Newsletter Link Financial Services by jennyyingdi


In this issue                                                                                            Visit our new Website
Economic update                                                                                   1
Link Mortgage Services                                                                            1     Link Financial Services has just launched
Small Business CGT concessions                                                                    2              their ‘new-look’ website.
Why dividends are crucial today                                                                   2
Asia insulates itself from Europe                                                                 3                  Visit us today at...
Superannuation contribution rules and taxation rates for 2011/12                                  4  
Contact Link                                                                                      4

Economic update
Global Stock markets continue to be buffeted        population lives in emerging nations. This        Amatil, Orica, Rio Tinto, and Seven Group.
by macro headwinds – mainly from Europe -           means that emerging market growth will play       Investors can also gain exposure to these
as the investment community grapples with           an increasingly important role in the global      markets by investing in American companies
the sovereign debt issues of Europe as well         economy bringing a new set of challenges          that sell into these high growth economies.
as the United States. European policymakers         in addition to those faced by the developed       International exposure is an important part
have made some progress in addressing the           world after years of debt fuelled expansion       of portfolio management and Link Financial
debt crisis but there is still much that needs      and a great deal of fiscal mismanagement.         services can assist you in this area.
to be done. The stakes are high and recent
                                                    In a challenging economic environment,            The performance of the stock market this
market weakness suggests that investors
                                                    Australia is, thankfully, in a strong position    year illustrates the important role of dividends
remain nervous.
                                                    with a sound fiscal position, policy flexibility   in generating portfolio returns, especially
Link Financial Services continues to                that will allow stimulus by reducing interest     on an after-tax basis. Over the last 30 years
recommend a defensive strategy that focuses         rates and we offer much of what emerging          almost 75% of an investors long term return
on quality, diversification and dividend paying     markets need such as commodities,                 came from dividends. With this in mind, Link
investments.                                        education and leisure.                            Financial Services is constantly reviewing our
                                                                                                      preferred income stocks. One of the major
It is hard to focus on fundamental information      Our trade in goods and services with
                                                                                                      characteristics we seek in income stocks is
when there is so much macro ‘noise’ with            emerging markets is very important and
                                                                                                      their ability to pay reliable income streams.
headlines dominated by bad economic                 a meaningful contributor to our country.
                                                                                                      On a broader note, the Australian market is
news. Last month the world’s population             Investors can get exposure to these emerging
                                                                                                      now paying a dividend yield of 5.2%, well
reached 7 billion people only 12 years after        markets through a number of our leading
                                                                                                      above the 10 year government bond yield.
reaching 6 billion people and is expected           companies that operate directly in these
                                                                                                      This premium rarely occurs, but when it does,
to reach 8 billion, at a slightly slower pace,      countries. These companies include Amcor,
                                                                                                      it typically represents a compelling buy signal
in 2025. Amazingly, 6 billion of today’s            Ansell, ANZ Bank, BHP Billiton, Coca-Cola
                                                                                                      for the market.

Link Mortgage Services
After 12 months of planning, Link Financial         With extensive industry experience and ability    Alex is able to provide assistance relating to
Services has had the pleasure in launching          to see the whole market, to cut through the       the following:
Link Mortgage Services Pty Ltd. Link                fine print and explain the pros and cons,
                                                                                                      •	 Residential	Finance
Mortgage Services provides assistance with          Link Mortgage Services will add value to
                                                                                                      •	 Commercial	Finance
obtaining all finance solutions. They are           people with basic and complex financing
                                                                                                      •	 Property	Development
committed to being your financial solutions         requirements.
                                                                                                      •	 Cash	flow	Finance
partner. Link Mortgage Services will help you
                                                    Link Mortgage Services key representative         •	 Equipment	Finance
tailor a solution that is unique to your specific
                                                    is Alex Sobolevsky. Alex has 10 years             •	 Credit	Structuring	and	Assessment
financial needs.
                                                    experience with Australia’s major Banks. Alex     •	 Relationship	Management
 How Link Mortgage Services can help you:           provides credit assistance under an ASIC
                                                                                                      If you wish to obtain more information and
•	 Search	the	market	for	the	best	deals             Australian Credit Licence (ACL). Alex holds
                                                                                                      discuss further about the services available,
•	 Offer	exclusive	mortgage	deals	&	rates           a Bachelor of Information Systems from
                                                                                                      please contact our office.
•	 Expert	mortgage	advice                           Swinburne University and Certificate IV in
                                                    Financial Services from AAMC.

