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Labor’s war on trusts not all it’s cracked up to be

06.13.2019, Comments Off on Labor’s war on trusts not all it’s cracked up to be, 苏州夜生活, by .

Opposition Leader Bill Shorten claims that family trusts are used to avoid paying a ‘fair share of tax’. Photo: Justin McManusThe parliamentary landscape got even murkier last week with opposition Bill Shorten’s rant against “inequality” and his promise to make the rich pay “their fair share of tax”. This was coupled with an attack on family trusts, which he claims are a tax-saving device used by the rich to evade billions of dollars in income tax.
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I almost choked on my breakfast last Monday morning when I heard him tell interviewer Fran Kelly on Radio National that barristers were among the chief offenders among those using trusts to rort the system. Unfortunately, Kelly does not have the tax skills to ask the tough questions, but I immediately rang a senior counsel who specialises in tax matters. His retort was “absolute rubbish – we can’t even incorporate. Barristers are required to act as sole traders”.

I followed this up with a call to the tax partner in the firm who does my own tax. He confirmed he acted for several barristers, none of whom are allowed to split income using trusts. He did mention that many have their chambers in family names and pay rent, but that is a well-known legal strategy used by many high-earning professionals who have no other way of income-splitting. It is also quite common for high-income professionals to hold the family home in the name of the trust for asset protection – the price of doing this is loss of the capital gains tax exemption.

But let’s get back to family trusts. Many of our country’s wealth producers own small businesses, and it’s a sad reality that many go broke in the first five years of operation. Therefore, asset protection is a major priority for them. If you are a sole trader, or operate as a partnership, all your assets are up for grabs if a financial calamity happens.

Consequently, the preferred structure for being in business is a trust or a company. Both have unique features. A trust does not pay tax itself: it distributes profits to the beneficiaries of the trust who then pay tax at their marginal rate. In certain circumstances trusts can save tax, but for the majority of business people the opportunities are limited. Typically the beneficiaries are mum and dad and the children, but there is little tax to be saved by distributing to children under 18 years of age because such distributions are taxed at the top marginal rate once they exceed $416 a person a year.

There is a window once the children reach 18 and are earning a low income, but even then HECS is a limiting factor, because any substantial distribution to a university student winds up reducing their HECS bill. CASE STUDY

A couple run their business through a family trust. The beneficiaries of the trust are the couple and their two children aged 20 and 22 who are at university. Both children have HECS debts of $50,000. The net profit of the business for the year is $300,000 and on their accountant’s advice this is distributed as $54,000 to each child and $96,000 to each partner. If the child’s distributions exceeded $54,869 their tax assessments would be increased by $2000 each, being 4 per cent of their HECS bill.

A company structure can operate in a similar manner to a trust. Instead of making a distribution to a family member, the company can pay that person a PAYG salary and retain any surplus profits in the company, where profits will be taxed at about 30 per cent, depending on the size of the company.

So there is a mechanism to defer profits, but the only way for the proprietors to get their hands on those profits is to pay themselves a franked dividend, which will end up being taxed at their marginal rate. It is also possible to tailor dividends to individual shareholders by allocating each one a separate category of share.

In summary, the main benefit of the company over trust is that profits can be retained and used to expand the business, or to eventually pay those retained profits to its proprietors.

There is nothing in either of these structures that enable the proprietors to evade large sums of tax, they are merely efficient structures to provide asset protection while optimising the way profits are paid to the owners, who are taking all the risk of being in business for themselves.

Shorten has flagged a proposal to tax trust distributions income at a flat 30 per cent. It would be interesting to see the legislation. Suppose Jack and Jill have a family business operated through a trust which earns $200,000 a year and they distribute $80,000 to each of them with the balance of $40,000 going to a child who is at university. If the system were changed they could simply pay each other a salary of $37,000 so as to stay in the 19 per cent tax bracket, and have the rest taxed at 30 per cent. Under the current system the balance is taxed at 34.5 per cent

It does not bode well for the future of this country that the alternative government is more concerned about attacking the producers of wealth than increasing the pie so everybody can have a bigger share.

As the Methodist minister William John Henry Boetcker said 100 years ago, “You cannot lift the wage earner by pulling down the wage payer”.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email:[email protected]苏州夜总会招聘.au

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Five megatrends catching the eye of investors

06.13.2019, Comments Off on Five megatrends catching the eye of investors, 苏州夜生活, by .

Investor John Baillie attended an investor day where he could ask questions before deciding on a fund. Photo: Joe ArmaoWhether it is the rapid expansion of China’s middle class, the ageing of the populations of the developed world, or cyber security, opportunities abound for savvy investors.
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The challenge is working out the knock-on effects of these mega-trends and who will be the likely winners and losers.

