This year’s budget was definitely aimed at business rather than individuals, and it needed to be. The main goal of the federal budget is to create jobs to repair the damage that Covid has done to the economy and Australian community.
Therefore, if you already have a job, there’s not much good news for you in the budget. However, there is plenty of good news for the Australian economy which will probably enhance the share market and property investment returns.
What’s in it for individuals?The major benefit contained in the budget for individuals was income tax cuts. These tax cuts are backdated to begin on 1 July 2020. The table below sets out the tax savings (second column from the right) that you may enjoy.



The budget also included some other miscellaneous benefits, which are listed below.
Improving the super industry and performanceThe government will direct employers to pay super into existing accounts (as advised by the ATO) to avoid opening a new account with a new super fund when you start a new job. This will avoid workers unknowingly accumulating multiple super accounts.
The government will also take measures to improve the accountability and transparency of super funds, which is a problem I have written about previously. This includes building a MySuper website which will allow people to rank investment returns and fees. Any improvements in this space are long overdue.
Interestingly, the government did not announce that it would postpone the increase to the compulsory super contribution rate from 9.5% to 10% p.a. At this stage, this is still set to begin on 1 July 2021.
Granny flat arrangementsGranny flats will now be exempt from CGT where a formal written agreement is in place.
Relaxing the paid parental leave qualification criteriaParents will qualify for parental leave payments if they have worked in 10 of the last 20 months, instead of 10 of the last 13 months, preceding the birth or adoption of a child. This is to accommodate the impact of Covid.
Additional government grantees for first home buyersThe government will make available an additional 10,000 First Home Loan Deposit Scheme guarantees in the 2020/21 financial year. This arrangement allows first home buyers to borrow up to 95% of a property’s value without needing to pay for Lenders Mortgage Insurance (LMI).
Summary of major incentives for businessThe below sets out a list of incentives for businesses:§ Full write off of any capital expenses (no cap) incurred before 30 June 2022 for businesses with a turnover of less than $5 billion. This means large business will be able to get a full tax deduction for any asset purchases they make over the next 2 years.§ If a business makes a loss in the 2020/21 and/or 2021/22 financial years, they can offset that loss against tax previously paid in the 2018/19 and 2019/20 financial years. This means they may receive a refund of tax previously paid.§ If businesses employ an apprentice between 5 October 2020 and 30 September 2021, they will be able to claim a reimbursement of up to 50% of their wages up to a maximum of $7,000 per quarter.§ Eligible businesses will be entitled to a credit of $200 per week for one year beginning 7 October 2020 for each new employee they hire that is aged between 16 and 29 years (or $100 per week if aged between 30 and 35 years).§ The go

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The government made an important announcement last week. This change could substantially increase your borrowing capacity in the next year. It is perhaps the most significant change that has occurred in the last decade and will further fuel property price growth.
I also wanted to update you on interest rates, particularly in light of recent expectations that the RBA will soon cut rates again.
A positive change for investors and the property market
In 2009, the government re-wrote the laws governing the provision of loans. This required mortgage brokers and lenders to ensure that any new loans provided to borrowers were ‘not unsuitable’.
The background is importantSince the introduction of this new legislation, the government (ASIC) has been gradually tightening the laws, particularly over the last 3 to 4 years. In October 2018, I compared the loan application process to a forensic investigation (see below). This was not an exaggeration.



A few months ago, even the Governor of the RBA agreed that the tightening of credit rules had gone too far. There have been many examples of banks trawling through bank statements questioning small ($20) expenses. This pedantic approach added very little to the quality of the credit assessment.
Your current spending tells me little about your ability to repayPerhaps the most significant recent event was Westpac’s success in defending an action initiated by ASIC regarding its alleged non-compliance with the credit laws. This case is now referred to as the 'Wagyu and shiraz' judgment. That is because Justice Perram said "I may eat Wagyu beef everyday washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare…”.
When faced with the decision of whether to go out to dinner or make a mortgage repayment, almost everyone will make the right decision. To some degree, a high level of discretionary spending is arguably strong evidence that you have surplus cash flow that you could otherwise divert towards loan repayments.
The upshot is that 100 pages of ASIC guidance has created a very bureaucratic, inflexible, one-size-fits-all approach to assessing loans. This creates undue complexity, long delays, avoidable costs and sometimes perverse outcomes. No one wins.
The main proposed change is…The main change proposed by the government is that lenders will be allowed to rely on information provided by borrowers, unless there are reasonable grounds to suspect that information is unreliable. This means the bank can ask you about your expenses and, in most situations, rely on the answer you provide. This avoids them having to trawl through your bank statements, like they do now. When formulating your answer, you can give consideration to what your “base level expenses” are. That is, all fixed and non-discretionary expenses. This may better represent your capacity to afford any proposed loan repayments.
In addition, the 'Wagyu and shiraz' judgment confirmed that it is acceptable for banks to use “benchmark expenses” when assessing a loan application. In this situation, some banks may not choose to ask you what you spend. The banks have a substantial amount of data about what their customers spend, which should allow them to determine reliable benchmarks.
Criticisms and what I hope happensThi