Small Business CGT concessions
Small business CGT concessions                       There are four specific CGT concessions            i) active asset test
                                                     that may apply to the sale of small business
The small business CGT concessions                                                                      ii) maximum net asset value test or the small
                                                     assets, namely the:
effectively offer small business owners who                                                                 business entity test, and
have sold qualifying business assets three           i) small business 15-year exemption
                                                                                                        iii) significant individual test.
important benefits:
                                                     ii) small business 50 per cent reduction
                                                                                                        The active asset test needs to be satisfied on
•	 they	either	eliminate,	reduce	or	defer	the	
                                                     iii) small business retirement exemption, and      all occasions where you are looking to utilise
   amount of tax payable on the capital gain
                                                                                                        the small business CGT concessions. It is the
   from the sale                                     iv) small business roll-over.
                                                                                                        core test of the basic conditions, as the small
•	 they	offer	companies	and	trusts	a	tax	            Where an asset qualifies for one or more of the    business CGT concessions cannot be utilised
   effective way to distribute funds to certain      small business CGT concessions, any capital        for assets that are not active assets.
   shareholders, unitholders and beneficiaries,      gain generated by the sale of a qualifying
                                                                                                        In order to satisfy the basic conditions
   and                                               small business asset can be reduced, deferred
                                                                                                        you must also satisfy either the $6 million
                                                     or eliminated.
•	 through	the	small	business	CGT	cap,	they	                                                            maximum net asset value test or the $2 million
   provide a way of contributing some, or all,       However, in order to be able to use any of the     small business entity test.
   of the sale proceeds to superannuation and        above small business CGT concessions you
   have these contributions exempted from the        will first need to satisfy the basic conditions,
   standard non-concessional contributions           namely the:

Why dividends are crucial today
Paul Taylor, Portfolio Manager of the                whereas on a comparable gross basis their          is basically Sydney Airport, Rio Tinto, mineral-
Fidelity Australian Equities Fund,                   dividend yields are closer to 10%.                 sands producer Iluka Resources, Oil Search,
talks about why Investing in the                                                                        Suncorp and Telstra – all companies that
                                                     Are these dividend yields
Australian share market just for its                                                                    have promising profiles in coming years while
dividend yield makes sense today.                                                                       offering strong cash flows.
                                                     There are two factors that tell whether
November 2011                                                                                           What is your outlook for the
                                                     dividends are sustainable or not. The first is
                                                                                                        Australian market?
How important are dividends today?                   the strength of Australian balance sheets.
                                                     When we judge balance sheets, we look at           Clearly, there are big economic concerns
Dividends are important all the time for             gearing ratios, especially the ratio of net debt   around such as the sovereign debt issues in
they are how equity investors get paid. It’s         over net debt plus equity. Over the long term,     Europe, sluggish global growth, a stagnant
dividends that drive the performance of stock        that ratio has been about 32% for Australian       US economy and slower growth in Asia. We
markets. If we look over the long term, the          companies. At the moment, it’s closer to 20%,      will probably stay in a low-growth environment
best correlation in the performance of stock         which tells us that Australian balance sheets      from a global perspective for a prolonged
markets is the dividend yield of a market plus       are in healthy shape. In fact, balance sheets      period. But the Australian share market is
the real growth in those dividends. When you         are probably too strong in that debt is too low.   attractively valued and I think that’s the bottom
think about it, that makes perfect sense. In         We are not only likely to see good dividends,      line. Investors who have a longer-time horizon
such a volatile market as today’s, dividends         we may even see more share buy-backs as            can invest in the Australian market and in
take on extra significance.                          well because of these robust balance sheets.       some good companies at great prices.
How do dividend yields compare                       The second factor is whether cash flows are        We like to look at long-term valuations and
with term deposit rates?                             strong enough to cover dividends. One of           one measure that does that is the Graham
The interesting thing right now is that equity       the measures we look at to judge cash flows        Dodd price-earnings ratio, which is a through-
investors are being paid well in terms of            is what’s called the free-to-invest cash flow      the-cycle valuation tool. The Graham Dodd
dividends. The dividend yield of the Australian      – it’s free-cash flow after everything; capital    price-earnings ratio looks at the last 10 years of
market	today,	when	looking	at	the	S&P/ASX	           expenditure, changes in working capital and        earnings, averages them and then puts them
200 Index, is about 5.9% – almost 6%. Now            dividends. Even after all of those costs, cash     on a price-earnings ratio. This ratio is showing
it’s not quite 100% fully franked, but it’s not      flows for Australian companies are more than       that Australian stocks are valued at close to
far off. That’s a great return, even if the market   adequate. Strong balance sheets and strong         recessionary valuations, which means that over
stagnates.                                           cash flows to my mind equal sustainable            the long term the market’s attractively priced.
                                                     dividends and even more share buy-backs.
Now the dividend yield the market offers is                                                             Even on more common measures – the
even starker when you look at high-dividend          Where are you finding value?                       Australian stock market is on about a 10-times
stocks such as the Australian banks.                                                                    price-earnings ratio while offering close to a
                                                     In a low-growth world what we’re trying to
                                                                                                        6% fully franked dividend yield – the Australian
They are offering, on average, 7.5% fully            do is find stocks that offer yield and growth
                                                                                                        stock market is at attractive levels. That
franked dividend yields. At the moment, you’re       because companies that can deliver growth in
                                                                                                        doesn’t mean that the stock market will rise
much better off investing in bank stocks than        a low-growth world will be rare assets bid up
                                                                                                        in next three, six, nine or even 12 months
putting your money in their term deposits.           by the markets.
                                                                                                        because short-term uncertainty or fads can
A 12-month term deposit offered by the big           Companies that we like at the moment include       take over. But if investors look out for three to
four at the moment is probably about 5.5%            MAp, which after selling its European assets       five years, they can pick up great companies
                                                                                                        at great prices.

