Quarterly Update by sofiaie


ISSUE 1                                                                                              Summer 2007

                                                                      Happy New Year!
 What you will find inside this                                       Welcome to the Summer Edition of Horwath News. At
 Horwath Quarterly Update:                                            Horwath we provide an integrated approach to managing
                                                                      your finances. We can assist with all of your accounting,
 Tax Insights                                                         tax planning, financial planning, business, lending and
 • Property vs. Shares                                                finance needs. With so many services under the one
 • Asset Protection – Testamentary Trusts                             roof, we can assure you a convenient and effective
                                                                      solution to ensure you are able to grow your wealth and
 Wealth Creation                                                      secure your financial future. Please feel free to contact
 • Insights into Successful Investing                                 us if you would like any further information on any of our
 • Investment Review – Managed Fund                                   services or anything included in this newsletter.
   Instalment Warrants                                                The Horwath Team

 Managing Risk
 • When rubber meets the road
 • Protecting what you have worked hard to

 Lending & Finance
 • Tailored Home Loans
 • Mortgage Refinancing
 • Interest Rate Hikes

 General Interest
 • Have you been to? Tasmania
 • Staff Profiles
 • Quotes for the Quarter

 (Approx Total Reading Time - 25 minutes)

 The information provided in this newsletter does not take into account the objectives, financial situation or needs of any person.
 Before making an investment decision, a person should consider, with the assistance of their financial adviser or accountant
 whether it is appropriate in light of their particular objectives, financial situation or needs. Past performance is not a guide for
 future performance. Horwath (Brisbane) and its related entities including Horwath (Brisbane) Financial Services Pty Ltd (AFSL
 243538) do not guarantee the performance of any investment or the repayment of capital.
  Tax Insights
         with Rimmington
   with PeterPeter

                                                                                                                      Peter Rimmington
                                                                                                                    Director & Accountant

                        Property Vs Shares: From an accountants’ perspective
People will often compare shares and property by referring to the        Timing advantages vs. Permanent advantages
specific returns generated by a particular stock or property.            In recent years it has become common practice to sell new
Investing in shares provides the ability to receive franked dividends    property projects based on an after tax cash flow projection. In
and enjoy capital growth. Property investments produce a better          many cases this projection is based on a two or three year rent
after-tax return than the stock market. From a tax viewpoint, is it      guarantee. The projections show a very healthy after tax yield due
better to invest in property or shares?                                  to the combined impact of interest and depreciation deductions
                                                                         and tax refunds as an important part of the investor’s yield.
Through the tax eye
An investment in real estate typically only generates moderate tax       What the projections don’t show you is the tax profile of the
benefits in the form of depreciation deductions. The dividends           investment after the first two or three years. This is because the
received by shareholders in listed companies commonly carry              tax depreciation advantages associated with property investment
franking credits. These franking credits, which represent the            diminish rapidly over time. Furthermore, the advantages of tax
payment of tax at the company level, can be used by the                  depreciation are really only a “timing” advantage. Eventually
shareholder to reduce tax payable. The tax benefits attaching to         depreciated assets such as carpets and air conditioners will need
franked dividends generally exceed the tax benefits available from       to be replaced bringing upon the investor capital outlays which
a property investment in the medium and long term.                       cannot be deducted but only depreciated.

Negative gearing                                                         By contrast, the tax credits attached to franked dividends are
A part of the attraction to invest in property was the ability to gear   of an “evergreen” nature and represent a permanent tax
up on the property. Until recent years it was more difficult and         benefit and not only a timing advantage. As the dividend yield
expensive to gear a share portfolio. However, competition                from a share portfolio rises, assuming it remains fully franked, the
between “margin lending” products now make it possible to gear           tax benefits generated by the investment automatically rise in
listed stocks as highly and cheaply as property. A share portfolio       proportion to its increasing yield.
appropriately geared can be a better investment than a geared
property investment.                                                     Naturally, the risk adversity of an individual will play a part in
                                                                         determining whether investing in property or in shares is better.
This is of course on the basis that there are similar rates of return    Talk to your accountant or financial planner to determine which is
and growth on both investments. The principle is that, all things        most suitable for your situation.
being equal, it is more advantageous for franking credits to be
derived than depreciation deductions.

