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September 3, 2018 Real Estate & Mortgage, Small Business No comments

Buying a property in the name of your Self Managed Super Fund (SMSF).

I find that Self Managed Super Funds (SMSFs) are getting very popular and more people are buying properties in the name of their SMSFs. However when buying a property in the name of the SMSF there are a few points to consider.

You have to first decide whether you are going to fund the purchase with funds from your SMSF or whether you are intending to borrow to finance the purchase. The banks refer to this as limited recourse lending and they stipulate certain conditions that have to be met before they will agree to fund a purchase through a SMSF.

It is advisable that you have a corporate trustee as the trustee of the Superfund. This ensures continuity. Often the husband and wife will decide to be the trustees of the SMSF and this is not advisable. If you don’t have a corporate trustee it can cost you more by way of fees and charges that are levied on the SMSF. Also in the event that one of the trustees passes away, it will leave you in a situation where there is only one trustee and additional costs have to be incurred to appoint another trustee and this procedure can be costly. However if you have a corporate trustee, this ensures continuity.

When you make an offer on the property you must put the name of the trustees of the SMSF as the purchasers on the Contract of Sale and the deposit must be paid from the Superfund. If the trustees are not listed as the purchasers and the deposit has not been paid from the Superfund, it is advisable to cool off on the contract of sale and re sign the contract by inserting the correct names into the contract and paying the deposit from the Superfund.

If you are intending to borrow to fund this purchase, as stated before, the banks have strict requirements that have to be complied with. They require that the property must only have one title. Hence if you are intending to buy an apartment or a unit, the property may have an accessory unit/s (a garage or a storage cage) with separate titles. In this instance the bank’s requirement as to “one title” may not be met and the bank may not fund the purchase of the accessory unit/s. In this instance the bank may advance the money to fund the purchase of the main unit but you may have to pay for the accessory unit/s with your own funds. Therefore get your lawyer to check the Contract of Sale and Section 32 Vendor Statement and advise you as to how many titles are there for the property.

If you are borrowing to fund the purchase your accountant may after consultation with your lender, advise you to set up a Bare Trust/Custodian Trust with a Bare trustee/Custodian trustee and the property will be in the name of the Bare trustee/Custodian trustee. It is again advisable to have a company as the Bare trustee/Custodian trustee. Once this has been decided on, you must inform your lawyer to prepare the necessary nomination forms and nominate the Page 2 of 2Bare trustee/Custodian trustee as the purchaser of the property.

The Land Tittles Office of Victoria does not recognise trusts, so no reference to the trust is made on the Transfer of Land. Rather your lawyer will prepare the necessary supporting documentation that has to be forwarded to the State Revenue Office of Victoria to inform them that the property has been purchased by the trustee of the SMSF.

Once you have paid off your loan to the bank then the property can be transferred from the name of the Bare trustee/Custodian trustee to the name of the trustee of the SMSF. This transfer should not attract any duty if there is a proper paper trail from the time you purchased the property and you are able to prove what is required by the State Revenue Office.

Generally the requirement is that a new Bare Trust/Custodian Trust has to be set up for each new purchase. You must ensure that you get the proper advice from a accountant who specializes in SMSFs before you set up your SMSF and purchase property through your SMSF.

September 3, 2018 Australian Tax, Small Business No comments

ATO sets sights on 200,000 taxpayers with short-term rentals

According to the tax office, an “extensive data-matching program” will be used to identify taxpayers receiving income from short-term rentals, with information from online platform sharing sites for around 190,000 Australians to be examined to identify taxpayers who have left out rental income and over-claimed deductions.

By using the new data provided by online rental platforms, including income received per listing as well as listing dates, enquiry and booking rates, prices charged or quoted per night, and other information, the ATO will seek to identify taxpayers not meeting their registration, reporting, lodgement, or payment obligations.

The new data complements long-term rentals information which the ATO already receives from State and Territory Bond Boards.

ATO assistant commissioner Kath Anderson said the tax office will be placing rental properties high on its priority list, considering 2.1 million individuals reported rental income of $42 billion in 2016.