Some investors can chase the latest hot theme only to end up regretting their losses.

That’s why, for many investors, it is better left in the hands of the professional fund managers.

They put together a portfolio of investments that are expected to profit from a theme, which is offered to investors as a single investment.

With the help of investment researchers, Money has identified four managed funds and one listed investment company that have runs on the board by exploiting themes. Healthcare boom

Healthcare is a theme that is delivering.

What is it – Platinum International Heath Care Fund invests in the shares of health care companies from around the world, ranging from those doing research, to health insurance, through to those providing health care services to consumers, such as hospitals.

Returns – From inception in November 2003 to June 30, 2017, the fund produced an annual average compound return of 9.47 per cent.

Pros – Platinum Asset Management is a Sydney-based fund manager, considered among the best global share fund managers in the world.

Cons – Platinum is a “contrarian” investor, meaning it does not follow the herd. From time-to-time, returns can lag those of sharemarkets. Indian economic reforms

The development of India is tempting some investors. Photo: iStock

What is it – the Fidelity India Fund invests in a diversified selection of 50 to 70 Indian-listed companies and draws on the research capabilities of Fidelity’s analysts based in India. Fidelity is one of the world’s biggest fund managers.

The portfolio holds companies that are producing higher returns on capital, good cash flows and have low debt and quality management.

Returns – From inception in October 2005 to June 30, 2017, 9.8 per cent.

Pros – India’s population is growing more quickly that China’s and many commentators believe the size of India’s economy will eventually outstrip that of China.

Cons – India is a messy and boisterous democracy with a huge disparity in wealth. India in the process of rolling-out a single indirect tax across the country and there could be some economic turmoil, at least in the short term. Chinese consumer spending

China’s burgeoning consumer class offers opportunities. Photo: AP

What is it – Premium China Fund invests mostly in companies listed in Hong Kong, mainland China and Taiwan. It can also invest in companies listed on other stock exchanges that have significant connections to the Greater China region.

Returns – From inception in November 2005 to June 30, 2017, 10.55 per cent

Pros – McKinsey & Company estimated in 2013 that by 2022, more than 75 per cent of China’s urban consumers will be earning $US9000 to $US34,000 a year. Some estimates say the middle class will number more than 600 million by 2022. And they will be spending more on leisure, including travel, and consumer goods like flat-screen TVs and more on niche over mass brands.

Cons – China can be a risky place to invest – though the rewards are there. There are some obscure ownership structures and corruption scandals as well a general lack of transparency in the legal process. Investing with a conscience

Former US vice-president Al Gore encourages investing with an eye to the environment. Photo: Ben Rushton

What is it – Generation Wholesale Global Shares Fund was founded by Al Gore and others in 2004. It’s available to n investors through Colonial First State.

It develops a series of industry road maps that focus on industry-specific long-term trends. Companies are whittled down to a portfolio of up to 60 listed companies on sharemarkets around the world that have sustainable business models and high-quality managements.

Returns – From inception in October 2007 to June 30, 2017, 10.14 per cent.

Pros – The investment approach is based on the conviction that sustainability factors, including economic, environmental, social and governance criteria, will drive a company’s returns over the long term.

Cons – Management costs of 2.22 per cent a year, with a performance fee on top, are a drawback. And its sustainability bent means the fund does not screen-out certain “bad” sectors, which might not suit some investors. Agribusiness and water rights

Irrigation rights can be valuable. Photo: Michelle Mossop

What is it – Blue Sky Alternatives Access Fund is an ASX-listed investment company (code: BAF) that invests in a diverse range of alternative assets, including private equity, venture capital, water rights, agribusiness finance and real property.

Returns – From inception in June 2014 to June 30, 2017, 9.33 per cent.

Pros – Broadly diversified for those investors who want exposure to several themes. As it’s listed on the n sharemarket, shares in the fund can be bought and sold just like any other listed company.

Cons – The fund holds unlisted assets, which are valued periodically. And a significant component is in real estate, including property development that tends to be higher risk. Caution needed

Tim Murphy, director of manager research at Morningstar, says while there are opportunities with themed investments they can also go wrong.

The classic example is the tech funds that were launched just before the start of the “tech wreck” in 2000.

Tim Murphy from Morningstar, warns there are risks. Photo: Nic Walker

Most were launched with $1 unit prices and are now trading at less than $1.

“Sometimes the funds can be launched fairly late in the theme. I think that’s the biggest potential drawback of some of these funds,” Murphy says.

Investors may be better off with a fund that can invest broadly in global shares, he says.

