It’s December and the countdown to Christmas and the summer holidays has begun. But before we tuck into our Christmas turkey (or prawns), switch on the cricket and head for the beach, there is always work to complete and loose ends to tie up.
The Australian economy sent mixed messages in November. The Reserve Bank’s statement of monetary policy early in the month forecast economic growth will gradually pick up from the current annual rate of around 1.8 per cent to 3.5 per cent by the end of 2019. Inflation, currently 1.8 per cent, is expected to remain low and while the next movement in interest rates is likely to be up, the Reserve is in no hurry to act.
The improving economic outlook is reflected in business profits, with the NAB business conditions and profitability indices at record highs in October, at 21.1 points and 26.2 points respectively. The jobless rate also continues to fall, from 5.5 per cent to 5.4 per cent in October, the lowest since February 2013. Wage growth, however, still lags at 2.0 per cent in the year to September, only just ahead of inflation at 1.8 per cent. Consumer confidence hit a four-month high in November before easing back slightly; the ANZ/Roy Morgan consumer confidence index finished the month at 115.0 points, above its long-term average. This has yet to translate into retail sales which were up just 0.1 per cent in the September quarter while retail prices fell 0.4 per cent. The Australian dollar finished the month around US76c, up almost 6 per cent so far this year.
Opportunities in the cooling property market
Things are looking up for first home buyers for the first time in years as house price growth begins to slow across the country. While prices have been on the slide for some areas in the West and the North since the end of the mining boom, the housing market in Sydney and Melbourne also appears to be losing steam.
At a national level, house prices were unchanged in October and up just 0.3 per cent over the quarter according to the latest figures from property research group CoreLogic. Significantly, the over-heated Sydney market fell 0.6 per cent over the three months to October, joining Perth and Darwin which have been falling since 2014.1Hobart is the top performing market, fuelled by mainlanders searching for more affordable housing. Prices for Hobart dwellings rose 12.7 per cent over the past year, although price growth slowed to 0.09 per cent in October. It’s easy to see why people are flocking to the Apple Isle; the median dwelling value of $396,393 in Hobart is less than half what you can expect to pay in Sydney ($905,917) where prices are up 74 per cent since the boom began in early 2012.
Melbourne is the second most expensive city, with an average dwelling price of $710,420. And while the Melbourne market isn’t falling, it also shows signs of cooling with growth of 1.9 per cent in the three months to October and annual growth of 11 per cent. Other capital cities show little change with Brisbane up 0.6 per cent over the quarter while prices in Adelaide rose just 0.1 per cent.
Tighter lending begins to bite
The Australian housing market is a tale of many markets, each with their own supply and demand issues. But there are some common factors at play. At a national level, concerns about rapidly rising prices, risky lending practices and worsening housing affordability prompted regulators to act.
In late 2014, the Australian Prudential Regulatory Authority (APRA) announced that lenders were to limit housing finance to investors to 10 per cent of their total home lending. Then in March 2017 APRA announced a 30 per cent limit on new, interest-only home loans to dampen risks in the housing market.
In April the Australian Securities and Investments Commission (ASIC) signalled a crackdown on lenders and mortgage brokers recommending more expensive, interest-only loans to customers who were often unaware of the risks.
Investors paying more for credit
Lenders responded to the regulators’ concerns by lifting interest rates on interest-only and investor loans. According to comparison site Canstar, the average standard variable rate for investors has grown to around 0.5 per cent higher than the equivalent rate for owner occupiers.
And it seems these measures are working. The number of investor home loan approvals dropped sharply in 2015 and again in 2017, while owner occupier loans have shown a significant uptick in 2017.2
While tighter lending policies have undoubtedly taken some of the heat out of the housing market, other forces may also be playing a role.
Understanding supply and demand
So far there is little sign of a housing bust in Australia, with significant unmet demand from first home buyers, high levels of migration and land shortages in major urban areas. But when house prices rise as far and as fast as they have in markets like Sydney and Melbourne, it’s natural to expect periodic corrections.
