St Patrick’s College 2009 AIC Chess Teams Address

2 07 2009

The 2009 season started and finished with strong wins in the first, second, third and seventh rounds, which had led to one of the strongest performances (aggregate score) in St Patrick’s history. This was only possible with the strong leadership of Mr Paul Arcodia (Chess Coordinator) Mrs Jan Mair (Team Manager) and me, Jim Armstrong (Coach).

The 2009 season has unveiled the winning spirit of the young men but more importantly the culture of unity, desire, and vision. Leadership from the Open teams is one of the real reasons why all teams, including the juniors, have done so well this year. I have been a part of the coaching team for a few seasons now and it gives me great honour watching these young men develop and perform so well this season. I would like to thank the following for their contribution and outstanding leadership:

  • Darren Bennett – The 2009 Chess Captain, who has led the team to one of the school’s strongest performance.
  • Eric Secondes – For his excellent performance that has provided inspiration to his fellow team mates.
  • Ryan Menzies and James McCaughan for their solid and consistent performance.

I would like to thank the Junior A and B teams for their gallant effort and success this season. I am sure the lessons they have learnt this season will help them in the years ahead. Their attitude and commitment to the team is to be commended. This year is evidence that the chess program has reached new heights. I am confident that this year’s performance will not only have a positive influence on the school, but also the young men who participated. All concerned can walk away with head high and look forward to the season ahead.

Jim Armstrong

Coach





The Future of Australian State Finance

27 03 2009

At this very moment in time most if not all Australian States will eventually need to run their State budgets into deficits to finance their expenditure. Expenditure on key infrastructure and public services that cannot be overlooked during this Global Financial Crisis. However, it is not so easy at the moment to raise the debt as private investors around the world have a new perception of risk, and in the alternative, they believe they would be better off waiting for this ‘storm’ to pass.

However, unlike our European Union counterparts, Australia is going to borrow money to increase government expenditure to mitigate the shortfall in private expenditure. The problem that arises for the States and in general any government or business trying to raise either share or debt capital is that of risk, one of the core problems stemming from the Global Financial Crisis.

Over the past 4 months there has been an increased rate of lending in the market, but in times like these nothing can be taken for granted. Certainly, in the private sector it hasn’t been easy for companies to raise extra capital to shore up their balance sheets.

It is important that any government intervention in the market place will only continue while markets around the world are disrupted. That is because the whole point of government intervention is to restore markets to normal economic conditions.

All said and done, it is not an easy feat to achieve, with the unpredictability of markets in normal times, and now more so in uncertain times. I think criticism of the state finance guarantee is short-sighted as the Federal government has always signalled that all these market interventions are temporary in nature and will end when normal economic conditions return.

The focus in the near future needs to be on job-security and creation in particular for Australia, in national infrastructure, health and education. As more news of multinational companies shedding jobs here and abroad, what better time to attract the best of the skilled in the labour pool to build the Australia of tomorrow.

I think there is no better statement of optimism than to continue to build for the future, a better and brighter Australia that will place us at the forefront of the next world economic expansion.





The Global Financial Crisis Didn’t Take My Shoes!

19 03 2009

[Disclaimer: The information contained in this article is not professional legal or accounting advice and should not be relied upon in such a manner. This is a general interest article and for your own information you should seek professional advice from Australian licensed professionals.]

In Australia and throughout the world we are experiencing what the International Monetary Fund (IMF) describes as the ‘great recession’.[1] It is during these times that the catchphrase “the rich get richer and the poor get poorer” becomes most relevant for Australians because of the rapid drop in asset prices here and around the world. In light of this it is of utmost importance that Australian taxpayers have financial literacy, in particular how Australian taxation law affects their investment decisions concerning the most common assets such as property and shares.

The purpose of this paper is to prove that a simple working knowledge of financial literacy about capital gains taxation can help an Australian taxpayer protect their asset wealth during the ‘Global Financial Crisis’, when asset prices are rapidly falling. As this paper will prove, if we didn’t have the ability of carrying capital losses forward to offset future capital gains, society would be susceptible to greater economic inequity.

Financial literacy is a key component in how a person in society can improve their socio-economic status in society. This would be primarily concerned with reducing a person’s tax liability under the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). In regards to asset wealth, when asset prices are rapidly declining the concept of capital gains tax and net capital losses will be of focus.

The fictitious Australian taxpayer model will be conducted with the following assumptions:

- That the person is an Australian resident for tax purposes.[2]

- Their reaction to ‘Global Financial Crisis’ was slow and thus sold their assets on 1 January 2009.

- That derived income is ignored for the purposes of this paper.[3]

- That the taxpayer is asset holds assets that include a property (other than a main residence) bought on 1 July 2004 worth $400,000 and shares worth $40,000.

- That the taxpayer’s assets are worth $300,000 (property) and $10,000 (shares) as of 1 January 2009.

- That the taxpayer sells their assets on 1 January 2009 at a capital loss of $100,000 (property) and $30,000 (shares).

