The wealthy, the comfortable middle and the rest: Australia’s wealth and income ladder explained

Posted on March 2, 2021 by admin

“If poor people knew how rich rich people are, there would be riots in the streets.” Those are the exact words of American actor and comedian Chris Rock during a past interview with New York magazine. He was referring to the enlarging gap between the rich and the poor in the US.

Here at home, studies have shown the clear lines that segment the rich, the comfortable middle and the rest. And the Coronavirus, too, has caused an economic shakeup like never seen in decades, further reconstructing the very nature of wealth and income distribution in Australia.

But amid plans to recover from the ravaging pandemic, one thing remains clear – the rich are getting richer. Latest figures from the Australian Bureau of Statistics suggest that wealthy Australians are pulling away from the rest of the country, raising the inequality gap to a record high.

So what exactly is going on with Australia’s well-off, middle class, and the low earners?

In a last year study, Acoss noted that close to half of Australia’s private wealth is owned by 10% of the country’s richest. Coming in second are about 30% of the “comfortable middle” holding about 38% of Australia’s household wealth, leaving a 16%-stake to the rest.

The research which sought to compare the nation’s upper, middle and lower wealth and income rungs further uncovered that the top 20% with wealth averaging $3.3 million own at least 99 times the wealth held by the lowest 20%, with an average of about $36,000.

The bottom, middle and upper rungs

According to Acoss, the lowest 10% earn an average weekly wage of $592 or $30,784 annually. This category typically comprises the individuals relying on JobSeeker Payment. A household on Jobseeker Payment earns about $341 or $610 weekly in social security payments for a single individual and a single parent with children respectively.

The middle-income earners typically comprise couples with children living off one fulltime job and a part-time wage. The middle 20%, generates an average weekly income of $1,884 ($97,986 pa), the report stated. Here, the couple is essentially raising dependent children with one partner earning about $85,000pa and the other an average low of $30,000pa. Such households are likely to maintain a fair asset base.

In the top category, couples with two full-time wages dominated the highest 20%. The average income of a model rich household averages $4,166 per week ($216,627 pa), according to the research. Compared to their middle-income counterparts, households in this category had about 10 times more average investment income. The top 20% households recorded an average annual income of about $85,000 for each partner. These individuals were likely to sustain a comfortable lifestyle with multiple financial buffers in case of a crisis occurs.

However, the net income for the top 5% soars to an average of $6,796 per week or $353,371 annually. Unlike the top 20%, the highest 5% is mostly made up of couples with zero dependents and one high income generator. Both incomes afford them an exclusive lifestyle among the wealthy.

Between 2017 and 2018, the net worth of the richest tenth of Australian households hit $4.75 million, substantially promoted by a range of business investments, company stocks, and real estate assets. This segment holds about 46% of the total household wealth.

The comfortable middle – with an average net worth of below $1.3 million – hold close to half of that figure in their own homes, superannuation and investment properties. The lowest earning households record an average net worth of around $277,000 comprising superannuation and owner-occupied homes.

On average, households with referenced persons over the age of 65 years recorded a net worth of more $1.3 million – about 1.5 times that of the younger families.

But the survey also found that income distribution is more uniform compared to wealth. The top 20% richest individuals have annual pre-tax incomes of about $330,000, the middle 20% make about $116,000 while the lowest 20% earn $41,000.

In terms of income from investments, the biggest chunk is concentrated at the topmost. Close to 70% of investment income goes to the 20% most moneyed households. The fifth wealthiest Australians cash about $1,000 worth of investment income weekly even as their top 5% counterparts pocket about three times more ($3,000pw on average).

As the new year rolls out, the incomes of lower earners have been bolstered by government support programs such as the Covid-19 JobSeeker initiative, JobKeeper as well as the one-time stimulus payouts to welfares.

The government stimulus initiatives notwithstanding, inequality could worsen if the support programs are retracted, unemployment numbers continue to soar, and wage rates stagnate, this is according to the Australian Council of Social Service chief executive Cassandra Goldie.

If the state organ’s word is anything to go by, there’s still a lot more to be done before “normalcy” becomes a reality for most Australian households.