                                     Asset Protection - Testamentary Trusts

A good testament                                                         Protecting your wealth
Does your Will ensure that your wealth will be dealt with in the         In the absence of a testamentary trust, if you were to simply leave
most tax effective manner to the benefit of your family?                 your personal wealth to your children, your children bear the tax
                                                                         burden associated with their inheritance. This is because your
When it comes to preparing your will – and protecting your family’s      children will have to support their own children from birth to
wealth in future – the benefits of testamentary trusts should not be     adulthood out of after tax money, which may have been taxed at
overlooked. The most fundamental advantage of testamentary               48.5%. By setting up a testamentary trust, funds may be
trusts is the opportunity for tax savings owing to the concessional      distributed to beneficiaries in such a manner that your
tax rates afforded to these trusts. Under a testamentary trust,          grandchildren may be brought up with money that has been taxed
beneficiaries of the trust who are under the age of 18 have the          at marginal tax rates.
benefit of adult income tax marginal rate scales (compared to the
usual 46.5% tax rate applicable to income over $772).                    Tailor made testament
                                                                         As testamentary trusts can be tailored to meet the specific needs
Tax is saved by splitting income across one or more minor                of each person, it can be created to extend over a number of
beneficiaries rather than adults who are taxed on the top marginal       generations, allowing the deceased to have influence over the
tax rates.                                                               assets for a period beyond that usually available.

                                                                         Control over assets can be shifted to an independent trustee to
                                                                         ensure funds are not misused. This allows for asset preservation
                                                                         or even increased value through investment
Wealth Creation
                                                                                                                       Ashley Naylor
                                                                                                                     Financial Adviser

                                         Insights into successful investing
Avoid Chasing Returns                                                  Diversify
One of the greatest temptations when deciding where to invest          Instead of putting all your money into the investment that
your money is to choose the investment that had the best return        performed best last year, try spreading your money across the
last year. You see a return of 40% and curse that you weren’t          different asset classes, investment managers and stocks. This
invested a year ago. So you decide to put your money in that           discipline will help reduce the temptation to chase returns and may
investment in the hope that it will do the same thing in the year      also reduce volatility of your investment portfolio.
                                                                       Stick To Your Guns
Chasing returns like this is one of the most common mistakes           Spend time developing an investment strategy that suits your
made by investors. It is akin to driving using the rear-view mirror.   circumstances and goals, and give it time to work.
You can see clearly what is behind you – but not what lies ahead.
                                                                       Past performance can be useful when you consider longer time
Asset Classes                                                          periods. For instance, Australian shares was the top performing
Here’s a simple example that explains why chasing returns can be       asset class in the 20 years to 31 December 2004. But Australian
costly. Over the past 20 years, if you had switched your money         shares also lost money over one year, six times out of 20.
into the best performing asset class during the previous year, you
would have received an average annual return of 10%. However,          Do Your Research
if you had chosen the previous year’s worst performer, you would       Take advantage of the many resources available through
have gained 14% a year.                                                newspapers, the internet or professional financial advisers. You
                                                                       can check out long-term performance of managed funds and their
It is rare for the same asset class to have the best performance       research company ratings at sites such as
two years in succession. It has happened only twice in the past 20     www.morningstar.com.au, through newspapers such as the
years.                                                                 Australian Financial Review or magazines such as Personal
                                                                       Investor. The Australian Stock Exchange has a wide variety of
It is very tempting to get caught up in the excitement of a bull run   information on individual shares at www.asx.com.au. Or try the
on the share market. The same is also true in other assets such        research facilities at broking sites.
as property and fixed interest. It can be dangerous to get caught
up in the stampede.                                                    Seek Advice
                                                                       Finally, and most importantly, financial advisers can help you
Investment Managers                                                    develop a disciplined approach to investing which will take into
Today’s best performing investment manager is often relegated to       account all the issues outlined above. They can also tailor your
the middle of the pack or worse in years to come. In other words,      investment to your circumstances and goals.
it is very difficult for one investment manager to consistently        Source BT Financial Group – Extract from “Ten Investing Truths”
produce the best results.

