5 July 2012

Dear Investor,

It is that time of year when investors focus on tax as they gather the required paperwork to submit their annual tax returns. Whilst tax advantages should never be the sole purpose for investing, it is nevertheless an important factor in investment decision making. In this edition we will explore the costs associated with investing and some taxation implications.

Investment Costs

Costs are incurred when purchasing and disposing of an investment. Some investments also have on-going costs such as annual fees. Investing in cash, such as term deposits or online savings accounts, generally has few associated costs.

Fixed interest investments sometimes have entry and exit fees, but rarely have ongoing costs.

Property investment has many costs involved with it, including stamp duty and solicitor’s fees on purchase, as well as the costs involved in finding the property and inspecting it. There are also ongoing costs such as agent’s fees, municipal rates, water rates and maintenance and repair costs.

Share investments have entry costs such as brokerage/commission. There can also be ongoing management fees if the investment is in a managed fund.

Managed investments will typically have administration fees, trustee fees, fund manager fees and transaction fees when assets in the fund are bought/sold.

La Trobe Financial does not charge investors any entry or exit fees if investment is held to maturity.

La Trobe Financial is entitled to receive an Investment Management Fee (1.41% p.a. average for the Fund across all options).

Tax on investments

Investment income is taxed in the same way as personal earnings (salary and wages) except for one important difference applying to dividends. In order to ensure that the income from dividends is taxed only at the investor’s marginal tax rate, dividend imputation exists (refer below). Any realised gains made on investments are subject to Capital Gains Tax (CGT).

Dividend Imputation

Dividend imputation was introduced in 1987 to eliminate the problem of double taxation. Previously a company paid company tax on its profits and then an investor paid income tax on the dividends paid by the company, effectively paying tax twice. The Australian tax system now allows companies to attach franking credits to dividends paid, representing tax already paid by companies.

With the introduction of dividend imputation the investor gets a tax credit for any tax which the company has already paid. The effect of this tax credit is to ensure that the investor is not taxed twice. An investor with a marginal tax rate greater than the company tax rate (30%) will pay tax on the dividend at the rate of that marginal tax rate. An investor on a marginal tax rate less than the company will receive a tax credit/refund.

Capital Gains Tax

A capital gain occurs when the proceeds from the disposal of an asset exceed the cost base (purchase price and associated acquisition costs). Individuals have to pay Capital Gains Tax (CGT) on any capital gain made on the disposal of an asset that was acquired after 19th September 1985. Typically, 50% of the gain is assessable at the taxpayer’s marginal tax rate if the asset was held for 12 months or more. 100% of the gain is assessable as income if the asset was held for less than 12 months.

Rollover provisions apply to some disposals, one of the most significant is transfer to beneficiaries on death. On death, CGT assets transferred to beneficiaries are not treated as disposed of by the deceased, but instead the beneficiaries are taken to have acquired them at the deceased's date of death and with the cost base as at that date.

Assets Subject to CGT

Certain assets are exempt from capital gains tax, including:

  • An individual’s main residence;

  • Collectables acquired for up to $500, such as art, jewellery, stamps etc;

  • Cars and other small motor vehicles such as motorcycles;

  • Winnings from gambling.

The following table provides a summary of CGT and how it impacts the investor:

When was Asset Purchased? How Long was Asset held? Capital Gain Assessable
Before 20 September 1985 Any length of time Generally no CGT payable
Between 20 Sept 1985 & 20 Sept 1999 > 12mths and disposed of after 21 Sept 1999 Choice of:
  1. Sales proceeds – frozen indexed cost base to 09/99 quarter, OR
  2. 50% of [sale proceeds – cost base (not indexed)]
On or after 21 Sept 1999 Less than 12 months 100% of nominal gain
  > 12 months 50% of nominal gain

As always, the content of this newsletter is general information only and you should consult your accountant, financial adviser or taxation professional to discuss your personal circumstances.

S&P Rating – four stars

S&P has affirmed the four star rating of the Pooled Mortgages Option. In its report S&P noted that “The team and process have-to date-delivered a well-diversified portfolio, as well as a very strong performance track record. The fund has comfortably exceeded its index over all time periods, and met its 1.5% excess return target over one and three years.” “A strong relative return, and a distribution level consistently above 7% per year, demonstrates [strong] resilience in what has been a difficult time for mortgage fund peers. Impressively, the fund has maintained a relatively low level of arrears and losses. It has also met redemption requests in line with its liquidity structure. This has proven a challenge for a number of La Trobe's peers.”

A copy of full report can be obtained by clicking on the link below:

S&P Fund Rating Report

Best regards,
Chris Andrews

The following award and ratings were given to the Pooled Mortgage Option within the La Trobe Financial Mortgage Fund


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Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Randal Williams
03 8610 2831
Chief Wealth Management Officer
Daryl Hill
0408 566 524
National Relationship Manager
Eren Myers
0409 419 039
Business Development Manager
Terrie Simpson
02 9238 2065
Business Development Manager
Hamish Nott
03 8610 2868
Cheree Cain
03 8610 2810
Jason Gidman
03 8610 2818
Richard Anstey
03 8610 2809
Helmuth Ewinger
03 8610 2833
Investor Liaison
Jo Ni
03 8610 2803
Investor Liaison
Peter Polemikos
03 8610 2834
Investor Liaison
Nadia Chriestian
03 8610 2865
Investor Liaison

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 145 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

Copyright 2012 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer

La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. The PDS is available on our website www.latrobefinancial.com.au or by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you.
* The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund, and may achieve lower than expected returns. Past performance is no guarantee of future performance. Investors risk losing some or all of their principal investment. The investment is not a bank deposit.
- Withdrawal rights are subject to liquidity and may be delayed or suspended.
- The award and ratings were given to the Pooled Mortgages Option within the La Trobe Australian Mortgage Fund.
The rating is only one factor to be taken into account in deciding to invest.
1. Lonsec - "recommended" - indicates it has conviction that the fund or product can achieve its objectives and outperform peers over an appropriate timeframe.
The Lonsec Research Pty Ltd ("Lonsec") ABN 11 151 658 561 rating (assigned June 2012) presented in this document is a "class service" (as defined in the Financial Advisers Act 2008 (NZ)) or is limited to "General Advice" and based solely on consideration of the investment merits of the financial product(s). It is not a recommendation to purchase, sell or hold the relevant product(s), and you should seek independent financial advice before investing in this product(s). The rating is subject to change without notice and Lonsec assumes no obligation to update this document following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria.
2. Zenith's "recommended" rating indicates that it has high confidence in the manager meeting its objectives. The Zenith. Investment Partners ("Zenith") ABN 60 332 047 314 rating referred to in this document is limited to "General Advice" (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product (S), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. To view the relevant research information, please visit www.latrobefinancial.com.au The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective.
3. SQM Research - 4 stars to 4.25 stars - superior, suitable for inclusion on most Approved Product Lists. To view the relevant research information, please visit www.latrobefinancial.com.au This rating will not take into account your, or your clients' objectives, financial situation or needs. It is up to investors to consider whether specific financial products are suitable for your objectives, financial situation or needs. Research houses receive a fee from La Trobe Financial for rating the product.
4. Lipper Leaders Rating Total Return (Score – 5) Lipper Ratings for Total Return reflect funds’ historical return performance relative to peers. The ratings are subject to change every month. The highest 20% of funds in each peer group are named Lipper Leader or a score of 5 for Total Return. Lipper Leader ratings are not intended to predict future results and does not guarantee the accuracy of this information. More information is available at www.lipperweb.com. Thomson Reuters Copyright, All Rights Reserved.