UP TO 730,000 Australian mortgage holders on interest-only loans will be hit with higher repayments this year, according to new research by Finder, the Australian comparison website. 

A Finder analysis of Australian Prudential Regulation Authority (APRA) data has revealed that 730,000 interest-only home loans will convert to principal and interest loans in 2020. 

Finder is warning that of all the home loans granted in 2015-2016, a worrying 39 percent ($295 billion) were interest-only (IO).  

Graham Cooke, insights manager at Finder, said borrowers on IO loans needed to financially prepare for their interest-only period to expire. 

“Interest-only home loans allow borrowers to only repay the interest portion of their mortgage for a set period of time, usually between three and five years," Mr Cooke said.

“This means repayments tend to be lower because you’re only paying off the interest on your loan, rather than the principal as well. 

“But borrowers can be hit hard once their mortgage converts to principal and interest, as their repayments can increase significantly. If you know your IO loan is expiring this year, it’s important to factor this into your budget,” Mr Cooke said. 

If the average loan size during the 2015/2016 period was $395,000, interest-only borrowers can expect to pay an extra of $3,600 per year if forced onto a standard variable loan with an interest rate of 4.80 percent. 

Owner-occupiers or investors who borrowed above the $395,000 average could be hit even harder, he said, with the increased cost for a million-dollar loan clocking in at $789 per week, or $9,468 annually.

Mr Cooke said interest-only borrowers did not need to stick with the same lender once their loan converts. 

“If your interest-only loan is due to expire in the coming months, start comparing your options now," he said. "There are hundreds of principal and interest loan products to choose from. 

“Banks will sometimes offer a discounted variable rate on a case-by-case basis in a bid to keep your business. It’s therefore worth negotiating with your lender for the biggest rate discount you can get. 

"The lowest rate available on Finder is currently 2.84 percent, and there are more than a dozen variable home loans that start with a '2'. If your current lender can’t match this, there’s no need to stick around,” Mr Cooke said.

www.finder.com.au

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AUSTRALIAN Small Business and Family Enterprise Ombudsman,  Kate Carnell has urged senators to back the Australian Business Growth Fund Bill, claiming it will "significantly encourage business growth and promote economic expansion".

“We strongly support the investment by the Commonwealth in the Australian Business Growth Fund to provide much-needed patient capital to SMEs seeking to realise their high-growth potential,” Ms Carnell said.

“This investment is critical to the success of the fund. Previous attempts leaving it to industry to establish the business growth fund, resulted in no action. 

“The fund is aimed at SMEs that need patient capital and have been overlooked by venture capitalists and other investors. The fund is focused on helping an SME grow to a point where they don’t need the equity investment," Ms Carnell said.

“The overwhelming feedback to my office from the small business community is that a lack of access to funding is their biggest barrier to growth.

“RBA Governor Philip Lowe has made a number of pertinent observations about the credit squeeze impacting the small business sector and how that’s effecting the economy more broadly.

“In November last year, Dr Lowe said we will all be better off if businesses have the confidence to expand, invest, innovate and hire people," she said.

 “The Australian Business Growth Fund will help address the critical funding gap as identified in our Affordable Capital for SME Growth report, for long-term, patient capital to enable our up-and-coming, high growth potential  SMEs to flourish.

“Similar models in the UK and Canada have been tried and tested, providing access to affordable capital for businesses that have gone on to demonstrate successful growth.”

www.asbfeo.gov.au

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THE Institute of Public Accountants (IPA) has commended the Board of Taxation for its holistic review of small business tax concessions.  The report was tabled by the Federal Government in December 2019.

“The IPA has long advocated for simplifying the tax concessions regime for small business to ensure greater simplicity and efficiency; and, importantly to ensure they meet the intended policy objectives,” said IPA general manager for technical policy, Tony Greco.

“This holistic review introduced the important concept of concessions helping small businesses at all stages of their business life cycle, from crucial inception and survival stages through to maturity and retirement phases.  

“This life cycle approach allows for better targeted assistance to meet real world commercial issues facing small businesses at every step of the way," Mr Greco said.

“Tax concessions can be better utilised by addressing challenges that face small businesses, particularly with fundamental changes to traditional ways of doing business.

“The retention of the $10 million small business threshold definition and the alignment of all small business tax concessions to this definition is a positive step towards removing the complexities of the current system," he said.

“We are also very pleased to see the adoption of our signature policy recommendation of improving the unincorporated small business tax discount by increasing the cap to what will be a more meaningful incentive.

