ECONOMY

7 November, 2017

The Reserve Bank of Australia has announced its decision on the official cash rate for November after it concluded its monthly board meeting.

RBA has decided to keep the official cash rate at the record low of 1.50 per cent for the fifteenth consecutive month.

Core Logic head of research Tim Lawless said a slowdown in housing market conditions has helped to alleviate some of the pressure to raise the cash rate.

“The fresh round of macro-prudential policies announced in late March have resulted in tighter credit policies and premiums on mortgage rates for investors and interest-only borrowers,” said Mr. Lawless.

“Tougher lending conditions have arguably had a similar effect as a lift in the cash rate, except the effect is more focused on slowing investment activity across the housing sector while low interest rates continue to provide a broader and much-needed economic stimulus.”

ABC chief economist Jordan Eliseo said despite the concerns about a slowdown in retail sales growth over the last few months, the RBA still appears confident in the outlook for the Australian economy, “though their rhetoric around tightening policy has changed appropriately”.

“We still see the next move as down, but it will not come until Q1 2018 at the earliest.”

AMP chief economist Shane Oliver said RBA expectations for stronger growth ahead, high levels of business confidence and strong employment growth all argue against a rate cut, while a slowdown in the housing cycle, risks around consumer spending, weak wages growth and inflation and the too high Australian dollar argue against a rate hike.

“So the most likely outcome is rates remaining on hold – at least until late 2017.”

SOURCE

15th November, 2017

Australian workers’ wages remain resolutely stuck in the slow lane, despite end of year wage reviews and July’s national minimum pay decision kicking in.

Key points:

Wage price index stuck at 2percent despite a series of factors including annual bonuses and the minimum wage rise. Wages rose by 0.5 per cent in the September quarter, or 2 per cent over the year in seasonally adjusted terms.

The market had expected a much more robust, although historically weak, 0.7 per cent growth over the quarter and 2.2 per cent over the year, driven by the minimum pay rise.

The surprisingly poor result saw the Australian dollar plunge below 76 cents against the US dollar.

Quarterly wages growth has now been stuck in the very narrow, and low, band of 0.4 per cent to 0.6 per cent for the last 13 quarters. Australian Bureau of Statistics chief economist Bruce Hockman described the September quarter increase as marginal.

“The higher wage growth in the September quarter was driven by enterprise agreement increases, end of financial year wage reviews and the Fair Work Commission’s annual minimum wage review,” Mr Hockman said.

Callam Pickering, the Asia-Pacific economist for job site Indeed, said low wage growth remains the dominant, worrying trend for the Australian economy.

“It’s the key for monetary policy, the key for inflation, and the key for improved retail spending,” he wrote in a note.

“Stronger business conditions and lower unemployment should, in time, lead to higher wage growth.

“But there remains a high degree of slack in the labour market and that keep wage growth relatively low for the foreseeable future.”

SOURCE

20 November, 2017

Retailers are anticipating a tough Christmas trading period faced with new competitors like Amazon, rising electricity costs and benign inflation.

Even so, a new report suggests shoppers can forget a bargain through pre-festive season sales, with many retailers reverting to the more traditional post- Christmas clear out.

The Deloitte retailers’ 2017 Christmas survey of 52 executives and senior management from leading retailers operating in Australia found almost three- quarters of respondents expecting sales to exceed those of 2016, but less than half anticipating growth will be more than a slim two per cent.

‘A number of retailers haven’t survived the year and there is concern amongst respondents that weakness may continue throughout Christmas 2017,’ according to the Deloitte’s national leader, wholesale and distribution Retail David White.

While over the past few years there has been a shift to earlier and earlier discounting in December, one in five retailers say they are standing firm this year, and a further 21 per cent said they will use the post-Christmas period to clear festive season stock.

‘During Christmas 2016 we saw many retailers pay the price for heavy and early discounting, with first-quarter sales in 2017 proving to be a challenge for many,’ Mr White said.

‘There seems to be a clear determination not to fall into the same trap this year.’

But it is not all doom and gloom, with almost a third predicting online sales will be 10 per cent higher than last year and just over half seeing a rise of more than six per cent. While a third of respondents believe Amazon’s official launch in Australia will have a negative impact on their business, 39 per cent think it will be positive for them.

‘With the greater channels to market created by Amazon, together with opportunities for retailers to work with them, there are undoubtedly a number of retailers who will stand to benefit from the global retail giant’s arrival,’ Mr White said.

At the same time, despite their cautious expectations over Christmas, just over half of retailers expect their earnings to grow by more than five per cent in 2018.

SOURCE

TAX NEWS

20 November, 2017

Following its decision to abandon plans for a controversial bank levy, the South Australian Government has announced that it will still press ahead with payroll tax cuts and a higher foreign investor surcharge.

The Government had proposed a levy of 0.015 percent per quarter on the liabilities of the four major banks, plus Macquarie. The upper house rejected the proposal by a majority of one, prompting the Government to announce on November 15 that it would set aside its Budget legislation and would not take the tax to the state election next year. It also said that it would reflect on Parliament’s decision before deciding what to do with other blocked Budget measures.

On November 16, the Government announced that it intends to deliver payroll tax relief to small businesses, equivalent to the scheme originally proposed in the Budget Measures Bill. It will also introduce legislation to establish a Foreign Investor Surcharge, and will increase the planned rate from four percent to seven percent.

Treasurer Tom Koutsantonis said: “It didn’t have to be this way. South Australian businesses could have had permanent, legislated payroll tax cuts, but [opposition leader] Steven Marshall chose to help the big banks protect their super profits instead. Our number one priority will continue to be creating jobs and helping our small businesses grow.”

SOURCE

09 November 2017

The Australian Treasury has released a paper that considers the implications of proposed reforms to the US corporate tax system, and which warns that Australia’s GDP and real wages could be affected by the changes.

The paper examines the likely impacts of the proposed reforms on the US and on the rest of the world. The package included a cut to the US federal corporate tax rate from 35 percent to 20 percent, the expensing of depreciable assets, an exemption for dividends paid by certain foreign subsidies to US companies, and a one-time tax on overseas profits.

The paper concluded that the economic impact of the proposals “will depend on how time and compromise shape the package that is ultimately legislated.” The size of the cut, the manner in which it is funded, and the perception of investors as to its permanency are all expected to be key factors.

The paper suggested that, if a cut in the US corporate tax rate does result in a US investment boom, “the rest of the world is likely to experience reduced foreign investment and, as a consequence, lower GDP and real wages than might otherwise be the case.”

The paper noted that the impact on Australia will ultimately depend on how the rest of the world responds to any US tax cuts, and suggested that it is likely that countries may lower their own rates and/or introduce more preferential allowances for capital investment. The paper explained that this would form part of an overall trend, and pointed to the fall in the OECD-average corporate tax rate from 32 percent in 2000 to 24 percent today. It also observed that economies such as Canada, Singapore, the UK, and New Zealand have all cut their rates in the past 10 years.

Australia’s headline company tax rate is 30 percent. The small business rate was reduced to 27.5 percent earlier this year, in tandem with an increase in the turnover threshold for access to the rate. Further increases in the turnover threshold will follow in the coming years. However, the Government was unable to carry legislation to reduce the rate to 25 percent for all firms, and has re-introduced the outstanding elements of its Enterprise Tax Plan to Parliament.

Commenting on the paper’s release, Treasurer Scott Morrison said: “The paper raises serious concerns that should the US implement the Trump company tax cut, investment in Australia will potentially fall, leading to flow-on effects including lower wages for hard-working Australians and lower economic growth.”

He added: “In highlighting the risk to Australia’s international tax competitiveness, the report finds that other countries would likely respond to any US company tax reduction to avoid negative effects. Competition between jurisdictions could accelerate. A permanent reduction in GDP and real wages might become a reality unless steps are taken to maintain Australia’s competitiveness.”

Ultimately, the paper found that the impact on Australia will “depend on the cumulative effect of such changes and how Australia responds.”

SOURCE

07 November 2017

The federal government is tightening the rules on GST paid for new properties to prevent dodgy developers from avoiding their obligations to the ATO. The Government has proposed that purchasers should withhold the GST on the purchase price of new residential premises and new residential subdivisions. They would then remit the GST directly to the Australian Taxation Office (ATO) as part of settlement.

The intention is to address tax evasion through the use of “phoenixing” arrangements, where developers collect GST from their customers but dissolve their company to avoid paying the GST to the ATO. The Government said that this type of phoenixing activity in the property development sector has been growing in spite of sustained compliance activity by the ATO.

To provide certainty for contracts that have already been entered into, the draft legislation provides for a two-year transitional arrangement. Contracts entered into before July 1, 2018, will not be affected, provided that the transaction settles before July 1, 2020. The measure will apply to contracts that settle on or after July 1, 2020, regardless of the date of the contract.

Revenue Minister Kelly O’Dwyer said: “Currently, developers can have up to three months to remit GST after the sale of newly constructed residential premises and new subdivisions, allowing dishonest developers time to phoenix and avoid their GST obligations. This measure will ensure the GST is paid over to the ATO.”

SOURCE

31 October, 2017

The Australian Government is consulting on draft legislation to enhance tax breaks for angel and venture capital investors.

