Investment Property and taxes

Four tips to minimize and effectively manage your investment property taxes this year:

1. Claim all deductions and depreciation before June 30 so that you get the expenses back in your tax return. If you buy an investment flat that is new, you can claim 2.5 per cent of the construction costs for the next 40 years

2. Obtain a depreciation schedule if you don't already have one as they are tax deductible. A depreciation schedule itemises depreciable assets such as carpets, blinds, curtains, air-conditioning, ventilation systems, fire alarm systems, light fitting and hot water units, among other things. The schedule shows the year each asset was bought, the costs, and the percentage by which the asset is depreciated. Investor landlords can claim up to 12 per cent on depreciable assets. The Australian Taxation Office publishes tables of what they consider the effective life of depreciable items. You should consult your tax advisor or accountant regarding this as it can be quite a complex area of tax.

3. Prepay up to 12 months interest in advance on an investment property and claim a tax deduction for 2007/08. This is only a reasonable option if you have sufficient funds to do so. Weigh up your current and future cash flow needs before pursuing this option.

4. Time a property sale for after June 30 to avoid capital gains tax for this financial year. Ideally you would want to time this sale so that you can offset it with any capital losses you may have. Remember though that when selling an investment property the capital gains tax is triggered on the exchange of documents, not settlement which could occur days or weeks afterwards.

Related articles:

1. Ten useful tax deductions

Your relationship to money

USA today featured an interesting review article on financial adviser Susan McCarthy and her new book, The Value of Money: Uncover the Hidden Wisdom of Money. Of note were her seven basic types of relationships people have with money. Which one or more do you fall into?

•Money is King. This type judges themselves and others by how much money they have.

•Little Lambs. This person, McCarthy writes, has a childlike relationship with money and favors the "I'll think about it tomorrow" approach to finances.

•"I'll Pick Up the Bill If You Just …". This type uses money as a weapon to manipulate others. As an example, McCarthy cites a client who structured a trust that included some family members and explicitly left out others.

•Wolf Never Leaves My Door. No matter how much money this person has, they always feel poor. Fear dominates this person's attitude toward money — fear of running out of money, fear of losing it and fear of someone else taking it, McCarthy writes.

•The Money Martyr. For a person bent on being a victim, money can easily provide the means for self-sabotage, McCarthy says. This relationship, she warns, is an easy one to unknowingly pass on to children.

•All is Well. These people appreciate money for what it is: a simple tool. Wealthy or not, they feel calm and confident about their finances.

•Spread the Joy. People with this attitude use their money generously and compassionately, McCarthy says, adding that they are never controlled by it.

I personally wish I was the "All is Well" type. I think I fall more into categories 1 and 4 - hey, I run a personal finance and investing blog after all.

As the article concludes,"The Value of Money serves as a healthy reminder that how you handle money reveals a lot about yourself". A good point.

Weekly Market Report

History has demonstrated that investors, in their efforts to gain better returns, usually end up riding the investment merry-go-round. Every year we see advertisements from various managed funds espousing ‘fund manager of the year’ or claims that their performance is better in comparison to other funds. Obviously the objective is to attract funds from investors who perceive that their current investments are underperforming.

While positive returns always make for a good sales pitch, what investors fail to consider is that the high returns occurred in the past and only those who have already invested in the fund will receive these returns. It is a well known fact that the top managed fund in any one year rarely appears in the top listing the following year. So rather than ride the investment merry-go-round chasing short term returns, investors would be better off taking a medium to long term perspective on their investments.

So what can we expect in the market?

Last week I stated that I expected the market to peak in the second half of this week or early next week before falling away again. This week the market peaked on Monday 19 May, which was a few days earlier than expected, with the resulting fall occurring over the past three days.

The good news is that while the market fell 80 points yesterday, it rallied strongly to close 4 points higher than it opened. This indicates that the market is now more resilient and that the current down move will be short lived. I expect the market to continue to move down early next week before it turns and the bull-run resumes.

This post from Dale Gillham , chief analyst of share investment company Wealth Within

Ten useful Tax deductions

Over the next few weeks as Australian tax time approaches I am going to take a look at common tax questions, tax minimisation strategies and investing related tax topics. This post looks at some tax deduction question and answers that I think are applicable to a lot of people.

1. Can I claim books, journals and ongoing subscriptions that are related to my job?
If technical books, trade books or professional subscriptions are necessary to fulfill a job function efficiently then the cost of their acquisition is deductible. You must keep receipts of payments.