“The small business capital gains tax (CGT) concessions will be simpler, fairer and more sustainable by increasing the turnover threshold to $10 million (currently $2 million); repealing the net asset test; and collapsing three exemptions into a single capped exemption.

“The capping of the small business CGT concessions will make this important tax concession more sustainable as the cost is significant and continues to grow.  This will go a long way in addressing the issue of a large proportion of the benefits being accessed by a relatively small number of businesses,” Mr Greco said.

www.publicaccountants.org.au

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By Leon Gettler >>

BITCOIN is expanding globally but the cryptocurrency still has to deal with issues of trust.

Bitcoin CEO Stefan Rust said the strategy for expansion, however, was going well.

He said Bitcoin’s strategy is to focus on two areas – payments and non-custodial financial services – with the Australian market for Bitcoin cash “doing really well”. 

Mr Rust said the company seeks to replicate the model it has used in Townsville and Ljubljana in Slovenia, going city by city and enabling each of those cities – and getting the merchants and retailers in those cities to accept Bitcoin cash, enabling consumers to go to them with the Bitcoin Wallet and pay seamlessly.

Bitcoin is also launching products that allow merchants to connect to a pay server that automatically links to exchanges to have settlements in fiat instantaneously, without any worries about exposure to volatility. 

Bitcoin will also partner with original equipment manufacturers (OEMs) to align the Bitcoin Wallet with their customer and user base.

NON-CUSTODIAL SERVICES TOO

For its non-custodial financial services, Bitcoin is building the capability for users to write programmable tokens to the Bitcoin Cash platform. They are doing this so users can mint their tokens through just one website and manage their tokens, with interest rates, or distribute rewards and dividends to those token holders.

Mr Rust said the attraction for retailers was that they could save significant amounts on transaction fees as they usually pay a 3-5 percent margin on every transaction to banks and card companies. For the merchants, Bitcoin is partnering with payment processors to distribute point-of-sale (POS) systems or to integrate the ability to receive Bitcoin cash, through a special pay server that Bitcoin is now launching.

Mr Rust said the blockchain industry is now bringing to consumers what was previously only available to high-net-worth individuals or multi-national corporations in terms of access to trust funds and financial products

“We’re about helping the under-banked and unbanked, and middle class, with access to services that are not as easily attainable to them as they are to the minority part of the population,” Mr Rust told Talking Business.

TRUST IS PARAMOUNT

He said one of the big challenges for Bitcoin was acquiring trust.

“We have a lot of the population interested in crypto, in financial services. However, they don’t know what to do, so a large portion of educated is needed,” Mr Rust said.

He believes attracting people to crypto is about trust and access.

The other issue facing Bitcoin is regulators telling the public that cryptocurrency is not transparent.

“I think the regulators and the governments need to understand the transparencies and the advantages that they have from adopting and supporting cryptocurrencies in their market,” Mr Rust said. 

www.bitcoin.com

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness. 

 

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THE Australian Small Business and Family Enterprise Ombudsman, Kate Carnell has revealed fresh data showing the extent of the cash flow crisis for small and medium-sized businesses in Australia, much of it due to a scarcity of functional business loans.

Business finance solutions group Scottish Pacific's latest SME Growth Index has found one in five small-medium enterprises (SMEs) are experiencing cash flow problems due to business loans being rejected - mainly by the major banks.

According to the data, the percentage of SMEs reporting significantly worse cash flow has doubled since March 2018, with 7.3 percent saying it is significantly worse and 12.3 percent saying it is worse than the previous year. 

“Australian small businesses are in the midst of a cash flow crisis and the SME Growth Index indicates the situation is getting worse,” Ms Carnell said.

“Small businesses are telling us time and time again that a lack of access to funding is their biggest barrier to growth. This has major implications for the sector as a whole as well as the economy more broadly.

“Interestingly, the Index found just one in 10 SMEs said they had no cash flow concerns in the past year. This highlights why it is so important for small businesses to be paid on time," Ms Carnell said.

“More than a quarter of small businesses (27.8%) said they had difficulty meeting tax payments on time – up by around 12 percent from March 2018.

“That’s why it has never been more important for small businesses to understand the range of funding options available on the market. The big four banks are not the only game in town," she said.

“My office, in partnership with Scottish Pacific, has created the Business Funding Guide which not only offers comprehensive, up-to-date information about what’s out there in terms of finance options, but also helps small businesses get ‘finance fit’ to give them the best chance at securing the funding they need.

“At the moment we are seeking feedback on the guide from businesses and their advisors before it’s finalised later this year.”

Feedback on the Business Funding Guide can be provided by completing a survey before the October 18 deadline.

