1. MORTGAGE & FINANCE
u p d a t e
Jarrod Chitiz - FinanceBroker
Jarrod Chitiz
0430 353 340
jarrod.chitiz@betterchoice.net.au
WINTER 2015 NEWSLETTER
The world is forever evolving and
the finance industry is no different.
The Australian Prudential Regulatory
Authority (APRA) after months of
discussion has finally influenced lenders in being
a little more prudent. Moving forward these new rules,
predominantly related to investment loans, will have
a direct influence in the general market place, including
property supply, demand and eventually values/pricing
of property.
Recently the State budget was released with one major
talking point being the removal of the $3,000 First Home
Owners Grant (FHOG) for established property. This aside,
the stamp duty concessions currently in place still remain.
This change will take effect when the budget measures
are legislated, possibly within the next three months.
Anycontractsignedpriortothelegislationwillstillqualifyfor
the grant. FHOG for construction still remains in place under
the current rules.
Please do not hesitate to contact us to discuss any of your
finance related queries.
Kind Regards,
How are credit scores calculated?
Credit scores are calculated by an algorithm that uses information from your credit file.
Thecreditscoreisgeneratedbylookingatpatternsinyourcredithistory,characteristicsofyour
credit profile, and aspects of your credit applications.
Patterns in your credit history can include:
. Shoppingaroundandmakingnumerousapplications
to different credit providers within a short period of
time will increase the number of credit enquiries on
your credit file and is less favourable than having
infrequent and fewer credit enquiries.
. The spread of credit enquiries over time can
influence your credit score. Older credit enquiries
have a different level of risk associated with them
than more recent credit enquiries.
. Negative information such as defaults, serious credit infringements, bankruptcies, and court
judgements are high risk indicators and can adversely impact your credit score.
Characteristics of your credit profile:
. To assess risk, your credit score can factor in personal details such as your age, length of
employment, and length of time at your current address.
. The age of your credit history can impact your credit score. A credit file with a longer credit
history will have a different level of risk than a newer file with a limited credit history.
. If you are a director or owner of a company or business, your credit score will also consider
the location of your business, the length of time your business has operated at its current
address, and the credit history information contained in the commercial section of
your report.
Aspects of your credit applications:
. There are many types of credit available to consumers and each has a different level
of risk. Your credit score accounts for both the type and amount of credit in your
previous applications.
. Similarly, each credit provider that makes an enquiry on your credit file has a different level
of risk depending on what type of provider they are and the industry in which they operate.
e.g. an application with a payday lender is seen differently to a bank or credit union.
Specific factors to consider include:
Toomanyaccounts - Having lots of credit accounts can be a sign of credit problems. If possible,
think about consolidating your credit accounts and cards, while closing those you don’t need.
Enquiries- Making multiple applications for credit can lower your score.
Repayment History - Under the new Credit Reporting system the easiest way to improve your
credit score is to make your repayments on time. A good method is to set up a direct debit or a
diary reminder to ensure payments are made on time.
Default - impacts report for 5 years - Try to avoid a formal default if at all possible. If you
get behind on payments, make contact with the credit provider and try and negotiate
a payment plan.
Court judgments - Try to settle a dispute before it goes to Court. If you do have a judgment
against you, make sure you pay it as soon as possible.
BankruptcyAct-Forabankruptcyofanindividualtheretentionperiodfortheinformationis
whichever of the following periods ends later (a) the period of 5 years that starts on the day
on which the individual becomes a bankrupt; (b) the period of 2 years that starts on the day
thebankruptcyends - Try to discharge, close or complete the Bankruptcy Act action as soon as
possible. This will reduce the amount of time that your credit profile will be affected.
Suite 12, 10 Whipple St, Balcatta WA 6021 T: 08 9240 2001 F: 08 9240 2441 M: 0430 353 340
E: jarrod.chitiz@betterchoice.net.au www.betterchoice.net.au Australian Credit License Number 384621

2. The absolute beginner’s
guide to negative gearing
Many people, especially accountants and advisers, tend to take terms like
“negativegearing”forgranted.Terminologylikethistendstomakeinformation
inaccessible to those who need to understand it the most.
To save those who need to muster up the courage to ask the question,
the following is an absolute beginner’s guide to negative gearing.
Tax basics
Beforewedefinewhatismeantbytheterm‘negativegearing’,weneedtolook
at the current marginal tax rates that are applicable to an individual.