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n May, I wrote a blog after CBA released its bearish ‘worst case’ forecast for the property market. It predicted a 32% drop in prices! I outlined in my blog why I thought that was rubbish and prices would not fall by more than 10%. To date, according to various data sources, property values have not slipped by much more than 2% to 3%, which is barely noteworthy.
CBA revised its forecast on 9 September admitting they got it wrong.
Now that the virus is under control in Melbourne (and also nationally), I thought it was an opportune time to share my forecast for next year. It is my view that prices in well-established, inner-city, blue chip suburbs will rebound strongly in 2021 and deliver double-digit growth.
I set out the reasons for adopting this view below.
Covid has hurt low-income earners and younger people the mostUnfortunately, lower-income earners have been more financially vulnerable to the impact of Covid. They tend to work in occupations that do not lend themselves to working from home. In addition, industries such has hospitality, travel and tourism have been severely impacted, especially in Melbourne. As such, Covid has disproportionately affected lower income earners to a much greater extent.
A high proportion of middle and higher income earners are likely to either recover their income back to pre-Covid levels very quickly or haven’t been impacted at all.
In fact, there is a large cohort of people that are in a stronger financial position today. That’s because their income has been unaffected, their discretionary spending has reduced e.g. less eating out and no holidays and interest rates are at all-time lows. As such, many people have either accelerated debt repayments or accumulated more savings.
The best evidence of the financial strength of this cohort is reflected in the credit card spending data compiled by the banks. This data gives us a real-time indication of how much people are spending by category. Overall consumer spending is up 5% compared to last year. This demonstrates the unaffected cohort more than makes up for the people that have lost their jobs and income. This thematic is likely to translate to the property market too, especially in blue-chip suburbs.
Low rates will inflate asset pricesIt is a generally accepted economic principal that lower interest rates result in increased asset prices. For example, if a company can source capital at a lower interest rate to fund growth, its profits will be higher and as such, its shares will be worth more.
This concept applies to property too. If money is cheap, then it costs less to hold an asset and holding all other factors constant, its value will appreciate.
I wrote a blog in May that highlighted that it is cheaper to own a property than rent it. This defies logic and is likely to encourage more people to buy rather than rent, assuming their financial situation allows it. As such, demand for property is almost certainly going to increase.
The RBA has said that it does not expect to increase the cash rate for at least 3 years. However, many economists predict that interest rates will remain lower for a much longer period of time. This interest rate expectation will further fuel demand.
Supply shortage will drive prices higherThis year national property listings have averaged below 300,000 for the first time since August 2010. The f

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The compulsory superannuation contribution rate is set to increase by 0.5% each year for the next six years (i.e. from 9.5% to 12%) beginning from 1 July 2021. It is understood that the Federal Government is considering postponing next year’s increase, due to concerns about whether the economy can afford these higher employment costs and at the same time as deal with the current economic challenges.A lot of the commentary about superannuation, including whether next year’s contribution increase should be postponed, is often motivated by political and vested interests. Therefore, I thought it would be useful to cut through this rhetoric and focus on the facts alone (i.e. maths).In particular, I wanted to focus on two questions; (1) how long will your super last after retirement, and (2) how important are higher contributions compared to investment returns and fees.How long your super will last depends on what you spendObviously, a key determinant of how long your super balance will last is how much you spend. The less you spend, the longer your money will last – no surprises there!The best way to assess how much money you will probably need in retirement (to maintain your current standard of living), is to base it on how much you spend today. Of course, it is likely that you will spend your money on different things, but the aggregate amount tends to be very similar (between when you are working to when you are retired).This table sets out what people tend to spend, based on my experience. The rule of thumb is that living expenses (see my definition of General Living Expenses here) tend to be in the range of 40% and 50% of your gross employment income (but typically not less than $50,000 or more than $150,000).Comparing annual contribution levels of 9.5%, 12% and 15%In my analysis, I measured the impact of a 30-year-old contributing a total of between 9.5% and 15% of their income each year for 30 years i.e. until they are age 60.In most circumstances, contributing 12% or more of your income each year had a material impact on the longevity of super. In fact, for higher income earners that are 20 to 30 years from retirement, it was a magic bullet. That is, it would likely give them a sufficient super balance to fund their whole retirement.Comparing investment returns of between 6.9% and 8.5% p.a.I compared investment returns produced by the top 8 industry super funds for the last financial year in this blog. Based on data to the end of August 2020, 10-year returns ranged between 6.9% and 8.5% p.a. That is a large range i.e. 1.6% p.a. and it makes an enormous difference, particularly for higher income earners.Picking the best fund out of the top 8 versus the worst, could be the difference between your super running out in your early 70’s versus it lasting for the rest of your life. It is important to note that the top performing fund will probably change over time, which is why it’s important to proactively manage your super (to ensure it is always invested well).Comparing fees levels of 0.6% and 1.0% p.a.Whilst super fees were important, they were the least important factor of the three compared. That is not to say that you shouldn’t a

