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Welcome to the October newsletter.
Share market up 20 per cent in nine months
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The Australian share market has rallied from its August slump to post a gain of 19.4% on the S&P/ASX300 Accumulation Index for the nine months to 30 September.
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In the past 12 months to the end of September the market soared 32.70%.
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Australian shares fell 14.8% from their July high to their mid-August low during the quarter on the back of the sub-prime crisis in the US.
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The market gained a healthy 5.72% in the September quarter despite sub-prime crisis interest rate and inflation worries and general concern a possible United States recession could stunt global growth.
Growth-oriented funds
topped a well known research groups ‘large-cap Australian share wholesale fund league table’ for both the three and 12 months to the end of September. Large-cap stocks drove the positive result particularly in the resources and energy sectors.
Growth managers also widened the gap over their value counterparts. Growth-oriented funds returned 32.97% on average over the year to 30 September 2007, compared to 24.85% for value funds.
Therefore despite the volatility in offshore share markets the local market has maintained its momentum. This can in part be attributed to the billions of dollars entering the markets via superannuation contributions. There is no doubt the new superannuation legislation has helped the market maintain direction.
It is appropriate to remember many successful investors work on the principle that it is not the timing of the market but the time that investors spend in the market that counts.
If you wish to discuss any of this further please contact your usual contact or our financial adviser, Vishnu Naidu on 8853 2694 for further details.
Heirs to a Tax Liability
Unfortunately when a person dies a beneficiary may not only inherit assets but also unexpected tax liabilities. These tax liabilities crystallise from the subsequent sale of assets. However an individual with tax losses can protect their estate beneficiaries from tax and prevent their losses from dying with them by ‘putting their affairs in order’ before their death.
Tax Losses Lost
Whilst a person is alive tax losses can be carried forward indefinitely. But on the death of a person all revenue and capital losses incurred, accumulated and carried forward expire. The losses die with the deceased whilst assets with accrued gains pass to their estate. Thus the taxpayer’s beneficiaries may incur substantial tax liabilities on post death income from assets or from the disposal of the assets without any access to any of the deceased losses.
Tax Inheritance
It is common for people to hold onto appreciating assets and sell those assets which have fallen in value. Unfortunately strategies like this can create tax problems for the heirs of the estate. Say a capital gain is made on the disposal of shares by the executor. This will be a capital gain in the hands of the estate. If the deceased has during their lifetime ‘cleaned out’ the unsuccessful share investments there will be no capital losses available to be offset against the capital gains made by the estate. This means that the tax burden will fall on the beneficiaries of the deceased estate.
Things you can do
The above demonstrates the need for pre-death planning. Where an individual (especially anyone elderly or infirmed) is accumulating substantial revenue or capital loses it may not be prudent to allow those capital losses to run on indefinitely. Positive steps should be taken to realise assets.
The capital gains need not be realised by the individual but could instead by realised by a trust of which the individual is a beneficiary. For example where the individual has capital losses and the trust has capital gains there is a positive advantage in realising those capital gains. The capital gains may be passed by the trust through to the individual thereby extinguishing the deferred tax liability associated with these capital gains.
Where the funds from the asset sales are reinvested through the trust the new assets will have a new and higher cost base. If there are any subsequent capital losses (e.g. caused by a fall in value of those assets) the capital losses will be in an entity which will not die with the relevant individual. Thus it would be more likely for the losses to be recouped in the trust than in the hands of the individual.
Conclusion
With some tax planning and consideration individuals can rest assured that their loved ones will not inherit tax headaches. Please contact us to discuss your estate planning needs.
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Federal Election and Financial Markets
We recently received an interesting report from CommSec commenting on the relationship between Federal Elections and financial markets. If this is of interest to you please
click here to access the report.
Tax Help and Equine Influenza
The Tax Office is offering assistance to businesses directly affected by equine influenza and the resulting quarantine measures.
Click here for further information. Please contact us of you require our assistance in this matter.
ATO Key Dates
Sunday 11 November 2007
Quarterly activity statement, quarter 1, 2007-08 (July-September 2007) – due date for lodgment and payment of lodging via paper or electronic commerce interface (ECI).
Friday 15 November 2007
Superannuation contributions surcharge and termination payments surcharge assessments issued.
Wednesday 21 November 2007
October 2007 monthly activity statement – due date for lodgment and payment.
Sunday 25 November 2007
Quarterly activity statement, quarter 1, 2007-08 (July-September 2007) – due date for lodgment and payment if lodging via electronic lodgment service (ELS) or the Tax Agent Portal.
Wednesday 28 November 2007
Due date for lodgment of the Superannuation guarantee charge statement – quarterly, and payment of the superannuation guarantee charge for quarter 1, 2007-08 (July-September) if sufficient contributions were not paid on time. The superannuation guarantee charge is not tax deductible.
Friday 30 November 2007
Retirement savings account (RSA) providers to lodge regulatory with APRA by 30 November 2007.
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