TAXABLE INCOME TAX ONTHIS INCOME
0 - $18200 NIL
$18201 - $37 000 19c for each $ over $18200
$37 001 - $80 000 $3 572 plus 32.5c for each $ over $37 000
$80 001 - $180 000 $17 547 plus 37c for each $ over $80 000
$180 000 and over $54 547 plus 45c for each $ over $180 000
The above does not include the Medicare Levy of 2% of taxable income, nor
does it include the Temporary Budget Repair Levy announced in the last
Federal Budget of 2% for every dollar of taxable income exceeding $180,000.
Further, if you do not have private health insurance but your income goes over
a certain threshold, you may be slugged with an additional Medicare Levy
Surcharge of up to 1.5%.
In other words, if you are subject to these surcharges and levies and your
taxable income is more than $180,000, every dollar you earn exceeding this
amount will be taxed at as high as 51.5% – more than half of that dollar will
be going straight to tax! Apart from the arguably draconian tax rates, before
we discuss negative gearing you should also be aware that 100% of income
such as rent derived from an investment property, net of rental expenses,
is included in your taxable income.
On the other hand, if you sell your investment property and make a capital
gain, that capital gain is also included in your taxable income. However,
if you, as an individual, have owned the property for at least 12 months
before it is sold, you will be entitled to the 50% capital gains tax (CGT)
discount, which will reduce the capital gain by half before the gain is included
in your taxable income.
In other words, the tax system currently has an inherent bias that favours
capital gain over income.
Negative gearing
Negative gearing is just a fancy term to describe a situation in which the
total expenses you incur on your investment property exceed the total rental
income you derive from the property.
For most people, by far the largest rental expense is interest on the loan
that was drawn down to buy the property. Other expenses include body
corporatefees,councilrates,cleaning,propertymanagementfees,repairsand
maintenance costs, etc.
As your annual outgoings to maintain the investment property exceed the
rental income you derive from it, you will be making a net loss, which is
numerically expressed as a negative figure.
Coupled with the fact that the loss is commonly attributable to interest
expenses from borrowings taken out to buy the property (borrowing
is also known as gearing), the term ‘negative gearing’ was conceived,
which captures the common scenario in which you make an annual net loss
on an investment property due to the interest on the loan, but, technically
speaking, other expenses may also contribute to this loss.
In particular, the loss may be further amplified by depreciation and capital
works deductions, which are not cash outgoings but are nonetheless
tax deductible.
What makes negative gearing particularly tax attractive is that the net loss
can be offset against other income that would otherwise be included in your
assessable income. Therefore, if a dollar of income would otherwise be taxed
at 51.5%, every dollar of negative gearing loss which offsets that income will
save you 51.5 cents!
Meanwhile, if the investment property goes up in value but you do not sell
the property, no CGT will be payable. Even if you do sell the property after
12 months, the capital gain will be discounted by 50%.
Accordingly,providedthatthetotalafter-taxcapitalgainonyourpropertyand
the total tax you have saved from negative gearing exceed your total rental
losses during your ownership of the property, you will be in front and make an
overall net profit from the property.
How it works in real life
To illustrate the above, consider the following example:
. Youpurchasedapropertyfor$500,000byputtingin$100,000ofyourown
money and $400,000 from the bank.
. The interest rate on the loan is 5.5% per annum. The loan is an interest-
only loan, ie none of the principal is paid down each year. Therefore, the
annual interest expense on the loan is $500,000 x 5.5% = $27,500.
. Theannualrentonthepropertyinthefirstyearis$25,000,whichincreases
by 3% per year.
. The annual expenses for the property in the first year, excluding interest
expenses, is $10,000, which increases by 3% per year.
. Based on a depreciation report prepared by a qualified quantity surveyor,
you can also claim depreciation and capital works deductions of
$4,000 per year.
. You own the property for three years before it is sold for $550,000.
. Youpaytaxatthehighestmarginaltaxrateof51.5%,inclusiveofalllevies
and surcharges.
