stage, be it an early 20s accumulator or a retiree. Nevertheless the opportunities that may be available to you in the fields of finance and investment are both varied and complex.

Like any project such as getting fit or learning a hobby, there is an important framework that is followed by those who get results.

Firstly, it’s important to start with the end in mind and understand your financial goals whatever they may be. They may be challenging longer term ones such as retiring debt free with $1 million in investable assets or equally worthwhile shorter term targets like reducing your mortgage by an extra $50k this year.

This isn’t novel advice but most Australians don’t follow it. Be as specific and realistic as possible.

The second important step is to get some assistance. Money management is now a team sport and some initial advice can ensure you have the right goals and understand the journey necessary to achieve them. Importantly, an adviser or a friend with similar financial goals can also act as an accountability partner and help you to measure and review your plan.

The third piece is to actually design your plan. It may be a complex set of professional recommendations or on a simpler level setting out an action list including the five most important things you need to do in the next year to move closer towards your stated financial goal. While the five things will all be important, identifying the top priority will help you maintain your focus.

Finally, it will be important to set up a review and measurement process with your adviser or accountability buddy that will not only keep you on track but will help you maintain your momentum by gaining a sense of progress.

Even professionals need to have a financial plan. For what it’s worth here are my top 5 for 2015.

  1. Reduce non deductible debt. I am undertaking some major renovations on a new home so after a long period of having only tax deductible debt, I now have a large ‘bad debt’ loan that needs attention.
  2.  Improve the returns in my SMSF. Due to inattention and some conservatism I have more cash on deposit in the fund than desirable. I am in the process of selecting some investments that will increase the yield at an acceptable risk level.
  3. Diversify my assets. I have some investments that it may be opportune to reduce or cash out of entirely to take advantage of some potentially higher growth opportunities.
  4. Structure my affairs for better tax efficiency. Tax laws are continually changing and I am aware of some opportunities that need examining that may legally reduce my overall tax impost.
  5. Improve the discipline in regularly reviewing and measuring results and progress. EVERYONE needs an accountability buddy or coach.

New South Wales fights for a bigger share of Significant Investor Visas as the Federal Government tries to curb leverage

New South Wales (NSW) has introduced measures to increase its competitiveness in attracting Significant Investor Visa candidates. The NSW Government has recently removed the requirement for NSW bound significant investor visa applicants to invest $1.5M of their $5M investment for residency into NSW Treasury Bonds.  At the same time the Federal Government has also flagged likely changes to remove the current practice where many SIV applicants borrow against their $5M investment in Australia and essentially recycle money back offshore.

The NSW Treasurer Andrew Stoner in announcing the changes recently said, “From 1 September, overseas investors considering NSW nominations will be able to choose how to invest every dollar of their complying investment.

“This change will further consolidate NSW’s globally competitive position as a preferred investment destination for investor migrants.

“NSW is more than Australia’s business headquarters – it’s the State that’s driving Australia’s economy. “Rich in business opportunities, with a stable and strong government, and an economy that is robust, diverse, dynamic and easily accessible to the rest of the world, there has never been a better time to invest in NSW.”

It is evident that NSW is keen to increase it’s share of significant investor visa candidates that choose NSW as their preferred place of investment. Of the 1,650 expressions of interest registered at 31 August 2014, Victoria (VIC) represented 846 of the candidates and NSW 550. In terms of granted visa’s again VIC leads the way with 193 granted as against 146 in NSW.

The change in the requirements around investing a portion of the investment in a lower yielding investment is only likely to enhance the share of SIV applicants seeking out Sydney and NSW as their destination of choice. The Federal Government has plans to grow the program to approximately 700 SIV approvals per year, with the view to attracting $3.5 Billion of inbound investment in the Australian economy through the program and it is clear that NSW wants a larger piece of the action.

In further changes to the scheme on 10 September 2014 Immigration Minister Scott Morrison, in a media release stated will no longer be able to recycle their investment funds offshore by using products that allow them to borrow against their SIV compliant investment. Minister Morrison referred to concerns with the significant investor visa scheme, which requires foreigners to invest a minimum of $5 million for four years, as money was being invested and subsequently borrowed against and recycled offshore again. The intention of the scheme is to attract foreign investment and enhance economic activity through longer term investment in Australia.