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Investing well is important. However, investing well over long periods of time is most important.
Everyone would agree that making a one-time 50% return on an investment is a wonderful outcome. But making a 7% return each year for 40 years is a far better outcome, as it multiplies your initial investment by a factor of 15!
This is an important principal to remind ourselves of, especially at the moment when our lives (and, to some extent, markets) have been turned upside-down by Covid-19!
Even moderate returns over long periods generate massive wealth
The chart below published by Vanguard (click to enlarge) calculates how much $10,000 invested in 1990 would be worth today.
The Australian (ASX200) index is currently trading at 5,985. If it grows at 2% p.a., what will its value be in 50 years’ time?
The answer: The ASX200 would be 16,100.
If it grew by an average of 4% p.a., it would be worth 42,500. Now, imagine it if grows by 8% p.a. – which is still below the 8.9% p.a. growth rate over the past 30 years. That would push the ASX200 index above 280,000!!
This simple example illustrates the beauty of playing the long game.
But to successfully play the long game, you must resist the temptation to get sucked into the incessant short term ‘noise’, worry and predictions.
I am usually sceptical when people tell me things have changed foreverThe world is full of forecasts. At the moment, many commentators are telling us that the work-from-home (WFH) movement will result in companies deserting commercial office space en masse. And increased WFH will also result in a permanent increase in demand for regional property – since we don’t need to travel into the CBD anymore.
As Mr Buffett says, “forecasters will fill your ears but never your pockets”. You should be sceptical when anyone tells you that things have changed permanently overnight, because they rarely do.
Let me use WFH as an exampleIt is my view that WFH will have some impact on demand for commercial office space and, to a lesser extent, residential property in regional locations. But the size of its impact has been grossly overstated.
The forced increase in WFH (thanks to Covid-19) has certainly increased its acceptance. I suspect in the past many people thought WFH was used by people as an opportunity to ‘hide’ and reduce their workload. However, now everyone knows WFH means you work just as hard as you do when you’re in the office - often harder, as there’s fewer distractions.
Some CEO’s have also mentioned to me that that they used to feel obligated to be “seen” in the office each day, but this expectation has now changed.
However, just because you have successfully WFH for the past 6 months does not mean you will be able to do it for the next 6 years.
The reality is that permanent WFH does not suit the majority of industries, employees and employers. Most of us will still need an office to retreat to. Therefore, I think the likely long-term outcome is that more people will spread their time between the office and home. The ‘office’ is not dead, and neither is WFH.
How to derive stable and attractive returns from property over the long termIn order to persistently achieve a capital growth rate of approximately 5% p.a. above inflation, you must invest in a location that has robust fundamentals. These fundamentals will ensure that demand will co