“The availability of short stay rentals has exploded thanks to the online revolution. With the growing number of homes, apartments, units and rooms available via accommodation sharing sites, there is a real risk some people may not understand their tax obligations,” Ms Anderson said.

“We are increasingly using data and technology, to identify any missing income in your tax returns. This data will also identify taxpayers who use sharing economy rental platforms to list a property that is not genuinely available for rent in order to claim unwarranted deductions. There is no high-tech hideaway for rental income.”

Speaking to Accountants Daily, H&R Block director of tax communications Mark Chapman said the ATO was taking a sensible move, considering how many clients may not be aware of the tax consequences before jumping into the short-term rental market space.

“This type of short term rental has boomed in the last few years and many people have gone into it without thinking through the tax consequences. It might seem obvious to those of us in the tax business that this income is taxable but I’ve certainly encountered taxpayers who had no idea that this income needed to go on their tax return – or indeed, that they can also claim tax deductions against the income,” said Mr Chapman.

“The ATO’s new data-matching program simply highlights that practitioners need to be asking their clients if they have, or have ever had, a short term rental deal on any property that they own, even their family home.

“In a sense, it will kill two birds with one stone; those not meeting their tax obligations will be rounded up whilst those who are already complying will find their tax returns pre-filled with the relevant data, which makes the job of completing a tax return a bit easier.”

The new data-matching program comes as the ATO looks to clamp down on the individual tax gap, following its landmark report that found an $8.76 billion tax gap, with omitted income and work-related expenses forming two of the main components driving the tax gap.

UNSW Business School Professor of Taxation Neil Warren, who sits on the ATO’s independent expert panel, said the results of the random enquiry program found self-lodgers were more prone to require corrections with income items, while tax agents required more adjustments to deduction items.

“One of the things that is coming out is that with self-preparers, it is income that is the issue and with agent, it is with deductions where there is the issue,” said Mr Warren.

“Agents are probably getting the income right and where they are kind of competing is with the deductions so getting the understanding where the risk is and where the problems are gives you an understanding of how you might respond to it.”

September 3, 2018 Australian Tax, Small Business No comments

Common return mistakes flagged for popular occupations

The ATO has been on its biggest ever education campaign this tax time, including direct contact with over 3 million selected taxpayers, as well as specialised guides and toolkits for taxpayers, agents, employers and industry bodies.

According to the Tax Office, over 50,000 people have downloaded its guides and toolkit information so far.

“Last year, work-related expenses totalled a record $21.3 billion, and we have already flagged that over-claiming of deductions is a big issue. With so much money at stake, the community expects us to provide help where we can, not just take action when we see mistakes and errors,” said Assistant Commissioner Kath Anderson.

“A key component of the campaign is simple, plain English guidance for the most common occupations, like teachers, nurses, police officers and hospitality workers. There are also easy-to-read guides for the most common deduction types, like cars, clothing and home office expenses.”

Accordingly, the ATO have now published guides for certain occupations, ranging from teachers to flight attendants.

The guides highlight certain common mistakes made within an occupation; for example, police officers are not allowed to claim a deduction on haircuts, grooming, or fitness expenses, even though they may be covered by specific regulations.

Flight attendants can claim overnight travel costs where they have not been reimbursed but cannot claim a deduction for things like hairdressing, cosmetics, and hair and skin care product.

Further, workers within the building and construction industry cannot claim clothes or shoes that are not uniforms or are not designed to provide you with sufficient protection from the risk of injury at your worksite, even if the item is called ‘workwear’ or ‘tradie wear’ by the supplier.

“We want every taxpayer to have the information they need to know whether they can make a claim, to get it right, and know what records they need to keep. Understanding what you can and cannot claim will help ensure that your tax return is processed quickly and any refund is paid as soon as possible,” said Ms Anderson.

September 3, 2018 Real Estate & Mortgage, Small Business No comments

Who do mortgage brokers work for — the borrower, the banks or themselves?

More than half of Australia’s home loans are organised by mortgage brokers.

But are they working for you, the bank, or themselves?

Commissioner Kenneth Hayne, presiding over his Royal Commission into misconduct in banking, was both clear and relentless in his pursuit of an answer to this question.