Under the current venture capital limited partnership (VCLP) regime, a VCLP is taxed on a “flow-through” basis, rather than being treated as a company for tax purposes. This means that the partners, rather than the “partnership” are taxed, under the personal income tax regime.

Early-stage venture capital limited partnerships (ESVCLPs) are also taxed on a “flow-through” basis, but the tax concessions available for these are more generous, given the higher degree of risk involved. A separate incentive also exists for early-stage investors outside the venture capital framework.

The Government intends to reform the rules to ensure that start-up Financial Technology (FinTech) businesses can access the venture capital investment tax concessions.

The Government will enable ESVCLPs and VCLPs to invest in companies that have finance or insurance activities as their predominant activities, provided that they are early-stage companies. Under the present rules, both finance and insurance are ineligible activities for the purposes of the venture capital tax concessions.

SOURCE

30 October, 2017

The Australian Taxation Office (ATO) has announced that it has reinstated the meal-by-meal approach for truck drivers who claim travel expenses for meals.

The ATO said that it has been working with representatives of the trucking industry for several months.

The individual meal amounts have been published in a revised Taxation Determination. The reasonable amounts for each meal are: AUD24.25 for breakfast, AUD27.65 for lunch, and AUD47.70 for dinner. The amount for each meal is separate, and cannot be combined in a single daily amount or moved from one meal to another.

The ATO does not limit the amount a taxpayer can claim when travelling away from home overnight for work. It said that drivers do not have to keep receipts for every meal if their claim is no more than the reasonable amounts that the ATO publishes each year. Drivers can only claim for amounts actually spent, and not just for the reasonable amount.

The ATO added that should drivers be asked to explain their claims, records such as bank statements for purchases can be relied on.

The ATO will continue to consult with industry representatives on an agreed approach for future years, and with a view to establishing a daily rate. The aim is to simplify record-keeping requirements for drivers. The ATO said that it wants taxpayers to claim what they are entitled to – no more and no less.

The ATO will also ensure that any truck driver who has been using, or wishes to continue using, the published previous daily amount of AUD55.30, can continue to do so and will not be disadvantaged.

SOURCE

SMSF NEWS

09 November 2017

The Australian Taxation Office (ATO) has released further details of its plans to introduce event-based reporting for self-managed superannuation funds (SMSFs).

The ATO said that from July 1, 2018, the reporting requirements will be limited to those SMSFs with members with total superannuation account balances of AUD1m (USD769, 176) or more. Affected SMSFs will be required to report events impacting their members’ transfer balances within 28 days of the end of the quarter in which the event occurs.

Reporting is only required if an SMSF has one or more members in a pension phase, and one of those members has an event that affects their transfer balance.

SMSFs whose members’ total superannuation balances are below this threshold can choose to report events which impact their members’ transfer balances at the same time that they lodge their annual SMSF return.

There are tax consequences for individual members if they exceed their transfer balance cap. As of July 1, 2017, there is a limit on the total amount of superannuation that can be transferred into the retirement phase. The cap is currently AUD1.6m, and will be indexed periodically in AUD100, 000 increments, in line with CPI.

Excess transfer balance tax is payable on the national earnings associated with any excess.

According to ATO Deputy Commissioner James O’Halloran, “up to 85 percent of the SMSF population will not be required to undertake any additional reporting outside of the current annual reporting timeframes for the foreseeable future.”

SOURCE

13 November, 2017

The 2017 Australian Derivative Survey, conducted by risk consultant Milliman, found that 79 per cent of of super funds ‘always’ or ‘often’ use derivatives for risk management and hedging purposes.

Over half of super funds (51 per cent) use derivatives for fund manager transitions, and 42 per cent of respondents said they use derivatives for rebalancing portfolios.

Milliman head of fund advisory services Michael Armitage said the survey demonstrated that Australian super funds have a “mature and healthy approach to derivative usage”.

Most importantly, Mr Armitage said, the survey uncovered “no signs” that derivatives are being used to take on excessive risk – with 85 per cent of funds stating they ‘never’ used derivatives to leverage their exposure to assets.

However, the survey also found that many super funds were failing to take advantage of the downside protection offered by derivatives.

“Surprisingly, 69 per cent of MySuper funds and 63 per cent of choice/pension products still don’t use any explicit downside protection strategies despite the global financial crisis exposing the limitations of diversification as a risk management strategy,” said Milliman.

“The comprehensive income for retirement products (CIPR) discussions can be expected to bring into focus the need to address the dynamics of pension phase for members.”

Mr Armitage added, “Funds utilising downside protection in the pension phase are expressing growing concern with fixed income’s ability to provide diversification benefits given a potentially rising rate environment. “Others are focused upon managing investor behaviour and smoothing portfolio performance to help members achieve their retirement goals.”

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