“If the government continues on its current path focusing on tax cuts and tax incentives for private sector activity there is no question that into the future we will see a serious increase in both income and wealth inequality and the concentration of wealth in the hands of fewer and fewer people,” Goldie warned.

As earlier indicated, the pandemic has further altered the inequality levels. A 2020 report by the International Monetary Fund (IMF) revealed the worrying income distribution patterns during pandemics including the 2003 SARS, Zika Virus in 2016, Ebola in 2014, MERS in 2012 and the 2009 Swine Flu outbreak. In all of the analysed instances, the IMF noted that pandemics resulted in higher income inequality, with the lower income generators being the most affected.

Mike Mortlock is a Quantity Surveyor and Managing Director of MCG Quantity Surveyors. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating. You can visit them at www.mcgqs.com.au/ Mike Mortlock is a Tax Depreciation expert, Quantity Surveyor and Managing Director of MCG Quantity Surveyors. He is a regular speaker and commentator having been featured in the Financial Review and Sky Business. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating for investors. You can visit them at https://www.mcgqs.com.au/

Wrapping up the year with Data, Dance Floors, and Depreciation

Posted on December 19, 2019 by admin

Our year started on a high, coming off the back of a massive win for MCG. Landing a position on the Financial Review’s top 100 of fastest-growing businesses, we hit the ground running!

Mike Mortlock and Mitch Ford completed their much-anticipated triathlon, with over $2k raised for Heartkids, a charity helping those affected by congenital heart disease.

Mike smashed it and beat Mitch in Foster, which was expected with the large amount of trash talk happening in the office leading up to the event. Overall, they both demolished their own expectations and there were smiles and heat rub creams all ‘round.

We then attended the Accounting Business Expo in Sydney, where we mingled with accountants and business pros alike. The event is always a great chance to present on stage and chat all things depreciation. We’ll be back next year, so keep an eye out.

During May the election came and went, which honestly feels like a whole two years ago and undoubtedly has me thinking how long this year really has been.

But the election provided great opportunity to get our data nerd hats on and didn’t we flourish, (our nerd hats are always on, let’s be honest).

With the Labor Party pitching to abolish Negative Gearing if they were to win power, shadow treasurer Chris Bowen suggested that investors buying brand new comprised anywhere between 4 and 14 percent of the total numbers. Our ears pricked up and we analysed data going back to 2016, finding that 43 percent of our investor clients bought or built brand new housing. This data with additional evidence from mortgage aggregator AFG led to a more sophisticated debate based on accurate data, so we threw around a couple of high-fives in honor of this small win and the media covering the story with our industry-first data.

On top of the dampening effect on property that an election tends to have, APRA also made some tweaks to their investor requirements and serviceability floors. Combined with low-interest rates, the back end of the year saw an increase in housing activity and auction clearance rates.

(I’m still trying to work out why at this point, but some people on LinkedIn kept mentioning it, and Mike posted some videos too.)

In June, Director Marty Sadlier took on the cold weather in Sydney to help change the lives of Australians experiencing homelessness. A record 7.9 million dollars were raised to help break the cycle, with some solid efforts from Marty raising much-needed funds as well. Marty also added ‘Social Media Specialist’ to his resume and was given unrestricted access to the MCG social media accounts. All 3 of his fans tuned in to get live updates on the event as Marty talked about how cold it was, as well as shedding some light on the significance of supporting Vinnies and Australians who are doing it tough. We’re very proud of Marty, and we are sure to see him again in his cardboard box in 2020.

The 1st of July saw the first real major changed to residential effective lives since 2004. It’s truly a moment of reflection on your interests when you can record a 3-minute video and a blog for API on carpet having a new effective life of 8 years.

New thresholds also came into play for businesses. Businesses with a turnover less than $50 million are now eligible for the instant asset write-off of $30,000 (depending on when you bought the asset).

Not content with our nerdy data analytics wins thus far, we dug into some more data and found that property investors not claiming deductions in a timely manner, are missing out on deductions of $20,537 on average.

And, if that wasn’t specific enough, if these results are extrapolated across the nation’s total investor population missing out on claims, (potentially 140,525) this equates to a total potential loss of $2,885,967,347 in missed depreciation overall. Yep, over 2 Billion Aussie dollars! That’s a hell of a lot that we could have had in our back pocket.

