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The following links are to the latest state and federal government plans, schemes, programs, and initiatives to help businesses and individuals manage the impact of yet more COVID-19 restrictions.

 

 

     

FEDERAL GOVERNMENT 

 

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NSW   

 

QLD    

           

ACT

 

South Australia         

           

WA

 

TAS                 

 

NT      

 

 

 

Two recent AAT decisions shed important light on what constitutes business real property: Allzams Trust and Commissioner of Taxation [2021] AATA 2767 and Allen and Commissioner of Taxation [2021] AATA 2768.

 

 

Both cases involved a disappointed taxpayer seeking a review by the Administrative Appeals Tribunal of a decision of the Commissioner of Taxation.

These decisions indicate the high degree of difficulty a taxpayer might face if arguing that residential real estate constitutes business real property on the basis that the taxpayer is in the business of renting real estate.

Dennis Allen had degrees in accounting and applied finance. He had been involved in the real estate investment market since the 1980s. He appears to have invested in real estate in two ways. Firstly, he invested in his name personally and secondly he invested via a trust (Allzams Trust) of which he was the trustee.

The portfolio he had built up was sizeable, being summarised as follows:

Personal assets

Address

Purchase Date

Purchase Price

Ownership Interest

First Available for Rent

Current Market Value

Level of Borrowings

3 Mereweather Avenue Frankston

November 2016

$400,000

100%

November 2016

$500,000

$400,000

5 Mereweather Avenue Frankston

November 2016

$400,000

100%

November 2016

$500,000

$400,000

(comprising seven units) Units 1-7/13 Schofield Street Essendon

3040

September 2014

$1,735,000

100%

September 2015

$5,000,000

$1,450,000

Trust assets

Address

Purchase Date

Purchase Price

Ownership Interest

First Available for Rent

Current Market Value

Level of Borrowings

(comprising five units) 1-5/7

Mereweather Avenue Frankston 3199

December 2016

$1,150,000

100%

January 2017

$2,000,000

$800,000

Mr Allen had been a professional banker. However, he was made redundant in 2018 and from then on focused on his property portfolio.

Between his activities as trustee for the trust real estate and his activities for his personal real estate, Mr Allen spent at least 25 hours per week on real estate-related activities. These activities varied from week to week. However, activities from one particular week included:

  • day-to-day management of qualified professionals needed to facilitate a development
  • crushing rock and applying rock and topsoil to seven gardens
  • filling the core of the front wall and garden walls
  • building retaining fences around the real estate
  • planting 250 trees and plants in the seven gardens
  • final cleaning of flooring across four new apartments
  • organising the installing of curtains across four new apartments
  • organising paving contractors
  • preparing documentation for mediation session with Dispute Australia on a fencing dispute
  • organising strip lighting for four kitchens and eight bathrooms
  • painting eaves and fascia boards
  • fixing eaves on unit one
  • organising treads for stairs in the properties

For his personal real estate, Mr Allen used the services of a real estate agent to let the real estate for rent. The duties required of the agent were the following:

  • advertise the real estate on realestate.com.au
  • open the real estate for inspections for prospective tenants
  • provide Mr Allen with a list of prospective tenants

Once the real estate agent had performed the above duties, Mr Allen conducted the management of the properties himself. Although one would expect the same to apply in respect of the trust properties as well, the Tribunal noted that in that ‘… matter there is no mention of any roll of estate agents…’.

Are they business real property?

It appears that what Mr Allen really wanted to know was whether the real estate constituted business real property and therefore could be transferred to his self managed superannuation fund.

Naturally, in order to constitute business real property, real estate must be used wholly and exclusively in or more businesses. Leasing residential property will usually not constitute a business. However, in certain circumstances it can. The Commissioner himself acknowledged this in Self Managed Superannuation Fund Ruling SMSFR 2009/1, see in particular example 14, which involves ‘Mr Wood’ who ‘owns 20 residential units’.

Mr Allen had indeed originally asked the Commissioner whether a proposed transfer of properties owned by him personally and as trustee of the trust, to a self managed superannuation fund would be a permissible transfer of ‘business real property’ within section 66(2)(b) of the Superannuation Industry (Supervision) Act 1993 (Cth). The original application was in 2018 or possibly even earlier.