Murphy says anyone thinking of investing in a themed fund should be prepared to invest for a minimum of 10 years.

David Smythe, co-founder of investment researcher Zenith Investment Partners, says some investors can “go for the theme”, but not every manager has the skills to “execute” the theme successfully. Diversification is key

“These funds need to form part of a broader and well-balanced portfolio that matches the investor’s risk profile,” Smythe says.

They could have more of a supporting role, with the main role played by a fund with a broader share exposure, he says.

Investors should be aware that there are many exchange traded funds (ETFs) that invest with a theme, Smythe says.

ETFs are listed on the n sharemarket with units in them bought and sold just like the shares of listed companies.

They have very low investment management fees, but they are “index” or “passive” managers, meaning they track or mirror the returns of a market, index or prices, like those of gold or oil.

The active managers listed above buy and sell investments in order to outperform the market in which they invest.

There are ETFs that track all sorts of themes. For example, some track Chinese shares and sharemarket sub-sectors such as healthcare and cyber security. Then are also ETFs that invest with screens. Exposure sought

John Baillie, 56, from Melbourne, has a background in finance and is now a professional company director.

He has two grown-up children and together with his wife has a self-managed superannuation fund.

Like many SMSFs, John is overweight in n shares.

He looked at the Future Fund, the sovereign wealth fund established by the n Government to meet unfunded public service superannuation liabilities.

One of the reasons for the fund’s good returns was that it includes alternative investments.

“I wanted exposure to real estate and to private equity,” he says.

Alternative investment manager Blue Sky has a track record of impressive returns, but for John what really matters is the quality of those managing the money.

“I looked at the people behind it and I attended the Blue Sky investor day where I could ask questions,” he says.

He likes the alternative assets held by the Blue Sky Alternatives Access Fund, which he holds inside his super fund, as it’s a good diversifier to the fund’s share holdings.

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Beware the neglected, vulnerable worker

06.13.2019, Comments Off on Beware the neglected, vulnerable worker, 苏州夜生活, by .

It stands to reason that in the absence of credible solutions to persistent problems, unhappy voters will seek alternatives, look for someone to blame. It’s not rocket science.
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Despite the practical limits to what governments can do (outside of a mining boom) they must at least offer hope – a believable prospect of better times ahead, and a sense that contemporary struggles will lighten.

Sustained wage stagnation which is as endemic since the GFC as the original crisis, coupled with rising energy and housing costs, are however, testing these limits. All the more so, when politicians’ boast of good times, and of economic policy settings that are just right.

Enter Bill Shorten’s “inequality” pitch, “stage two” of his well prosecuted “fairness” case against the Abbott-Hockey 2014-15 budget, and much since.

As Seven’s Mark Riley has noted, “inequality” is the pejorative version of that earlier fairness emphasis, and one which speaks more sharply to a deepening grievance.

Shorten, to quote Bob Dylan, “is brave ‘n getting braver”, informed by the cut-through power of bold new left campaigns run by Jeremy Corbyn and Bernie Sanders.

The Coalition likes to pillory “inequality” as fiction, refuting the claim it is at a 75-year high in , or even that it’s getting worse.

If literally true, Malcolm Turnbull has little to worry about. His defence is a slam-dunk. Right?

Unfortunately, it is not so straightforward.

This is a battle between heart and head. Labor cites statistics also, but Shorten’s real purchase is the sense people have that they are going backwards. That is, not just failing to get ahead, but losing ground in relative terms. The rich-are-getting-richer, you’re not.

Statistical rebuttals cut only so much ice when the feeling of creeping disadvantage is so widespread.

In a representative politics, there’s always a moral weight in speaking for the silent majority, the long-suffering, forgotten, mainstream – just ask John Howard.

Howard’s rare skill was to leverage that demos of critical electoral mass not only from opposition but also in government – albeit aided by the mining boom’s rivers of gold.

But they were unusual circumstances. Now the Liberals are having it done to them.

Persistently flat wages do not merely suppress growth, they dent morale, weaken institutional affections, and invite volatility.

It wasn’t Donald Trump’s conservatism that propelled him in 2016 so much as his status as a radical outsider storming the citadel. Hillary Clinton was the boring institutional filling in a sandwich of discontent. Like Sanders, who energised the youth vote, and rounded up sundry disenfranchised progressives, Trump, prevailed as the candidate of the disestablishment.

Similar strains overpowered the elite/institutional cross-party consensus on Brexit, nearly toppled Theresa May, and played an important supportive role in the election of the newcomer (if progressive centrist) French President, Emmanuel Macron.