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The difference between a great and an average accountant can be significant. Not only is tax one of your biggest annual expenses, but a great accountant should be able to proactively identify other financial opportunities, in addition to tax-saving measures.
Typically, the more complex your financial situation is (e.g. if you are self-employed, running a business, have a trust or SMSF, etc.), the more you have to gain from having the right accountant. That said, working with a great accountant is in everyone’s best interest.
How do you know if your accountant is great or not?It’s difficult for clients to tell whether their accountant is proactively looking for, and has identified, all financial opportunities. The reality is, you don’t know, what you don’t know.
To help you, I have listed below some common traits or behaviours that may indicate if your accountant is great or not!
They take a long time to respond to your calls/emailsThis is a common complaint by many people. A lack of timely responses causes two problems.
Firstly, it suggests that they have too much work, are under-staffed or have poor organisational skills. Neither of these things will allow them sufficient time and space to be able to provide you with proactive advice – because they will always be (reactively) rushing onto their next task.
Secondly, it will discourage you from seeking their advice or keeping them updated about changes in your circumstances. However, if you know your accountant is fast to respond to emails, then you will be encouraged to run things past them. Doing so will give your accountant more scope to add value.
They don’t ask questions – just follow last year’s workIt should come as no surprise that preparing the same tax return, year-after-year can be repetitive work. That said, its dangerous to fall into autopilot mode because if you make a mistake or miss an item one year, you will continue to repeat that mistake in subsequent years.
To combat this risk, good accounting firms regularly rotate staff so that the same person is not preparing the same work many years in a row – and also have well defined review procedures.
If your accountant rarely asks you questions or for additional information during the return preparation process, then it could be a sign that they are running on autopilot.
They don’t share ideas to improve your circumstances.Great accountants have a very broad amount of knowledge and experience including tax planning (of course!), investments, superannuation, business acquisitions and optimisation, insurance and so on. They have learnt a lot through observing past client decisions.
This puts them in a position to be able to identify opportunities for their clients. But this process must be embedded in their processes and systems. For example, at the end of completing each job, your accountant should be asking themselves “if I was in their shoes, what would I be doing or thinking about”. How often does your accountant do that?
They are stuck in the 80’s!Accountants are not known to be dynamic, forward-thinking people. But the truth is, great accountants are.
Great accountants realise that their clients don’t want to pay them to manually prepare workpapers and keep doing things the old-fashioned way. Therefore, they are constantly on the lookout for ways to automate and streamline their processes, which inevitably requires the adoption of technology. This approach allows these great accountants to spend more time on more proactive work.
If y

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This blog’s title is a bit deceptive, because every property you buy is important, for either lifestyle or financial reasons.
I contemplated using the title: “why the first property you buy is the most important one”. But the reality is, if you have made a mistake on your first property, you can always start again.
The general theme of this blog is to demonstrate that the compounding impact of buying the right property is critical to understand.
Why is it so important?Let me explain using an example:
Rick and Karen are buying their first home and are comparing two properties. Property A is considered to be investment grade and has great growth prospects i.e. 6% p.a. growth rate. Property B is a newer property but has inferior growth prospects and barely keeps up with inflation – growing at 1% p.a. Both properties cost $750,000. Rick and Karen need to borrow $700,000. After 5 years of principal and interest home loan repayments, the balance of Rick and Karen’s loan would have reduced from $700,000 to approximately $622,000. The value of Property A would be approximately $1 million, and Property B would be $790,000. If Rick and Karen purchased Property A, they would have $378,000 of equity. However, if they purchased Property B, would have less than half the equity i.e. $168,000. That is a substantial difference of $210,000!
But it’s how this difference compounds that’s most importantIf in 5 years’ time, Rick and Karen were contemplating upgrading their property to buy a larger family home, the differential in equity will have a substantial impact on their budget.
Assuming that they want to borrow a maximum of 80% of the new home’s value, a deposit of $378,000 will allow Rick and Karen to spend up to $1.45 million (allowing for 6% for costs including stamp duty).
However, a $168,000 deposit will only allow Rick and Karen to spend $650,000, which is less than their current property value! If they buy for $1 million, they will have to borrow 90% of the value and pay for mortgage insurance (which will cost over $35,000!).
Therefore, using this example, the difference between buying the right versus wrong property could be the difference between being able to take the next step (and buy a family home), or not.
It should be noted that this equity gap will continue to grow. If Rick and Karen purchased Property B, they may be forced to buy their larger family home in a suburb further away from the CBD (due to budgetary constraints). This will mean they will have a lower value asset that attracts a lower growth rate – the equity differential could be massive, as charted below.



And you can put that equity to workTo make matters worse, not only will buying the right property help Rick and Karen build more equity in their home, but they will be able to leverage that equity to build an investment portfolio. This could include borrowing to buy an investment property or invest in the share market.
Should you buy a property purely to make a quick profit?No. In order to minimise your risk, it’s important to buy an investment-grade property that has sound long term fundamentals. A property that is well positioned to generate an above average capital growth rate over the long term. That must never be compromised.
However, if your goal is to upgrade or invest in the shorter term, then it does make sense to pick a property type or location that is expected to deliver a r

