Fixed Interest Sercurities

Fixed interest securities

Fixed interest securities are generally suited to investors seeking income, however where a security trades at a discount to face value, some capital growth over time can also be expected. They are intended to pay a consistent stream of distributions based on either fixed or floating rates.

Corporate and Bank issued securities offer investors the benefit of than traditional fixed interest securities (such as government bonds) while providing liquidity via an ASX listing. These securities are generally issued by well-known companies in the S&P/ASX 200 Index; many of which are investment grade rated.

Features of a fixed interest security

  • can provide a regular income stream
  • usually higher yields than cash
  • access to a range of maturity terms
  • competitive pricing
  • may suit investors of all risk profiles
  • liquidity available from an active panel of fixed interest desks
  • historical negative correlation of debt market returns to other asset classes such as shares
  • some debt instruments, such as fixed interest bonds, allow investors to generate capital gains (or losses) from changes in interest rates
  • may help enable clients to diversify or balance their portfolio Types of Bonds
  • There are many types of bonds, broadly they can be classified into:
  • Government debt market
  • Corporate Bonds/Debentures

There are standard bonds and variants, here is a list of the variant types:

    • Floating Rate Bonds – the interest rate changes over time
    • Zero coupon bonds – no interest payments
    • Deferred coupon bonds – no interest paid in the first year
    • Indexed bonds – the interest rate is based on a margin above an index (such as CPI)
    • Convertible bonds – These bonds convert to ordinary shares either at a fixed price or number on maturity of the bond
    • Perpetual bonds – these bonds don’t have a maturity date. The initial sale price the issuer receives is never repaid but interest is paid perpetually.
    • Mortgage backed bonds – these bonds offer a pool of mortgages as security giving investors a reasonable assurance of receiving their interest payments and face value on maturity from the mortgage repayments.
    • Junk bonds – these bonds offer a higher yield in comparison to other securities because the issuer has a higher risk.

When trading bonds there are two ways that you could make a capital gain/loss:

  • If you hold the bond until maturity then the difference between the purchase price and the face value you receive at maturity is the capital gain or loss
  • If you sell the bond before maturity then the difference between the purchase price and the sale price is the capital gain or loss.

Plant and Associates Pty Ltd

Accountants Beenleigh, Accountants Nerang

www.plantandassociates.com.au

1300783394

Posted in Investments Tagged with:

Land Tax – McCullough Robertson

McCullough Robertson Lawyers have provided the following information in relation to land tax. The Office of State Revenue have advised that they will be contacting all landowners claiming a land tax “home exemption” as part of their audit process.  Those clients at risk of losing their “home exemption” are:

  • clients who rent out rooms in their home
  • clients who spend time between multiple properties
  • Clients who move into rented accommodation and continue to claim the main residence(NSW)
  • Clients who reside on land not necessarily zoned residential (NSW)
  • Clients with multiple properties
  • Clients who use the same premises to live and carry on a business
  • Clients in the process of renovations/demolitions
  • Elderly – transitioning into care
  • Workers who work overseas, but may have claimed home exemption in past for Australian property.

Land tax is a tax based on the unimproved value of land. In QLD it is assessed on the 12 months from 30 June each year. In NSW it is assessed on the 12 months from 31 December each year.

Queensland Tax free threshold Maximum rate
Resident individuals $600,000 $62,500 each plus 1.75c for each $1 more than $5,000,000
Trustees, companies and absentees $350,000 $75,000 plus 2c for each $1 more than $5,000,000

 

New South Wales Tax free threshold Maximum rate
General $412,000 (tax free) $100 plus 1.6% up to the premium threshold
$2,641,000 (premium) $35,444 for the first $2,641,000 then 2%

Home exemption applies where?

property is owned by a person and used as the person’s home ?

property is owned by trustee and used as home of all beneficiaries of the trust ?