The last months of 2019 have flown by, which usually happens after tax time, it’s just all downhill from there. However, we attended some rather educational events, which allowed us to get out in the real world and show off our moves. I was using this metaphorically, but then I remembered our MCG team on the literal dance floor at the annual Bean Counters Charity Ball in October. A Depreciation and Estimating specialist that can dance is a real niche.
We spoke at the Real Estate Buyers Agents Association 2019 Conference, which draws Australia’s best and brightest property buyers together. Then backed it up with the first ANZ Property Investment Seminar, an informative chance for property investors to see the process from A – Z. Yep, all the way to the tax depreciation guy.

Wrapping up a big year we had some more healthy exposure in the media, this time with Australian properties being underinsured. Marty brought out some new research showing that some homeowners could be underinsured by 66%, heightening the risk of financial losses as Australia launches into bushfire and flood season. Our analysis showed that property owners relying on web-based calculators by insurance companies could be finding themselves coming up short. Another win for our team, and more importantly Marty’s cost planning squad.

That’s about it from us in 2019, and if you’re still reading, we appreciate the support. We also wish you all the best as we head into the new decade, I’m sure it’s going to be a hoot! We look forward to bringing some more moves to the D-floor and some nerdier data stats.

Enjoy the festive season and stay safe. Our offices will only be closed on public holidays. Cheers!

What the 2019 Federal Election result means for property investors

Posted on May 20, 2019 by admin

This question will be sliced and diced a million different ways over the next week or two, but I wanted to give you my thoughts on it.

In the short term, it’s going to provide a lot more certainty, and it will be back to business as usual eventually. A lot of investors and even prospective homeowners were sitting on their hands patiently waiting to see the results of the election. A Labor Government would have likely resulted in a boost in investor activity prior to the 1st of January 2020 when their capital gains tax and negative gearing policies were to be implemented. My view is that they were never likely to get the legislation through the Senate, but investors would have been looking to lock in a grandfathered property regardless. However, all this was prefaced on the idea that they could get finance. For investors especially, this was likely to dampen what should have been a very busy period for investors, followed by a short period of tumbleweeds invading open homes.

With the Liberal Government holding onto power, there’s much more certainty in the property market. Not just because the sweeping tax changes won’t come to pass, but also because those changes would have had somewhat unpredictable impacts on prices. In my view, property prices would have softened under Labor while rents rose as supply dried up, but nobody could have really predicted the impact of a brand-new property losing its’ advantageous tax status when sold to the next owner. A brand-new property would have been eligible for the CGT discount, negative gearing and full depreciation benefits rather than just the division 43 structural component. A valuer would have to take into consideration the fact that a new owner would incur much higher costs to hold that asset without the tax concessions, effectively lowering the value of the property.

If the election showed anything, it was that investors and small business owners don’t like being labeled as the ‘top end of town’, which makes perfect sense when you take a good look at the stats on the average investor. The idea that first homeowners were being shut down by swathes of investors purchasing their 5th, 6th or 30th property was shut down with ruthless efficiency. The tax policies relied on some dodgy data, which cost the Labor party some ground in the first week of the campaign. It begs the question whether the potential impacts of the proposals were fully understood by the party. Post-election night, Labor party leadership challengers were quick to distance themselves from the sweeping proposed tax changes, and party insiders’ question whether Chris Bowen is too damaged by his close association with the tax and franking credit policies to lead the party to the next election. Anthony Albanese stated that Labor would revert to a “blank slate” on its policies which may see Labor going to the polls next time around without their CGT and negative gearing policies which would be good news for the property market. APRA have shown that they’re more than capable of curbing investor activity and tax changes aren’t needed to slow investor activity.

The election also showed that Australia demands more action on climate change. One wonders whether the Labor party would have been in front with this message alone should they have been less aggressive on the tax reform front. Tony Abbott’s exit is an interesting development and hopefully provides more scope for the Prime Minister to implement policy on climate action, as the country, including a few newly elected independents, are going to be demanding it.