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My professional life has been all about “the numbers” for more than two decades! So, as an accountant and financial advisor, it pains me to say that numbers are not always right!
Numbers are factual, verifiable, logical and the ‘robustness’ gives me a lot of confidence. However, when it comes to investing in property, a focus on numbers alone can cause very costly mistakes.
Evidenced-based approaches are rooted in simple mathI am a strong believer in only employing evidenced-based investment methodologies. That is, only invest when there is overwhelming evidence that the methodology will generate the investment returns you desire. If there is no evidence, then it is too risky. You may as well throw darts at a dartboard.
Of course, normally we look to math to verify the evidence. Therefore, I appreciate that me stating that numbers can’t always be trusted may be somewhat contradictory.
Why can the numbers be wrong?It is very important to understand what has driven the data, because not all data is reliable or meaningful.
Suburb median data is a good example of this point. Sometimes I see advisors or journalists reporting median house price growth in a given suburb, often to support an investment case. But it’s important to understand the data before drawing any conclusions.
Was the volume (number) of sales statistically significant? Were the properties that sold during the period representative of the property type you are considering investing in? Were the results driven by a once-off change such as the release of more land, major developments or the gentrification of the suburb?
Just because a suburb has generated price growth of 9% p.a. over the past 5 or 10 years, doesn’t necessarily suggest its future growth will be in line with this.
Property specific dataProperty specific historical data can also sometimes be unreliable.
It is important to ascertain whether past sales were representative of the true market value of the subject property. Situations such as sales between related parties, transactions in very buoyant markets (i.e. if purchaser overpaid), if any capital improvements were made to the property during the period and so on. These can all affect the implied capital growth rate.
Not every sale perfectly reflects a property’s intrinsic value, so care must be taken.
Data can over or under inflate historic growth ratesData might suggest that a particular suburb or geographical location is primed for future growth, but if the data is wrong or unreliable, you could make a very costly investment mistake.
Similarly, individual property growth data might suggest a property is a good or bad investment, but the reality might be different. You must understand the story behind the numbers.
And this is where the art comes in…You should never make important property decisions on data alone. The data only gets you part of the way. You must compliment that data with local area knowledge and expertise.
Having many years of experience in a geographical market allows you to understand a market better and appreciate any changes in value drivers. This is where the “art of property” plays an important role. It gives context to the data and allows you to decide on its relevance.
Paying for someone else’s experienceAccording to the Guardian, psychologist Dan Ariely (sidebar: he has given some interesting and entertaining

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Slides - Click here
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According to the ABS, the number of people refinancing their mortgage increased by over 63% in the year to May 2020. Quite often people think the only reason to refinance is to obtain a lower interest rate. However, this thinking is incorrect. Typically, you don’t need to refinance to obtain a lower interest rate (more about this below). As an experienced investor myself, I can tell you that there are far more important reasons to refinance your loans.
What is a refinance?This might sound like a basic question. However, there are two types of refinances; internal and external. A refinance essentially involves entering into a new loan agreement. You can do that with your existing lender/bank, and this is called an internal refinance. Alternatively, you can switch to a new lender and this is called an external refinance. This distinction is important for my discussion below.
The first two reasons are the most importantOver the past 20 years, the primary motives for refinancing my personal mortgages were because of the first two reasons below. I’ll share why later in this blog.
Reason # 1: restructure your loansYour loan structure can have a big impact on your cash flow and ability to invest. Restructuring your loan repayments, how loans are secured, loan terms and so on can provide substantial financial benefits. Here are a few examples:
Resetting your interest only termAs I explained in a blog last year, interest only terms typically run for 5 years only. Once that initial 5-year term expires, most (but not all) lenders allow borrowers to rollover onto an additional 5-year term. However, once you have used two 5-year terms, the only way to get another is to complete an external refinance, and switch to a new lender.
Resetting your loan term to 30 yearsAlmost all loan contracts are based on a 30-year loan term. If you elect to repay interest only, then your 30-year term will be split into two parts; one 5-year interest only term and the remaining 25-years on principal and interest (P&I) repayments. Therefore, if you use two 5-year interest terms (a second interest only term is typically only permitted for investment loans) and then switch to P&I repayments, your repayments will be based on the remaining term of 20-years. This will increase your minimum repayments. For example, repayments on a $800,000 loan over 20 years are approximately $4,440 per month. However, refinancing the loan to back to 30-years reduces the repayments to $3,380 per month thereby improving a borrower’s cash flow. You can achieve this by completing either an internal or external refinance.
Release security, especially if you are planning to sell a propertyIt is important that loans are structured correctly to minimise your risk (minimise security), maximise control and ensure tax deductions are never compromised. To this end we often assist clients in restructuring their loans which could include unwinding cross-securitisation, consolidating loan accounts, splitting accounts, releasing property as security and so on.
If a client plans to sell a property, we will consider doing two things in advance. Firstly, where possible, we will release that property as security. This ensures that bank has no control over the sale funds. Secondly, we will consider whether to retain the existing l

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This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.