Mr Morrison flagged changes to the investor rules which would require investments to remain unencumbered or without a debt against them, for the entire four years duration of the visa. This change should only be a positive for the economy in allowing funds to remain in Australia unencumbered over the four years.

Don Lee, Luke Malone, Martin Zhao and Gavin Fernando are Directors of FountainguardProsperity’s Asian Business Desk team who provide a full range of accounting, financial and wealth management advice to the Chinese market.

Fountainguard – Prosperity Advisers joint venture to build inroads to Chinese market

Continued investment to drive future growth of the Asia Business Desk

Leading East Coast chartered accounting and financial advisory firm Prosperity Advisers Group has bolstered its Asia Business desk expertise by partnering with Fountainguard Pty Ltd to increase its advisory capabilities to the Chinese market.

The joint venture enables Prosperity Advisers to grow and consolidate its established expertise providing a full range of accounting, financial and management advisory services with a sharp focus on the Chinese market. Prosperity has 25 years’ experience and has a history of success working with the Asian market facilitating investment between Asia and Australia. As China’s economy continues its growth, the joint venture positions Prosperity to facilitate local participation in that growth.

Martin Zhao and Don Lee, Chinese ex-pats with banking and commercial backgrounds are principals of the joint venture and will bridge a cultural gap ensuring clients receive a seamless experience. Prosperity will lead a six-person team that will visit five key cities in China next month to meet with clients and key influencers and introduce the venture.

Allan McKeown, CEO Prosperity Advisers says, “Prosperity’s growth in its Asia Business desk continues apace and the joint venture with Fountainguard is an important strategic development. Through our global advisory network, Leading Edge Alliance, we have built strong relationships with Chinese clients investing in Australian assets, and helped Australians enter the Asian market. This partnership underscores our commitment to growing our Asia Business Desk and providing a blue-chip service.’’

Martin Zhao says, “The Chinese investment market is notoriously difficult to enter and Don and I were impressed with Prosperity’s success and approach. The partnership between Fountainguard and Prosperity will enable Allan and his team to really build upon their existing relationships and create multiple opportunities for clients; we are excited to be working with a progressive advisory firm to build their capabilities in China.”

“The relationship with Fountainguard is a key differentiator for Prosperity Advisers. While we regularly visit China and have personal relationships with our Leading Edge Alliance partners there, we believe we are amongst the first financial advisers to secure a strategic partnership to directly build a Mandarin-speaking on the ground presence with the Chinese market.

“Our Asian based clients have invested tens of millions of dollars into Australia and will continue to do so in the future. These investments have included property, resources and active businesses. The significant ‘Investor Visa’ market has enormous untapped potential.”

National Wealth Advisory Accolade

John Manuel, Director of Financial Services has recently been named as one of five national finalists in the 2013 Australian Private Banking and Wealth Awards under the category Outstanding Wealth/Investment Adviser.

The awards are hosted by the Australian Private Banking Council with the aim to recognise individuals within private banking and wealth services who are excelling in their profession.

As a tremendous personal accolade, John was the only adviser from a non institutional firm to reach the finals in any category.

The process involved in reaching the final was an extensive one. All nominees were asked to prepare a paper on a multi layered case study provided by the Council. Nominees were also asked to provide examples of strategic solutions implemented over the last 12 months to assist clients in meeting both short and longer term financial goals. Finally, John attended a searching interview with the judging panel comprised of some of the industry’s most experienced thought leaders. Outstanding service, understanding of individual client needs and relationship management were key criteria considered.

At Prosperity we pride ourselves on providing best of breed strategic advice to our clients and it gives us great pleasure to see John recognised by his peers at a national level.

 

Superannuation earnings tax announced – good investment performance punished

“Stockholm syndrome is the psychological phenomenon where hostages express empathy and sympathy and have positive feelings toward their captors.  These feelings are generally considered irrational in light of the danger or risk endured by the victims, who essentially mistake a lack of abuse from their captors for an act of kindness” (Wikipedia).