Property economists are now likely to be more certain in their calling of the bottom of the property market, and the single biggest property price appreciation headwind in my view is now the availability of finance. The 7.25 percent stress test and serviceability requirements will need to soften for any real booms to materialise within the next few years.

MCG insights into property investor behaviour that you need to know

Posted on March 13, 2019 by admin

Since we started preparing depreciation reports for property investors back in 2011, I wanted to collect data that I thought would illuminate the property industry as to the types of acquisitions the average property investors was making. Through the course of doing what we do, we also have to ask some fairly unusual questions that are pretty specific to our reports, but these questions can shed some light into investor behaviour as well. Most notably, our findings on investors living in their property prior to renting it out (https://www.realestate.com.au/news/1-in-5-firsttime-landlords-are-accidental-investors/)

Let’s look at some of the top-level data we’ve collected. Through our analysis of 1,000 residential depreciation schedules, we found that property investors are split across each type of residential property in the following way;
* 43.1% of investors either buy or build a house
* 8.5% on investors purchase a townhouse or duplex
* 47.3% of investors purchase a unit
* 38.2% of all investors buy something brand new

So, if you add townhouses and duplexes into the ‘house bucket,’ you’ll see that it’s a fairly even split. Now that we’ve identified the split, we’ll be tracking the numbers with interest.
If we dive into units individually, we’ve found that;
* The average number of units within the development investors are purchasing in is 68
* The average purchase price for investment units across the 473 units studied was $539,570
* 43% of units are bought brand new compared to only 26.2% of housing being bought new. This figure for houses drops to 7.3% if we exclude investors who engage a builder directly.

Clearly, we’re seeing the prevalence of off-the-plan purchases here and it will be interesting to see how these purchase prices hold up over time.

Now let’s look at some average deductions. In our research, we found the average depreciation deduction within the first full year of claim was $9,415. According to the ATO tax calculator, this gives you the following back in your pocket;
• On a $200,000 salary, you’ll receive $4,237 back in your pocket
• On $100,000 you’ll receive $3,484 and;
• For a $50,000 salary, you’ll end up with $3,060 back.

Whilst the above clearly shows that the higher the salary, the better you’ll do with the deductions, but in my view, it also shows the difference being relatively marginal once you earn over $80,000 a year.

What about the budget changes to depreciation? Well, our research finished right when the budget changes were announced in May 2017, but this made us best placed to model the impacts immediately. Our models were confirmed when we analysed the first 100 schedules we completed after the changes, and we found that;
• Our average depreciation deduction figure in the first year was $11,628
• The division 40 plant and equipment component equated to $6,870
• The division 40 structural component was $4,758

The prevalence of ‘budget affected’ clients is on the increase as anyone purchasing established property after the 9th of May 2017 is affected and will lose their plant deductions. However, we still see a significant number of schedules not affected simply due to clients not arranging a schedule upon acquisition. Eventually, these clients will fall away and what we’re left with is as a result, is that in the first full year of claim under the budget changes to depreciation, investors will lose 59% of their deductions for that year.
Now that’s the year were the loss is likely to be the starkest but remember that a house you build for $250,000 is likely only going to have $30,000 worth of plant and equipment items in it, so if you’re buying it second hand, at most we’re talking about a 12% loss of deductions over 40 years. However, the way that plant depreciates, it’s a big whack to the cash-flow for an investor upfront. It certainly decreases the incentives to purchase an established home or unit and coupled with proposed capital gains and negative gearing, we might see some real problems keeping rental increases below lackluster wages growth.

We look forward to sharing more data and contributing to an informed debate around property investors and the role of investors within our economy. Or at very least, pumping out data more effective at getting you into blissful slumber than prescription melatonin.

The recent regulatory changes and the state of the Property Market

Posted on February 15, 2018 by admin

The January CoreLogic figures have shown that capital city dwelling values have posted their first quarterly fall since April 2016. The peak of the market was called as far back as 2016, but now we’re seeing the evidence some two years later. On a positive note, the combined regionals edged slightly higher over the Dec-17 quarter and there are clearly some strong investor opportunities outside the capital cities.

The quarterly capital city falls were led by Darwin at -2.9 percent and Sydney at -2.1 percent.