Asia insulates itself from Europe
Fidelity Worldwide Investment                       introducing Asia’s first fiscal-stimulus package    announcing the decision. Other central banks
                                                    for 2011. After exports dropped for a fourth        have ruled out any more of the rate increases
In February this year, Bank Indonesia raised its    straight month in August, Manila on October 12      that have featured across Asia since the start
benchmark rate for the first time in three years,   announced a package of public works and anti-       of 2010 as part of a drive to quell inflation.
to subdue inflation, then surging above 7%.         poverty measures worth 72 billion pesos (A$1.7
Last month, the central bank unexpectedly cut                                                           As occurred in Australia, once the crisis of 2008
                                                    billion), while cutting its 2011 growth forecast
interest rates and flagged more rate reductions,                                                        to 2009 eased, central banks boosted interest
                                                    by 0.5% to 5%.
even though inflation remains unbeaten.                                                                 rates to more normal levels in nominal terms.
                                                    A day later, Beijing announced tax breaks           So they can cut again, if the situation warrants.
Bank Indonesia’s policy U-turn on October           and easier access to bank loans for small
11 is among a series of decisions Asian                                                                 While fiscal deficits are still above pre-crisis
                                                    businesses, as Europe’s woes added to the
officials have taken recently to insulate the                                                           levels in many countries, pacy economic
                                                    urgency of countering the effects of China’s
world’s fastest-growing region from slower                                                              growth has improved government finances
                                                    recent tightening of monetary policy on small
global growth and any European upheavals.                                                               and officials have capacity to spend if needed.
                                                    manufacturers. Amid concerns about how
The good news for investors is that Asian                                                               The G20 economies had a public-debt-to-GDP
                                                    China’s bad-debt-laden financial system
authorities have scope to buttress their thriving                                                       ratio of more than 100% in 2010, a figure that is
                                                    would cope with a renewed global crisis,
economies against global troubles.                                                                      projected to reach 125% by 2015. Public debt
                                                    Central Huijin Investment, which is part of the
                                                                                                        levels in Asia ex-Japan, by contrast, are only
Policymakers in China, Korea, Malaysia,             country’s sovereign wealth fund, revealed it is
                                                                                                        around one-third of GDP and are projected to
the Philippines and Singapore are among             buying stakes in the country’s four big banks.
                                                                                                        decline to less than one-fifth by 2015.
those who are bracing their economies               China’s Prime Minister Wen Jiabao said on
because evidence is mounting that strife            October 25 that Beijing will make adjustments       As well, banks, companies and consumers are
in the developed world is hampering the             at a “suitable time and by an appropriate           in good shape debt-wise across the region.
region’s growth. Of special note was a report       degree” to keep China’s economy moving.             Asia ex-Japan companies, for instance, are
that showed China’s exports fell 2.1% in                                                                holding about US$1 trillion in cash and are
                                                    Well-placed Asia
September from the previous month, to herald                                                            confident enough about their outlooks to be
the second consecutive monthly drop in              On October 14, Singapore’s central bank             boosting cash-payout ratios (thus increasing
China’s trade surplus. This helped to crimp         said it will slow its currency’s climb to help      dividend returns).
China’s economic growth to 9.1% in the year         its economy withstand a drop in exports.
                                                                                                        So Asia’s politicians and central banks
to September, the slowest pace in two years.        “Given the stresses and fragility in the
                                                                                                        shouldn’t have to make too many unexpected
                                                    advanced economies, the prospects for
The list of steps that Asian countries have taken                                                       steps to shield their economies as much as
                                                    growth in Singapore’s major trading partners
of late to shield themselves from a troubled                                                            possible from global woes.
                                                    have deteriorated,” the central bank said,
global economy includes the Philippines