2. Can I claim fees paid to my tax agent?
Fees paid to a registered tax agent for preparation of your return, amendments and generally handling your tax matters are all deductible. You can also claim travel to your registered tax agent. Registered tax agents are the only people legally able to charge for the preparation of tax returns.

3. I keep a room set aside in my house for a home office and would like to claim some expenses.
If a taxpayer carries on all or part of their employment activities from home, then some portion of the home expenses can be deducted. Where a home is a place of business, deductions can be claimed on the following items of expenditure - interest, rent, house insurance, council rates, heating and lighting, depreciation, insurance, repairs, cleaning, pest control, maintenance, decorating and telephone. Remember, you also need to declare all related income.

4. I need to have a telephone for making and receiving business calls and would like to know what I can claim.
Installation costs are not deductible. However, part of the rental costs are deductible where a taxpayer is required to make calls from home. Call costs would be deductible and a log of calls must be kept. Mobile phones are claimed in the same way.

5. I have had to pay for child care during the year. Is this claimable on my tax return?
These expenses are not claimable as a tax deduction. Eligible taxpayers may be able to claim the 30% Child Care Tax Rebate.

6. I have incurred travel expenses this year. What can I claim?
Your travel must be relevant to your job function for you to claim a deduction for those expenses - and provided your employer has not already reimbursed your for these. Where this is the case you can claim the cost of transportation and incidentals. If your travel involved an overnight stay you would be able to claim for meals.

7. Is there a limit on how much I can claim as a tax deduction each year?
There is no limit on the amount claimed each year. The expenditure must be work related and you may need receipts to substantiate the expenditure. Keeping incomplete, incorrect or no records at all may be limiting your ability to claim deductions. Advice can be obtained from a registered tax agent or your accountant.

8. Is a credit card slip acceptable as a receipt?
Yes, provided it gives full details of the supplier and date of purchase. Taxpayers can make a notation on the receipt indicating the type of goods that were purchased. Many taxpayers use the internet to purchase or pay for their work related expenses. The ATO will accept Bpay or email receipts provided they contain the necessary information: date, supplier, nature of the goods and the amount.

9. Can I claim a deduction for sun protection items?
A deduction is available for outdoor workers who buy sunscreen lotion, sunglasses and hats for use at work. The claim must be substantiated and adjusted for private use.

10. How long do I need to keep my receipts?
Documentary evidence should be keep for five years from the date of lodgment of the tax return in which the claims are made.

Related Tax Posts:

- Proposed 2008-2009 tax cuts
- Save time - 3 Free sources to get your Australian dividend and tax information online
- 2007/08 Australian Tax Brackets and Capital Gains Tax

Parts of the above article were sourced from H&R Block

Sydney is Number 2 (and weekly market report)

The title is not what you may think. It reflects that Sydney has been eclipsed by Melbourne as the nation's leading tourist destination, new figures show, earning $400 million more less than its southern rival.

March statistics from Tourism Australia showed that Melbourne earned more from domestic tourism spending than Sydney - for just the second time in published records, according to the industry group Tourism & Transport Forum. Domestic overnight visitors to Melbourne also spend more per person - $698 - than visitors to Sydney, who spend an average of $610.

Being from Sydney myself I cannot imagine that it would be number two to Melbourne in anything other than AFL. Then again I am biased and Sydney is home for me, not a holiday destination.

With that, here is Finance ViewPoint's resident expert guest commentator - Dale Gillham - and his Weekly market report

If we review this week’s budget announcements, it is quite obvious that the government has taken of a cautious approach to managing the economy and in my opinion I don’t believe it adequately addresses the issues needed to curb inflation. Given this, the prospect that interest rates will fall in the coming year is very slim. Instead I think we will see interest rates rise.

As a society, we have been borrowing to excess for years without consideration for the consequences and many are now paying the price. There is an old saying that cash is king, and in times such as now I would strongly recommend to people who are highly leveraged to start using the extra cash they receive in future from this week’s budget announcements to dramatically reduce their negative debt. For those who are already cashed up, the next year or two will present some great opportunities in both the share and property market.

So what can we expect in the market?

The probability that the 4 year low occurred on the All Ordinaries Index on 17 March is now very high, which if correct means we can expect the current bull market to rise for at least 6 to 8 months, although I believe it will last well into next year before we see any major pull back. As a fund manager I am still being a little conservative given that we have plenty of time to profit from the next bull run.

In the short term, you will remember I indicated in my previous report that the current rise will last until around 26 May before finding some resistance. I still expect this to occur with the market likely to peak in the second half of next week or early the following week before falling away again. However, I am confident that the fall will only be short in both time and price, and once it is confirmed it will present some great opportunities to purchase shares at better pricing.

Dale Gillham , chief analyst of share investment company Wealth Within

Six Fuel Saving Myths

Based on a recent article in CNNMoney.com, adapted here are 6 fuel saving myths that people think will save money at the pump. With fuel prices hitting record levels, I can see why some people try these but are unlikely to save much. Do you know of any more?

Myth #1. Filling your tank in the morning

You may have heard that it's best to fill your fuel tank in the early morning while the fuel is cold. The theory goes that fluids are more dense at lower temperatures, so a litre of cold fuel actually has more fuel molecules than a litre of warmer fuel. But the temperature of the fuel as it comes out of the nozzle varies little during the course of the day, according to Consumer Reports, so there's little, if any, benefit, to getting up early to pump fuel.

Myth #2. Change your air filter

Maintaining your car is important, but a clean air filter isn't going to save you any fuel. Modern engines have computer sensors that automatically adjust the fuel-air mixture as an increasingly clogged air filter chokes off the engine's air supply. While engine power will decrease slightly as the air filter becomes clogged, a lack of performance or an increase in fuel consumption will be negligible, Consumer Reports says.

Myth #3. Use premium fuel (I do this - will change to regular now!!)

With prices approaching $2.00 a litre, premium fuel is a hard sell these days. But a lot of drivers think because their owners' manual recommends premium, they'll get better fuel economy if they stick with it. Really, they're paying more money for nothing. Even cars for which premium is recommended won't suffer with regular fuel. Modern engine technology comes to the rescue again. When sensors detect regular instead of premium fuel, the system automatically adjusts spark plug timing. The result is a slight reduction in peak horsepower - really, you'll never notice - but no reduction in fuel economy.

Myth #4. Pump up your tires

Proper tire inflation is important for a number of reasons. Under-inflated tires are bad for handling and can even cause a crash. Improper tire inflation also causes tires to wear out faster and to heat up more, which could trigger a dangerous high-speed blow-out. Under inflated tires reduce fuel economy, so proper inflation is key. But you should never over-inflate your tires. They'll get you slightly better fuel economy because there will be less tread touching the road, reducing friction. But that means less grip for braking and turning. The added risk of a crash isn't worth the extra mile a litre you might gain.

Myth #5. To A/C or not A/C

There's no question air-conditioning makes extra work for the engine, increasing fuel use. But car air conditioners are much more efficient today than they used to be. In around-town driving, using the A/C will drop fuel economy only marginally. Meanwhile, driving at higher speeds with the windows down greatly increases aerodynamic drag. As speed increases, drag becomes more of an issue, making A/C use the more efficient choice at high speeds.

At most speeds and in most vehicles, A/C use drains slightly more fuel than driving with the windows down. The best choice - if temperature and humidity allow - is to keep the windows rolled up and to turn the A/C compressor off. You can keep the fans running to blow in air from the outside, but your car will be as aerodynamic as possible while still letting you breathe. You will save fuel, but the fuel economy improvement will be slight.

Myth #6. Bolt-ons and pour-ins

Before you buy a device that's supposed to make your car more fuel-efficient or pour in an allegedly fuel-saving additive, ask yourself this: Don't you think oil and car companies aren't doing everything they can to beat their competitors? If Shell could add something to its fueloline that made cars go farther on a litre, cars would be lining up at the company's fuel stations. Sure, people would burn their fuel-saving BP fuel more slowly, but then they'd drive right past rivals' fuel stations to come back to Shell for more. Shell stations could even charge more for their fuel and still sell tons of the stuff.

So if there really was an additive that made fuel burn up more slowly, it wouldn't be sold over the Internet one bottle at a time. Likewise, car companies are already spending big bucks to increase fuel mileage. If Holden (owned by General Motors) could make its cars go significantly farther on a litre simply by putting a device into the fuel line, don't think for a second it wouldn't be doing that. Holden's car sales would go through the roof.

But drivers who try them will swear they work. In reality, it's probably an automotive placebo effect, says Reed. Buy one of these devices or additives, and you're like to pay extreme attention to your fuel economy and how you drive. Of course it can't hurt to keep a close eye on your driving habits -- and what kind of car you drive. In the end, that can make the most difference in saving fuel.

Stock Review : Incitec Pivot (IPL) for growth in your portfolio

I received an email from a reader regarding a brokers recent analysis of Incitec Pivot (IPL) and whether they should buy the stock. The broker has a buy on the stock with a share price target of $190.48 - and I have to concur with the recommendation, though I think the stock will go over $200 in the next few months. Based on the broker review and my research here is a review of the stock. Even though the absolute share price is high, I am considering this stock given the global boom in fertilizer companies – similar companies in the US have risen almost 100% this year as compared to IPL 50% rise.

IPL's 1H08 result significantly exceeded analyst forecasts. However, the broad themes were in line with expectations - strong earnings growth on the back of rising fertiliser prices, improved seasonal conditions, cost savings (above guidance) and a solid balance sheet, which remains well positioned for acquisitions. It is important to note that the first half is always IPL's seasonally smaller half with fertiliser application for the winter cereal crops in April/May/June and for cotton in August/September. As expected not a lot news was released on the Dyno Nobel (DXL) acquisition. However IPL intends to make a decision on Moranbah prior to September and the synergy benefits update will be in November. BUY maintained.

• IPL reported a 1H08 NPAT excluding significant items of A$171.1m, up 245% on the pcp (A$49.6m), which was above the forecast of A$143.1m. Reported NPAT of A$169.8m included significant items of -A$1.3m (after tax) due to business restructuring.
  


• EBITDA increased to A$269.0m, up 163% on the pcp. EBITDA generated by IPL’s base business was A$136.0m, up 156%, reflecting rising fertiliser prices, growth in Fertiliser Trading and improved seasonal conditions. EBIT of A$250m was up 198% on the pcp (A$83.9m). This was above forecast of A$214.5m. EBIT margins increased to 33.4% from 15.4% the pcp.
  


• The Board declared a 204cps fully franked interim dividend, compared to forecast of 191cps and 69cps the pcp. This equates to a payout ratio of 60% which is in line with IPL’s recently revised policy of 55-65%.
  


• Sales revenue increased 38% to A$749.3m on the back of a 5% increase in sales volumes to 1.373mt.
  


• IPL's Business Efficiency Program (Tardis II) delivered A$28.2m before tax in the 1H08. This was in fact, IPL's full year target. This takes the total efficiency achieved by the program to A$143.1m.
  


• IPL's balance sheet remains strong with gearing (debt/(debt + equity)) at 51.8% (falls in 2H after winter cropping sales), compared to 50.5% the pcp and A$88.9m in cash (A$49.3m the pcp). Management should be commended on keeping working capital at 2007 levels despite the step change in fertiliser prices (A$180m impact).
  


• Cashflow comments – operating cash inflow of A$21.0m compared to an outflow of A$53.2m the pcp. Capex fell to A$24.2m, from A$53.1m the pcp.

Outlook - IPL didn't specifically upgrade guidance however it did say that if you assume second half DAP price of US$1,100/t then the average DAP price for IPL would be US$910/t in FY08. This price would see IPL report an FY08 EBIT of A$850m compared to previous guidance of A$700-730m previously. It is important to note that rainfall between Anzac Day and the Queen's Birthday remains a key driver of IPL’s domestic sales.

However we stress that IPL is no longer just an East coast rainfall story as the number one driver of earnings is the rising price of fertiliser, a global commodity. A number of growth opportunities including DXL, Aceh and UCG ammonia plant, potentially Moranbah and debottlenecking and plant expansion are on the go. We recommend the stock as a BUY.

More news on IPL at Reuters

Funny Oil, CFD's and the Weekly Market Report

Here is a funny video by Stephen Colbert who hosts the Colbert Report on the American Comedy Channel. The clear contradictions in ads from oil companies are so apparent that it staggers belief.

The video can also be viewed via this link

Now onto the weekly market report:

Over the past few months Contracts for Difference (CFDs) have come under fire from all angles including the regulators with ASIC recently claiming that they are "much riskier than a flutter on the horses or a night at the casino". While I would agree that there is a risk in trading CFDs given that it is a highly leveraged instrument, I disagree with the statement made by ASIC.

All leveraged products, including options, warrants, futures and CFDs increase your risk in trading the market and each of these products has left a trail of uneducated traders and investors who have lost money. That said I do not believe the product itself is gambling, rather it is the ignorant and uneducated individual who trades this product that is the gambler. To trade a leveraged product with little or no knowledge is, in my book, gambling, therefore individuals should expect to lose as they would in a casino. As I always say, knowledge is power and gaining the correct knowledge to trade this instrument will minimise a trader’s risk.

So what can we expect in the market?

On Wednesday the Dow Jones traded down 196 points with price fluctuating during the day over 341 points. Given the volatility in recent months, you would expect that this sort of move would send our market spiraling down but instead the market rose to close 43 points up for the day. This move potentially signals that the negative sentiment in our market has eased and that the buyers are gaining confidence.

Given this strong sign I expect the All Ordinaries to continue to rise until around 26th May before finding some resistance. As I emphasised last week, it is wise to take a staged approach to building your portfolio at this point in time and to focus on quality rather than quantity, therefore I recommend sticking to the big blue chip shares

This report was by Dale Gillham , chief analyst of share investment company Wealth Within. and a regular contributor to Finance ViewPoint.

Dollar Parity (poll) and $200 Oil

For a while last month, when strong company earnings were being reported, it looked like the US dollar was gaining ground against the world's currencies including the Aussie dollar. Oil prices were also falling and some economists had starting predicting that the worst may be over. Unfortunately, this turned out to be a false dawn and the US dollar continues to erode in value and subsequently oil prices are on the rise as well (they have an inverse relationship).

Oil prices continue to hit new records every day and recently peaked over $US120. Goldman Sachs, the worlds premier investment bank, projects $US200 oil in two years - though at the rate we are touching new highs everyday I think this may come sooner than we think. At a consumer level we are feeling the impact of oil prices in our driving costs and increased grocery costs. This impact will continue to grow despite all the measures we can put in place to reduce our reliance on fuel or to shop more effectively. So you might as well make some money from the forecast for future higher oil prices. I would suggest investing in proven oil producing and integrated oil companies. My top picks in these sectors are BHP, Woodside (WPL) and Worley Parsons (WOR).

Now on to the Australian dollar. It looks like it is only a matter of time before it hits parity with the US dollar and is currently trading at US 94.5c. Westpac bank expects the Australian dollar to hit US 96 cents in December before rising to $US1.01 by March next year. Commonwealth Bank sees a 45 per cent chance that the currency will hit parity with the US dollar this year. National Australia Bank currently forecasts a peak of US96c for the Australian dollar while ANZ is forecasting a peak of US95.50. ``With risk aversion heading lower, people will pile into commodities and the commodity currencies (like the Australian dollar) will outperform,'' said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. ``Outside the U.S., economic growth is holding up.''

I think the Aussie dollar will hit parity with the US dollar around September this year - just before the US winter season and as a result of shortages in supplies following US summer driving. What do you think? As I have done in the past I have set up a user poll at Finance ViewPoint. It is on the top left of the website and you can click here to vote. I'll publish the results as a comment against this post in 2 weeks when the poll closes.

From the Land down under, here is the 87th Edition of the Festival of Stocks

G'day and welcome to the 87th edition of the Festival of Stocks at Finance ViewPoint. This festival highlights the best stock-market related posts in the Blogosphere. If you are new to this site, I am an expat Aussie living in America using this blog as a medium to write about personal finance and investing from a local and global perspective. This is the first time I have hosted a blog festival (or carnival as it is called elsewhere) and was pleasantly surprised at the number of submissions I received - despite some blog carnival technical issues over the weekend. Through this process I really enjoyed discovering a number of great articles written by some inspiring bloggers. I have added a little bit of Aussie slang and some pictures from back home to the various categories to show off a bit of local pride. Enjoy.

These are beauties mate (Editors Picks):

- GBlogger presents Allocate 50% to Non-U.S. Stocks, According to Wharton Professor posted at CAN I GET RICH ON A SALARY. An insightful article into international diversification with your investment choices.

- AlexG presents Let Volatility Be Your Friend posted at Contrarian Value Investing. An honest look at the pros and cons of market volatility and how it affects investing.

- The Dividend Guy presents Dividend Stock Wednesday: Hasbro (HAS-N) posted at The Dividend Guy Blog. A detailed analysis of a stock - Hasbro - which shows good ways to look at a stock. What I liked was that even after the detailed analysis he said the stock was not a buy. Shows good due diligence.


Crikey mate, check out these Stock Analysis articles:

- Michael Cohen presents Why I Sold My Apple Shares Today posted at Stock Tips.

- Mark Perkins presents The Good The Weird And The Unusual posted at Stock Pursuit. A look at Blonder Tongue Laboratories Inc.(BDR)

- Jae Jun presents Wrigley's, Mars and Buffett posted at Old School Value.

- Dividend Growth Investor presents Wilmington Trust (WL) Dividend Analysis posted at Dividend Growth Investor. A potential strong dividend play.

- Frank Lara Jr. presents SiRF Technology (SIRF) worth a look posted at The StockMasters - Investing News and Analysis, Hot Stock Tips, Stock Market commentary for the Savvy Investor .

- Saving to Invest looks at investing in the possible tech sector revival at Tech Stocks Booming - Buying them through XLK options.

Come on’ - Some good Market and Sector related stories:

- Your Trading Stock presents Nasdaq Breaks with a Vengeance 050108 posted at Online Stock Trading Stock Trading Online. Technical analysis and the Nasdaq.

- Babak presents Market Breadth Approaching Overbought Levels posted at Trader's Narrative. This article looks at signs from stocks within the S&P 500 Index (SPX) which are trading above their simple 50 day moving average.

- Larry Russell presents The Financial Services Industry is Still the Largest S&P 500 Sector - Even after the Collapse of its Stock Values posted at THE SKILLED INVESTOR Blog. A detailed look at the Financial Services sector and its weighting in the market over time.

- KCLau presents Everything you are looking for about Bursa Malaysia posted at KCLau's Money Tips. A detailed look at resources around the Malaysian stock exchange.

- James Cullen presents The State of Consumer Credit posted at College Analysts. A good look at various companies in the financial sector and related credit issues/impacts.


No Worries mate, these Investing ideas and thoughts are worth a gander:

- George presents Ultimate 2008 Berkshire Hathaway Annual Meeting Guide posted at Fat Pitch Financials. All the information you would need on the 2008 Berkshire Hathaway (BRKa) (BRKb) annual meeting. Great effort in get all the relevant links in one place.

- Shan Siddiqi presents Are online brokerages hurting the stock market? posted at Globally Rational. Are we entering another stock market bubble and have we forgotten the tech bubble?

- Vlada Kynsky presents StockWeb: Emerging markets vs. Developed markets. posted at StockWeb.

- Steve Faber presents - Silver Investing – Treated as Gold's Poor Stepchild? posted at Debt Free. A good look at this underrated commodity

- Bull Returns presents Stock Investment Resource: Stock Market Investing Tips - Is Small Cap Value The Key For 2008? posted at Stock Investment Information.


Cheers mate, and check out these great Mutual Fund and Retirement related articles while you have a beer.

- FIRE Finance presents Vanguard's Managed Payout Mutual Funds - A Primer posted at FIRE Finance. Worth reading as consideration for your retirement investment options.

- Walter W. Fouse presents Avoid Large Actively Managed Mutual Funds posted at Best No Load Funds. A detailed analysis of large funds and the pitfalls.


And that wraps up the 87th edition of the Festival of Stocks! I received a number of entries and had to narrow them down to what was most on topic. If yours didn’t make this carnival, you can submit at the next edition of the Festival of Stocks which will be hosted at Stock Market Prognosticator . Past posts and future hosts can be found on the Festival of Stocks homepage. Consider volunteering to host a future edition of the Festival – it is a worthwhile experience both from finding new bloggers and exposure of your blog.

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I hope you also take some time to check out this site and some of my popular posts on it. If you like what you read consider subscribing by clicking here

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Pictures courtesy Gojca, absolutwade, mtchm, pedro_qtc, viad

Weekly Market Report - How should you play T3

Investors in Telstra 3 will have to decide this month if they will pay the final installment of $1.60 per share. Given that investors have already paid $2.00 for the first installment, the second installment due by 29 May will bring the total investment to $3.60. The question, however, is should investors pay the second installment or take their money and run?

Currently T3 shares are trading at $3.02 and based on an initial purchase price of $2.00 this represents a gain of 66.26% excluding dividends. When the second installment is paid the T3 shares convert to ordinary Telstra shares which are currently trading at $4.62, therefore the investors profit in T3 will drop to around 28.33% excluding dividends.

Given that investors may be sitting on some tax losses due to the recent market pull back, it may be wise tax planning for investors to realise their profits in T3 to offset these losses. Of course investors also need to take into account the effect of receiving the bonus offer of 1 extra share for every 25 T3 shares held if you pay the second installment.

These bonus shares will add 4% to the investment which may or may not be worth receiving depending on the individual’s tax position. My advice, if you hold T3 shares, is to pay a visit to your accountant now rather than wait until the last minute as it may prove very worthwhile.


So what can we expect in the market?

For the regular readers of this report, you will remember I previously reported that for the market to be bullish it needed to rise above 5697 in the next one to two weeks, which it did on 23 April rising to 5712 points. Over the next 5 trading days the market pulled back from this level leaving the 23 of April 2008 as the only day in which the All Ordinaries Index closed above the level predicted.

The positive news is that even though the market found resistance at this level, it has not fallen away but instead traded sideways. This suggests that the recent bearish sentiment in our market is abating and that the bulls are gaining momentum. Given this, I expect in the next few days to see the market move through this level again and for it to continue rising over the next month.

While it is likely this will present an opportunity to enter a number of the larger blue chip stocks, I would strongly suggest that any entry be a staged approach rather than placing all your investment capital in the market at once.

This report was by Dale Gillham , chief analyst of share investment company Wealth Within.

Other Bloggers: I will hosting the 87th edition of the Festival of Stocks this week. If you would like to submit a relevant article please use this submission form. All entries must by be in before May 5th 2008.

A century, American taxes and Allocating $100,000+

This is a jam packed post covering a few items. Firstly I would like to proudly announce that I have passed the 100 subscriber mark (hence the century reference in the title) as you can see from the subscriber counter in top right corner of the site. This was one of my mid year goals I was fortunate to achieve a few months early - so thanks to everyone who subscribed and if you haven't joined the 100+ other subscribers you can do so by clicking here. Now back to work. Here are 2 pertinent reader questions I received in the last few weeks. Sorry for the delay in getting back to the readers who submitted this, but my day job has been keeping me busy.

Question 1: I wanted to ask if you could do something on choosing shares in a super funds. We have over $100,000 invested in super with 70% in shares. 75% in is the Aussie market and 25% in emerging global market funds. I have long term view with this super, it will be there for another 15 years or so. What factors should we consider when choosing the funds and any ideas for a portfolio mix for superannuation share funds? They do tend to drown us information!

To your first point – If your time horizon is 15 years you should take a moderately aggressive approach to your investment. I would change your mix to have 50% International and 50% in the Australian market. Of the International allocation I would put 25% into emerging markets like you have and the rest into American and European focused funds. For the Australian allocation, look to invest in ASX 200 focused resource and finance based funds that contain companies with international operations/revenue (like BHP, RIO, QBE, and Westfield). Having living in the states for the last year now, I can truly appreciate the size of the financial markets outside Australia so make sure you are internationally diversified as that is where the growth is going to come from in the longer term.

Regarding your second point, the main criteria for choosing a fund manager (and funds they manage) should be one that has the lowest management fees and the best performance to date. Low fees mean that your returns are not eaten away and those savings can benefit from compounding over time. Performance to date suggests a strong management team with a good investment philosophy. With this in mind I searched for some good fund managers at 2 of the leading free managed fund review sites : Morningstar and Invest Smart. I also looked specifically for superannuation share fund managers. My criteria was low fees across their funds, good performance over the last 3 years, high agency ratings and reputation

The best 3 fund managers I found that meet this criteria were:

- AMP Superannuation Limited
- Macquarie Investment Management Limited
- Colonial First State

I suggest going to the website for the above fund managers (click on the name in the list) who have a number of superannuation based funds and to pick the one that best meets your retirement goals and desired asset allocation. The sites provide a lot of really useful tools and information about picking the right super funds based on your investment strategy. I am also doing a post soon on "Where to invest when you don't know where to invest" in a few weeks, which will have some related information.

Good luck and my final suggestion would be to find a financial planner to discuss your retirement goals and strategy. Here is a post I did on how to select a financial planner. The key thing to look for is someone who has good referrals, interested in you and you your goals and doesn’t try to push particular products at you.

Question 2: I'm an Aussie citizen living in the San Francisco Bay Area for the last 20 years. I just inherited a little bit of money from my grandfather in Australia and now
I'm dealing with the tax consequences. I filed an extension while I try to find someone who knows about Australian and American taxes. Do you have any recommendations on how to find someone like that? Anyone you know?

Well to the first point, all foreign income is taxable in the US. The IRS has a detailed guide about that, but suffice to say that you will need to declare this Australian income in your next American tax return. The good news is that you shouldn't be liable for this in Australia as long as you are classified as a non-resident in Australia (which you should be if you have lived in SF for 20 years), but you should check out the local Australia taxes laws on inheritances which can be found at the ATO site. I read that "There is also no wealth tax levied in Australia, and inheritance and gift tax are non-existent, except where a capital gain may arise from a lifetime gift". You can see the related Wikepedia entry for more details on this. According to this the inheritance gain should be treated like a capital gain in your US Tax return.

The other part to your question, one with which I have grappled with myself, is finding a good accountant in America that knows about Australian taxes. The Australian consulate in the US was quite hopeless when it came to this information as they just link back to the Australian Taxation Office site. I think this would be a good niche for some accountant to get into given that there are over 150,000 Australian's living in America (based on the last ABS figures). I did searches on line and couldn't find any specific accountants (I am sure you did this too). At the end of the day, I did my taxes at a local H&R Block and the preparer there basically said that all foreign income should be stated in your tUS ax return and you can claim a credit for taxes already paid in the foreign country. I only had dividend and interest income so this was fine for me, but anything more complex like your situation would have been beyond the folks at H&R Block.

My advice for you is to let your fingers do the walking and call a few qualified tax agents in your local area and ask them if they can assist you with your specific problem. Look for enrolled tax agents (these are federally authorized tax practitioners) or depending how much you can afford look to hire a CPA (Chartered Professional Accountant). Here is a list for your state you may find useful.

California Society of Accounting and Tax Professionals
California Society of Enrolled Agents
California Taxpayers' Association
California CPA Resources and Locator

If you are in another state, this link shows the local state tax associations. If any reading this post knows of good accountants in America that can handle Aussie taxes, please leave a comment and relevant contact information.

Tips on Teaching Kids to Save and Invest

How many times have you looked back on life and wished that you had started investing earlier? Teaching your children, or grandchildren, a few simple lessons about saving and investing can start them off in the right direction toward a secure financial future, and can be as easy as 1, 2, 3.

Step 1: The value of savings

Teaching your children about saving money for a specific purpose is key to instilling good investment habits for the future. The lesson is a simple one -- if you want something, you have to save your money for it. Talk to your children to find out what it is that they want (chances are they've already told you this during your last trip to the toy store). Once you know what it is and how much it will cost, work with your children on how they can save for it by using their allowance. Give your children options for reaching their goals, such as saving all of their allowance for a certain number of weeks vs. saving half of their allowance for twice as long. This teaches your children to view their options and make informed decisions about how to manage their money.

Tip: A good way to encourage your children to start saving is to provide them with a "piggy" bank.

Step 2: The value of investing

Once your children have learned how to save money to achieve their goals, it's time to teach them how to earn money through interest accumulation. Learning about the benefits of compound interest is important in children's understanding of the time value of money. which is one of the most fundamental beneifts of regular and long term investing (click on link to see more).

It's now time to put principle into practice. A good first step in moving from the piggy bank to the investment (stock) markets is a simple high yeild savings account where they can check their growing balances online. As your children's savings grow with money from paper routes, baby sitting, or other first jobs, you may want to introduce them to other investment vehicles, such as managed funds. For a good overview of Australian managed funds check out Morningstar website

Tip: A great way to encourage your children to invest more of their savings is through a matching program, where for every dollar they invest, you match it with a dollar of your own.

Step 3: Stay involved in the process

Most children look to their parents as a primary source of financial information. This makes it important for you to stay involved with your children throughout their learning experience with investments. Take the time to go over your children's bank or managed fund statements with them. If they are investing in a managed fund account, show them how to regularly look up the value of their funds on the Internet. Get your children interested in their investments at an early age, and it will stick with them for life.

Last but not least, practice what you preach. You can talk to your children about investing until you're blue in the face, but chances are good that they will not pay close attention to the subject unless they see that you are following your own advice.

Related Posts:
A Great way to Teach your Kids about Shares and Investing
Saving for your Kids
The Magic of Compound Interest

Picture courtesy Daniel Y. Go