Written by Hudson Editor Hayley Mcleod
Hudson have actively been promoting property as a good investment with the current low interest rates; but what if you are a first home buyer, are there still grants and concessions available to you?
Let’s analyse this by State:
The Queensland Government offer the Great Start Grant to those looking to buy or build a new house, unit or townhouse (valued at less than $750,000). Buyers can even buy off the plan or choose to build themselves. The grant currently stands at $15,000. First home buyers also receive a stamp duty exemption for homes under $500,000. Concessions apply above $500,000 up to a certain point.
Speak to the QLD Office of State Revenue for more information.
NSW has a scheme whereby there is a $15,000 grant for new homes purchased by first time buyers where the house value does not exceed $750,000. The amount of the grant will reduce to $10,000 from 1 January 2016.
NSW also offers stamp duty exemptions on new homes valued up to $550,000 and vacant land valued up to $350,000 as well as a duty concession on new homes valued between $550,000 and $650,000, and vacant land valued between $350,000 and $450,000.
Speak to the NSW Office of State Revenue for more information.
The Grant in Victoria is payable where the price of the property or construction of the home does not exceed $750,000. Eligible applicants are entitled to $10,000 and a duty reduction on the purchase of a new or established home. The duty reduction applies where you buy a principal place of residence valued at not more than $600,000. As at July 2015 this will be a massive 50% saving. It currently stands at 40%.
Speak to the Vic State Revenue Office for more information
In Tasmania the First Home Owners Grant is $7,000 for first home buyers and builders. This will go up to $10,000 in July 2015, from July 2014 however contracts for established properties are ineligible for the Grant.
Speak to the Tas State Revenue Office for more information
Recent changes in SA mean that the $15,000 First Home Owners Grants is for the purchase or construction of a new residential property, including a house, flat, unit, townhouse or apartment only. The FHOG ceased for established homes from 1 July 2014. The property value cap is $575 000 and applies to the market value of the property purchased or built.
Please call Revenue SA for further information.
Western Australia has quite a complicated system with first home buyers receiving a $10,000 grant for the purchase or building of a new home and a $3,000 grant for purchasing an established home. The grants are capped at purchases of up to $750,000, but if the home is located north of the *26th parallel, it goes up to $1,000,000.
WA also offers a grant of $2,000 from The Home Buyers Assistance Account for the incidental expenses incurred by first home buyers when they purchase an established or partially built home through a licensed real estate agent for the purchase price of $400,000 or less.
The WA Government also very generously offer first home buyers an exemption from stamp duty for a home purchase under $500,000 or a land purchase under $300,000.
Call The Department of Finance in WA for further information.
The Northern Territory offers very generous incentives for first home owners. Offering a massive $26,000 for new homes up to $600,000.
Call Treasury NT for further information.
In the ACT there is a $12,500 grant for first time buyers of new, off the plan or substantially renovated properties.
Written by Hudson Adviser Phillip McGann
Do you have an INFERIOR superannuation product? - Are you only keeping it because of the associated insurance benefits and don’t wish to go through the set up process all over again? Then read on…
Julie is a Hudson member who has been holding on to a dusty old superannuation fund that was set up for her in the late 1990’s. She obtained insurance cover within the fund at a time when her health was at its peak, and she was arguably in her prime. 12 years on, her health has somewhat deteriorated – she has been diagnosed with high blood pressure, has a recurring back injury from her bi-weekly tennis playing and she has general wear and tear associated with aging – making obtaining additional insurance cover quite costly and arduous. She would love to move her superannuation monies to a more superior platform with greater choice, but feels her hands are tied as she does not want to lose her current insurance benefits or go through the whole set up process again.
What many of our members may not be aware of is that The Hudson Institute’s superannuation platform of choice, Colonial First State FirstChoice, have the capacity to accept INSURANCE ROLLOVERS from external superannuation funds when transferring the superannuation account balance of that former fund to FirstChoice Superannuation products.
When insurance cover is rolled over to FirstChoice, investors receive an equivalent sum insured with any exclusions, loadings and any underwriting limits that applied to the former fund also applying under FirstChoice*. FirstChoice allow the rollover of like for like cover, and a simple four-page application form is all it takes.
So rather than tolerating her sub-standard superannuation fund purely to maintain her insurance cover, Julie now has the option available to roll her superannuation monies to a fund of her choosing, whilst still retaining her existing insurance benefits.
*FirstChoice superannuation products premiums, terms and conditions will apply and may be different to an investors existing cover. Acceptance of the request is subject to the insurer’s acceptance and some limitations apply. Contact your adviser for further information.