The lesson is this: in politics, it doesn’t matter whether people are worse off, better off, or about the same. It matters how they feel on this.

Shorten might not have all the answers but he’s doing a better job of hearing the question.

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The major Sydney universities about to lose millions

06.13.2019, Comments Off on The major Sydney universities about to lose millions, 苏州夜生活, by .

Universities would be hit with $1.2 billion in funding cuts under the Turnbull government’s higher education changes, with new data showing some institutions are set to lose up to $57 million over the next four years.
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The figures, compiled by peak body Universities , provide the first breakdown of how each university in the country would be affected over the budget forward estimates if the government’s proposals pass the Senate.

NSW universities would lose $341 million in base funding between 2018 and 2021 while Victorian universities would lose $294 million.

The cuts would hit universities already in deficit and those with large numbers of disadvantaged students as well as the elite sandstone universities in Sydney and Melbourne.

The fate of the changes is hanging in the balance as Parliament resumes this week, with the Nick Xenophon Team yet to outline its position.

The government’s higher education package – announced in May and almost immediately overshadowed by the “Gonski 2.0” school funding changes – would apply a new “efficiency dividend” to universities, increase student fees by 7.5 per cent and slash the HECS repayment threshold from $55,874 to $42,000.

Monash University would receive the biggest funding hit in the country according to the figures, which have been provided to a Senate committee scrutinising the government’s proposals.

Monash would be $57.4 million worse off over four years than under the current policy settings, while the University of Melbourne would lose $46.5 million.

Victoria University, which has been in deficit for four of the past five years, would have its funding reduced by $22 million.

Western Sydney University, which caters to many low socio-economic status and “first in family” university students, would be $54.1 million worse off over four years, the biggest reduction of any university in NSW.

The University of Sydney would be $51.7 million worse off and UNSW would lose $47.4 million.

The n National University would lose $14 million over four years and the University of Canberra $15 million.

“A billion-dollar cut to universities is at the heart of the higher education legislation,” Universities chief executive Belinda Robinson said.

“As our economy changes and old industries face new threats, needs to keep – not cut – our investment in universities to create new jobs, new industries and new sources of income for .

“And funding cuts that erode quality risk undermining the $24 billion in export earnings that our universities help to bring into by educating international students.”

Education Minister Simon Birmingham said university funding would continue to grow under the government’s changes, but at a slower pace.

“Taxpayer funding for universities has been a river of gold, growing at twice the rate of the economy since 2009,” he said.

“Our reforms still see university teaching revenue grow by a further 23 per cent over the next four years and will ensure the ongoing viability of generous higher education funding and access.

“While universities enjoy significant autonomy, taxpayers also expect their investment is being used as efficiently as possible.”

The government estimates university funding – based on government and student contributions – will be $18,555 per student in 2020, down from $19,334 this year.

Labor education spokeswoman Tanya Plibersek said: “No university in will escape the Liberals’ unfair cuts.

“While Malcolm Turnbull and the Liberals are giving tax breaks to big businesses and millionaires, they want want to cut uni funding, jack up student fees, and have lower income earners pay back HELP debts sooner.

“Their priorities are all wrong.”

The elite Group of Eight universities have slammed the government’s package as a “contradictory, incoherent mess” that would make students pay more for an inferior education.

Labor and the Greens have announced they will vote against the government’s changes, meaning Senator Birmingham will have to win the support of 10 of the 12 Senate crossbenchers to pass them into law.

Fairfax Media has reported the government is prepared to significantly water down its plans if necessary to get some of the $2.8 billion in higher education savings through the Senate.

Victorian university funding cuts 2018-2021*Monash University $57.4mDeakin University $50.3mUniversity of Melbourne $46.5mRMIT $44.3 mLa Trobe University $36.8 mSwinburne University of Technology $26.8mVictoria University $22mFederation University $9.9mTotal = $294m

*Source: Universities

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Find super boring? Follow this checklist, then relax

06.13.2019, Comments Off on Find super boring? Follow this checklist, then relax, 苏州夜生活, by .

afr 22nd april 2015 Sally Loane CEO of the FSC photo by Louise Kennerley afr 22nd april 2015 Sally Loane CEO of the FSC photo by Louise Kennerley
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The superannuation industry often talks about the challenge of getting young people “engaged” with their super.

Most recently Sally Loane, the chief executive of Financial Services Council, warned of “dire” consequences to disengagement at the FSC Leaders Summit in Sydney recently. “The more we allow, and indeed condone, apathy and disengagement, the worse off young people will be at the end of their working life, and so will we, the taxpayer,” she said.

