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Welcome to the September Newsletter.
This month’s quote comes from James Packer:
“In a perfect world we don't want to be overly dependent on any single asset or be so dependent on the cycle or [be exposed] where one asset is the bulk of this company.”
Taking the Long Term View
Against the background of the quote from James Packer, we publish a US study of the performance of various financial assets between 1969 and 2006 that has shown the merits of investing in any asset class for the long term. The table shows the chance of a negative return within the period specified. For example, there is a 30% chance of a negative return if art is held for 3 years. As is shown by the table below none of the asset classes recorded losses in any 10 year period within the survey. This means that if you picked any date and looked forward 10 years each asset class had achieved a positive return.
Chances of a Negative Return in Given Time Period
|
Asset Class |
1 Year |
3 Years |
5 Years |
10 Years |
|
Investment Period |
|
Gold |
41 |
42 |
36 |
0 |
|
Art |
32 |
30 |
17 |
0 |
|
Non US Stocks |
26 |
17 |
7 |
0 |
|
Small US Stocks |
23 |
9 |
1 |
0 |
|
Real Estate |
23 |
15 |
3 |
0 |
|
S&P 500 (US Shares) |
20 |
13 |
10 |
0 |
|
US Corporate Bonds |
17 |
8 |
3 |
0 |
|
Treasury Bills |
0 |
0 |
0 |
0 |
Although this schedule relates to US assets (and the data for art begins in 1976 and real estate 1972) it is still very interesting reading and shows the merits of a long term view in relation to financial planning. It is likely to reflect at least in broad terms Australian experience particularly with increasing globalisation of world markets.
As can be seen, none of the asset classes showed losses over any 10 year period but it should be noted that some failed to maintain the same rate of return as inflation. Another interesting aspect to the study is that there was never an instance where the best performing asset class during one decade was the leader in the subsequent decade. It would seem that long term investors are probably better off diversifying across a broad range of assets classes as opposed to attempting to pick the class which is going to have the greatest performance in any particular period.
We can assist you with the determination of an appropriate investment strategy to ensure that your long term financial saving goals are met. If this is of interest to you, please get in touch with your usual contact at the firm.
ATO releases Compliance Program 2006-07
The ATO's Compliance Program for 2006-07 was recently outlined.
The key risk areas that the ATO is focussing on for the year ahead are
1. Tax scheme promoters
2. Project Wickenby (offshore tax havens)
3. Identity crime
4. Tax havens
5. Failure to declare capital gains and
6. High wealth individuals
Another key focus for the ATO will be supporting the implementation of the new national legislative framework for tax practitioner registration and regulation.
The ATO now use sophisticated profiling methods and will be contacting over 55,500 taxpayers who report amounts outside industry norms and will also be targeting industries that are typically active in the cash economy. We were recently told by the ATO that selection of a taxpayer for a tax audit is no longer a matter of chance.
Some of the specific priorities and activities highlighted in the Compliance Program in relation to different taxpayer groups are summarised below.
Individuals
• Examine the tax affairs of people on high incomes. This will involve reviewing the tax affairs of some senior company executives whose total remuneration exceeds $1 million.
• Identify unreported dividend, capital gains and rental property income
• Focus on deductions for work expenses for certain employee groups such as business professionals, hospitality industry service workers, etc.
• International tax issues including contacting individuals who may not have declared all their Australian and overseas income.
Small to Medium Enterprises
• Monitor and review compliance of Australia’s 1,000 wealthiest individuals
• Monitor the tax performance of privately held groups and the individuals controlling them
• The ATO will look to see GST management practices keep pace with business growth.
Large Businesses
• Review losses to check if they have been correctly incurred and deducted. The ATO will review large businesses that persistently record losses to ensure their claims are justified and they are paying the correct amount of tax.
• Scrutinise businesses that have tax haven dealings
• Review the tax treatment of financial products such as hybrid securities
• Review significant acquisition and divestment transactions
International Tax
• Help smaller businesses comply with international tax obligations
• Examine where profit shifting may occur
• Scrutinise promoters of schemes that operate out of Vanuatu and the Pacific region
• Identify foreign residents not declaring rental property income or capital gains
• Investigate high-risk arrangements involving a tax haven or countries that do not provide banking information to Australia
We have experience in tax audits and would be happy to conduct a “tax risk review” for your business if this is of interest.
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Government Amends FBT Law
The following changes are proposed to FBT for the 2007 FBT year and subsequent years:
- increase the minor benefits exemption under which infrequent benefits are not subject to tax from $100 to $300
- increase the reportable fringe benefits amount threshold from more than $1,000 to more than $2,000
- increase, from $500 to $1,000, the reduction of taxable value that applies to in-house fringe benefits.
GST Applies to Barter Transactions
The ATO have reminded taxpayers that where no money changes hands but instead to businesses exchange goods, GST should still be accounted for in relation to the transactions. Where you are a member of a barter exchange society such as “BarterCard” or a similar arrangement, you should ensure that your business activity statements records all barter transactions and the GST included therein. Leaders should be aware that the day of any transaction is the GST inclusive value with the GST thereon being 1 11th of the day of the transaction.
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