Commentators have been warning of an oversupply of apartments in Melbourne as well as in Brisbane. The Brisbane market has been cooling for some time, and now property values in Melbourne are rising at their slowest quarterly pace since 2016.
Despite the slowdown in price growth, Australian housing is still far from cheap. But with tighter controls on investor lending and continuing low interest rates for owner occupiers, the tables may be finally turning in favour of first home buyers.
If you would like to discuss your property strategy, give us a call on 03 9523 6500 or email email@example.com
1) All price data from CoreLogic, 1 November 2017, https://www.corelogic.com.au/news/growth-conditions-remain-flat-national-basis-while-sydney-values-fall#.WgEZ3uQUnIU
2) ABS; RBA
Tax Alert December 2017
Employers who fail to pay their employees’ super on time are likely to find themselves on the receiving end of some unwelcome attention after the tax man was given more resources. Here’s a roundup of the latest tax news.
Super payments under the microscope
New funding for the ATO will give it more resources to tackle non-compliance with the requirement for regular employee superannuation guarantee (SG) payments by some employers. In addition, legislation will be introduced to close the legal loophole allowing employers to deduct salary-sacrifice contributions made by their employees from their SG payments.
According to the Government, the new money is designed to give the tax man “near real-time visibility” over employer SG compliance, with super funds required to report at least monthly all contributions received on behalf of employees.
Single Touch Payroll for super information will be rolled out to employers with 20 or more employees from 1 July 2018, with smaller employers moving to the system from 1 July 2019.
SMEs could be excluded from tax cuts
Legislation for proposed cuts to the company tax rate over the next few years could see some small and medium corporations miss out due to a new, more clearly defined test for eligibility. This will replace the original requirement for a company to be simply ‘carrying on a business’.
Under the new legislation, eligible corporations will be required to have no more than 80 per cent ‘passive’ income, leaving entities with over 80 per cent of their assessable income from sources such as interest, dividends and royalties locked out of the lower tax rates.
The ATO’s definition of passive income includes dividends other than non-portfolio dividends; franking credits on those dividends; non-share dividends; interest income, royalties and rent; and net capital gains.
Notification of SMSF changes
The ATO has issued a reminder to SMSF trustees that they must notify it in writing within 28 days of any major changes to the fund.
Trustees must notify alterations to the fund’s name, address, contact person, membership, fund trustees and directors of the fund’s corporate trustee. Reporting of any changes to the SMSF’s bank account details and electronic service address is also required.
Tax penalty rates announced
The new quarterly rates applying to tax shortfalls and penalties during the 2017/18 tax year have been announced by the ATO.
The rate for the general interest charge (GIC) during the October-December 2017 quarter is 8.7 per cent, while the shortfall interest charge (SIC) is 4.7 per cent. GIC penalties for late payment and other tax obligations are imposed on tax debts relating to income tax, FBT, GST and PAYG.
Meal deductions back for truckies
Truck drivers claiming for their meals away from home have received a reprieve from the ATO following a decision to reinstate deductions on a meal-by-meal basis.
New reasonable meal amounts are listed in a revised Taxation Determination, with employee truck drivers able to claim $24.25 for breakfast, $27.65 for lunch and $47.70 for dinner in 2017/18. These amounts cannot be combined into a single daily amount or moved from one meal to another. Drivers who have been using, or wish to continue using, the published daily amount of $55.30 can continue to do so.
Under the meal deduction rules, there are no limits on the amount a driver can claim when travelling away from home, but claims can only be for amounts actually spent. Receipts are not required if the claim does not exceed the ATO’s reasonable amounts, with bank statements considered suitable for substantiation purposes.
The regulator is currently working with trucking industry representatives to develop a daily rate for 2018/19 and simplify recordkeeping requirements for drivers.
MG Financial Services is a corporate authorised representative of Count Financial Limited AFSL Holder Number 227232. This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns