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Year-End Tax Tips for 2011-12

Wed, 23 May 2012 23:00:00 GMT

In preparation for the end of the financial year, you should think about managing your affairs to minimise your tax and maximise your income.

Leading up to the end of the financial year, here are time-sensitive tax breaks, various tips and superannuation ideas for you to think about.

Please note that this information is of a general nature only. Before taking any action you should confirm with your adviser at WLM what exactly may be relevant to you and consider the impact on your overall financial position.

URGENT – one off opportunities before 30th June

If you can, prepay your annual Private Health Insurance premium before the end of June 2012 to cover the next 12 months. As of 1 July 2012, the rebate will be means tested and policyholders will no longer be guaranteed the minimum 30% rebate. Under the changes individuals earning above $83,000 and familes on more than $166,000 will progressively lose the insurance rebate. This means that from 1 July 2012, health insurance premiums will increase substantially for high-income earners - and this comes on top of an industry-average premium increase of more than five per cent since April 1. Please be aware that this is a once-off saving and will not be possible every year.
If you can, and only where appropriate, bring forward any medical, dental, and any other health related expenses as well as getting prescriptions filled to before 30 June 2012. Currently you can claim 20% of medical expenses over $2,000, after any reimbursements from your health care insurer or Medicare. Next year this will be means tested with a higher threshold at $5,000 and a lower offset of 10%.
For those over 50, top up your Concessional Super Contributions to $50,000. This limit will reduce to $25,000 (for everyone) from 1st July 2012.
If your income is over $300,000 bring forward any tax deductible superannuation contributions to this year as the tax on contributions will rise from 15% to 30% next year.
Maximise your entitlement to the government super co-contribution (if eligible) by making a non-concessional superannuation contribution prior to the end of the financial year. This reduces by half for next financial year.
Consider bringing forward any golden handshakes as the current (more generous) transitional rules will end on 30th June.

Superannuation

Tax deductible super contributions

Personal tax deductible contributions made by individuals who satisfy the 10% rule.

The 10% rule requires that less than 10% of the total of the individual’s assessable income, reportable fringe benefits and reportable employer superannuation contributions for the financial year comes from employment- related activities from which you also receive superannuation contributions.
The maximum deduction that can be claimed is $25,000 if the taxpayer is under 50 or $50,000 if the taxpayer is 50 or older for this financial year only.

Salary Sacrifice

Salary sacrifice contributions are taxed at 15% compared to income taken as cash, which may be taxed at a higher marginal tax rate. This can help to save on income tax and the Medicare levy while increasing your retirement savings.

Government Super Co-contribution

Maximise your entitlement to the government super co-contribution (if eligible) by making a non-concessional superannuation contribution prior to the end of the financial year.

Eligible personal superannuation contributions are matched dollar-for-dollar by the Government up to a maximum of $1,000 for this year.
For 2011/12 the maximum government co-contribution is payable to individuals on incomes at or below $31,920, and reduces by 3.333 cents or each dollar by which the individual’s total income for the year exceeds $31,920, cutting out completely once an individual’s total income reaches or exceeds $61,920.
For 2012/13 the maximum government co-contribution will be reduced to $500 with the higher threshold reducing to $46,920.

Tax offset for spouse contribution

Taxpayers are entitled to a maximum $540 tax offset for superannuation contributions made on behalf of a low income or non-working spouse.

The maximum rebate of $540 is based on 18% of a maximum $3,000 non-concessional contribution.
The maximum rebate is reduced by $1 for each $1 that the total of the spouse’s assessable income, reportable fringe benefits and reportable employer superannuation contributions exceeds $10,800 cutting out completely once this figure reaches $13,800.

Maximise after tax contributions

Make a non-concessional contribution up to the allowable cap before the end of the financial year.

If you contribute less than $150,000 during the financial year, the unused cap amount is not carried over to future financial years. Therefore, where possible, make full use of your annual cap entitlement and your ability to maximise your retirement savings.
If you turned 65 during the financial year you are still entitled to bring forward two years worth of contributions and make a contribution of up to $450,000 in this financial year (assuming that you have not already triggered the bring forward rule in the two preceding financial years or you have made any other non-concessional contributions in this financial year).

* You will need to satisfy the work test in this financial year if you are over age 65 when you make the contribution.

Transition to Retirement

Although there have been changes to maximum contribution levels for those over 50 from 1/7/12, transition-to-retirement (TTR) pensions can continue to be an effective strategy for over 55’s. This combines salary sacrificing into super with drawing an income from a TTR pension. See your adviser at WLM to assess this benefit for you.

Tax Deductible Expenses

Pre-pay interest on investments loans before 30th June for the following 12 months. This can also fix the interest rate if you believe rates will rise.
Pre-pay any tax deductible expenses such as tax or accounting fees, financial planning fees, professional subscriptions, self-education and work related expenses before 30th June.
Pre-pay Income protection insurance for next year.
Purchase business or personal income producing related expenses, such as stationary, equipment or deductible goods before 30th June with the deductible expense being applied to this financial year.
One off items may be tax deductible, such as computer repairs, virus software, etc. but remember to keep the receipts.
Make donations before end of year.
Keep receipts for school expenses if you have children of school age and are eligible for Family Benefits Part A.

Deferring Income

Deferring income may be applicable for many people, especially as they may be on a lower tax bracket the following financial year*, such as:

Organising fixed interest payments to mature next financial year.
Delaying bonuses or eligible termination payments to July 1st.
Not asking for pre-payment of salary if you are taking leave in June.

* Please note that by bringing forward income could be impacted by the Flood Levy, resulting in a 0.5-1 per cent higher tax bill next year.

General Tax Tips

If taking work home individuals can:
a) write off expenditure on small asset acquisitions if they cost less than $300 and if they relate to income-earning activities.
b) Some expenses, such as telecommunications, power, heating, etc, can produce tax deductions.
c) You may also be able to depreciate office furniture and equipment.
d) Keep a diary of work related expenses and time spent at home office.
Avoid the 1% Medicare surcharge by taking out private health insurance with hospital cover if you are over the taxable income threshold of $73,000 for singles and $146,000 for families.
Ensure that interest bearing accounts and investments are in the name of the lowest income tax payer, if appropriate in regards to your circumstance for asset protection, income-splitting flexibility, succession and estate planning.
Appoint a registered tax agent if you wish to legitimately delay the due date for filing you tax return and, hence, the payment of tax.
Use up accumulated capital losses as they are diminishing in value each year. You should consider taking gains along the way which can also be offset by accumulated losses.
Speak with your employer to see what can be salary sacrificed outside of super. You may be able to maximise some opportunities for both employees and employers.
Consider Capital Gains Tax (CGT) when selling assets as there is a personal discount of 50% if assets have been held for over 12 months.
Keep putting money into super (see section above).

Important Checks to Consider

Check that your super fund has your tax file number.
If you have several employers, check that your total super contributions do not exceed your contribution cap of $25,000 if under 50 years or $50,000 if over 50 years for this financial year.
DIY or SMSF funds need to ensure that any in-house assets won’t exceed 5% of total assets at 30th June.
For Transition to Retirement (TTR) and Account Based pensioners, ensure that the minimum pension has been taken before 30th June.

Additional Helpful Hints

Remember to keep receipts !
Lodge your tax return as early as possible if a refund is expected or as late ras possible if you expect to pay tax.
Review deductible debt verses non-deductible debt where possible. For debt re-structuring strategies please consult your adviser at WLM.
Start early with additional super contributions from spare cash flow.

Other Federal Budget adjustments for 2012/13

From 1 July 2012 the tax-free threshold has been tripled from $6,000 to $18,200, which will benefit low to middle income earners.
The Government confirmed it's intention to increase the Super Guarantee from 9%-12% incrementally until 2020, with the first increase of 0.25% taking effect on 1 July 2013.
From 1/7/12 individuals with income greater than $300,000 will have the tax concession on their concessional contributions reduced by 15% by being subject to a 30% tax rate on non-excessive concessional contributions, rather than the 15% tax rate currently applied.
Small businesses, that have an aggregated turnover of less than $2 million, can claim up to $5,000 as an immediate deduction for motor vehicles, with effect for vehicles acquired from the 1 July 2012. The changes will enable small businesses to write-off all depreciable assets where the taxable purpose proportion is less than $5,000 in the income year in which they start to use the asset, or have it installed ready for use.

In summary, as with all aspects of your financial affairs, you should seek professional advice to ensure that your personal circumstances are appropriately dealt with. Also remember that while tax strategies may be of importance, especially at this time of year, you should also remain focused on your long term strategies.

Please feel welcome to call us on (02) 9221 7777 if you wish to discuss this or any other financial matters, to help make sure you remain On Track.

If you feel that someone you know and care about could do with some help, please feel welcome to call us or use our confidential referral page on our website.

2012-2013 Federal Budget summary

Wed, 09 May 2012 02:07:00 GMT

In a ‘traditional’ Labor style budget, the 2012-13 Federal Budget contains a raft of handouts to those in need and savings measures targeted at corporate Australia and high income earners.

They are promoting this as measures designed to “spread the benefits of the mining boom” and an attempt to return to surplus in the next financial year.

Economically there has been a muted response, although with concerns that taking money out of the economy at a difficult time globally may cause additional unwanted headwinds.

Politically they are looking to return to a surplus so they can point to prudent economic management, although with some serious questions over whether they can deliver. There are also comments that the handouts are to offset the cost of their other policies, such as the carbon tax, and to try to appeal to core voters ahead of an election.

Theoretically the 2012-13 Budget will produce a cash surplus of $1.5 billion for 2012-13 – subject to a number of assumptions around reducing interest rates and increased taxes from an improving economy and the Mineral Resources Rent Tax.

The surplus is forecast to rise to $2 billion in 2013-14 and to $5.3 billion the following year.

The growth forecast is in line with that of the Reserve Bank which in its May monetary policy statement earlier this month revised down slightly its economic growth forecasts for 2012-13 to 3 to 3½ per cent for 2012-13.

Growth is expected to flatten to 3 per cent in 2013-14. The main drivers of economic growth are expected to be business investment and exports.

Underlying inflation is forecast to remain within the Reserve bank’s 2-3 per cent target range but headline inflation will kick higher to 3 ¾ per cent because of the impact of the carbon tax.

Taxation

The Government announced a $3.9 billion package in support payments for parents, through additional family payments and the new School kids bonus that replaces the education tax rebate.

More generous payments under Family Tax Benefit Part A

The Government will provide $1.8 billion over four years by increasing the maximum payment rate of Family Tax Benefit Part A (FTB-A) by $300 per annum for families with one child and $600 per annum for families with two or more children.

For families receiving the base rate of FTB-A, the increase will be $100 per annum for families with one child and $200 per

Family Tax Benefit Part A – change to the age of eligibility

The Government will save $360.9 million over four years by limiting the eligibility for Family Tax Benefit (FTB) Part A.

The benefit will be limited to young people under 18 years-of-age or, where a young person remains in secondary school, the end of the calendar year in which they turn 19.

The School kids bonus

The Government will fund $2.1 billion over five years for a new School kids Bonus to provide $410 for primary school students and $820 for secondary school to help families with education costs.

Tax Relief for Small business

The Government will introduce a loss carry back scheme to provide immediate tax relief for businesses, which report a loss.

Currently businesses are able to carry forward losses to offset future profits and therefore reduce their tax bills. The new measure will allow businesses to ‘carry back’ their losses, applying them to their previous tax paid, and receive a refund on some of that tax paid.

From 1 July 2012, small businesses will be able to instantly write-off each and every asset they purchase costing less than $6,500 – a full deduction straight away, rather than waiting.

From 1 July small businesses will also be able to instantly write-off the first $5,000 of a motor vehicle.

Reduced tax offset for “golden handshakes”

From 1 July 2012, only that part of a “golden handshake” that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will be taxed at concessional rates. The $180,000 cap will complement the existing ETP cap ($175,000 in 2012-13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap. The ETP tax offset ensures that ETPs up to the ETP cap are taxed at a maximum tax rate of 15% for those over preservation age and 30% for those under preservation age.

Medicare Levy Exemption

The Government will raise the low-income thresholds for the Medicare Levy and Medicare Levy Surcharge as part of the 2012-13 Budget. The increase in the threshold will be backdated to take effect from 1 July 2011.

The Medicare Levy low-income threshold will increase in line with the Consumer Price Index to $19,404 for singles (up from $18,839) and to $32,743 for couples (up from $31,789). For families, the additional amount of threshold for each dependent child or student will also be increased to $3,007 (up from $2,919).

The Medicare Levy low-income threshold for pensioners below Age Pension age will also be increased. For the 2011-12 financial year, the threshold will rise to $30,451 (up from $30,439). This will ensure that pensioners below Age Pension age do not pay the Medicare Levy when they do not have an income tax liability.

Other tax changes: what is being scrapped or reducing?

Personal Tax: 50 per cent discount for interest income scrapped

The Government will not proceed with 50 per cent discount for interest income, which was due to commence on 1 July 2013.

Government scraps standard deduction for work-related expense

The Government will not proceed with the 2010-11 Budget measure for a standard deduction for work-related expenses and the cost of managing tax affairs which was due to commence on 1 July 2013.

The Government said it is pursuing other simplification measures such as tripling the tax free threshold to $18,200 from 1 July 2012, taking up to one million people out of the tax system.

Phase out of mature age worker tax offset

The Government will phase out the mature age worker tax offset (MAWTO) from 1 July 2012 for taxpayers born on or after 1 July 1957. Access to the MAWTO will be maintained for taxpayers who are aged 55 years or older in 2011-12.

Net Medical expenses tax offset: threshold increases and reimbursement reduced

The Government will introduce a means test for the net medical expenses tax offset from 1 July 2012. For people with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in 2012-13), the threshold above which a taxpayer may claim will be increased to $5,000 (indexed annually thereafter) and the rate of reimbursement will be reduced to 10 per cent for eligible out of pocket expenses incurred.

People with income below the surcharge thresholds will be unaffected.

Business and investment – Tax changes

The Government has abandoned the planned cut in company tax from 30 to 29 per cent, originally announced as part of the carbon Price package.
Targeting Fringe benefits tax —living-away-from-home allowances and benefits at people legitimately maintaining a second home in addition to their actual home for an initial period by:
- limiting access to the tax concession to employees who maintain a home for their own use in Australia, that they are living away from for work; and
- providing the tax concession for a maximum period of 12 months in respect of an individual employee for any particular work location.
The Government will increase the managed investment trust final withholding tax rate from 7.5 per cent to 15 per cent, with effect from 1 July 2012.

Superannuation

Deferral of higher concessional contributions cap

The Government will defer the start date of the $50,000 concessional cap for individuals over 50 with a superannuation account balance under $500,000. The measure was initially intended to commence from 1 July 2012 but it will now be delayed by two years and will commence from 1 July 2014.

30% contributions tax for individuals earning over $300,000

From 1 July 2012, individuals with incomes greater than $300,000 will pay 30% contributions tax on their concessional contributions. The definition of “income” for the purpose of this measure includes concessional superannuation contributions.

Pensioner Draw Down

The Government will phase out the pension drawdown relief that has been provided over the last three years. Minimum payment amounts for account-based, allocated and market linked pensions will be reduced by 25% for 2011-12 and will return to normal in 2012-13.

Social Security

Extra allowance for those on income support

The new supplement will provide $210 each year for eligible singles and $175 each year for each member of an eligible couple.

The supplement will be paid in two instalments, in March and September each year, with the first payment commencing on 20 March 2013.

The supplement will be an ongoing, non-taxable payment to recipients of Newstart Allowance, Sickness Allowance, Youth Allowance, Austudy, ABSTUDY, Special Benefit, Parenting Payment Single, Parenting Payment Partnered, Transitional Farm Family Payment and the Exceptional Circumstances Relief Payment.

The Government will also double the liquid assets test thresholds for income support recipients. From 1 July 2013, newly unemployed people will be able to access income support without waiting up to 13 weeks if they have liquid assets of up to $5,000 for singles without children and $10,000 for all others.

Aged care

The Government will encourage greater investment in the sector to provide consumers with more choice and greater protections, at a cost of $660 million over five years.

The Government will also make savings through new income test arrangements for people commencing Home Care packages or entering residential aged care after 30 June 2014. A new income test will be introduced from 1 July 2014 for Home Care packages. Under these arrangements, full pensioners will not pay any income-tested care fee, while part-pensioners will contribute up to a maximum of $5,000 a year, and self-funded retirees up to $10,000 a year, for their care.

Care recipients will continue to pay a basic fee of up to 17.5 per cent of the basic age pension.

An annual cap of $25,000 will apply to care contributions in residential care. Care recipients will continue to pay a basic fee, currently up to 84 per cent of the basic age pension. Residents in permanent care in an aged care home as at 30 June 2014 and all respite residents will not be affected by these changes.

National Disability Insurance Scheme

The Government will commit $1.0 billion over four years to the first stage of a National Disability Insurance Scheme.

The first stage will deliver personalised care and support for up to 10,000 people with significant and permanent disability from 2013-14 and expand to support up to 20,000 people from 2014-15. Eligible individuals will be entitled to reasonable and necessary care and support that reflects their individual circumstances with the Government providing funding of $342.5 million over three years from 2013-14.

This first stage of an NDIS will occur in up to four launch locations, to be announced following negotiations with state and territory governments. The Government will be seeking to share the costs with state and territory governments of individual care and support for people with a significant and permanent disability, and will bear the full remaining costs of this initiative.

RBA Lowers interest rates by 0.50%

Tue, 01 May 2012 04:32:00 GMT

At its meeting today, the Board decided to lower the cash rate by 50 basis points to 3.75 per cent, effective 2 May 2012. This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated.

Growth in the world economy slowed in the second half of 2011, and is likely to continue at a below-trend pace this year. A deep downturn is not occurring at this stage, however, and in fact some forecasters have recently revised upwards their global growth outlook. Growth in China has moderated, as was intended, and is likely to remain at a more measured and sustainable pace in the future. Conditions in other parts of Asia softened in 2011, partly due to natural disasters, but have recently shown some tentative signs of improving. Among the major countries, conditions in Europe remain very difficult, while the United States continues to grow at a moderate pace. Commodity prices have been little changed, at levels below recent peaks but which are nonetheless still quite high. Australia's terms of trade similarly peaked about six months ago, though they too remain high.

Financial market sentiment has generally improved this year, and capital markets are supplying funding to corporations and well-rated banks. At the margin, wholesale funding costs have declined over recent months, though they remain higher, relative to benchmark rates, than in mid 2011. Market sentiment remains skittish, however, and the tasks of putting European banks and sovereigns onto a sound footing for the longer term, and of improving Europe's growth prospects, remain large. Hence Europe will remain a potential source of adverse shocks for some time yet.

In Australia, output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years. Output growth was affected in part by temporary factors, but also by the persistently high exchange rate. Considerable structural change is also occurring in the economy. Labour market conditions softened during 2011, though the rate of unemployment has so far remained little changed at a low level.

Recent data for inflation show that after a pick up in the first half of last year, underlying inflation has declined again, and was a little over 2 per cent over the latest four quarters. CPI inflation has also declined, from about 3½ per cent to a little over 1½ per cent at the latest reading, as the weather-driven rises in food prices in the first half of last year have, as expected, now been fully reversed. Over the coming one to two years, and abstracting from the effects of the carbon price, inflation will probably be lower than earlier expected, but still in the 2–3 per cent range.

As a result of changes to monetary policy late last year, interest rates for borrowers have been close to their medium-term averages over recent months, albeit tending to increase a little as lenders passed on the higher costs of funding their books. Credit growth remains modest overall. Housing prices have shown some signs of stabilising recently, after having declined for most of 2011, but generally the housing market remains subdued. The exchange rate remains high even though the terms of trade have declined somewhat.

Since it last changed the cash rate in December, the Board has maintained the view that the setting of policy was appropriate for the time being, but that the inflation outlook would provide scope for easier monetary policy, if needed, to support demand. The accretion of evidence over recent months suggests that it is now appropriate for a further step in that direction.

In considering the appropriate size of adjustment to the cash rate at today's meeting, the Board judged it desirable that financial conditions now be easier than those which had prevailed in December. A reduction of 50 basis points in the cash rate was, in this instance, therefore judged to be necessary in order to deliver the appropriate level of borrowing rates.

RBA lowers cash rate by 0.25%

Tue, 06 Dec 2011 03:41:00 GMT

At its meeting today, the Board decided to lower the cash rate to 4.25 per cent, effective 7 December 2011.

Growth in the global economy has moderated this year after a strong performance in 2010. Some of the slowing reflected temporary factors, and as these passed, the pace of expansion in the United States and much of Asia began to pick up around mid year. China's growth has been slowing, as policymakers there had intended. Trade in Asia is now, however, seeing some effects of a significant slowing in economic activity in Europe.

The sovereign credit and banking problems in Europe, to which European governments are still seeking to craft a full response, are likely to weigh on economic activity there over the period ahead. Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe. This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased. Commodity prices have reflected this, declining further over recent months and taking pressure off CPI inflation rates. This has increased the scope for some easing in monetary policy in a number of countries.

Information about the Australian economy suggests output growth has been close to trend, with demand growth stronger than that. The terms of trade have now peaked and will decline somewhat in the near term, but they remain very high. In response, investment in the resources sector is picking up very strongly, with much more to come. Some related service sectors are enjoying better-than-average conditions. In other sectors, changed behaviour by households and the high exchange rate have had a noticeable dampening effect. The unemployment rate has increased a little since mid year, though it remains close to 5 per cent.

CPI inflation on a year-ended basis remained above the target at the latest reading, due to the effects of weather events last summer, but is now starting to decline as production of key crops recovers. Moreover, with labour market conditions now softer, the likelihood of a significant acceleration in labour costs outside the resources and related sectors in the near term has lessened. Accordingly, the Bank's current judgement is that inflation is likely to be consistent with the 2–3 per cent target in 2012 and 2013, abstracting from the impact of the carbon pricing scheme.

The reduction in the cash rate as a result of the Board's previous decision flowed through to lending rates, which are now around their average level of the past 15 years. Short-term market interest rates have tended to decline a little further in recent weeks, though term funding conditions for financial institutions have become more difficult. Credit growth remains subdued and asset prices have declined further over recent months. The exchange rate has been quite variable over the past few months, but remains at an historically high level.

Overall, the Board concluded, on the basis of all the available information, that the inflation outlook afforded scope for a modest reduction in the cash rate. The Board will continue to set policy as needed to foster sustainable growth and low inflation over time.

Parliament passes mining tax and 12% SGC

Sun, 26 Feb 2012 21:49:00 GMT

Two important pieces of legislation passed Parliament’s lower house in the early hours of this morning (23 November).

The Minerals Resource Rent Tax (MRRT) 2011 was passed by a narrow margin and a related piece of legislation, an increase in compulsory superannuation contributions, is a step closer after The Superannuation Guarantee (Administration) Amendment Bill 2011 increased the superannuation guarantee (SG) rate from 9 per cent to 12 per cent.

The Bill passed the House at about 3am this morning. The Senate will debate the Bill today.

Revenue raised from the MRRT will cover the loss to Government revenue arising from the higher SG.

“During the global financial crisis (GFC) when international debt markets were frozen, these (super) funds became a source of investment for Australian companies mainly through share raisings,” said Senator Matt Thistlewaite.

“Some of these (super) funds were invested in our mining companies hungry for funds to fuel their expansion.”

A spokesperson for the Minister for Financial Services and Superannuation, Bill Shorten, says the Government is confident the SG legislation will pass the Senate.

The Bill abolishes the age limit for people contributing to superannuation; and it abolishes contributions tax for anyone earning less than $37,000 a year.

The increase in the SG will be phased in over seven steps, starting in the 2013-14 financial year. It will not reach 12 per cent until 2019-20.

A recent report by the Allen Consulting Group estimates that the increase in the superannuation guarantee from 9 per cent to 12 per cent will raise GDP by 0.33 per cent to 2025.

Opposition leader Tony Abbott is on record as saying he will not repeal the new superannuation measures if he becomes Prime Minister.

Economic Analysis - van Eyk Research

Thu, 17 Nov 2011 06:50:00 GMT

The global economic outlook continues to be dominated by events in Europe. The optimism generated by the new European and Greek rescue package that supported a massive rally in financial markets in October has dissipated and given way to scepticism and political posturing. A Greek referendum proposal (since abandoned) and the resignation of the Greek and Italian Prime Ministers saw spreading bond market contagion with Italy at the epicentre. Italian bond yields pushed above 7% at one point, raising the prospect of default in the continent’s third largest economy.

It seems likely that Europe will be in recession in 2012. The issue is the whether the European sovereign credit crisis and the associated European banking crisis can be contained or prevented from turning into a significant global financial crisis. As noted above, Italy has become the focus and with a debt to GDP ratio of 120% and paying 3-4% real interest rates in an economy growing by only 1.5% per annum over the past decade, its debt position becomes unsustainable.

The US economy has managed to perform relatively well so far in the 2nd half of 2011. Consumption spending actually grew 2.4% in the September quarter while business investment remains solid. However, the prospect of tighter fiscal policy in 2012 and very weak household disposable income growth means growth will be hard to come by in 2012.

As we have seen in the UK and Japan, and most likely in the US in early 2012, central banks are engaging in additional QE measures. The ECB has also moved to cut rates and more cuts are expected. In China, the weaker growth environment and sliding inflation will likely permit an end to the tightening cycle and selective easing measures.

In some sense we have moved into a new phase of this current slowdown. Policy is now responding but it continues to be reactive and in the case of Europe, may already be too late to prevent a more serious downturn.

What transpires over the coming weeks and months will be critical to the economic environment and investment scenario confronting investors as we enter 2012. Strong ECB action to purchase unlimited amounts of European sovereign debt may well be necessary to shift Italian bond yields into a zone that allows time to devise and implement a strategy to reduce debt levels to more sustainable levels. In the US a “super committee” agreement on a credible medium term plan to reduce the budget deficit is required.

For now the situation is highly uncertain. Extreme economic scenarios are plausible and given that, extreme policy responses are not only required but also possible.

The core scenario remains one of low but volatile growth outcomes in the developed world with continued solid growth in emerging economies.

Introducing WLM 'On Track'

Thu, 17 Nov 2011 06:13:00 GMT

Over the past few years we have noticed a significant increase in people being concerned about their finances. This is understandable given the turmoil and uncertainty in markets.

The questions we hear most are:

Are my investments in the right place?
Am I taking too much, or too little, risk?
Am I going to be able to meet my goals?
Is my long-term financial security at risk?
Do I have enough to cover my retirement?

Fundamentally it boils down to one basic question: “Am I on Track?”.

To help answer these types of questions and give people a framework to understand where they are at, WLM has developed “On Track”.

With On Track we can help answer the big questions, work through the ‘what if’ scenarios, consider the financial impact of investment or lifestyle decisions and look at the longer-term big picture.

If you would like to find out more, please contact us.

Taxation of Discretionary & Family Trust Income

Thu, 17 Nov 2011 06:08:00 GMT

Recently ATO legislation has been passed by Parliament to enable trusts to stream franked dividends and capital gains for tax purposes. It applies to the current 2010-11 and later income years. The legislation is contained in Tax Laws Amendment (2011 Measures No. 5) Bill 2011.

The aim of this amendment was to:

Better align the concept of “income of the trust estate” with “net income of the trust estate”
Enable the streaming of capital gains and franked dividends to various beneficiaries

Certainty about Taxation of Trust Distributions

This legislation is designed to give greater certainty to taxpayers and their advisers about how trust distributions are made by the trustees of discretionary trusts.

How does this affect the administration of Discretionary Trusts?

Firstly, the legislation gives greater clarity to how trusts can distribute different types of income (interest, dividends, capital gains, other income) and a better understanding of how the differences between “income of the trust estate” and “net income of the trust estate” is treated. Greater discretion will be available as to whether trust income is distributed on a proportional basis, or different types of income are streamed to specific beneficiaries.

It should also help the Taxation Office administer the law. Professional advisers also will have more clarity about what is able to be done under the law. Hopefully, this will reduce the amount of case law which has surrounded this area in the past.

Updating of Trust Deeds

One important measure arising from this change in the legislation is whether or not the trusts Trust Deed needs to be updated to allow streaming of income as the legislation now allows. It is important that Trust Deeds be updated by a Lawyer where necessary, ensuring that the changes do not constitute a re-settlement of the trust.

For more information

If you require an upgrade of your trust deed or would like to find out more, please contact WLM Financial Services.

Future of Financial Advice reforms

Thu, 17 Nov 2011 06:01:00 GMT

WLM is a strong supporter of the Government’s proposed Future of Financial Advice (FoFA) reforms. The goal of the reforms is to provide a more robust and transparent financial advice industry. This will benefit consumers of financial advice and products as well as continue the evolution of the financial planning industry into a profession.

Interestingly WLM has built its practice on an approach similar to the proposals that are now contained in the Government’s reforms, and on professional standards promoted by the Financial Planning Association of Australia (FPA).

For example, WLM already operate on a fee-for-service basis and do not take commissions on products. In fact we’ve taken it one step further than the FoFA recommendations and don’t even take commissions on insurance products.

FoFA reforms are targeted at setting an acceptable minimum standard for the industry, but firms that are serious about professionalism must conform to a higher standard. WLM has consistently aimed for ‘best practice’ and professional standards.

All our advisers are members of the Financial Planning Association and designated by the FPA as having obtained the status of CERTIFIED FINANCIAL PLANNER® professional, the highest such designation in the industry and recognised globally. Only 35 to 40 per cent of advisers in the country are CFP-qualified.

Although, currently the FoFA proposals come into effect on July 1, 2012 and only technically apply to new clients, WLM has been applying these standards to all clients for a long time. So, we’re already there and won’t need to change our business in any meaningful way. This is good news for our clients as there will be good continuity of business.

RBA lowers interest rates to 4.50%

Tue, 01 Nov 2011 22:17:00 GMT

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 4.5 per cent, effective 2 November 2011.

Recent information is consistent with a moderation in the pace of global growth, though fears of a major downturn have not been borne out so far. The pace of US economic expansion picked up in the September quarter, but is still only moderate and leaves considerable spare capacity. China's growth has slowed, as policymakers there had intended. Output in Asia has now recovered from the effects of the Japanese earthquake, and domestic demand in the region is generally expanding. Trade performance, however, is starting to see some effects of a significant slowing in economic activity in Europe, where the prospects are for economic weakness to continue. Commodity prices, while still at high levels, have generally declined over recent months.

Financial markets have recovered somewhat from the turmoil of recent months, helped by stronger economic data in the United States and by signs that European governments are making progress in their efforts to deal with the sovereign debt and banking problems. Equity markets have gained ground and the Australian dollar has risen significantly as risk aversion has lessened. But it is likely to be some time yet before concerns about the European situation can definitively be laid to rest and the effects of the recent turmoil on confidence may result in a period of precautionary behaviour by firms and households.

Information about the Australian economy suggests moderate growth overall. The terms of trade have now peaked and will decline somewhat in the near term, but they remain very high. In response, investment in the resources sector is picking up very strongly, with much more to come. Some related service sectors are enjoying better-than-average conditions. In other sectors, cautious behaviour by households and the high exchange rate have had a noticeable dampening effect. The unemployment rate has increased a little over recent months, though it remains close to 5 per cent.

After underlying inflation started to pick up in the first half of the year, recent information suggests the subdued demand conditions and the high exchange rate have contained inflation more recently, notwithstanding continuing sizeable increases in utilities charges. CPI inflation on a year-ended basis remains above the target, due to the effects of weather events last summer, but is now starting to decline as production of key crops recovers. Moreover, with labour market conditions now softer, the likelihood of a significant acceleration in labour costs outside the resources and related sectors in the near term has lessened. Accordingly, the Bank's current judgement is that inflation is likely to be consistent with the 2–3 per cent target in 2012 and 2013, abstracting from the impact of the carbon pricing scheme.

Financial conditions have been easing somewhat recently, with market interest rates declining a little and competition to lend increasing. But overall conditions have remained tighter than normal, with borrowing rates still a little higher than average, credit growth subdued and asset prices lower than earlier in the year. The exchange rate has been very variable over the past few months, but on the whole has remained at historically high levels.

Over the past year, the Board has maintained a mildly restrictive stance of monetary policy, in view of its concerns about inflation. With overall growth moderate, inflation now likely to be close to target and confidence subdued outside the resources sector, the Board concluded that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2–3 per cent inflation over time.

Saving the eurozone (by Fidelity Investment Limited)

Fri, 28 Oct 2011 00:12:00 GMT

The highly anticipated EU crisis summit has delivered headline agreements in the three key areas: a Greek bailout, bank recapitalisations and an expansion of the rescue fund. Agreements were reached between EU leaders at around 4am on Thursday morning Brussels time, 11 hours after the summit began. European equities rose strongly and the spreads on Spanish and Italian government bonds tightened relative to German bunds.

In terms of helping Greece, the summit agreed on a new 130 billion euro bailout for the troubled southern European country. Of this, 100 billion euros will come from the European Financial Stability Fund (EFSF) and 30 billion euros from the IMF. Private bond-holders of Greek debt have decided to take a voluntary 50% writedown on Greek government bonds. The writedown is expected to see Greek government debt fall to 120% of GDP by 2020, from a forecast of about 170% of GDP next year if no debt was written off.

For the banks, agreement was reached that they need to raise 106 billion euros to boost core tier-1 ratios to 9% by June 2012. The Euro Banking Association has suggested several ways to raise new capital: going to private markets; retaining profits and withholding discretionary payments; and substituting existing hybrid instruments with higher quality capital instruments. The 9% tier-1 ratio target exceeds the 7% level that world leaders have agreed to phase-in from 2013. Banks have until the end of the year to tell supervisors how they will make up the capital shortfall by the June 2012 deadline.

Leaders decided that the EFSF is to be leveraged and will provide “risk insurance” for new bonds issued by struggling eurozone economies. It could be leveraged “four or five” times, suggesting a capacity of about 1 trillion euros.

What does it mean?

While headline agreements have been reached, much of the details of implementation are still to be worked out. The impact of a voluntary 50% writedown on Greek government bonds on credit-default swaps that protect against outright or technical default is unclear. If these contracts are not triggered, many investors might view them as worthless. If they are, it could help to spread contagion. Although exposures are known and are thought to be relatively limited, the ECB would ultimately act as lender of last resort.

The focus of attention is moving to Italy where the debt-to-GDP ratio is 121%. EU leaders have been pushing Italy’s Prime Minister Silvio Berlusconi hard to deliver concrete austerity measures. Berlusconi’s hastily-put-together plans are focused on raising the retirement age and accelerating the program to privatise state assets. Investors will monitor progress on these plans in coming weeks. Beyond revealing plans for the EFSF bailout fund to be extended, it remains to be seen exactly how this will be implemented.

Dominic Rossi, Global CIO equities at Fidelity says that while financial markets have reacted positively to the intent shown by policymakers, the deal is not the game changer investors are looking for. “Italy's 120% debt-to-GDP doesn't look any more sustainable today than yesterday,” Dominic says. “Europe is destined for a multi-year workout during where economic growth will be very restrained and equities are likely to remain cheap. The path of equities will therefore require better news else where. Earnings growth in the US continues to surprise on the upside and we may be approaching a policy shift in China. The catalyst for higher equity values lies outside Europe rather than within.”

Trevor Greetham, Asset Allocation Director at Fidelity, says the EU leaders surprised positively after the squabbling of recent days but were low on detail on the critical point of leverage for the bail out fund to backstop Spain and Italy. “We may have to wait until November for specifics of possible BRIC/IMF involvement alongside a partial insurance scheme for primary issuance,” Trevor says. “The critical test will be what happens to the Eurozone economy. Provision of liquidity goes hand in hand with further austerity in the periphery with Italy now the focus. Meanwhile, if the UK experience is any guide it will be hard for national regulators to prevent banks deleveraging their balance sheets now forced public capital injections are threatened.”

Ban on Off-Market transfers for SMSF's

Thu, 22 Sep 2011 01:57:00 GMT

Self-managed superannuation fund members will not be able to transfer shares off market without the use of a broker under new regulations designed to limit the ability to minimise capital gains tax. The ban will apply from 1 July 2012.

SMSF Professionals’ Association chief executive Andrea Slattery said the decision was disappointing.

The regulation will be introduced at the recommendation of Jeremy Cooper. The Australian Professional Ethical Standards Board will develop guidelines that do-it-yourself super funds will need to abide by before registering with the Australian Securities and Investments Commission.

22 September 2011 | Bianca Hartge-Hazelman, Australian Financial Review, Page 13

ATO reconsiders key limited recourse borrowing concepts

Wed, 14 Sep 2011 06:59:00 GMT

The ATO has today issued draft SMSF ruling 2011/D1 which explains key concepts relevant to the application of the limited recourse borrowing arrangement (LRBA) provisions.

The draft ruling provides the ATO’s preliminary view on what constitutes a single acquirable asset and also provides further clarity on the distinction between a repair and an improvement in the context of a LRBA.

SPAA welcomes the ATO’s commonsense approach to the interpretation of these rules which in our view will greatly assist SMSF trustees and their advisers to plan with confidence.

Importantly, the ATO has relaxed their interpretation of what constitutes a “single acquirable asset” and will allow assets to be improved as long as the improvement does not fundamentally change the character of the asset and is not funded by borrowings.

Previously, the ATO’s view was that borrowed funds under a LRBA put in place on or after 7 July 2010, could only be used to obtain a single acquirable asset such as a property on a single title. This meant that a property covering more than one title required a separate LRBA for each title.

However, the draft ruling takes a different approach and recognises that a property that exists on multiple titles can still satisfy the definition of a single acquirable asset as long its physical characteristics identify it as a single asset and the titles are not able to be dealt with or sold separately.

The draft ruling also reverses the ATO’s previous view that an asset acquired under a LRBA entered into on or after 7 July 2010 could not be improved using funds from any source.

The draft ruling states that the property can be improved using the SMSF’s cash reserves or funds from another source as long as the improvement does not result in the acquirable asset becoming a new asset. For example, insurance proceeds could be used to rebuild an acquirable asset destroyed by fire or flood as long as the new asset has the same fundamental character as the asset it is replacing. However, borrowings under a LRBA cannot be used to improve the asset but can be used to repair or maintain the acquirable asset.

The ATO has made it clear in the draft ruling that they have no intention of being overly pedantic when it comes to the distinction between a repair and an improvement. Minor or trifling increases in functional efficiency or value as compared with the acquirable asset as a whole will not amount to an improvement.

Although the analysis and examples provided in the draft ruling focus primarily on real property, the principles discussed can also be applied to other types of assets.

When the final ruling is issued, it is proposed to apply to arrangements entered into on or after 7 July 2010 (including an arrangement that is a refinancing of a borrowing of money under an arrangement entered into before, on or after 7 July 2010).

DOWNLOAD ATO DRAFT RULING

Changes to the government guarantee on bank deposits

Mon, 12 Sep 2011 22:21:00 GMT

Over the weekend, the deputy Prime Minister, Mr Wayne Swan, announced changes to the Financial Claims Scheme that guarantees deposits with Australian deposit taking institutions.

The changes are summarised as follows:

The guarantee limit per investor and institution will reduce to $250K as of 1 February 2012.
Any term deposits placed prior to 10 September 2011 will continue to be guaranteed up to $1M until the earlier of the maturity date of the deposit, or 31 December 2012.
Any term deposit placed after 10 September 2011 shall be guaranteed up to $1M until 1 February 2012, at which point the guarantee will be limited to $250K.

You can read the full media release here.

If you have any questions, please don’t hesitate to call us on 02 9221 7777.

Comments on current equity markets

Fri, 12 Aug 2011 05:46:00 GMT

In the last few weeks we have seen sharemarkets around the world fall heavily, mainly as a result of concerns over sovereign debt issues both in the US and parts of Europe and also because of the economic statistics clearly

showing that the US economic recovery is waning.

While many of these issues have been in the news for a while now, much of the current correction and turmoil in sharemarkets is due to the realisation by many investors that economic growth will be much slower going forward than many previously predicted. As a result corporate earnings will also not be as strong as hoped going forward.

To help give you an understanding of the current issues and how others, considered experts in their field, view the current situation we have placed some comments here for you. No doubt you will have seen other comments as these events are getting a lot of coverage by the reliably dramatic media. These comments will hopefully held give you context to the current situation.

Should you wish to discuss any of this, please feel welcome to call us on (02) 9221 7777.

Ian Huntley - editor of Huntleys' Your Money Weekly

Last night's mini-crash in the markets had the smell of total fear. My reading is that European issues triggered the rout, with the European Central Bank failing to purchase Italian and Spanish bonds as they continued to edge higher in yield against German bonds. French and German banks will take the brunt of any emerging shocks, should the crisis develop further. As noted in the preceding overview, Italy and Spain are classed as too big to be allowed to fail, and too big to save.

Our market will be testing the lower end of my mooted 4000-5000 trading range, and will possibly test the 3800 area I suggested in the overview as being an "end of the world" area.

My view continues to be that our market offers very good value in a range of quality stocks, including our banks and leading resource stocks, where BHP Billiton (BHP) (diversification) and Newcrest (NCM) (gold and copper) stand out to my mind.

Overview

The All Ordinaries index has now made a slight new low for the year near 4350 - surprising me, as I had expected a firmer market post the US debt resolution. I correctly expected the price of gold to falter and then forge ahead.

The basic issues remain US debt continuing to grow, as well as the problems of Europe. An index of close to 5000 by year-end is still to my mind likely, very much a replay of last year. It's in line with my forecast of several years for the market to trade between 4000 and 5000, though this year I did think 4500 would hold, as stated in a recent report.

The market could possibly briefly fall to the 4150-4200 area and a chartist friend reckons 3800 is the worst case "if they reckon the world is ending again".

My expectation of no rate rise and a possible 0.5 per cent rate cut by Christmas is now close to consensus. as it is now the futures market's prediction. I simply work on the view of the economy as seen through the eyes of our team of analysts, who constantly keep on top of just how their companies are faring.

And the Reserve Bank of Australia (RBA) realises that, yes, "it is the economy stupid," and the price of bananas is not continuing inflation.

The price of copper hardly faltered through the recent alarms and headline falls in the US market, and gold forged to major new highs of over US$1670. Our currency pulled back as the markets figure on possible lower interest rates.

Copper and gold are far more important to our economy than whether US Congress can agree on the US debt ceiling and ways to get their budget in order. That's not hard - the US is under-taxed after years of the tax revolution instigated by Ronald Reagan, when it was very necessary. Means testing of social welfare would be a major help, as would a few dollars tax on fuel.

It's important to focus on the world around us, as it is, and not to take the headline horror too seriously - but it does helps create value when investors leave the market thinking they are in Greece, Spain, Italy, Ireland, Portugal or the US! Hey, we are in Australia - we are a major commodity exporter with one of the best government balance sheets in the world. This is despite having a government that is best described in the words of a friend: "The US is kicking the can down the road, and we are kicking ourselves in the foot."

The global outlook is for good growth of around 4 per cent per year, heavily led by the developing world and held back by weak growth in the developed world, plagued as it is by sovereign debt issues.

Led by China, the developing world is massively investing in infrastructure including homes, and needs the raw materials we sell as the treasure house of Asia. Global agricultural production is under stress, prices are rising and we are a major exporter of key foods. The Chinese economy is going to be in a major growth phase for the next 10 to 15 years. And sure, there will be hiccups. And it is followed by India and other countries to boot.

Worried about a US downgrade? Give it a miss! Since when have the US rating agencies ever been on the ball with these things? The market has already factored all that in. Interest rates will not go up. The US economy is either on the verge of recession, or is already in recession and faces major under-utilisation of capital resources and labour.

Real unemployment is just on 17 per cent. The housing industry is stuffed for years, given that 16 million of the 50 million homes with mortgages are under water - and these are the guys who can walk away from their mortgages under lunatic US regulations. Nouriel Roubini projects another 8 million homes will be under water over the next year to 18 months. I don't see the US mounting any decent sort of economic recovery until new housing and all the multipliers it generates gets a move on.

Don't confuse the US economy with the major US sharemarket indices. They are populated by wonderful multinational companies like GE, Colgate, Caterpillar, Exxon, and Apple, just to name a few. Many of these make well over 50 per cent of their annual profit in the burgeoning developing world, helped by a weakening US dollar. One can argue the developing world now stands on its own multi-feet and is not inexorably connected to the US.

The Eurozone faces the PIIGS (Portugal, Ireland, Italy, Greece and Spain) issues, but there the major economy by far is Germany. As the PIIGS weaken the euro, Germany cheers, for it helps boost its exports.

The Germans aren't stupid either. They are exporting hand over fist into China, providing the capital machinery for China to be the manufacturing centre of the world, gouging out many of the industries that formerly underpinned Italy, for instance.

The world does not face a massive credit squeeze as it did in 2007-09. It does face a liquidity trap in the US, and problems with major French and German banks writing off PIIGS' sovereign debt. That has already begun and is likely to be with us for many years.

Can the US get its act together? Sure it can, but only as Winston Churchill says - after it tries everything else. It needs to raise taxes, cut expenditures and do a couple things I mentioned previously.

Remember Paul Keating back in May 1986, declaring Australia a "banana republic"? He ushered in a series of wonderful reforms under Labor, and Liberal governments then left us in a great position.

Obviously, I do not have the same view of the current government, who to my mind are taking us backwards. But they only hang on by one seat and one independent holding steady.

Magellan Asset Management

The sovereign debt issues in Europe and recent poor economic data out of the United States have led to considerable market volatility in recent days and months. The sovereign debt issues in Europe cross two complex and associated issues.

The first issue is a solvency issue.In our view Greece is effectively insolvent and Portugal and Ireland have potential solvency issues. The good news is that the European Union and the European Central Bank have finally recognised the insolvency issue in Greece. The new Greek bailout package is a fundamental step in the right direction. The package materially reduces Greece's financial burden via the extension of loan terms and the reduction in interest rates; these measures were also extended to Ireland and Portugal. The proposed involvement of private sector creditors to swap Greek sovereign debt for longer duration lower interest debt will also materially reduce the present value of Greece's outstanding debt. This reduction in Greece's debt burden is a fundamental step in putting Greece on a path to sustainability. We suspect that more still needs to be done, however we are optimistic that the tools and policies are now in place to address Greece's solvency issues.

The second issue engulfing Europe is a potential sovereign debt liquidity crisis affecting larger European countries, particularly Italy and Spain. We do not believe that either of Spain or Italy are insolvent, however a collapse in bond market confidence could push yields on sovereign debt to levels that create a true liquidity crisis. In our view monetary union presents particular challenges to addressing this situation. For a country that has its own currency and an independent central bank able to readily print money this situation would be addressable. In such circumstances the central bank could print money and buy bonds on the open market to drive down yields and monetise government funding requirements. The current policy path potentially involves the European Stability Fund (which is constrained in size) and the ECB buying affected bonds (with necessary offsetting asset sales) on the market to stabilise yields.

Unfortunately if this situation continues to escalate and in the absence of a dramatic and possibly unlimited increase in the size of the European Stability Fund, this policy path is akin to bringing a pea shooter to a gun fight.

We do believe that there are two potential policy options which would address these liquidity difficulties; either allowing the ECB and EU central banks to print money or allowing the EU to issue Eurobonds to finance the struggling economies.

We feel it is unlikely that these liquidity issues will result in a financial Armageddon scenario and that correct policies will eventually be pursued. However there are divergent views on the correct path of action and thus we could have a sustained period of considerable volatility until this is resolved.

We remain realistic and relaxed about the difficulties facing the US economy.The recent decision to raise the US debt ceiling has removed considerable risk in the short term and we are confident that the US will take action over the next few years to ensure it is on a sustainable long term fiscal path.

Bell Potter

Clearly markets are now holding a gun to the head of global central banks, expecting further liquidity initiatives rather than just currency manipulation. The trigger for the rout seems to have been the BOJ's intervention in the YEN, which triggered a USD rally that in turn led to a full blown liquidation of the carry trade (note record volumes). You know it's a true rout when gold equities lose -6% simply because they are equity.

However, we can all see our screens and see the indiscriminate carnage. There simply was nowhere to hide but cash. ASX200 SPI futures are trading down -157pts at 4085, which equates to an -18.5% correction in Australian equities despite Australia having the strongest GDP growth, lowest unemployment, highest interest rates, highest terms of trade, and strongest AAA rated Federal balance sheet in the OECD. The fact the ASX200 has been belted harder than the Eurozone and US markets still amazes me because at least we do have the ability to pull both monetary and fiscal policy levers here to avoid further economic contraction.

He also have a record high savings rate and record levels of cash parked in term deposits. Similarly, Australian corporate balance sheets are in superb shape, with BHP Billiton leading the way as a net debt free company. Yet, that didn't stop BHP shares being smashed last night to $38.34. Interestingly, spot iron ore was actually up last night which shows China kept buying the stuff.

What I am trying to point you to is the relative and absolute strengths of Australia, and the optionality we have at a policy level, household level, and corporate balance sheet level to respond to these global events. We are in excellent relative shape, but of course that doesn't stop our asset classes from being caught in the global downdraft.

I believe the events of this week in markets and commodities will ensure the RBA slashes cash rates. It's hardly like inflation is going to be a problem. Similarly, capex intentions will be being wound back by corporate and the RBA's concerns about wage price inflation breaking out look very premature. We will have a series of rate cuts in Australia before Christmas, and they may well start earlier than you think. For the RBA this is the repeat of 2008 when they were hawkish a month ahead of the GFC, then made "emergency" rate cuts over the following six months.

The biggest problem Australia faces is the events of this week in markets, global and local, will be the trigger for employers who have held off reducing staff levels, to actually do it. That is why the RBA will act far quicker than anyone currently believes.

Obviously QE3 or some version of it must come from the Fed. While it's debatable whether QE2 actually worked, other than to drive up asset prices, then down when it ended, I think we would all rather have asset prices firmer than what we see today. The Fed will do something and much quicker than markets expect.

At an equity market level we will have the ongoing issue of fund redemptions, stop loss selling, margin call selling, ETF and warrant selling and just outright dreadful sentiment. Australian's were already sceptical of the equity market and this week's events will only further reinforce that scepticism/cynicism with equities as an asset class. What I am saying is that while value and yield opportunities today will be unprecedented in Australian equities, it's going to be a long and slow road back to the asset class being the household darling it once was.

At WLM we understand the concerns investors may have during times like this. Unfortunately we have experienced times like this before. We also recognise the opportunities that are created out of such turbulent times as sentiment can depart from economic reality.

If you would like to discuss current market conditions and how they may relate to your investments, please feel welcome to call us on (02) 9221 7777.