There was subsequent correspondence between Mr Allen’s professional advisers and the Superannuation Advice Branch of the Australian Taxation Office where they advised they could not provide a binding private ruling ‘to matters covered by superannuation law’.  The advice was that the ATO could provide an ‘administrative binding ruling’ on ‘SMSF-specific advice’.

After submitting such a request, Mr Allen’s advisers were contacted by the ATO and advised that in addition to the request for SMSF-specific advice, separate income tax ruling requests should be made by him personally and also on behalf of the trust of which he was the sole trustee, which simply pose the question ‘Am I in business?’

Mr Allen was clearly a very ‘hands on’ landlord. Further, it is clear from reviewing the facts that:

  • a significant amount of capital was used ($8 million in total)
  • the gearing level was relatively modest ($3.05 million)
  • there is every chance that the properties generate net rent. Indeed, in the decision for Mr Allen personally, the Tribunal observed that ‘[t]here is nothing in the stated facts to suggest that the net rent was a negative figure.’

Yet, despite all of this, the facts were far from easily satisfying the business real property test.

The Tribunal did find that Mr Allen personally was carrying on a business of renting the properties he owned personally in two years. Presumably this augured well for his personal real estate constituting business real property.

However, in respect of trust real estate, the Tribunal remitted the matter to the Commissioner to:

  • request that Mr Allen (as trustee of the trust) make an application for another private ruling; and
  • the objection is taken not to have been made.

Conclusions

It can be possible at times for residential property to constitute business real estate on the basis that the real estate is being used in a business of leasing out residential property. (If so, the real estate can then be acquired by an SMSF from a related party, assuming additional criteria are also satisfied.)

However, do not expect this to be easily satisfied. Mr Allen’s facts indicate a fairly sophisticated, capital-heavy, net-income producing operation. However, he received a negative response from the ATO and then only received a partially positive response at the Tribunal. Furthermore the process of ATO input and Tribunal review appears to have taken at least three years (possibly even longer).

For those contemplating whether renting residential real estate constitutes business real property, experienced legal advice and input can be very prudent. Moreover, if this can be satisfied additional tax might be payable on future disposal of such property.

 

 

By Bryce Figot, Special Counsel, and Daniel Butler, Director
DBA Lawyers
17th August 2021
smsadviser.com

 

 

Victoria endures its sixth lockdown as the state's cases grow; NSW records 1,281 new local COVID-19 cases and three deaths. Lockdowns to be eased once 70% of the population is double vaccinated against COVID-19 yet today some 60% of Australians are in lockdown.

 

 

Depression and anxiety were already part of life for some but COVID-19, and the resultant lockdowns, have worsened, and broadened across society as a whole, these mental health issues. We have no choice in regard to lockdowns but more of us are struggling to comprehend, understand, tolerate, and manage increasing amounts of time in isolation. Also, while the pandemic and lockdowns are bad enough, it seems that increasingly people are concerned and anxious about aggressive feelings they have towards those who are causing lockdowns in the first place.

Mental health and lockdowns.

  • Depression and anxiety are three times higher during the COVID-19 lockdowns.

  • Experts say the COVID-19 pandemic is a large-scale traumatic event.

  • It has caused physical, emotional, and psychological distress, and not just for patients of the virus.

While we have been working tirelessly to keep our faces covered, wash our hands, and socially distance ourselves, even from loved ones, we may not have realized how the pandemic and lockdowns have chipped away at our mental health.

Contributing factors to depression and anxiety

There has been a large body of research now into the mental health impacts of COVID-19 and the findings mean we all have to be on guard to help ourselves, our loved ones and the wider community manage during these tough times.

Research finds that certain groups were at greater risk of depression and anxiety, groups such as those on lower incomes and those with low household savings. These groups had a 50 percent greater risk of depression and anxiety than those of higher income.

But income isn’t the only factor. Isolation and uncertainty contribute to depression and anxiety in people of all socioeconomic backgrounds.

‘The rates of depression have significantly increased during the pandemic because people are more socially isolated, have less structure and routine, and more uncertainty about the future, which leads to doubt and negative predictions.’

Beyond that there is the change in the “big picture.” “What does this do to the plans people had? What if they were about to start a job, or lost a job, and now experiencing financial hardship as a result of it? What if they lost a significant other or family member and now have to face life without that person?”

‘On top of it all, there is no way to know when it will all end. Needless to say, it is understandable why depression and anxiety are on the rise.’

How to address depression symptoms during COVID-19

There are many ways to help ease the symptoms of depression and anxiety even during a pandemic.