Your total negative gearing losses over the three years will look like this:
TABLE 1
Year 1 Year 2 Year 3 Total
Rent 25,000 $25,750 $26,523 $77,273
Less interest ($27,500) ($27,500) ($27,500) ($82,500)
Less: Depreciation and capital
works deductions
($4,000) ($4,000) ($4,000) ($12,000)
Less: Other expenses ($10,000) ($10,300) ($10,609) ($30,909)
Net Loss ($16,500) ($16,050) ($15,586) ($48,136)
Tax savings @ 51.5% $8,497 $8,266 $8,027 $24,790
Ater-tax net loss ($8,003) ($7,784) ($7,559) ($23,346)
Add back depreciation & capital
works deductions*
$4,000 $4,000 $4,000 $12,000
After-tax net cash loss ($4003) ($3784) ($3559) ($11,346)
*Depreciationandcapitalworksdeductionsareaddedbackbecausethesearenot‘cashexpenses’
youhaveincurred

3. Almost no conversation happens
for more than a few minutes
nowadays without somebody
lamenting how busy they are
Ignoring other incidental costs, if you sell the property after three years,
you will make a capital gain of $550,000 – $500,000 = $50,000.
As you have owned the property for at least 12 months before it is sold,
the CGT payable will be:
$50,000 x 50% CGT discount x 51.5% = $12,875.
Therefore, your after-tax capital gain will be: $50,000 – $12,875 = $37,125.
In summary, a comparison of your return on capital from the property
investment, with or without negative gearing, is as follows:
TABLE 2
Cash flow effect of
negative gearing
Cash flow effect
without negative
gearing
After-tax net cash loss ($11,346) ($36,136)*
After-tax capital gain $37,125 $37,125
Overall return $25,779 $1,239
Total capital invested $100,000 $100,000
Return on capital 25.8% 1.2%
*$48,136 (from last column of Table 1) – $12,000 (non-cash tax deductions) = $36,136
In other words, negative gearing may provide significant tax savings that may
turbo-charge the return on capital on your investment property.
Having said that, negative gearing is a hotly debated topic in the public space
at the moment. In particular, the opponents to negative gearing argue that
negative gearing encourages property investment by providing significant tax
perks that drive up housing prices, which makes home ownership inaccessible
especially to first home buyers.
Therefore, watch this space.
Eddie Chung
... Continued on page 4
Not long ago, when you asked someone how they were, 90 per cent of people
replied with some version of“I’m well, thanks”. Now a high percentage replies
to the same question with words such as“I’m busy”,“really busy”,“crazy busy”
or“ridiculously busy”.
As a nation we have developed a very unhealthy obsession with busyness.
The truth is nobody is any busier today than they were yesterday, or last week,
or 10 years ago. It is simple maths - there are 24 hours in the day and you are
doingsomethingineachofthosehours.Whetheryouarebusyeating,running
kids around, sleeping, cooking, watching TV, feeding the birds or working,
every day of your life is equally busy.
What causes it? One word: options. We have more than we were trained to
handle.The busyness thing seemed to hit its social vortex point around 2005.
This was about the time that broadband took off and moved the internet
options into a different dimension.
It is also the point where for the first time Australians thought having more
choice was a net negative and they began to report serious restraint on
their time, as revealed by David Chalke’s AustraliaSCAN data. The world was
suddenly saying: “Enough already — too many choices.”In a generation we
had gone from a world of simple options to one where we didn’t know where
to start.
So what you can do about it? At various stages in my career I have been really
good at time management and really bad at it. However, several years spent
running a busy metropolitan newspaper’s production“backbench”taught me
a few things about time.
In those jobs you hit the same deadline each day regardless of whether there
are tumbleweeds blowing along the streets or a major disaster.You are forced
to adjust to being busy doing just the right things.
This year I decided I would never again answer the question of how
I am with any version of “busy”. The following are some thoughts on
overcoming busyness:
Stop doing stuff. If you are suddenly faced with a to-do list that is too much
for the hours in the day, take routine or non-urgent things off it. This seems
bleeding obvious but few people do it. In the workplace in particular, people
have a habit of keeping the normal structure of their day (regular meetings
and so on) and just adding more and more things.This doesn’t work and ends
up with lots of things half done or rushed. You need to put brutal red lines
through things to prioritise the important stuff. Time management is about
prioritisation through intelligent and ruthless substitution, not piling on top
of a day already at capacity.
Two-pace work. This is also known as bunching chores. People typically
have a long list of things to do and work through them in random order. Some
things take quite a while, others a few minutes. If you cluster the things that
take only a few minutes into a“super hour”, where you do those and nothing
else, it is astounding how much you can get through. It is also satisfying to be
crossing lots off the to-do list in quick time.
