Government Agrees to 365-day net offset payment

The government will move to a 365-day cap when determining the maximum drawdown amount for commissions, instead of the previously announced 90-day cap, the Treasurer Josh Frydenberg has confirmed.

Speaking at the AFG Next 2019 conference in Melbourne on Monday (28 October), the federal Treasurer revealed that the Morrison government had been taking into account industry responses to its recent consultation on the upcoming best interests duty for brokers, and will move away from its previously announced 90-day cap when determining the maximum drawdown amount on which commissions can be paid on home loans.

According to Mr Frydenberg, stakeholder responses argued that the three-month calculation period for the net of offset payments as part of the broking reforms proposed in its National Consumer Credit Protection Amendment (Mortgage Brokers) Bill 2019 "was too short". As a result, this cap will be extended to a full 365 days.

This will "allow brokers to be more fairly remunerated for the funds that they arrange," he told the 900-strong audience at the AFG Next conference.

The Treasurer also revealed that some stakeholders argued for more clarity around how to comply with the best interests duty. He added that it was his view that "a principle-based approach is fundamental to improving consumer outcomes, and it is the interest of mortgage brokers as well".

Speaking at the AFG Next 2019 conference, Mr Frydenberg said: "Of course, the industry should work with ASIC to have a position that complies with this duty and take appropriate feedback, but now is the time for industry to take the lead on how brokers will continue to demonstrate that they act in the best interests of consumers.

"Now is the time for leadership, and I strongly encourage organisations such as the AFG to be working closely with brokers to develop guidance on how they satisfy that duty."

The Treasurer said that the government would also continue to focus on the "better alignment of the interests of consumers and brokers".

Mr Frydenberg said: "Like any other financial service, mortgage broking relies on consumers being prepared to place their trust in (brokers).

"Our collective goal should be to ensure that the introduction of a best interests duty serves as an important signal to consumers that gives them even more confidence to engage with your sector to seek out a mortgage broker to assist them with their borrowing or refinancing needs.

"It is, of course, important that we get the duty right. It should not impose an unreasonable compliance burden nor lead to a simple tick-a-box approach. The duty will need to be applied in the context of responsible lending obligations without further restricting the availability of credit."

He concluded: "Overall, the submissions confirmed that stakeholders generally approved of the policy intent within the draft legislation. However, a number of issues were raised relating to technicalities around the functioning of specific provisions.

"The government has listened carefully and is now taking on board that feedback."

Legislation will be introduced in Parliament later this year and the reforms will come into force from mid-next year.

Mr Frydenberg continued: "(As such), this work should be happening now. We do know that many brokers continue to put their customers first and are already acting in the best interests of their customer, so this should not be seen as a compliance burden for mortgage brokers but, instead, an opportunity to make explicit what best practice for mortgage brokers already is."

Source: The Advisor

MPA Young Guns 2020 entries now open

Back for the ninth year, MPA will once again recognise the best and brightest early-career brokers in its annual Young Guns 2020 report.

To be eligible, nominees must:

  • Be aged 35 or under as of 31 January 2020
  • Have worked as an accredited broker for no more than two years as of 31 January 2020
  • Have written at least $15m in loans over the past 12 months (1 October 2018 - 30 September 2019)
  • Have never previously been named an MPA Young Gun

Winners will be profiled in the January issue of MPA magazine and online. This is a valuable opportunity for brokers in the first few years of their careers to boost their industry profile and build credibility with their clients.

Entries close Friday 22 November

CBA Commission Payments

Commonwealth Bank has announced they are decommissioning the existing process that results in the commission payments for referrals under the 'Connect referral programme' to simplify and streamline the programme.

Key Dates:

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31 October: Last date on which fulfilled referrals will still be eligible for referral commissions.

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23 November: Last connect commissions payment

CBA advise they will only be removing the commission payments and not the referral process itself. The referral programme will remain in place to allow brokers to pass referrals back as per the current process.
The agreement variation to this affect will follow shortly

The ABC of tax depreciation explained for first time property owners

In my last blog, I highlighted a recent survey which showed younger property investors were the most likely group of investors to lose out on tax depreciation benefits associated with owning an investment property.

I thought that it was therefore opportune to explain to anyone considering buying an investment property for the first-time what tax depreciation is and how they can benefit from it.

The fact is that tax deprecation benefits associated with owning an investment property can be very significant, so it is important that property investors claim their full tax deprecation benefits each financial year.

Understanding how you can benefit from tax depreciation is as simple as owning a car.

If you bought a new car, you will understand that every year it depreciates in value. The same principle applies to property. If a property is being used for investment purposes, the Australian Tax Offices allows the investor to claim the decline in value of the building by way of a tax deduction.

The amount that can be deducted depends on the age and value of the building, but it varies between 2.5% to 4% of the capital works value of the building each year.

An investor can claim these tax benefits by using the services of the tax depreciation specialist who prepares a tax depreciation schedule.

A depreciation schedule is a report undertaken by a quantity surveyor company (such as DEPPRO). It generally should be undertaken when the investor buys the property.

A Quantity Surveyor, also known as a Construction Economist, or Cost Manager, is one of a team of professional advisors to the construction industry. As an advisor, they estimate and monitor construction costs, from the feasibility stage of the project through to the completion of the construction period. After construction, they prepare tax depreciation schedules for property tax depreciation purposes.

The quantity surveyor produces a tax depreciation schedule for clients which is a physical snapshot of the property.

For example, DEPPRO sends out a staff member to the client's property and they fill in a report and take pictures of the property to estimate depreciation benefits.

This depreciation report itemises the age of the property, what materials it is built from, the internal fittings such as carpets, window treatments, appliances etc. An estimated value is placed against these various items and they are depreciated depending on their age and value.

The investor gives this report to their accountant and this is used by them to work out how much tax benefits they can obtain each year.

You only need to do one depreciation report for a property, and it can be updated each year by the accountant if the investor for example, installs a new kitchen.

The cost of a depreciation report as prepared by DEPPRO is around $600 and this is tax deductible and covers the lifetime ownership of the investment property.

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