Depression is a common condition that affects millions of people around the world. This means there are verified and trusted methods for dealing with symptoms so that you can get back to living and enjoying your life.

“Identifying those at risk for mood symptoms — for example, those with a history of depression or anxiety, substance abuse history, those facing long-term unemployment, or those who feel a sense of isolation from others — is vital for early detection and intervention.” “Recognizing warning signs in our friends and family members, such as feelings of hopelessness and withdrawal from others, can be a way to connect individuals with the appropriate services before symptoms worsen.”

For those who may not know if they are struggling with depression and anxiety, symptoms can include:

  • low energy

  • insomnia

  • weight loss

  • low mood

  • feeling like a burden to others

  • feelings of guilt

  • suicidal ideation

“Based on the symptoms, you can decide how you want to approach it. It could be as simple as developing a semblance of structure or routine to your day, or setting a reminder to take time for yourself, even if it’s just an hour.”

There is also psychotherapy, which is one of the most valued tools when it comes to improving mental health.

“To suddenly feel like you have someone to listen and understand you and allow you to see things from a different perspective — that’s worth a lot. Especially when someone is struggling with depression.”

‘Additionally for some people medication can help.’

‘In the midst of a pandemic and recession one way to help is simply to reach out to family and friends and check in on their mental health.’

“Everyone is struggling in one way or another during COVID-19. Don’t be afraid to reach out for help or share your experiences with those close to you,” LeMonda said. “Chances are, you’ll find you’re not alone.”

 

Reinvesting income distributions and having the discipline to contribute regularly is a powerful way to build wealth, as evidenced in Vanguard's 2021 Index Chart.

 

 
 

When it comes to investing, nothing speaks louder than actual results.

The 2021 Vanguard Index Chart shows what investors would have achieved over 30 years from a starting balance of $10,000 invested into different asset types.

The dollar returns are based on the measured returns of those assets and assume all the income received from them over time was reinvested back into the same asset type. But the returns don't take into account buying costs (primarily brokerage fees) or any taxes.

The tables below relate specifically to the performance of the Australian share market since 30 June 1991.

The 30-year average annual return for the broad index of Australian shares to 30 June 2021 was 9.7 per cent per annum.

Table 1 shows the growth of an initial $10,000 investment at five-year intervals for an investor who made no additional contributions over the entire time except for reinvesting their income distributions back into the whole Australian share market.

This would have been achieved by investing through a managed fund or an exchange traded fund (ETF).

After one year the Australian market, combined with income distributions, had delivered a return of around $1,300.

By five years the starting investment had grown to more than $17,000, and by 10 years it had trebled to more than $30,000.

By 20 years the original $10,000 had increased by more than 550 per cent, and by 25 years it had grown to over $92,000.

Then, at the end of June this year, that initial $10,000 would have been worth more than $160,000, showing an impressive total return since mid-1991 of more than 1,500 per cent.

Table 1

Year Reinvestment of income
distributions only
Compound % growth
1 $11,304.33 13.0
5 $17,267.29 72.7
10 $32,076.07 220.8
15 $57,445.51 474.5
20 $65,354.35 553.5
25 $92,963.09 829.6
30 $160,498.17 1,505.0

Based on All Ordinaries Accumulation Index monthly returns from 30 June 1991 to 30 June 2021.

Results with a regular contributions strategy

There's no denying the 30-year return from the Australian share market, based on a $10,000 starting investment with no extra contributions, is strong.

Yet the numbers are even more compelling using an example of someone who started with the same $10,000 investment amount but who had decided to make extra regular contributions of $500 per month and reinvest their income distributions.

It's only when you compare the results side by side that the full return picture becomes much clearer.

An initial contribution combined with a regular investment savings strategy and the reinvestment of distributions will deliver much higher long-term results.

Investing the same amount of money at set intervals is known as dollar-cost averaging. That means you're averaging out the cost of your investments through incremental investing – regardless of whether market prices are up or down.

At year one table 2 below shows that there was little difference in compound growth between someone making no additional contributions versus a person who added a further $6,000 in contributions over the first 12 months.

Table 2

Year Reinvestment of income
distributions only
Contributions of $500 per month plus
reinvestment of income distributions
1 $11,304.33 $17,577.36
5 $17,267.29 $57,072.67
10 $32,076.07 $147,406.84
15 $57,445.51 $312,052.84
20 $65,354.35 $386,774.68
25 $92,963.09 $586,285.33
30 $160,498.17 $1,052,982.13

Based on All Ordinaries Accumulation Index monthly returns from 30 June 1991 to 30 June 2021.