Have a realistic to-do list. Outside of minor chores, most people get about
two or three things done each day and often have a to-do list three times that
size.Theresultisaconstantfeelingoffailure.Youshouldjustberealistic.Have
alistthatmatchesyourdayanddelaytherest.Thereisnovalueinpretending.
Allocate working and planning time. Alotofpeopleputonlymeetingsin
their diary. I have found that my day works much better if my diary is always
full but no more than 40-50 per cent of it is meetings. If there are things that
need planning, writing, and so on, set aside time.This is also good discipline.
If you need an hour to actually produce work, set that hour aside. Otherwise
you just end up squeezing your real work between meetings that are
typically inefficient.

4. DISCLAIMER: Whilst we believe the information contained in this newsletter to be correct, we give no warranty to this effect and we
expressly disclaim any liability for loss or damage by any person acting upon information contained in this summary.
All information contained herein is indicative as at 31/05/2015 and subject to change at anytime without notice.
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and commercial properties
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• Deceased estates
• Powers of attorney
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Melissa Dixon provides a very personalized and cost effective service and
will provide a no obligation free quote for any of your settlement and
legal requirements on request.
Better Choice Mortgage Services highly recommend the services of our solicitors,
MDH LEGAL who specialise in:
MDH Legal is located at Suite 3, 175 Main Street, Osborne Park
and can be contacted by telephone on (08) 9344 1677.
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Fast Facts
51%
The proportion of homeowners making overpayments on their mortgages
increased from 45% in Sept 14 to 51% in March 15.
Genworth
$101.4bn
Borrowing on credit cards and personal loans has hit $101.4bn combined,
as at Dec 14.
APRA
$2158
Is the average monthly loan repayment in Western Australia.
RIA housing report
Perth home to more than two million
Perth is now a city of two million residents – and the people of Como are living
at its centre.
The South Perth suburb, according to the Australian Bureau of Statistics , is the
population centre of Perth. The City’s total population grew 2.5%, or 48400
people, through the 2013-14 financial year to reach a record high of just over
two million.
WithinPerth,thecity’ssouth-westisaddingresidentsfasterthanthenorthern
suburbs. Thecityisnowhometo78.5%ofWA’s2.5millionresidents. Adecade
earlier, 76.7% of WA called Perth home.
The West Australian
Do 15-minute meetings. For reasons I can’t explain, there is an assumption
in almost every workplace that a meeting takes exactly 30 minutes or
60 minutes and our calendars reflect that. Where is the evidence of it?
Tryhavinginternalmeetingsdiarisedfor15minutesanddothemstandingup.
You will get pragmatic decisions and discussions, and many productive hours
back in your week.
No-meeting Friday. Not a new idea, but it works. Just knock back all
meetings on a Friday and use the time to finish the week cleanly and plan for
the following week. If you get office-wide collusion on this, the whole place
will be more productive.
Don’t stop to answer every email. Emails should be mostly dealt with in
blocks.Lotsofpeoplestopeverytimeanemailcomesin.Ifyourealisticallylook
at the productivity and work continuity impact of this, it is quite frightening.
I suspect it is the biggest productivity killer of the past decade.
Stick to your lane and keep out of the noise. I was a great admirer of the
way former University of Queensland vice-chancellor John Hay managed his
time.WhenIworkedtherehewasrunninga$1.3billioninstitution,yetIcould
alwaysgetintoseehimatshortnotice.Heknewthetrickoftakingahelicopter
view and keeping out of the“noise”that too many senior managers seem to
find themselves stuck in. If you understand your role and stick to your lane,
your time will return.
Itisgenerallyacceptedthatthereallygreatsportspeoplehaveanedgebecause
theyalwaysseemtohavemoretimethananyoneelse.Thesameappliesinthe
workplace,andinlife.Busynessisacurse.Itisgreattobeactive,engagedand
well used, but you should give yourself permission to never declare yourself
busy again. It will change your life.
The Australian
FIRST HOME BUYER PARTICIPATION
2015 2014
National 12.42% 15.76%
NSW 13.85% 5.42%
VIC 16.99% 13.70%
SA 4.68% 15.89%
QLD 17.00% 19.51%
WA 19.57% 24.29%
Australian Broker
... Continued from page 3