Used as a home statutory tests ?

main test – Continuously used for residential purposes for 6 month period immediately prior to 30 June ?

deeming test – deemed use at 30 June broadly if

– landowner resides in a nursing home/hospital for all or part of the 6 month residency period

– temporarily residing elsewhere due to demolition or renovations ?

residual test – Otherwise if Commissioner satisfied the land is used as a person’s principal place of residence

Land held by trustees ?

still eligible for main residence exemption if land is used by beneficiaries as principal place of residence and a power of appointment has been exercised in favour of those beneficiaries by the trustee ?

may not want absolute entitlement as this would trigger a CGT event ?

may just want to grant a mere right to occupy ?

Note exemption not available for NSW trusts or companies

NSW principal place of residence exemption (post 1 Jan 2005) ?

Home exemption applies where ?

land is used and occupied as the land owner’s principal place of residence, if the land

– is residential land or

– a strata lot ?

‘Used and occupied’ statutory tests ?

main test – the land (and no other land) has continuously been used for residential purposes for 6 month period immediately prior to 31 December ?

residual test – otherwise if Commissioner satisfied the land is used as a person’s principal place of residenceVarious concessions and extensions re exemption ?

If you would like further information or would like to discuss your situation you can contact Lyndon Garbutt, Senior Associate on 07 3233 8921 or email: lgarbutt@mccullough.com.au

Posted in Investments, Property, Tax

Wealth Creation for Beginners

Clear all your non-mortgage debts

If you have any credit card or other high-interest debt, pay that off before you even think about saving or investing. Credit cards routinely charge around 20% or more per annum, far more than you’ll ever consistently earn by investing in the sharemarket.

As for your mortgage, it comes with a significantly lower rate of interest. You should of course aim to pay that off quickly, overpaying each month if possible, but even with mortgage-debt you can start investing.

Build your savings

Compare rates and open a high interest savings account. Set up a fortnightly or monthly direct debit or BPAY into your savings account on the same day you receive your regular salary.

Once you’ve got between 3 months and 12 months worth of living expenses built up, (eg. enough to pay the mortgage, electricity, rates, food, the unexpected car service, school fees etc). you can start investing, remembering you should always keep a cash reserve to cover yourself in the event you lose your job, take on a lower paying job, get ill and so on.

Invest regularly in a low-cost index tracking fund

For many investors, saving regularly into an index tracking fund or index tracking ETF is the only investing you’ll ever need to do. (Say some financial advisors – remember to seek professional advice from a licenced advisor)

Like saving into a high interest savings account, set up a fortnightly direct debit or BPAY. You’ll hardly miss the money, and in 20, 30 or 40 years, you’ll be eternally grateful for the wonderful large nest egg your saving and investing will have turned into.

When it comes to index tracking funds, Vanguard Investments has few peers. The US giant, the largest mutual fund in the world, has been operating here in Australian since 1996.

Their Vanguard Index Australian Shares Fund (ASX: VAS) tracks the S&P/ASX 300 index, investing in around the largest 300 Australian companies and property trusts listed on the Australian Securities Exchange (ASX). PLEASE NOTE – this is not a recommendation to go and invest in Vanguard Index Australian Shares Fund. This is purely an example.  You should do your own research and seek the specialist advice of an Financial advisor to determine which product suits your needs.  We can refer you to some registered advisors if you do not already have one.

For many people, especially those looking to invest regularly, this is the only fund they’ll ever need.

The minimum initial investment is $5,000, and additional investments made via BPAY are only $100. Management costs up to the first $50,000 are 0.75%, falling to 0.50% on the next $50,000 and to 0.35% on the balance over $100,000.  There are other funds that have different levels of investments which may be better suited to your needs so please do your research.

Buy individual shares

You might not be entirely satisfied with investing in an index tracker alone.

Firstly, if you want to beat the returns of the index, and it is possible to do so, you’ll need to look outside a tracker.

And secondly, we suspect you’ll find it’s challenging, fun and hopefully ultimately rewarding by investing in individual companies.

Again you may not feel comfortable in doing this by yourself and an share broker can assist you with recommendations, and purchases and sales.  A financial advisor can also assist you.

So there you have it. A simple and hopefully very effective plan for you to generate wealth, over the long-term.  Give us a call for a referral to a financial advisor , we have a couple of advisors that we have experience in dealing with that we would be happy to refer you to.

Posted in Investments