But after five years the gap began to widen. After making $30,000 in extra contributions on top of their initial $10,000, an investor would have achieved a balance of almost $60,000.

After a decade and $60,000 in contributions, the balance would have grown to around $150,000, and after 20 years (by 2011) to more than $380,000.

At the end of June this year that starting balance of $10,000, based on the monthly returns of the All Ordinaries Accumulation Index and $180,000 in total contributions, would have been worth more than $1.05 million.

The overall comparison numbers really tell the story.

In addition to the benefits of long-term market returns and reinvesting income distributions, having the discipline to make investment contributions on a regular and structured basis really pays off.

That's the true power of compounding returns.

 

 

Tony Kaye
Personal Finance Writer
10 Aug, 2021
vanguard.com.au

 

 

While society continues to grapple with the factors driving gender and pay inequity, women are proactively turning to investing more than ever before. And in doing so, they are demonstrating a very competent and sensible approach to building up their wealth outside of superannuation.

 

 

Each year Equal Pay Day, on a date calculated by the number of extra days women need to work in a year to earn the same annual pay as men, provides a poignant reminder of the challenges women continue to face in securing greater financial independence.

This resounding pay gap all too often results in women having significantly less money saved for their retirement – with the average super payout for women still about 35 per cent less than for men, as reported by ASFA in May 2021.

But while society continues to grapple with the factors driving this inequity, women are proactively turning to investing more than ever before, and in doing so demonstrating a very competent and sensible approach to building up their wealth outside of super.

Much has been written about the recent surge of first-time investors during 2020, with the ASX observing 3.4 times as many new investors joining the stock market than usual. Alongside this, concerns about frequent trading behaviour have worried the regulator to the extent that it issued a warning for those new investors to be more aware of the risks they may be taking.

But pre-dating this retail investing growth spurt, the percentage of females beginning to invest was already on the rise. Investment Trends data from 2019 showed a doubling of women participating in investing between 2013 and 2018. And earlier this year the annual ASX Australian Investor Study showed that a greater percentage of women (51 per cent) are in the category of intending to invest than men, indicating a continuation of this trend.

The same Investment Trends data also showed a growing interest in ETFs amongst female investors, with take up tripling over the period, while the more recent ASX study showed about a third of women were aware of ETFs and some 11 per cent held ETF assets.

Smart investing traits

Contrary to ASIC's concerns last year regarding ill-advised and risky retail investing behaviour, women actually demonstrate sound investing behaviours.

Various studies have shown women to be more focused on long term goals-oriented investing, more disciplined to stay the course in challenging market conditions, and more inclined to choose broadly diversified investments.

The ASX study showed that while some 20 per cent of men check in on their portfolio daily, only eight per cent of women do, and women were less likely than men to check their portfolio balances on a weekly basis. Pleasingly, some 44 per cent of women respondents said they only review their investments quarterly or less frequently.

Indeed, Vanguard's own study of gender differences in investing behaviour in the US has also shown women to be less digitally interactive with their investments, and far less likely to engage in frequent trading behaviour, trading up to 50 per cent less often than men. This aligns closely with what we observed in Australia: half as many female Vanguard investors than males sold down an investment over a 6-month period in 2020.

The Vanguard research showed slightly less alignment to the widely held theory that women have a much lower appetite for risk in investing, with data showing gender differences in overall portfolio risk were minimal. But what does differ from a gender perspective for both Vanguard's US and Australian investors is in their choice of investments, with a greater proportion of female investors choosing balanced diversified funds versus men.

This aligns with Vanguard's long held view that a diversified portfolio, together with planning, discipline and a long term perspective are the key things that give investors their best chance for success.

Women and indexing

Overall, there are key synergies that emerge when you consider the investing behaviours demonstrated by women and what index funds and ETFs bring to the table as part of an investment portfolio.

The low touch nature of index funds and ETFs by removing the need for stock picking, in addition to their offer of simplicity and instant diversification, likely means that as women continue to focus on investing as an avenue to greater financial independence, they will continue to represent a growing proportion of the indexing growth story.

 

 

Rachel White
Head of Product Management

31 Aug, 2021
vanguard.com.au

 

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