It’s interesting to see Melbourne sitting neutral (0.9%) over the December quarter compared with Sydney, especially given Sydney lagged Melbourne’s price growth over the 2017 calendar year by 5.8 percent. However, even with Sydney dwelling values down 2.1% over the final quarter of 2017, they’re still 3.1% higher over the past year.

In good news for investors, the annual rate of rental growth is higher than a year ago across most capital cities, with a bit of weakness shown at the end of 2017. That being said, gross rental yields are starting to trend higher, with rental growth outpacing value growth in many cities.

The regulatory changes have had a huge impact on investors and interest-only loans have fallen off a cliff. It will be interesting to see how long APRA and the banks hold this stance, my guess is the banking royal commission will keep their appetite for investor lending to a minimum in the short term.

Our predictions – Property Market Scorecard for 2017 and 2018

Posted on January 4, 2018 by admin

What a year property has had in 2017. We’ve seen some double-digit growth in major capital city markets and a big move from APRA in the investor lending space. We’ve also written extensively about changes to depreciation. There’s also been plenty of debate about foreign investors and housing affordability. So, what did the numbers show us at the end of 2017?

The winner is… Hobart! Hobart saw a 12.86% change in house prices year on year, and 9.13% for units according to CoreLogic. Louis Christopher of SQM Research also predicts Hobart to be the fastest growing city in 2018.

Across the major capitals, Sydney Melbourne and Brisbane saw 3.09, 8.89 and 2.65 per cent growth respectively across all dwelling types. Sydney is notably down 2.1% in the last quarter ending 361 December 2017.

Nationally, dwelling values were 4.2% higher over the 2017 calendar year which is a slower pace of growth relative to 2016 when national dwelling values rose 5.8% and in 2015 when values nationally were 9.2% higher.

According to SQM Research, Hobart and Melbourne are tipped to be the strongest capitals throughout 2018 with Sydney, with Darwin and Perth slowly coming out of their downturns.

We believe there’s deals to be had across Australia in 2018 with some regional areas showing green shoots and extremely affordable price points.

Here’s a look at the SQM predictions for 2018.

Source: SQM Research

Mike Mortlock

Mike Mortlock is a Quantity Surveyor and Managing Director of MCG Quantity Surveyors. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating for investors. You can visit them at www.mcgqs.com.au/

Tax Depreciation Calculators – Is there merit in the estimates?

Posted on December 20, 2016 by admin

Google is telling us that more and more people are searching for a ‘tax depreciation calculator’. Admittedly, this search ranked well below the top 2016 result of ‘US Election’ and even a few million short of number 6 ‘Pokemon Go’.

Putting the self-deprecating Quantity Surveyor stuff to the side for a moment, searching for an online depreciation estimate is a trend that’s likely to continue. Even so, we’re resisting the temptation to build a calculator. Why? I’m glad you asked.

Online calculators should be fairly accurate in calculating a tight minimum and maximum range for, say a brand-new project home. Yet comparing a few existing calculators online shows that the range between them is not particularly tight at all. I worry that there’s the potential to overpromise and under deliver, in the hope of winning the work.

The project home type property should be the easiest property to estimate of them all, let’s run through an example. (Strap yourself in, perhaps only engineers, accountants and depreciation guys will take pleasure in this.)

Firstly, we need to calculate the total construction cost. From a high-level perspective, the best way to do this is to take the size of the property, and apply industry rates at a cost per square metre. Note that we’re not considering the type of block (sloping etc.).

So, an off the shelf 2016 construction handbook would say a 180 sqm brick veneer home with a medium standard finish in Sydney would cost around $1,175 to $1,265 per square metre. This gives us a construction cost of $211,500 to $227,000.

Let’s assume the $227,000 figure is most accurate. With that we can calculate that it’s impossible to have less than $5,675 worth of deductions within the first full year. Why? Well, the minimum depreciation rate is 2.5% for capital works, so 2.5% of $227,000 is $5,675.

It’s impossible to have less than $5,675 in total depreciation deductions, because we’re talking about a hypothetical house without a toilet. Not just that, but air conditioning, hot water system, cooking appliances, carpets, blinds etc.