As I read through today’s superannuation announcements I experienced a moment of deep gratitude that the Federal Government had been generous enough not to proceed with the most medieval of the options that had been on the table.  I then began to calculate the material disadvantage that will affect families to which these rules apply.  I realised that in my momentary relief, I had forgotten that surely every family in our democracy is entitled to have certainty of outcome under the set of rules that were represented by the Government of the day to apply to their self-funded retirement.  The more I considered the rules, the more I realised how poorly these rules will operate in practice.  Many other ordinary people will innocently get caught in the clutches of these rules at some point.  Make no mistake, as the compulsory Superannuation Guarantee charge increases from 9% to 12% some ordinary individuals will become hostage to these rules.

Superannuation pension earnings tax

From 1 July 2014, future earnings (such as dividends and interest) on assets supporting income streams will be tax free up to $100,000 a year (indexed in $10,000 increments), the balance of earnings will be taxed at 15%.  Remarkably, these rules punish good investment performance.  For example, the Government announcement points out that “(a)assuming a conservative estimated rate of return of 5%, earnings of $100,000 would be derived from individuals with around $2 million in superannuation.  Ergo, if my fund earns 10%, I will be subject to tax once my assets are at the $1 million level.  While the announcement is silent on this point, heaven help me if after 1 July 2014 I buy a capital asset and sit on it for 10 years and then realise a $1 million gain to fund my pension as a one-off.  How does this get taxed?  Will we be averaging over 10 years to $100,000 per year (safe) or is $900,000 of that gain fair game in the year of sale for the higher tax rate.  What about the small business owners that the Government encourages to put their business property into superannuation.  Is that an extra 10% clip of the ticket now when you make a gain on the sale of your warehouse?  Small business already has it hard enough.  If I held that business asset for 15 years outside of superannuation I would pay no tax.  Surely it was not intended that the superannuation system would be an inferior option.

Has the Government forgotten the GFC when there were double digit annual declines in return which depressed superannuation balances and for which superannuation pensioners were not compensated by the tax system.  Now if there is a 20-30% surge forward in one year do people who should not be punished by this system suddenly find they are subject to the system just as they earn their losses back?  Surely not.

I see the need for averaging, as well as extension of small business relief, as items that will rapidly get on the drafting agenda.

Pension withdrawals themselves will not be taxed.

Special transitional rules for capital gains

  • Special arrangements will apply for capital gains on assets purchased before 1 July 2014:For assets that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;
  • For assets that are purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and
  • For assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.

Common sense arrives for “excessive contributions”

Many innocent people have been subject to a punitive rate of tax if they accidentally exceed their concessional contributions threshold.  They get taxed at 46.5% even if their personal tax rate is lower.  Moreover, if the excessive contribution was accidental, it has not been possible to withdraw the excess contribution and correct the error.  Pleasingly from 1 July 2013, it will be possible to withdraw the excessive contributions, be taxed at your ordinary rate with an interest charge on the benefit of a tax timing difference that arises because of the different tax payment dates of the superannuation fund.

In closing, the Government’s announced superannuation reforms are “less bad” than expected. Are we grateful that they are less bad?  Yes.  Can they unfairly single out and materially change the expected retirement income projections for taxpayers who have retired and generated asset balances around $1 million?  Yes, but only if they invest well.  Do they potentially punish people who have balances well under $1 million if they have a good year?  Yes.  Is mediocre performance more likely to avoid the tax than good performance?  Yes.  Oh dear.

Are these the greatest opportunities in Asia right now?

As a privileged part of the Australian delegation to the Asian Financial Forum in Hong Kong last month, Luke Malone, the head of our Asian Business Desk, has his eye on Asia. 

The Asian Financial Forum last month brought together 1200 business leaders from throughout the Asia Pacific region and addressed many of the economic opportunities and issues that matter. 

Over coming months I plan to provide you with articles that give you an insight to these, so you can take advantage of our learnings as we navigate the Asian Century.