He repeated it on the final day of the first public hearings:

So who does a broker act for, who does the customer think the broker acts for, who does the lender think the broker acts for, are there varying or varied answers at various steps? If there are, what are they?

The Commissioner asked the lenders and brokers to think about it, and respond. They have.

Let’s break down the responses.

Who does a broker act for?

In the hearings, NAB got a kicking over a “finders fee” program for mortgages called Introducers.

The Introducers were meant to professionals like solicitors and accountants. Instead one of their Introducers, potentially a tailor, helped write $122-million in loans and reaped $488,000 in fees.

NAB clearly didn’t like the query given the curt nature of its response: “This is both a legal and a factual question, which — as posed at the current level of generality — is not capable of a simple answer.”

So the bank didn’t give one.

But the Finance Sector Union didn’t stuff around: “There is no clear answer to the question posed by the Commission.. [so] the truism that ‘if you are not paying for it, you’re not the customer, you are the product being sold,’ applies”.

NSW Legal Aid backed them up: “There is a misalignment between the consumers’ understanding of a broker’s role, the broker’s role in practice and the position at law.”

The Commonwealth Bank got straight to it: “customers believe that brokers are their agents”.

The CBA supported its view with research commissioned by the brokers’ lobby group, suggesting, “customers choose to use a broker to help provide advice and guidance, as well as price negotiation.”

This is a touch different to what their CEO Ian Narev — in a previously secret document tendered to the Royal Commission — had revealed in the hearings.

Brokers escape regulation

While financial planners are now heavily regulated, mortgage brokers remain the Wild West of finance, writes Emma Alberici.

“The use of loan size linked with upfront and trailing commissions for third parties can potentially lead to poor customer outcomes” he wrote then.

Before the royal commission started, all the institutions were given 50 pages to detail misconduct or behaviour falling below community standards in the previous decade.

Aussie Home Loans cleared themselves in eight short paragraphs — but didn’t make that mistake twice.

In 29-pages of dense responses, Aussie said “mortgage brokers have a direct incentive to act in the best interests of customers such that there is a coincidence of interests in a well performing market”.

But regulator the Australian Securities and Investments Commission (ASIC) gets the last word.

Their submission sounded a bit world weary, constantly referring to their previous explorations of the field.

It rarely gets spelt out more clearly than this: “For mortgage brokers, ASIC found that some types of misaligned incentives created an unacceptable risk of poor consumer outcomes such as bonus commissions (including volume-based commissions) and bonus payments”.

Who does the customer think the broker acts for?

This is likely the kicker that Commissioner Hayne will get stuck in to, because everyone has a different answer.

NSW Legal Aid is out in the community, talking to people.

“In our casework experience consumers largely perceive the broker to be a genuine intermediary,” they found.

ASIC expanded on the theme: “Consumers’ biases or lack of understanding about financial products reduce their ability to (choose) financial products that are better aligned with their own interests or by switching” products or institutions.NAB wanted more detail, including this sentence which reveals more about the multiple potential conflicts than it probably ever intended to: “The answer to this question will depend (on) the terms of the relevant contract between the broker and the lender, the broker and the customer, the customer and the lender, the aggregator and the broker, and the aggregator and the lender”

The Financial Sector Union was, again, blunt. No play, no pay.

The bonuses that aren’t

CBA CEO Ian Narev has unwittingly highlighted the farce that is the executive bonus, writes Ian Verrender.

“The broker is only paid if a customer obtains a loan. Such payments can be significant — typically on a $500,000 loan the broker would receive a flat fee of $2,700 plus an annual trailing commission of up to a further $700. Absent a loan, the broker will receive nothing”.

What about the services before and after a loan? That’s what Aussie focussed on, detailing the services done for no payment whatsoever, except for the “upfront and trail commissions received on settled loans.”

CommBank went to the research, saying customers “assess satisfaction with their brokers as if they are their agents. This is supported by the MFAA research which suggests that 82 per cent of customers evaluate broker actions as being in their interests all or some of the time”.

Who does the lender think the broker acts for?