In my experience, a house of that value/type would have between $20,000 to $30,000 worth of these types of assets (plant and equipment assets).

This is where the depreciation gets a little trickier. Let’s say there’s $25,000 worth of plant, that means we now must deduct that from the construction cost to adequately calculate the capital works deductions. So, that would be $227,000 minus $25,000 = $202,000 X 2.5% = $5,050.

Then there’s the $25,000 worth of plant items. Some of it will depreciate at 100%, other assets at 18.75%, and some as low as 10%. Carpet will be 20% under the diminishing method and 20% is probably the fairest middle ground for all plant items. So again, trying to stay high level, we’ll call all plant assets 20% on average.

This will give us the following table;

Seems simple enough, and the capital allowances part almost is. Yet the plant and equipment assets will not decline in value the same way each year. Some assets will be gone completely, other assets depreciation rates may change once the value reaches a certain point. All these things must be ‘estimated’ and they make the year 2, 3 and so on calculations a little more complex.

On top of this, right at this very second, we’re completing a report on a 178 square metre home with an actual known cost to build of $365,000! How does the average investor know the standard of finish and even with Miele appliances and plush carpet, how can there be that much variation?

This is where a Quantity Surveyor cannot easily be replaced with a robot, despite some of the personality similarities, and we’re talking about a brand-new home after all. If we’re finding complexity here, how accurate do you think a calculator would be in one of these scenarios;

The client bought the property 15 years ago, it was 8 years old at the time but the previous owner added a deck and converted the garage into a home office.
The client lived in the property for the first 4 years, and wants to assess whether they’ll get sufficient deductions in financial year 5 on their 12-year-old unit in a complex of 78 units with a swimming pool and gym.
The property was built in 1996 in remote QLD and some materials needed to be brought in via a barge. The property was retiled and painted in 2011 after storm damage and has just had an extension to increase the size of the main bedroom and to build an ensuite.

I love the fact that property investors are now much more educated about their depreciation entitlements, us Quantity Surveyors have been educating people for years. It’s important though to understand the limitations of online calculators, and the inherent risk in relying on numbers calculated using a helicopter view and some average data. Once you get past the brand new house or townhouse, things can head in a myriad of directions and costs become much less predictable.

Nothing will beat an actual report prepared by an expert after a thorough site inspection and historical research. However, if you are looking to do your sums on a potential purchase or assess whether a depreciation report may provide some value over the cost, you’d be much better served picking up the phone or sending an email to a recognised tax depreciation expert. The more information you have about the property the better, and the greater the accuracy of any estimate.

Safe calculating!

Mike Mortlock, Managing Director – MCG Quantity Surveyors

Melbourne Southbank’s Bella Apartments – A Depreciation Case Study

Posted on October 13, 2016 by admin

The iconic and aesthetically pleasing Bella Apartments is a landmark of Melbourne’s Southbank. We were delighted to prepare another depreciation schedule for one of the units just this week and thought it would be great to provide an insight into the development.

Salvo Property Group’s $55 million Bella is a 33 level tower comprising of 228 apartments in one and two bedroom configurations, including a gym and ground level retail tenancies. There are also three levels of car parking that contain a car lift and bike storage.

Some 200 people worked on-site during the construction of the Bella Apartments. It contains a number of ESD features including water efficient fixtures and appliances and energy efficient glazing which was used throughout.

From a depreciation perspective, it’s a great investment with extensive common areas and equipment including multiple lifts, gym equipment, sophisticated fire and security services with multiple parking levels.

Our clients 2-bedroom apartment was able to achieve over $1,000 worth of deductions per month for the first 18 months of ownership. This was the result of over $32,000 worth of total plant items across the unit and shared common areas and over $200,000 worth of depreciation on the shared common, and unit specific building structure.

To further illustrate the potential claims for investors in the Bella apartments with a similar unit, I’ve prepared an estimate below as a guide.

Good news for property investment co-ownership with split deductions.

Posted on October 12, 2016 by admin

The proportion of properties jointly owned is quite high, and with greater education on tax minimisation practices, we’re seeing a lot more obscure ownership percentages like 70/30 or even 99/1.

Why are people employing these types of ownership structures? It all comes down to which party can benefit the most from the deductions.