Draft ruling clarifies SMSF borrowing rules
By Craig Day, Senior Technical                      to borrow to acquire multiple assets under a        both the legal form and substance of the asset
Manager                                             single LRBA, which would potentially increase       and that it may be possible for an asset to be
                                                    risks to trustees as it would allow lenders to      a single asset where it is over multiple titles
On 14 September the Australian Taxation             choose which assets were sold in the event of       but is distinctly identifiable as a single asset.
Office (ATO) released a much anticipated            a default.
draft ruling that clarified its views on some                                                           The ATO then goes on to confirm that whether
key concepts in relation to limited recourse        In response the ATO adopted the view that,          an asset, such as a property, is a single asset
borrowing arrangements (LRBA) put in place          in relation to direct property, the new rules       will depend on:
after 7 July 2010.                                  would only allow trustees to borrow under an
                                                                                                        •	 whether	the	underlying	titles	could	be	
                                                    LRBA to acquire a property on a single title.
Importantly, the draft ruling confirms that the                                                            sold separately regardless of the vendor,
                                                    As a result, where an asset, such as a farm,
ATO appears to have relaxed some of its                                                                    purchaser or mortgagee’s intentions, wishes
                                                    was located on a number of blocks which
views on a number of issues which placed                                                                   or requirements
                                                    were all on separate titles, a trustee would
significant restrictions on trustees who had set    need to arrange to acquire each block under         •	 whether	there	is	any	law	(excluding	any	
up a LRBA on or after 7 July 2010. However,         a separate LRBA to comply – significantly              body corporate by-law that can be changed
it is important to understand exactly what          increasing the cost and complexity of the              with the agreement of the voting members)
views the ATO has expressed in the draft            acquisition. The ATO later clarified its position      that requires the underlying titles to be sold
ruling as the rules are complex and a number        stating that where assets were for practical           together
of restrictions may still apply to trustees         purposes inseparable, or where there was
depending on their fund’s circumstances.            an incidental ancillary asset of a very small       Permitted use of borrowings
Clarification of the definition of a                value, it would allow the assets to be treated      Under the LRBA provisions a trustee is
single acquirable asset                             as a single asset for the purposes of LRBA          allowed to use borrowings to acquire a
                                                    provisions.                                         single acquirable asset as well as to pay for
On 7 July 2010 the Government amended
                                                    In the draft ruling the ATO largely confirms the    borrowing and transaction costs and to fund
the limited recourse borrowing rules to clarify
                                                    view that only a property on a single legal title   any repairs and maintenance to the asset
that trustees would only be permitted to
                                                    will qualify as a single asset. However, the ATO    acquired with the borrowings. However, the
borrow under a LRBA to acquire a single
                                                    also clarifies that when determining if an asset    provisions specifically prohibit the borrowings
acquirable asset. Previously the rules had
                                                    is a single asset it is necessary to consider       from being used to improve that asset.
been interpreted in a way that allowed trustees