Rather than relying on one-year performance figures, it makes
more sense to do some research on investment managers to               Investment review
find one that consistently produces good returns.
                                                                       Macquarie Managed Fund
Individual Stocks                                                      Instalment Warrants (MFIW)
In the years leading up to 2000, technology stocks made many
                                                                       MFIW are a new exciting way to increase your exposure to
people rich. In the two years following, many people lost a lot of
money investing in the same stocks. The people who lost the most       traditional managed funds.
money were those who invested at the height of the technology          Investment Type: Equity Investment
stock boom. They made the mistake of buying the previous year’s        Minimum Investment: $30,000
best performing stocks.                                                Recommended Minimum Term: 5Yrs
                                                                       Risk: Medium - High
How to Avoid the Trap
One way is to think about the driving analogy mentioned earlier.       Other Information: Managed Fund Instalment Warrants are a
Avoid spending too much time looking in the rear-view mirror –         moderately geared investment which allows you to increase your
concentrate on the road ahead. Another way is to think about a         exposure to traditional managed funds, without some of the risks
weather forecast. You wouldn’t base a weather forecast on what         associated with traditional margin lending. Essentially you are able
happened yesterday; rather you would look at high and low
                                                                       to purchase managed funds in two payments, after the first
pressure systems, cold fronts and long-term climatic conditions.
It’s the same with investments – the manager’s investment process      payment is made you are privy to the full exposure of performance
and the resources and experience they can deploy are at least as       and distributions of the underlying investment. MFIW are a cash
important as past performance. There are also a few practical          flow neutral investment, with no ongoing payments required until
steps you can take.                                                    maturity. Financial advice should be sought before placing an
                                                                       investment to ensure this investment meets your risk profile and
                                                                       financial goals and objectives.
                                                                       For more information or to obtain a PDS call 07 3218 9880
Managing Risk
                                                                                                                            Trish Symons
                                                                                                                       Life Insurance Adviser

Protecting what you’ve worked                                            When rubber meets the road
hard to achieve                                                          As the Horwath Life Insurance adviser, I have a gloomy job talking
                                                                         about Death, Disease and Disabilities.
Half of all Australians over the age of 30 will suffer a major illness
that can lead to a long-term disability, and consequently, a long-
                                                                         In my many years of advising, I have not had a high percentage of
term loss of income. If this were statistics for a house fire or theft
                                                                         claimants – I’m sure you can all breathe easy at that – however the
you would not hesitate to take out house and contents insurance.
                                                                         reality of my job is brought home to me when I do have to help a
But how many of us really think about organising insurance to
                                                                         client fill in a claim form.
protect our major source of income and wealth creation -
                                                                         One of my long standing clients is making a claim on his Zurich
                                                                         Trauma policy for prostrate cancer. Now this is a client I have
With the right kind of insurance cover, you can protect your wealth
                                                                         known for many years who has always practised a healthy lifestyle
and future earning potential. Insurance can play a vital role in
                                                                         and kept very fit. He was surprised to find after a routine health
helping you construct an integrated financial solution that gets you
                                                                         check that his blood tests revealed raised PSA levels.
where you want to go, safely and securely.

                                                                         But to add insult to injury, the medication that he was told to take
It’s important, however, to get the features and benefits you want
                                                                         was going to turn him into a neurotic psychopath according to the
at a cost that suits your budget. Today there exists comprehensive
                                                                         list of “possible side effects”, honestly it was worse than the cancer
insurance solutions that offer choice and flexibility, to build the
                                                                         itself e.g., depression, high cholesterol, lack of energy, nausea and
cover that’s right for your situation:
                                                                         2 pages more.

•    The most common component of a risk insurance solution is
                                                                         His response was that he was going to get a second opinion and
     life insurance. In the event that you die, your beneficiaries
                                                                         look at alternatives. The only good news in all of this is that the
     will receive a lump sum payment. This could be any amount
                                                                         payout from his Trauma policy will allow him to explore these other
     required to extinguish all debts and provide for the future well
                                                                         forms of treatment that will be costly and not covered by Medicare
     being of your loved ones;
                                                                         or health insurance.