This week I want to talk about the three biggest areas of focus at the conference, and highlight what could be the most exciting opportunities for Australia in coming years:

1.  Food security and production for a growing Asian population

Food security in Asia is a large opportunity for Australian food businesses looking to produce and export into the region.  Recent data shows that we have the capacity and ability to produce food for over 500 million people here in Australia.  With growing population density throughout Asia and land shortage in many countries, the ability to produce the quantities of food for the emerging middle class in these countries seeks is becoming more and more difficult.  The changing socio-economic position of many has increased their desire to eat well, and their ability to afford high quality produce for which Australia is most renowned.  This is a trend that may change the allure of farming and food production investment in Australia in coming years.

2.  China and the ASEAN+6 Relationship will lower tariffs and build trust

This year, the 10 ASEAN Countries plus China, Japan, South Korea, India and Australia and New Zealand will start negotiating a Regional Comprehensive Economic Partnership.  The plan is to have a deal in place by 2015 creating a free trade zone that will encompass almost two thirds of the world’s population.  Lower trade barriers and greater trade integration should lower the tariff costs for businesses working across borders in these 16 countries.

3.  Chinese capital is freely flowing out of China seeking a return  

Recent figures on China’s foreign direct investment (FDI) shows two very interesting trends.  Outgoing FDI rose almost twelvefold from $5.5 billion a year to more than $65 billion per year from 2004 to 2011 and is expected to reach approximately $150 billion per year by 2015. In contrast, inward FDI fell 0.2 percent in October 2012 from a year earlier to $8.3 billion, the 11th fall in 12 months.  (Source: China Daily Jan 18-24 2013).  The sentiment of Chinese investors and businesses is strong despite some of the portrayed ‘slow down’ of the Chinese economy portrayed by the Western media.  My discussions with many prominent investors and high net wealth family groups during the Asian Financial Forum indicated that the desire for investments in Australian agricultural assets, resources, real estate and education remains strong.

Each of these issues presents terrific opportunities for Australia in an Asian context.  We are watching the trends closely with many of our Asian Business Desk clients, looking for ways that business and investment can benefit from the changes.

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About our Asian Business Desk

At Prosperity Advisers we have a dedicated Asian and Chinese business desk that understands the culture of doing business in China.

Our team includes Tax, Accounting, Corporate Advisory, Audit, Wealth Management and Mergers & Acquisitions Specialists who speak the language and have extensive Chinese and Asian business experience.  We currently act for a number of high net wealth Chinese investors and we help guide them on the transaction and regulatory path to both source investment opportunities in Australia by connecting them with the right people, while at the same time managing tax and other compliance objections.

For outbound investment into China, Luke and his team spend significant time in China and the Asian region and our connections in the region allow us to advise outbound Australian investors on the complex path of investing in China and Asia.  We are also a member of the Leading Edge Alliance, an accounting firm affiliation of some 4,000 members throughout the world and a strong presence in China and Asia.

 

Primo Smallgoods gets a boost from Affinity

The Prosperity Advisers Transactions team has been hard at work driving one of Australia’s largest capital transactions throughout 2012, and now, we are pleased to celebrate Primo Smallgood’s success.

Prosperity have acted as Central Advisers to the owners of Primo Smallgoods as they have sought capital and sold a significant stake in their business to Affinity Equity Partners at the tail end of 2011.  With Primos’s enterprise value reported to be in the order of $1 billion, the transaction was a remarkable coup for the owners in a difficult capital markets environment and one Prosperity Advisers is proud to have been involved in.

Primo is one of the great stories of an Australian family creating an enduring and iconic brand across three generations.  They are Australia’s leading manufacturer of small goods with their products finding a place in most Australian fridges.

“The group has an impeccable record of growth, and this new capital allows the business to enter a significant phase of opportunity with the construction of a major new factory,” said Stephen Cribb, Director and head of the Transaction team.

“In the case of Primo Smallgoods, a four track process was conducted because of the volatility of capital markets.  Our process involved simultaneous work on a potential IPO, trade sale, external private equity and “in-house” private equity arrangements through syndicated borrowing,” Stephen said .

Prosperity Advisers have been there through every step, working closely with shareholders, management and panel advisers to help balance the competing objectives of raising fresh capital for new investment and reducing shareholder portfolio risk.