Take for example a couple who decide to invest in property. Person 1 earns $160,000 per year, and person 2 earns $45,000 per year. Let’s assume that between depreciation and the net loss on the property after rent and interest, there’s $30,000 worth of deductions across the whole property. The scenarios could be as follows in the 2015/2016 financial year;

The net result is that in scenario 2, the total tax saved for the couple is $10,903, as opposed to $8,720. So as a household, purchasing the property in shares of 95 and 5 per cent respectively, saved them an extra $2,183 together than it would have as 50/50 owners.

So apportioning the net losses to the highest wage earner is an effective strategy.

Depreciation schedules can also provide an additional benefit based on some key calculations for accelerated rates. Let’s look at two major ways in which deductions can be supercharged;

100% write-off – Assets (not part of a set) with an opening value less than $301.
Pooling – Assets with an individual opening or residual value of less than $1,000

Pooling rates are either 18.75% in the year of acquisition or 37.5% each year thereafter. Most assets that aren’t written off at 100% or pooling would depreciate at rates significantly lower than 37.5% such as carpet, which would depreciate at 20% each year under the diminishing value method.

Once we understand these main concepts, we can see how a split ownership structure can become beneficial.

Take carpet for example. If there’s $1,900 worth of carpet in a report owned by one entity, it would depreciate at 20% of its residual value each year. However, if the property is owned in a 50/50 structure, each owners portion of the carpet is worth 50% X $1,900, or $950.

Straight away, the carpet in each separate report would qualify for low value pooling rates of 18.75 in the first year, and 37.5% each year thereafter. There’s an additional advantage with pooled assets and the pro-rata calculation as well, but that’s another article!

Looking into the impact of split reports on assets under $301, let’s consider the property has one air conditioning room unit worth $580. As one entity, a room unit would qualify for the low value pool, but not as an asset that can be written off at $300 or less. However, with a 50/50 split, the asset is now worth $290 to each person, therefore allowing it to be an instant deduction. Each party will receive a $290 in the first financial year.

When we prepare these split reports, we prepare a master report showing the property deductions as one entity, and then the deductions in a separate report for each party. We’re often receiving calls from accountants asking why the figures don’t add up. The total deductions will be the same over the lifetime of the report, but the yearly deductions will be higher when spit apart, than what they would be together.

In a real world case study recently completed by our office, we had a very average property showing $2,144 worth of deductions within the 1^st partial year, and $2,015 in the 2^nd year. Under the split arrangement, the totals were $3,240 for the 1^st partial year and $2,009 in the second year. Essentially this couple we’re able to bring forward their deductions earlier, and we all know a dollar today is worth more than a dollar tomorrow!

CoreLogic dwelling values rise in September, RBA place doubt over previous figures

Posted on October 11, 2016 by admin

The month of September was a good one for capital city dwelling values, with all but Perth and Darwin trudging forward. Capital city values are also up 2.9% over the quarter.

On these figures though, there has been a lot of coverage of the inflated CoreLogic figures for April & May. In RBA governor Glenn Stevens’ statement explaining the most recent rate cut, he observed that “dwelling prices have been rising only moderately over the course of this year”.

That statement was at odds with CoreLogic data on home prices, released just the day before, that showed 6.1 per cent growth in home prices nationally, year-on-year, with much stronger results in Melbourne and Sydney.

The discrepancy was explained in the RBA’s quarterly Statement on Monetary Policy, realised on the 5^th of August, which relied on data from APM (part of Fairfax’s Domain property group) and the Real Estate Institute of Australia.

In the statement, the RBA explained that it has disregarded CoreLogic’s data because it appeared to significantly overstate price growth in April and May.

“While one source of data recorded strong growth in housing prices in April and May, that growth appears to have been overstated and other sources suggest that housing price growth was modest over those and more recent months,” the bank noted.

It appears that a methodology change by CoreLogic, implemented during April, may have contributed to higher index values in those two months than were warranted by actual transactions.

The RBA have noted that “the risks associated with high and rising household sector leverage and rapid gains in housing prices have diminished.” Septembers figures are shown below.

Index results as at September 30, 2016

Category: Economics