Super funds are constantly looking for new ways to make themselves seem more exciting. Some have even try to “gamify” the super experience – rewarding members taking certain actions on the website by giving out badges or informing them they’ve achieved a “level up”.

There’s an air of desperation to all this attention seeking. There’s no doubt that most young people are not “engaged” with their super. But is all this fuss really serving the interests of members or are funds just being needy?

Loane cites surveys that suggest young people prioritise near-term goals such as buying a house. But is that so bad? All the super industry’s estimates for “comfortable” retirement assume home ownership.

The whole purpose of super is to “set and forget” and let time do the work.

The thing is you need to make the effort to get the “setting” part right. Here’s a simple checklist that every super member should do once every year or two … or just when major life events occur.

First, choose a good fund. I explained how to do this in a recent column. Look at the long-term returns, on a site such as SuperRatings. Also check sites such as Market Forces to make sure your fund takes the financial risk of climate change seriously – you don’t want to find you’ve unwittingly invested in a coal port that’s gone out of business.

You can usually choose your fund. There are two main types of funds – industry funds that return profits to members and retail funds run by financial institutions such as banks for a profit. Industry funds have historically out-performed retail funds on average, but there are good and bad in both categories. You don’t have to work in an industry to join the applicable industry fund – there’s nothing to stop a waiter joining Local Government Super, for example.

I wrote recently about a child actor who found all his super was eaten away by fees and insurance premiums. Judging by the response, this is a very common problem, not just for kids but anyone who earns a low or sporadic income. If this is you, look for a low-fee fund. When the balance is low, minimising fixed fees is more important than the investment returns. SuperRatings has a list of the top 10 funds with the lowest fees.

Second, choose the right investment option. When you’re young, you should probably be in a growth fund. It’s higher risk but over the long term should deliver higher returns. If you’ve got decades to go before you retire, you can usually afford the risk.

Third, consolidate your accounts. Otherwise you could be paying multiple sets of fees and insurance premiums. There’s a good guide to how to do this on ASIC’s MoneySmart website.

Fourth, review your insurance needs. By default you have life insurance, which pays out on death and also total and permanent disablement (TPD), and sometimes income protection insurance. You can opt out but think carefully before you do. If you have dependants (usually children) or liabilities (such as a mortgage), then life insurance is important. In some cases you’ll want to increase your cover.

Fifth, consider making a small personal contribution. That’s if you’re not madly saving for a house or trying to pay off a mortgage. Behavioural economists know that people adjust to their take-home salary – so if you can force yourself to save before you even get the money, you probably won’t even notice it. Your 20s and 30s are a great time to contribute to super, because of the magic of compound interest. Time is your greatest asset when investing, and superannuation is the most tax-effective way to invest.

You can contribute through salary sacrifice if it’s offered by your employer. But there’s also a new law that means you can do it yourself and claim a tax deduction at the end of the year. You can set up a direct debit so the money drips into your super account frequently, or even use tools such as the Acorns app to sweep digital “spare change” into your super account. By contrast, many employers only deposit super every three months … if at all (unpaid super entitlements are a big problem in ). The downside is that you don’t get the tax deduction until the end of the year – but if you like getting a tax refund, then you might consider that a benefit.

Sixth, make sure your binding death benefit nomination is up to date – that is, letting your fund know who should get your money if you die.

Seventh … nope, that’s job done, actually. Forget about it for a while. Make a date to spend an hour or two reviewing it in a year’s time, or maybe two.

Don’t get sucked into fiddling around with your investment options constantly. You pay transaction costs every time you buy and sell and you’re probably not as good at it as you think. If you could time the market, you’d have made a motza from share trading and be retired already. If you want to try, do it with your “play money” not your super.

This also means you shouldn’t worry about whether your fund has a great app or mobile experience. There are new disruptors that make this a selling point, but it’s more important that the investment returns are good and fees are low.

Don’t buy into the fearmongering about how much you need in retirement. Some very smart people think the super industry’s definition of a “comfortable” retirement is inflated. The super industry, naturally, disagrees. I reckon there’s plenty of fat in it, but take a look for yourself.

The average young person will have a lifetime of compulsory super of at least 9.5 per cent of your salary and this is slated to rise to 12 per cent. If you’re aged under 54 now, you can’t get to your super until you’re at least 60 and you can bet they’ll put the age up before you get there.

If you think you might need money to buy a home or any other important purpose before you’re allowed access to your super, then keep your money outside the system – or use the new first home super saving scheme. You can invest outside of super and earn similar returns – it’s not as tax effective, but that’s the price of freedom.

Caitlin Fitzsimmons is the editor of Money. Find her on Facebook or Twitter.

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