The Finance Brokers Association of Australia (who were not asked to make a response to the initial hearings) suggest a broker is something like a chef: they work for the customer, but sticking to the rules laid out by their kitchen manager.

Commonwealth Bank continues the theme, that a broker is acting “as an agent for the customer” except when they work for the bank on things like “customer identification, tax file number disclosure, privacy protection of information forms and any bank account opening application”.

The Consumer Action Law Centre wasn’t buying it: “The overwhelming evidence before the Commission is that brokers do not act in the best interests of the consumers, but are instead driven by sales incentives such as upfront or trail commissions”

The Finance Sector Union chimed in on the same tune: “having met minimum legal obligations, brokers act on the basis of a series of drivers and incentives”

As did the regulator, ASIC, who found incentives from lenders “played a significant role in driving conduct by affecting the priorities of lenders’ staff, which in turn affects an entity’s culture, encouraging and reinforcing particular conduct”.

September 3, 2018 Real Estate & Mortgage, Small Business No comments

The banking royal commission – it’s even worse than it looks

If you think the banking royal commission is big, you’re wrong. It’s much bigger.

This week’s disclosure of corporate lies, deceit and greed has damaged the reputations of the big five (big four banks plus AMP).

Down the track, some third-string heads will roll and the vertical integration of the wealth management industry will be unravelled.

But they’re only the immediate headlines. The bigger story behind these early days of the royal commission is the trashing of the entire Big End of Town, of the great and the good who make up the nation’s network of ASX 200 directors, CEOs and CFOs, of the chairmen and women who reached the peak of Australian corporate culture – the top of a big five board table – only to be shown to be, at best, incompetent.

They’re meant to be the cream of the market crop. Certainly the executives and chairs are paid that way. Having a big five directorship on your CV is about as good as it gets in the NEDs (non-executive directors) Club.

If these, the masters of our little universe, could so lose the plot at institutions as important, solid and rich as the big five, what are they capable of across lesser entities?

The companies that are now the big five have been the cornerstones (yes, you can have five corners) of Australian business all my life. I’ll add the relatively young Macquarie to make a neat half-dozen. Plot the careers and connections of the men and women directors and C-suite executives of the financial big six and you pretty much have Australian capitalism.

AMP admitted it had lost count of the number of times it misled the corporate regulator. Photo: Getty

There are 58 current board members of the big six. Add those who have been directors over just this century’s culture failure and you’d have a network of 200 or so names that encompass pretty much all of corporate Australia. They include former Reserve Bank governors, Treasury secretaries, the usual big law firm and accountancy partners, recidivist financial sector NEDs, former finance CEOs and sundry bizoid and professional odds and sods.

We should give some of the more recent appointments the benefit of the doubt (Catherine Livingstone is working hard at CBA), but those 200 bluebloods have been collectively responsible for institutions egregiously and repeatedly failing their customers and, therefore, Australia.

And when that failure has been exposed, it really hasn’t mattered in the Club. No matter how many times it’s happened, it’s always been merely an unfortunate matter among the lower ranks. Million-dollar bonuses continued to be paid, golden handshakes and parachutes made and taken.

For example: I don’t especially want to single out AMP but it did star this week by lying to the regulator and fiddling “independent” reports as well as dudding clients so …

It is testimony to AMP’s once-great reputation that it has survived more than a decade of rolling scandal. That reputation was built up over its long history as a fine mutual before being floated off 20 years ago in the usual fee-feeding frenzy and executive salary explosions.

The float itself turned out to be a poor investment except for the policy holders and executives who took the opportunity to quickly sell out. Management since has had little to be proud of on the performance front.

AMP first made the big-time financial advice scandal headlines way back in 2005 when the toothless ASIC watchpuppy did a little shadow shopping and found a third of AMP financial planners seemed to be putting AMP’s interests ahead of their clients as they switched them into AMP products. Nearly half of a randomly-chosen bunch of AMP files didn’t disclose a reasonable basis for advice and did not make proper disclosures about the cost of switching.

ASIC barely whipped AMP with a feather.

Do you like a bitter joke? The ASIC deputy chair, Peter Kell, droning about poor adviser performance at the royal commission this week was releasing ASIC shadow shopping surveys on poor adviser performance at AMP 15 years ago.