- That the taxpayer on the 1 July 2009 buys a property worth $250,000 and shares worth $5,000.

- That the taxpayer on 1 July 2012 sells the property for $400,000 and shares for $40,000.

Fictitious Australian Taxpayer Model

CGT Asset   $
Property (Other than a main residence) Acquired 1 July 2004 $400,000
Shares Acquired 1 July 2004 $40,000
     
CGT Event A1 (Disposal of a CGT Asset)
Property (Other than a main residence) Disposed on 1 January 2009 $300,000
Shares Disposed on 1 January 2009 $10,000
     
Capital Proceeds   $310,000
   
Net Capital Loss    
Property   $100,000
Shares   $30,000
Total   $130,000

 

The hypothetical taxpayer after disposing of the assets on the 1 January 2009; incurs a net capital loss of $300,000 for the property and $30,000 on the shares. The hypothetical taxpayer is able to carry forward the net capital loss incurred to offset future capital gains incurred: ITAA 1997 s 102-10(2). The purpose of that exercise under the law is to not disadvantage the taxpayer because of the fall in value of their assets.

 

CGT Asset   $
Property (Other than a main residence) Acquired 1 July 2009 $250,000
Shares Acquired 1 July 2009 $5,000
     
CGT Event A1 (Disposal of a CGT Asset)
Property (Other than a main residence) Disposed on 1 January 2012 $400,000
Shares Disposed on 1 January 2012 $40,000
     
Capital Proceeds   $440,000
Capital Gains   $185,000
Net Capital Loss (carried)   $130,000
Net Capital Gain   $55,000
50% Discount (Asset held longer than 12 months)   $27,500
Net Tax Liability   $27,500

 

What the model illustrates is what happens to the capital loss at a future date by offsetting the future capital gains. Whereas, if the operation of the capital gains sections were to not exist the taxpayer would incur not only the capital loss on the first sale of property and shares, but also incur the extra capital gains tax liability from the sale of the future property and shares. This would result in the taxpayer being disadvantages twice in their financial decisions.

The strengths of this model are that it proves that a simple operation of Australian taxation law is effective in preserving a taxpayer’s asset wealth, even when the taxpayer reacts slowly to a rapid decline in asset prices. Such is being experienced currently in Australia and the world in the ‘Global Financial Crisis’. The model illustrates the ‘Global Financial Crisis’ and what occurs to the reduced asset price.

In addition, the other strength of the model in helping people improve their socio-economic status is that it is not reliant on a taxpayer’s income but rather their ability to buy assets such as property or shares. Thus, a person on a low income over a period of years of saving disposable income and at a later date buys an asset, such as property of shares, can take advantage of the capital gains legislation.

However, the weaknesses of the model is that it assumes a taxpayer would have a working knowledge of the concept of capital gains tax and net capital losses under the Income Tax Assessment Act 1997 (Cth). This weakness most represents reality where a large proportion of Australian taxpayer’s use professional services to seek advice and complete their personal taxation forms. Either services cost financially and do not add to that taxpayer’s financial literacy.

This reinforces the argument that financial literacy is important for people in society, so to not lose their socio-economic status through unwise financial decisions. The Honourable Senator Nick Sherry in a keynote address to the National Consumer Congress in Adelaide on the 13 March 2009, highlighted the fact that financial literacy in far North Queensland and in remote areas of the Northern Territory were of an unacceptable standard and should be improved so as to protect their financial independence and secure their financial future. The senator noted that financial literacy was the key to helping people preserve their lifestyles and save them from financial stress, as many are experiencing now during the ‘Global Economic Crisis’.

Conclusion

The aforementioned analysis is only a small example of how a little financial literacy can benefit a taxpayer of any level of income and help minimise economic inequality in Australia. It also shows how the Income Tax Assessment Act (Cth) helps achieve this goal by allowing capital losses to be carried forward to offset future capital gains to reduce a taxpayer’s net tax liability.

The model’s reliance on financial literacy is the key argument of this paper and that society needs to be able to use the law to their best advantage. The Australian tax system has been designed to be progressive, so as to tax more aggressively those on higher incomes and less aggressively for those on low incomes. However, as the model illustrates, a person on a low income can be asset rich and be able to take advantage of the capital gains/losses to protect and grow their wealth, even if they were not experienced to sell earlier (the model illustrates what occurs when a taxpayer sells late).

It is in the best interest of Australians in terms of reducing the economic inequity in society to increase financial literacy, especially for taxpayers that may be making their first investments in assets such as property or shares. Even in times of great economic downturn it is important to protect taxpayer’s assets, as the Income Tax Assessment Act 1997 (Cth) achieves. A little knowledge goes a long way in reducing a person’s tax liability and Australia will go further when all members of society are able to take advantage of what the law allows.


[1]Tanner won’t speculate on debt limits’, The Age 11 March 2009 www.theage.com.au at 15 March 2009.

[2] Income Tax Assessment Act 1936 (Cth) s 6(1)

[3] Income Tax Assessment Act 1997 (Cth) s 6-5