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Written by Hudson Adviser Phillip McGann
Any Hudson Member who is a regular reader of this publication would have seen numerous articles over the years on the benefits of members reducing their BAD DEBTS and also as many articles on the benefits of increasing GOOD DEBT to acquire growth assets.
Well this time I will highlight a scenario where you can achieve both goals in the one strategy, over time by “recycling your debt”.
Firstly an explanation for each:
BAD DEBTS - Those debts that are paid for out of ‘after tax’ dollars; they are debts that incur interest that is not tax deductible. Debt in this category include personal use assets such as the family home or car, holidays and personal items that do not generate an income.
GOOD DEBT - Is debt that incurs tax-deductible interest. It is used to purchase assets that attempt to generate income that is taxable in the owner’s hands, and so the interest incurred is (generally) tax deductible. Debt in this category is often used to acquire investment property, shares or managed funds.
Paying off the family home mortgage is a major financial goal that many people aspire to. Once this is achieved, they then plan to concentrate on acquiring growth assets to provide a large asset base for them in their retirement to ultimately derive an income from.
Now there is nothing inherently wrong with this two-stepped goal, but I would argue that you could achieve both goals, pay off the mortgage (over a slightly longer time period), and accumulate assets earlier and then gain the benefits of compounding returns as well.
The major problem with solely concentrating on paying down the home mortgage to the exclusion of any investment accumulation is that you miss out on any growth in the investments in the meantime. By simply extending the mortgage repayment time frame, you can begin accumulating growth assets you will need for your retirement asset base, and still achieve both goals.
The best way to achieve this twin goal is to set up a purpose built separate investment loan against the equity in your home. A Line of Credit (LOC) is probably the best structure as the repayments are interest only, and the loan can be designated as a separate investment loan - and you can easily increase the limit as the equity in your home increases as your home loan decreases!
Over a certain period (e.g. 1 year) you would pay into your home loan as much of your income as you can afford, to pay the loan down as much as possible. At years end you would then look to set up the LOC to access the built up equity in the home.
These investment funds from the LOC would then be used to invest into an income producing growth asset (e.g. share portfolio). The dividend income would be directed towards the home mortgage along with the your ‘normal’ repayments. Also, you would need to ensure you meet the interest component of the LOC – we are not advocating capitalising interest on the LOC. Hence, the home mortgage would take longer to pay down as some of the current funds directed to the repayments would instead go to meet the interest on the LOC.
JOHN is 40 and earns $120,000 a year, which puts him on a marginal tax rate of 38%. His home is worth $600K and he owes $200K on his home mortgage. He pays all his surplus income ($20K) into his home loan over and above his minimum repayments. He is comfortable with a debt level of $300K.
We organise to set up a line of credit (LOC) over all the available equity (available limit will be $280K), but only draw it up to his total debt level comfort zone of an extra $100K. These funds are then used to invest into a growth portfolio of dividend paying shares (or managed funds).
The interest on the LOC is paid from the surplus income reducing the amount available to pay down the home loan. Whilst at the same time giving him a growth asset NOW, not in the distant future when he has paid down the home loan. All dividends from the share investment plus the tax refund available due to the negative gearing and franking credits is directed towards the home loan repayments.
At the end of the year John does the same thing again. He draws up the LOC by the amount he has PAID off the home loan and invests it into the share market. He continues this into the future until his home loan is paid off.
This strategy works well for those on higher incomes but will not work for those on low or no income, as the tax effectiveness is better the higher your marginal tax rate. Also, given the lower super contribution caps now in force this may well be an alternative for those under 50 years of age trying to ramp up their “nest egg” outside of super.
Leverage is a double-edged sword. Leverage will magnify losses as well as gains. By investing for at least seven years, and averaging into the investment over many years will help to smooth out the inevitable fluctuations in the share market.
Also, investment selection is paramount. You may have the best debt recycling strategy, but if the investment you have selected is not adequately diversified and growth orientated (over time), what is the point?
Whilst the taxation benefits of this scenario work best for higher income earners now, the desired end result of high capital growth may well cause capital gains tax (CGT) problems for these same individuals, when upon sale of the assets in the future (due to their higher marginal tax rates). Therefore, it would be most advantageous if possible to sell the asset down in a year when incomes are lower or in retirement.
These strategies will only work if you have a good steady income, and as such you will need to ensure this income is protected. Adequate income protection and life insurance is highly recommended.
So there we have but one strategy that may well appeal to many Hudson members who are trying to achieve both their mortgage reduction goal, and an increase in their retirement nest egg goal as well.Read in full + comments 0 Comments
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