Alfred Moller

Given the recent Liberal leadership spill, perhaps it’s wise to revisit the scrapping of the Capital Gains Tax (CGT) main resident exemption for non-residents. The exemption is currently sitting 29th in the queue of legislation yet to be discussed, however the current political climate causes further uncertainty.

Scott Morrison officially took office on the 24th of August 2018 after ousting former PM Malcolm Turnbull. With 2019 set to be a difficult election year for both major parties, the ability to pass legislation in both the Senate and House of Representatives will be slowed, creating uncertainty as the June 2019 CGT grace period looms. Understanding the implications of the proposed CGT change can assist Australian expats.

At present the current CGT exemption applies to expats, however if the bill passes there will be a CGT ‘Light switch’ which will grant expats a full CGT exemption or none at all. If you are planning to reside overseas permanently or if there is a slim chance of doing so, selling your main residence prior to June 2019 will avoid paying CGT on the sale proceeds.

However, if you are planning to move back to Australia, you will remain CGT exempt once you return and reside in your existing home. The CGT will be apportioned to your time as a resident.

Expat example:

You purchased your house in 2008 and moved overseas in 2010. The property is deemed to be your main residence for 2 years.

If you then move back to Australia in 2015 and reside in the property, it will not be deemed as your primary residence for the 5 years you were overseas.

If the property is then sold in 2018, 50% will be CGT exempt as you resided in your home for 50% of the time over a 10-year period.

Expats should speak to their families to understand whether moving back to Australia is feasible. If not, disposing of their Australian home prior to June 2019 will prevent unnecessary CGT on the sale.

For those planning to reside in Australia in the future, it is important to be aware of the current apportioned tax ruling, so talk to your accountant about how it might affect you.

By Alfred Moller, Expat Lending Specialist

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Scott Morrison

The SMSF Association congratulates the Hon Scott Morrison MP and the Hon Kelly O’Dwyer MP in their re-appointment to the Treasury and the Revenue and Financial Services portfolios in the incoming Coalition Government.

Association Managing Director/CEO Andrea Slattery says the decision to reappoint these two Ministers to these portfolios will bring “much-needed stability” to superannuation and financial services at a time when some critical issues arising out of the last Budget will need to be resolved.

“The Association has an excellent working relationship with Treasurer Scott Morrison and Revenue and Financial Services Minister Kelly O’Dwyer, and we are confident they will listen closely to what we have say on the changes that were mooted in the last Budget.

“We are on the public record as saying we believed the reduction in the concessional contribution caps were detrimental to the goal of encouraging people to be self-sufficient in retirement, and that the move to limit non-concessional contributions to a $500,000 lifetime cap from Budget night disrupted people’s retirement planning, but have been heartened by suggestions that the Government is prepared to sit down and discuss these proposals.

“We are certainly look forwarding to continue working with the Government to find ways to either change or ameliorate the impact of these changes on people’s retirement income strategies.

“The Association is acutely aware of how these changes have heightened concerns among people, especially those nearing retirement, about their superannuation, and therefore understand the importance of having policy stability on these critical issues.”

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When the proposed sale was announced early last year, it was widely assumed that the sprawling family interests who have a stake in Kidman would sell to a Chinese company for an estimated $370 million. For this price tag the Chinese would have acquired a pastoral estate encompassing 16 properties and three supporting properties in breeding, feedlot and cropping that is spread across Queensland, South Australia, the Northern Territory and Western Australia, and is home to 185,000 cattle.

But politics intervened. Treasurer Scott Morrison has twice rejected bids by two Chinese-related companies, Dakang Australia Holdings and the Shanghai Penxing Group, the last time being on 29 April. Although the Treasurer’s language was necessarily politic, there can be little doubt he had read the tea leaves – Kidman’s sale to overseas was on the nose in the electorate. Opinion poll after opinion poll show ordinary Australians want to keep our agricultural land, as well as the businesses that flow from them, in local hands.

But if Australians want to retain their agricultural heritage, they have been reluctant to dip into their wallets and purses to invest their “hard-earned” in this asset. Although part of the reason has been the family ownership nature of much of Australia’s agricultural land, even the vast pastoral holdings that suit outside investment (particularly institutional) have not attracted interest. The superannuation industry (including SMSFs) only has a paltry 0.3% of its $2.1 trillion in FUM invested in the agricultural sector.

The reasons are many and varied. Agricultural is subject to the vagaries of mother nature (drought, flood, etc), and commodity prices and the Australian dollar can fluctuate widely. The sector has also known its investment failures, particularly agricultural-based managed investment schemes (MIS), which have left investors shorn like sheep.

But, many MISs were driven by tax and gearing – not agricultural fundamentals. Now there is a realisation that our agricultural industries such as cattle, sheep and cropping do offer sound investment fundamentals. The crowd-funder DomaCom, which is offering retail investors the opportunity to acquire a slice of Kidman, has estimated a return on the land (yield plus capital gain) of about 8-9% and for the operating businesses anywhere north of 10% is possible.

This estimate of the return on the land accords with a recent Rural Bank report that showsthe national average annual median growth rate in farmland prices was 5.8% a year over the past 20 years. It was 5.3% in 2015 and 6.8% in 2014. When coupled with a yield of 3.9%, it would seem the ideal defensive asset for superannuation funds with long-term investment horizons.

Add to this equation the burgeoning overseas demand for our agricultural produce (especially in Asia), the absence of the many of the diseases that plague our northern hemisphere competitors, and the industry’s growing productivity on the back of new ideas and technology, and it’s easy to see why our primary industries have an exciting future.

Certainly the rest of the world has recognised this phenomenon; overseas fund managers, superannuation and pension funds, companies, and government-backed entities are queuing up to buy our farm land. It’s time we recognised what they know – it’s an excellent investment opportunity whose time has come.

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Arthur Naoumidis

The property fund manager DomaCom, has welcomed the decision by S. Kidman & Co to reopen the company’s sale process for Australian parties.

DomaCom Chief Executive Officer Arthur Naoumidis said this announcement, which has been endorsed by Treasurer Scott Morrison, simply reflects the reality that there is genuine public interest in keeping the iconic Kidman pastoral station in Australian hands.

“When DomaCom entered the bidding for Kidman just before Christmas via the process of its ASIC-registered fund, there was no shortage of sceptics in the market who believed it was little more than a publicity stunt.

But what DomaCom realised was that there was enormous interest among ‘mum and dad’ investors to invest in part of this country’s agricultural heritage.

Opinion polls show ordinary Australians are deeply concerned about retaining our agricultural land, as well as the businesses that flow from them, and what DomaCom’s crowd-funding proposal did was give them the opportunity to give expression to that concern.

The end result has been that about 4,000 retail investors have pledged about $60 million over the past two months to keep Kidman Station in Australian hands.”

The Kidman Station is an aggregation of 16 pastoral properties including outstations and supporting properties in breeding, feedlot and cropping. It is spread across Queensland, the Northern Territory, South Australia and Western Australia and is home to 185,000 cattle. At 101,000 square kilometres, it is larger than Ireland and almost half the size of Victoria.

Morrison blocked the proposed sale to Chinese interests in November on the basis that it would be contrary to the national interest.

Naoumidis says the decision by Kidman to open up the sale process again to give Australian interests the opportunity to acquire this pastoral empire is a shot in the arm for the DomaCom offer.

“We are hopeful that the announcement by Kidman will encourage more retail investors to come forward to invest in Kidman. Aside from the issue of keeping it in Australian hands, the investment reality is that under our proposal the land will be separated from the operating business, with the land expected to return about 8%-9% to our investors.”

Seventh generation pastoralist and ASIC-licensed financial adviser Stephen Burgin, who has joined forces with DomaCom to promote its bid, says there are sound commercial reasons for retail investors to invest in Kidman Station.

“Burgeoning agricultural direct property investment, underwritten by strong domestic and export demand, should continue in the medium to long term, especially in light of sustained foreign currency exchange rates.
Investors, who can participate for as little as $2000, will, in fact, be the landlord and thus fractionally participate in the lease back income stream from the station operators, involving large institutional ASX-listed entities.

They will receive stable income, several times that of current cash rates. In addition, part of the income will be tax free and tax deferred due to the nature of agricultural investment.

DomaCom also has a secondary market to provide a liquidity facility provided buyers and sellers are in the market. It operates in a similar way to online trading in ASX listed shares.”

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Scott Morrison

The Financial Services Council (FSC) welcomes the Turnbull government’s appointments of the Hon Scott Morrison as Treasurer and the Hon Kelly O’Dwyer as Assistant Treasurer. Both Ministers have significant policy experience that will provide Australia with much needed reform capability.

“Australia needs both focused financial services reform in this Parliamentary term and a mandate for structural tax reform in the next term,” Andrew Bragg, acting CEO of the Financial Services Council said.

“We expect the new Treasury team will hit the ground running during this term to complete the reform agenda established by their predecessors.”

“This includes delivering reforms to reduce superannuation fees, concluding the Financial System Inquiry (FSI) and creating more trade opportunities as Asian demand for financial services increases.”

“The FSC agrees with the FSI findings that superannuation fees are too high due to a lack of competition and corporate governance in superannuation could be improved,” Mr Bragg said.

“Life insurance reform is overdue. The sustainability reform proposals have taken five years to develop and must swiftly progress.”

“New sources of growth will be critical as Australia’s economy transitions. To create this growth, we need to increase financial services exports via services trade architecture.”
“The China Australia Free Trade Agreement must be finalised and new free trade deals established with India, Indonesia and ASEAN.”
Tax reform and redrawing Australia’s Federation architecture must be a priority for the new Treasury team.
“Tax reform is essential as we cannot rely on personal and corporate income taxation as the primary revenue source in the future.

Australia needs a new tax mix to boost our competitiveness in this Asian century,” Mr Bragg said. “Our tax system is inextricably linked to the Federation which is the core of the uncompetitive, unsustainable tax regime and needs to be overhauled.”

The FSC also welcomes the appointment of Mr Alex Hawke, the Assistant Minister to the Treasurer.

We look forward to working with the new Treasury team and thank the outgoing Treasurer, the Hon Joe Hockey and the Assistant Treasurer, the Hon Josh Frydenberg for commencing many of these reform processes.

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