To use a technical phrase, ASIC has achieved bugger-all while occasionally feather-tickling.

Andrew Mohl was AMP’s CEO at the time of that shadow shopping. He is now a CBA director.

Craig Dunn was running AMP’s financial services division at the time. Did his career suffer? AMP subsequently made him CEO. He is now on the Westpac board.

Scandals down the line have barely scratched those at the top. The CBA’s recent bonus cuts are the exception. In general, the people in charge of corporate Australia, the boards of directors, have let it roll along.

This is where the culture of the 200 and their concept of their role should be questioned. Their tendency to be captured by the CEOs they appoint and their ignorance – wilful or otherwise – about what’s really going on in their companies and how bonus hurdles are being met is a collective failure.

That’s why it’s open to this royal commission to shoot responsibility to the top where it belongs, instead of just taking a few mid-level scalps, to prove wrong the doubts I had two years ago about what the commission might achieve.

Aim high, Commissioner Hayne.

September 2, 2018 Real Estate & Mortgage, Small Business

Housing Correction Deepens With Dwelling Values Falling Across Most Capital Cities

National dwelling values were down for the eleventh consecutive month suggesting spring selling conditions may deliver a challenge amidst rising advertised stock levels, tight credit and indications that mortgage rates are tracking higher.

Australia’s housing market correction continued through August with the CoreLogic National Home Value Index tracking 0.3% lower over the month. Since peaking in September last year, dwelling values have been consistently tracking lower, down a cumulative 2.2% through to the end of August.

CoreLogic head of research Tim Lawless said, “Weaker housing market conditions can be tied back to a variety of factors, foremost of which is the tighter credit environment which has slowed market activity, especially amongst investors. Fewer active buyers has led to higher inventory levels and reduced competition in the market. Collectively, these factors have been compounded by affordability challenges, reduced foreign investment and a rise in housing supply.”

Change in dwelling values

Five of the eight capital cities recorded a fall in dwelling values over the month, highlighting the weak housing market conditions are broad-based. The only cities where dwelling values edged higher in August were Adelaide (0.3%), Darwin (0.1%) and Canberra (0.5%).

Focusing on the three month trend shows Melbourne is now Australia’s weakest capital city housing market, with dwelling values falling 2.0% over the three months ending August; the weakest rolling quarterly result since the three months ending January 2012. Perth isn’t far behind, with values down 1.9% over the past three months, reversing the temporary positive movements recorded earlier in the year.

Adelaide rose to the top of the quarterly performance stakes over the three months to the end of August, taking over from Hobart where values have posted two consecutive months of subtle falls. Adelaide dwelling values were half a percent higher over the past three months, with quarterly gains also recorded in Canberra (+0.4%) as well as Hobart and Brisbane, both up +0.1%.

Over the year to date, the weakest housing market conditions are concentrated in Sydney and Melbourne where dwelling values were previously rising the fastest, but have now fallen 3.5% and 3.3% respectively over the first eight months of the year. Considering the sheer size of the cities; Sydney and Melbourne comprise approximately 60% of Australia’s housing market by value, and 40% by number, the weaker performance in these cities has a significant drag down effect on the combined capitals and national reading of the market.

The regional markets have also continued to weaken, with values slipping lower for the second consecutive month across the combined rest of state index to be down 0.2% over the month and 0.6% lower over the rolling quarter. Regional areas of the mining states continue to deliver the most significant drag on the headline growth rates, with values down 3.5% over the past three months across regional WA and 1.0% lower across regional Queensland.

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Buying a property in the name of your Self Managed Super Fund (SMSF).

ATO sets sights on 200,000 taxpayers with short-term rentals

Common return mistakes flagged for popular occupations

Who do mortgage brokers work for — the borrower, the banks or themselves?

Who does a broker act for?

Brokers escape regulation

Who does the customer think the broker acts for?

The bonuses that aren’t

Who does the lender think the broker acts for?

The banking royal commission – it’s even worse than it looks

Housing Correction Deepens With Dwelling Values Falling Across Most Capital Cities

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