The SME Growth Index research is conducted twice yearly by banking analysts East & Partners on behalf of national working capital funder Scottish Pacific.  More than 1000 owners, CEOs or senior financial staff of SMEs across a range of industries and all states, with annual revenues of $A1-20 million, are surveyed.

www.asbfeo.gov.au

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By Leon Gettler >>

PRAEMIUM provides scalable managed accounts technology, portfolio administration and financial planning tools for the wealth management industry. It also has the only technology that offers wealth managers the most up-to-date portfolio reporting system.

The system gets all the tax components, valuations and CGT exactly right and up to date – no  mean feat given the complexity of some Australian investments where someone might, for example, buy a stapled security and end up buying a property trust at the same time.

“If it’s complicated, here in Australia. Praemium is the only one that gets it right all the time,” Praemium CEO Michael Ohanessian told Talking Business.

“You get a free tax report every year and that’s Praemium. It doesn’t matter what you buy on the ASX. 

“You can buy Westfield like a stapled security, you can buy options and derivatives, you can buy anything you can possibly imagine, the ATO can change its mind by issuing a class ruling after a corporate action, it doesn’t matter what it is, that tax report is 100 percent right. Nobody else can claim that, that’s what’s unique about us.”

Mr Ohanessian said the technology had created an enormous data base. Praemium technology blows up every investor portfolio, 300,000 of them, and reconstructs it every night.

The portfolio can change from day to day. Prices change, companies merge or generate rights issues and share splits, the ATO might make rulings on their actions.

“So every day, when you wake up in the morning, and you look at your share portfolio on the Praemium system, whatever happened overnight, whatever happened even further back, your portfolio is correct,” he said.

“Your unrealised gains are correct, your realised gains, your franking credits are correct, your performance is correct, your valuations are correct.”

SELECTIVE ON STAFF

Mr Ohanessian said Praemium can do this stretching back in time.

He said this means the company has to be highly selective when recruiting its employees. They need special talents. Hiring and retaining key people is exceptionally important for Praemium.

This also means that Praemium is the only player in the platform space that operates internationally.  

It has offices in London, Dubai, Jersey, Hong Kong and Shenzhen, serving global markets. Melbourne and London are the company’s spokes.

Mr Ohanessian spends six months every year overseas. He says that it can’t be any other way.

“You can’t be an Australian technology company, get a little bit of success locally, hire some people overseas, visit them for a week every quarter and think it’s going to work,” he said.

“In a small company, developing a technology, transplanting that technology, modifying it to work in those markets and understanding the challenges your overseas teams have, the CEO has to be there.”

“At some point where Praemium becomes really big, with a lot of depth and experience in management all over the world, the CEO won’t need to spend half his time overseas, whether that’s me or someone else.”

www.praemium.com

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.

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THE Australian Small Business and Family Enterprise Ombudsman, Kate Carnell is concerned by reports the Federal Government clawed back $200 million in the 2018 financial year from businesses who have claimed the R&D Tax Incentive and has been investigating the impact of the ATO’s policy and enforcement practices on small businesses.

“My office has received a number of complaints from small businesses about unfair treatment in relation to their research and development tax incentive claims by the ATO and AusIndustry,” Ms Carnell said.

“Of particular concern are audits going back several years, which have resulted in the ATO demanding businesses repay the R&D Tax Incentive, often with a severe penalty applied. 

“Unfortunately some of these businesses have been told to pay back the tax benefit years after the R&D has been completed. This is well after they received the refund from the ATO and reinvested that money back into the business.

“Most of these businesses were genuine in their belief they were undertaking R&D and that their claims were totally justified," Ms Carnell said.

“We’ve had additional feedback from software industry representatives that the interpretation of the laws by AusIndustry and the ATO, regarding the eligibility of software claims, has become more rigid.

“These issues have prompted a review to clarify the R&D Tax Incentive legislation and how it’s enforced," she said.

“Certainty is essential if the R&D Tax Incentive is to fulfil the purpose of the legislation, which is to incentivise small businesses to invest in R&D.

“We welcome the recent decision by the Full Bench of the Federal Court in the Moreton Resources Limited v Innovation and Science Australia, which has provided greater clarity around the interpretation of the laws.

“This case concerned the question of whether activities in relation to an underground coal gasification pilot facility were eligible for the R&D Tax Incentive. The court took a common sense approach and found in favour of Moreton Resources," Ms Carnell said. 

“For Australian small businesses to continue to thrive, the government needs to support investment in science and research to drive innovation and growth.”

The Australian Small Business and Family Enterprise Ombudsman will deliver the findings of its investigation in a report to be published shortly.

www.asbfeo.gov.au

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