•    Income protection provides income replacement options to
                                                                         Listening to the news lately we are hearing stories of increases in
     protect your lifestyle, assets and independence if you suffer
                                                                         heart disease and cancer, especially among young women.
     illness or injury. A monthly benefit of up to 75% of your
     income is payable while you are unable to work;
                                                                         Just to put this all into perspective, statistics say that 1 in 3 men
                                                                         and 1 in 4 women will suffer from cancer in their lifetime……
•    Trauma insurance protects you from serious medical
     conditions and illnesses. You will receive a lump sum
                                                                         Trauma insurance covers much more than cancer, most policies
     payment if you are diagnosed with or suffer a life threatening
                                                                         cover over 32 different events including Stroke, Heart Disease,
                                                                         Parkinson’s disease, Paraplegia, Blindness, Coma and so much
•    Business insurance solutions can cover debt if a partner or
     owner dies or is so ill they cannot work in the business. It can
                                                                         Even minimum cover of say $50,000 could at least give you some
     also be structured to be part of estate planning and the
                                                                         funds for treatment of your choice or a hotted up wheel chair.
     extraction of ownership in a business without the need to sell
     or wind it up. Business expenses insurance reimburses
                                                                         If this is making you uncomfortable – and that is my plan – you
     overheads and expenses such as salaries, rent and utilities
                                                                         need to call me to discuss applying for this insurance. My client is
     while you are off work.
                                                                         very glad we talked about it 5 years ago!

With professional advice you can examine and choose any
insurance combinations which provide an overall solution to meet
                                                                         Trish Symons
your particular needs. You can’t protect yourself against every
                                                                         Life Insurance Adviser
hazard in life, but you can take measures to minimise the impact of
unexpected and unpredictable events that put your financial future
at risk. Talk to your financial adviser to understand more about
wealth protection.
Source: ING
Lending & Finance
                                                                                                                        Brian Elliott
                                                                                                                      Lending Manager

                                                                        Tip of the month
Tailored home loans                                                     Mortgage Refinancing
                                                                        Refinancing gives you the chance to clear an existing mortgage,
Understanding what products and solutions best suit your                plus any other debts such as personal loans or credit cards and
individual circumstances – now and in the future – is an                leaves you with one easier to manage monthly repayment. In
important part of making the right choice.                              some cases people can borrow more money and find that they are
                                                                        paying the same or less than their current mortgage
You’re just starting out – Money is tight and you’re anxious about      repayment. You may also qualify for a “professional package”
the commitment, whether it’s an investment or a first home. But         which can include discounts on standard variable rates,
moving into your first home could be easier than you think. A           application fees and ongoing fees.
solution like a Family Guarantee gives the first homebuyer a head
start by allowing certain family members to use the equity in their     Due to the dramatic rise in property prices, equity values have
homes as additional security for a proportion of the loan amount.       built up. By tapping into this you can extract more cash out for
Settling in to your biggest expense in life doesn’t have to be a        purposes such as investing or renovating. Loan to valuation ratio's
complete shock. ‘Honeymoon’ or introductory discounted interest         still should not exceed 80% under a refinance to avoid penalties
rates are popular first time purchase products, as they free up cash    and lenders mortgage insurance.
within the first few years.
                                                                        Speak to your Horwath adviser to find out more.
The family is growing – You know it’s time to move or renovate
when your house is busting at the seams. You may have found a
home to fit your family but have not yet managed to sell your
existing property. A solution such as Bridging Finance enables you
to purchase a new property whilst you await the sale of your            Interest rate hikes
existing property.
                                                                        Can you dig it?
                                                                        Reports in from Sydney suggest houses are being repossessed
If renovating is the right choice there are many great options to
                                                                        due to falling prices (3% in the last year ) and the hike in interest
help you gain additional funds as part of your home loan.
                                                                        rates (.75% in the last year )

It’s time to generate wealth – So you own your own home, or you
                                                                        Could this happen here in the Sunshine State?
have paid off a large part of your loan, and you are thinking of
                                                                        It might and it might not say the economists.
investing in shares, another property or a holiday home.? For
many investors the first step in building an investment portfolio
                                                                        The question is, can you survive and retain your properties if rates
involves using the equity built up in the family home to “leverage”
                                                                        escalate remembering that the .75% rate jump in 2006 was not
other investments. Most lenders offer an equity loan product of
                                                                        predicted to be that high. Also many rate watchers expected rates
some type. It is effectively a line of credit secured by a registered
                                                                        to ease late in 2006.
mortgage on your home. Borrowers can access the equity in their
home up to an approved limit.
                                                                        The long and short of it is that no one really knows.

No matter where you are in life Horwath lenders can assist with all
                                                                        Is there a solution?
of your financing needs. Call Brian Elliott or Peter Donald on
                                                                        Yes. Consider fixed rates which are now below the variable rates.
07 3218 9880 to find out more.

                                                                        Loan Splits are readily available so you can protect yourself. And
                                                                        don’t be afraid to make one of the splits interest only. All of these
                                                                        strategies are now available to borrowers to protect them and allow
                                                                        buying with confidence
General Interest

Have you been to?
Whether you’re looking for adventure or seeking quieter pleasures,
spending some time in Tasmania’s natural places is a wonderful          Staff profile
way to refresh all your senses. Over one third of the Tasmanian
landmass is protected in national parks and reserves, so there are      Sue Dunks
plenty of dramatic and spectacular locations to enjoy and explore       Position: Manager, Business Services
the great outdoors. Tasmania’s flora and fauna are unique. You          How long in industry: Long Long Long Time!!!! Over 20 years
can discover and observe animals, birds and plants that occur           Studied: Bathurst, NSW
nowhere else on Earth. With such extensive wild natural areas,          Place Born: Manjimup, Western Australia
animals are abundant, and often less shy of humans than in more         Star Sign: Pisces
populated regions of mainland Australia – with care, you can get        First Job: Tiny little firm called Tuit & Co in Perth WA
close enough, perhaps even to take some memorable photographs           Favourite Sport / Hobby: Reading
of a Tasmanian devil, wombat, wild platypus, fur seal, quoll or         Last Book Read: The Enemy by Lee Child
orange-bellied parrot.                                                  Favourite Movie: Stand By Me
                                                                        Most desired Holiday Destination: Europe
In Tasmania’s fresh southern air, you’ll rejuvenate your senses as      Who would be your lifeline on "Who wants to be a
you savour the tastes of good food and the bouquet of fine wine.        millionaire?" My sister
There’s the sweet, sharp crunch of apples, crusty bread from a          3 things you would take on a desert island: An endless
country bakery, luscious blueberries and raspberries, world-            supply of good books, good wine and someone to share them
beating ales and beer from two of Australia’s oldest breweries,         with!
award winning cheeses, succulent beef and lamb, and wonderful
vegetables grown in fertile Tasmanian soil. Living close to the sea,
we understand fresh seafood. You’ll savour plump oysters, the
delicate flavour of fresh caught salmon, delicious scallops and
abalone, octopus, smoked salmon and wakame seaweed, the firm
juiciness of crayfish and blue-eye, fresh from the Southern Ocean.
Then there are superb cool-climate wines, winners of many
prestigious national awards. In Tasmanian vineyards, pinot noir,
chardonnay, riesling and sauvignon blanc grapes ripen slowly,
                                                                        Staff profile
concentrating the beautiful flavours and aromas of the fruit.
                                                                        Wendy Freire
Information source : www.discovertasmania.com.au                        Position: Senior Manager - Business Services
                                                                        How long in industry: 10 years
                                                                        Studied: QUT
                                                                        Place Born: Gladstone, Qld
Quotes for the quarter                                                  Star Sign: Aquarius
If everything’s coming your way, it probably means you are              First Job: Accounts Payable Assistant, Boral
in the wrong lane.                                                      Favourite Sport / Hobby: Armchair tennis / retail therapy
                                                                        Last Book Read: Further Under the Duvet - Marian Keyes
Don’t let the best you have done so far be the standard for             Favourite Movie: Spy Game
the rest of your life.                                                  Most desired Holiday Destination: Alaska
                                                                        Who would be your lifeline on "Who wants to be a
What was the best thing BEFORE sliced bread?                            millionaire?" My brother
                                                                        3 things you would take on a desert island: Sunscreen, food
                                                                        & my partner.

                                            Horwath (Brisbane) Pty Ltd ABN 63 110 575 114
                                   Horwath (Brisbane) Financial Services Pty Ltd ABN 19 009 997 399
                                    Level 21, Riverside Centre, 123 Eagle Street Brisbane QLD 4000
                                                 PH 07 3218 9888 FAX 07 3229 0759

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