Superannuation contribution rules and
taxation rates and taxation rates 2011/12
Tests for acceptance of contributions by a             Social Security                                         *rates shown do not include Medicare Levy of 1.5%
complying Superannuation fund in respect of                                                                    nor the 1% Medicare Levy surcharge which applies
                                                       Age pension assets test                                 to couples with combined incomes including fringe
a member:
                                                                  Homeowner              Non Homeowner         benefits over $160K ($80K for singles) who do not
<65     No test applies                                                                                        have adequate private health cover.
                                                               Full     Pension Full       Pension
65-69 Member must have been gainfully                          Pension* Cut Out** Pension* Cut Out**
      employed for at least 40 hours in a                                                                      Non resident tax rates 2011-2012
      period of not more than 30 consecutive           Single $186,750 $673,000 $321,750 $808,000              Non Resident          Tax payable / Marginal Taxable
      days in that financial year, or                                                                          Income                income tax rate*
                                                       Couple $258,000 $963,000       $389,500 $1,094,500
        Contributions are mandated employer                                                                    Up to $37,000         29% of each dollar
        contributions (including SG)                   Income test thresholds                                  $37,001 to $80,000    $10,730 + 30% of each dollar
70-74 Contributions are personal or                                          Full Pension* Pension Cut                               over $37,000
      voluntary employer contributions                                                     Out**               $80,001 to $180,000 $23,630 + 37% of each dollar
      (including salary sacrifice) and the                                                                                         over $80,000
      member has been gainfully employed               Single Income p.a. $3,900.00         $41,823.60
      for at least 40 hours in a period of not         Couple p.a.           $6,864.00      $64,032.80         $180,001 and over     $60,630 + 45% of each dollar
      more than 30 consecutive days in that                                                                                          over $180,000
      financial year, or                               Income over these amounts reduces your rate
                                                                                                               * no medicare levy applies to non-residents.
                                                       of pension by 50 cents in the dollar (single), or
        Mandated employer contributions                25 cents in the dollar each (for couples). For
        (excluding SG which is not payable                                                                     The Government announced that, with effect
                                                       transitional or saved cases, income over these
        after age 70)                                                                                          from 1 July 2010, the low income tax offset
                                                       amounts reduces your rate of pension by 40
                                                                                                               will increase from $1,350 to $1,500 per year.
75+     Only mandated employer contributions           cents in the dollar (single), or 2 0 cents in the
                                                                                                               In addition, the income threshold at which
        (excluding SG) may be accepted                 dollar each (for couples). Pensioners receiving
                                                                                                               the offset begins to reduce is $30,000. As a
                                                       payments at 19 September 2009 may be paid
                                                                                                               result, some offset can be claimed up to an
Superannuation                                         under transitional arrangements or saved status.
                                                                                                               income of $67,500.
Maximum Deductible Contributions (MDC)                 Deeming rates for income from financial assets
                                                                                                               Those eligible for the full low income tax
Age of Member                                 MDC      3% for first $44,600 for singles ($74,400 for           offset will not pay tax until their annual
                                                       couples) and 4.5% for balance over these amounts.       income exceeds $16,000.
Under 50                                   $25,000     *effective from 1/7/2011 and include                    Furthermore, resident minors can receive up
                                                       Pharmaceutical Allowance.                               to $3,333 before paying any tax.
50 & Over                                  $50,000
                                                       **Note that the maximum annualised age pension          Note that HELP debt is payable when
                                                       for a single person is $18,961.80 and for a couple is   adjusted taxable income exceeds $47,196 in
The age is determined at date of last                  $28,584.40 (including pharmaceutical allowance).        the 2012 financial year.
contribution in income tax year.
                                                       Taxation 2011-2012                                      Flood Levy
A deduction is not available for a contribution if:
                                                       Marginal tax rates and thresholds                       Taxable Income              Levy Payable / Rate
    a. a personal contribution made by a
       member who is under the age of 18               Taxable Income         Tax payable / Marginal           Up to $50,000               Nil taxable income
       years at the end of the income year                                    income tax rate*                                             less $50,000
       and has not derived income from                 Up to $6,000           Nil                              $50,000 - $100,000          Nil + 0.5% taxable
       the carrying on of a business or from                                                                                               income less $100,000
       eligible employment:                            $6,001 to $37,000      Nil plus 15% of each dollar
                                                                              over $6,000                      Excess over $100,000        $250 + 1.0%
    b. a non-SG/award contribution made
                                                       $37,001 to $80,000     $4,650 + 30% of each dollar      * The Flood levy is calculated on taxable
       more than 28 days after the end of the
                                                                              over $37,000                     income. Nun-refundable tax offsets (eg
       month in which the relevant members
                                                                                                               MAWTO) may not be used to reduce the Flood
       attains age 75;                                 $80,001 to $180,000 $17,550 + 37% of each
                                                                                                               levy. Refundable tax offsets (eg franking credits)
                                                                           dollar over $80,000
    c. a personal contribution, in respect of                                                                  may be applied to the Flood levy.
       which the contributor is entitled to a          $180,001 and over      $54,550 + 45% of each
       Government co-contribution.                                            dollar over $180,000

  Link Financial Services Pty Ltd        PO Box 2473                                The information provided herein is of a general nature only and does
  ABN 58 730 773 046                     Caulfield Junction, Victoria 3161          not take into account your personal objectives, financial situation and
                                                                                    needs. You should consider the appropriateness of the advice in light of
  Australian Financial Services          Telephone 03 9528 8688                     your relevant personal circumstances and discuss this with your adviser.
  Licence No: 239929                     Facsimile 03 9527 8301                     If the advice relates to a particular financial product, you should obtain a
  Level 2, 205 Balaclava Road            Email                     copy of and consider the Product Disclosure Statement for that product
  Caulfield North, Victoria 3161                          before making any decision.


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